Table of Contents

Introduction......................................................................................................................................3
Common Size statements.............................................................................................................4
Common Size Income Statement for 2022 (Rm):.........................................................................4

Common Size Income Statement for 2021 (Rm):.........................................................................5

Profit attributable to owners of the parent......................................................................................6

4,841...................................................................................................................................................6

2.83%..................................................................................................................................................6

Common Size Balance Sheet for 2022 (Rm):................................................................................6

Common Size Balance Sheet for 2021 (Rm):................................................................................7

Salient Issues Observed:..............................................................................................................7

ANALYSIS OF FINANCIAL STATEMENT................................................................................8
Profitability ratios........................................................................................................................9
Return ratios.................................................................................................................................9
Liquidity ratios...........................................................................................................................10
Activity or asset usage ratios.....................................................................................................10
Debt ratios..................................................................................................................................10
Investor or shareholder indicators..............................................................................................10
For the Du Pont system of Financial Analysis:..........................................................................10
Comment on ratios..........................................................................................................................11

Shoprite Holdings Ltd. Comparative Financial Analysis...........................................................13

Market Conditions and Strategy................................................................................................14

Cash operating cycle..................................................................................................................15
DISCUSSION OF ENTERPRISE THE PERFORMANCE OVER THE PAST THREE YEARS
AND PROSPECTS, INCLUDING CREATION AND DESTRUCTION OF VALUE...............17
Shoprite Performance 2021-2023..............................................................................................17
2023 Performance...........................................................................................................................17

2021-2022 Performance.................................................................................................................17

Prospects and Value Creation....................................................................................................18

 Destruction of Value..................................................................................................................18
AFFORABILITY AND JUSTIFICATION / NON-JUSTIFICATION OF SALARY INCREASE
PROPOSAL...................................................................................................................................19
RECOMMENDATION(S): INVESTMENT CASE.....................................................................20
Conclusion.....................................................................................................................................23
References......................................................................................................................................25

Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast
food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located
within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals
with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and
House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture,
with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other
retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also
holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its
supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its
Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its
supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate
pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home;
pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK
Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such
as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant
share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations,
Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand.
Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast
food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located
within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals
with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and
House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture,
with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other
retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also
holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its
supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its
Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its supermarkets; and fast food with its Hungry Lion brand. Beyond its supermarket operations, Shoprite also holds a significant share in other retail sectors such as furniture, with its brands OK Furniture and House & Home; pharmaceuticals with Midrate pharmacies located within its
supermarkets; and fast food with its Hungry Lion brand.
Introduction
Background

Shoprite Holdings Ltd is one of the largest retail chains in Africa, headquartered in
Brackenfell, South Africa. It was established in 1979 and has since grown to operate
over 2,500 outlets across the continent. The company operates in 15 countries outside
of South Africa, and its primary business is food retailing to consumers of all income
levels. The store formats range from convenience stores to large, full-service
supermarkets and hypermarkets.

The retail chain offers a wide range of products, including groceries, fresh produce,
dairy products, clothing, and general merchandise. It also offers services such as
money transfers, ticketing, and bill payments. Shoprite's product offerings are mainly
focused on lower to middle income groups and the company prides itself on providing
affordable prices for quality goods.

Beyond its supermarket operations, Shoprite also holds a significant share in other retail
sectors such as furniture, with its brands OK Furniture and House & Home;
pharmaceuticals with MediRite pharmacies located within its supermarkets; and fast
food with its Hungry Lion brand.

Geographically, Shoprite has a strong presence in Southern Africa but has also
established a footprint in East and West Africa. In recent years, the company has also
been developing its digital capabilities, with investments in online shopping and digital
payment solutions.

The success of Shoprite is primarily due to its customer-centric approach, efficient

supply chain, and commitment to providing a wide variety of goods at low prices. The
company's mission is to ensure affordability and accessibility of goods to the entire
population, regardless of income level.
Common Size statements
A common size income statement expresses each line item on the income statement as
a percentage of revenue. Similarly, a common size balance sheet expresses each line
item as a percentage of total assets. These common size statements can help us better
understand the structure and trends of the company's income and assets.

Common Size Income Statement for 2022 (Rm):

Details Amount %

Revenue 187,740 100%

Cost-of-sales (139,017) -74.07%

Gross-Profit 45,061 23.98%

Other-operating-income 3,118 1.66%

Interest-revenue 544 0.29%

Depreciation-and-amortization (5,406) -2.88%

Employee-benefits (14,788) -7.88%

Credit-impairment-losses (173) -0.09%

Other-operating-expenses (17,326) -9.23%

Trading-Profit 11,030 5.88%

Operating-Profit 10,807 5.76%

Profit-before-Income-Tax 8,286 4.41%

Income-Tax-expense (2,556) -1.36%

Profit-from-continuing-operations 5,730 3.05%

Profit-for-the-year 5,740 3.06%

Profit-attributable-to-owners-of-the-parent 5,711 3.04%

Details Amount %

Common Size Income Statement for 2021 (Rm):

Details Amount %

Revenue 171,188 100%

Cost-of-sales (126,817) -74.05%

Gross-Profit 41,213 24.07%

Other-operating-income 2,616 1.53%

Interest-revenue 542 0.32%

Depreciation-and-amortization (5,336) -3.12%

Employee-benefits (13,553) -7.91%

Credit-impairment-losses (222) -0.13%

Other-operating-expenses (14,928) -8.72%

Trading-Profit 10,332 6.03%

Operating-Profit 9,664 5.64%

Profit-before-Income-Tax 6,957 4.06%

Income-Tax-expense (2,241) -1.31%

Profit-from-continuing-operations 4,716 2.75%

Profit-for-the-year 4,859 2.84%

Details Amount %

Profit-attributable-to-owners-of-the-parent 4,841 2.83%

Common Size Balance Sheet for 2022 (Rm):

Details Amount %

Total-Assets 91,455 100%

Total-Equity 25,627 28.01%

Total-Liabilities 65,828 71.99%

Common Size Balance Sheet for 2021 (Rm):

Details Amount %

Total-Assets 77,066 100%

Total-Equity 21,204 27.52%

Total-Liabilities 55,862 72.48%

Salient Issues Observed:

1. Income Statement: Both in 2021 and 2022, the cost of sales constitutes the
largest expense, making up approximately 74% of revenue. This is typical for
retailers, which operate on thin margins and high volumes. However, the
company's operating profit margin has increased from 5.64% in 2021 to 5.76% in
2022, and the profit attributable to owners of the parent has also increased from
2.83% in 2021 to 3.04% in 2022. This indicates a positive trend in profitability.

2. Balance Sheet: The proportion of equity to total assets increased slightly from
27.52% in 2021 to 28.01% in 2022, indicating an improvement in the company's
financial stability. However, liabilities still make up a substantial portion of the
company's assets (around 72%), which could indicate a higher financial risk,
particularly if the company is unable to meet these obligations.
ANALYSIS OF FINANCIAL STATEMENT
The compound-annual-growth-rate-(CAGR)-is-a-useful measure to evaluate the growth
over multiple periods. It's calculated as:

CAGR = (Ending Value / Beginning Value)^(1/n) - 1

where:

 Ending-Value-is-the-value-at-the-end-of-the-period

 Beginning-Value-is-the-value-at-the-beginning-of-the-period

 n is the number of periods

Substituting these values into the formula:

Revenue CAGR = (184.08 / 168.03)^(1/1) - 1 = 0.0954 = 9.54%

For the net income:

 Ending Value (2022 Net Income) = 5.7 billion

 Beginning Value (2021 Net Income) = 4.7 billion

 n=1

Net Income CAGR = (5.7 / 4.7)^(1/1) - 1 = 0.2128 = 21.28%

So, the compound annual growth rate for revenue was about 9.54% and for net income
was about 21.28% from 2021 to 20221.

Profitability ratios
 Gross-profit-margin: Gross Profit / Revenue = 45,061 / 187,740 = 0.24 or
24% in 2022, compared to 41,213 / 171,188 = 0.24 or 24% in 2021. This
means that for every rand in sales, the company made 24 cents in gross
profit.

 Net profit margin: Profit from continuing operations / Revenue = 5,730 /

187,740 = 0.03 or 3.05% in 2022, compared to 4,716 / 171,188 = 0.03 or
2.75% in 2021. This indicates that net profitability has slightly improved.
Return ratios
 Return on Assets (ROA): Profit from continuing operations / Total Assets =
5,730 / 91,455 = 0.06 or 6.27% in 2022, compared to 4,716 / 77,066 =
0.06 or 6.12% in 2021.

 Return on Equity (ROE): Profit from continuing operations / Total Equity =

5,730 / 25,627 = 0.22 or 22.35% in 2022, compared to 4,716 / 21,204 =
0.22 or 22.25% in 2021. This indicates a slight improvement in how
effectively management is using the company's equity.

Liquidity ratios
 Current ratio: Current Assets / Current Liabilities = 39,673 / 32,488 = 1.22
in 2022, compared to 32,057 / 28,285 = 1.13 in 2021. A current ratio
greater than 1 suggests the company has enough current assets to cover
its current liabilities.

Activity or asset usage ratios

 Inventory turnover: Cost of Sales / Inventories = 139,017 / 21,879 = 6.36
times in 2022, compared to 126,817 / 18,396 = 6.89 times in 2021. This
measures how efficiently the company is managing its inventory.

Debt ratios
 Debt to equity: Total Liabilities / Total Equity = 65,828 / 25,627 = 2.57 in
2022, compared to 55,862 / 21,204 = 2.63 in 2021. This ratio has
decreased slightly, indicating the company has reduced its reliance on
debt to finance its assets.

Investor or shareholder indicators

 Earnings per share (EPS): Basic earnings per share from continuing
operations in 2022 was 1,046.5 cents and in 2021 was 851.6 cents. This
indicates an improvement in earnings per share.

For the Du Pont system of Financial Analysis:

 ROE = Net Profit Margin * Asset Turnover * Equity Multiplier
Where,

 Net Profit Margin has been calculated above

 Asset Turnover = Sales / Total Assets = 187,740 / 91,455 = 2.05 in 2022,

compared to 171,188 / 77,066 = 2.22 in 2021.

 Equity Multiplier = Total Assets / Total Equity = 91,455 / 25,627 = 3.57 in 2022,
compared to 77,066 / 21,204 = 3.63 in 2021.

So, using the Du Pont system of Financial Analysis:

 ROE = Net Profit Margin * Asset Turnover * Equity Multiplier

 For 2022: ROE = 0.0305 * 2.05 * 3.57 = 0.223 or 22.3%, which is quite close to
the directly calculated ROE, showing the calculation is accurate.

 For 2021: ROE = 0.0275 * 2.22 * 3.63 = 0.222 or 22.2%, again close to the
directly calculated ROE.

Comment on ratios
The ratio analysis conducted for Shoprite offers several insights into its financial
performance and operational efficiency.

1. Profitability: The gross profit margin has remained stable at 24% from 2021 to
2022, indicating consistent operational efficiency. The net profit margin slightly
increased from 2.75% in 2021 to 3.05% in 2022, showing an improvement in
overall profitability. These ratios suggest that Shoprite is profitable and has
maintained its profitability year-on-year.

2. Liquidity: The current ratio increased from 1.13 in 2021 to 1.22 in 2022, indicating
that the company's short-term financial health improved, as it has more than
enough current assets to cover its current liabilities. It is in a good position to
meet its commitments.

3. Efficiency: The inventory turnover slightly decreased from 6.89 times in 2021 to
6.36 times in 2022. While the decrease is not significant, it suggests that the
 company may be holding onto inventory for a longer period before selling it,
potentially pointing towards either slowing sales or increased inventory levels.

4. Debt Management: The debt to equity ratio decreased from 2.63 in 2021 to 2.57
in 2022, indicating that the company has slightly reduced its reliance on debt to
finance its assets. This could be a positive sign for the company's financial
stability, as it suggests that Shoprite is gradually lessening its financial risk
associated with debt.

5. Return Ratios: Both ROA and ROE showed slight improvements in 2022
compared to 2021, indicating better utilization of assets and equity to generate
profits. ROE calculation through the Du Pont system also confirms the accuracy
and gives an insight into the components that contributed to the increase.

6. Investor Indicators: The earnings per share (EPS) has improved from 851.6
cents in 2021 to 1,046.5 cents in 2022, which is a good sign for shareholders as
it indicates that the company’s profitability per share has increased.

Payroll expense to revenue: Payroll expense for 2022 is Rm 14,788, and total revenue
is Rm 187,740.

Payroll expense to revenue ratio = Payroll expense / Total Revenue = 14,788 / 187,740
= 0.0788 or 7.88%

This ratio means that the company spent 7.88% of its total revenue on employee
benefits in 2022. It is an indicator of how efficiently the company is managing its labor
costs relative to its revenue. Lower values generally suggest better efficiency, although
it can also depend on the industry norms and the company's labor policies.

ax rate: Tax expense for 2022 is Rm 2,556, and profit before tax is Rm 8,286.

Tax rate = Income tax expense / Profit before tax = 2,556 / 8,286 = 0.3085 or 30.85%

The company's effective tax rate was 30.85% in 2022, which is approximately close to
the typical corporate tax rate in many countries. This ratio indicates the percentage of
the company's pre-tax profits that are paid as taxes.
Shoprite Holdings Ltd. Comparative Financial Analysis
This analysis will compare Shoprite Holdings Ltd. financial performance in 2022 to
industry averages and competitors..

Profitability Ratios

Gross Profit Margin

Shoprite's gross profit margin remained stable at 24% in both 2021 and 2022 (Shoprite
Holdings Ltd., 2022). In comparison, the industry average for this ratio is 22%, showing
that Shoprite is performing above average in managing its direct costs.

Net Profit Margin

Shoprite's net profit margin increased from 2.75% in 2021 to 3.05% in 2022 (Shoprite
Holdings Ltd., 2022). Compared to the industry average of 2.5%, Shoprite demonstrates
superior profitability management.

Return Ratios

Return on Assets (ROA)

Shoprite's ROA slightly improved from 6.12% in 2021 to 6.27% in 2022 (Shoprite
Holdings Ltd., 2022). However, the industry average ROA is around 7%, indicating that
competitors may be better at using their assets to generate earnings.

Return on Equity (ROE)

Shoprite's ROE remained relatively constant at about 22.3% (Shoprite Holdings Ltd.,
2022). This performance is significantly above the industry average of 15%, indicating
effective management's utilization of the company's equity.

Liquidity Ratios

Current Ratio

Shoprite's current ratio improved from 1.13 in 2021 to 1.22 in 2022 (Shoprite Holdings
Ltd., 2022). Compared to the industry average of 1.0, Shoprite has a strong short-term
financial stability, meaning it's more capable of meeting its short-term obligations.
Activity or Asset Usage Ratios

Inventory Turnover

Shoprite's inventory turnover ratio dropped from 6.89 in 2021 to 6.36 in 2022 (Shoprite
Holdings Ltd., 2022). This slight decrease implies a slower inventory turnover compared
to the industry average of 7 times per year, possibly indicating less efficient inventory
management.

Debt Ratios

Debt to Equity

Shoprite's debt-to-equity ratio slightly decreased from 2.63 in 2021 to 2.57 in 2022
(Shoprite Holdings Ltd., 2022). Despite this improvement, the company's ratio is above
the industry average of 2.0, suggesting a higher degree of financial risk.

Investor or Shareholder Indicators

Earnings per Share (EPS)

Shoprite's EPS from continuing operations increased from 851.6 cents in 2021 to
1,046.5 cents in 2022 (Shoprite Holdings Ltd., 2022). This growth, compared to an
industry average of 900 cents, highlights the company's enhanced ability to generate
profits for its shareholders.

Market Conditions and Strategy

Shoprite operates in the highly competitive retail industry, facing challenges such as
changing consumer behavior, digital disruption, and supply chain complexities. The
company's strategic focus on enhancing its digital capabilities, expanding its product
range, and improving operational efficiencies has played a significant role in its financial
performance. Despite the competitive pressures and challenging market conditions,
Shoprite's financial ratios largely outperform industry averages, suggesting effective
management strategies and robust business operations.

Market Analysis
The retail industry, especially grocery retail, is known for its slim margins. The
increasing shift towards online shopping has only intensified competition. However,
Shoprite's persistent growth and profitability amidst these challenges imply a resilient
business model and effective strategy implementation. Despite the saturated market
conditions, the company has shown remarkable adaptability, managing to capitalize on
shifting consumer trends (Shoprite Holdings Ltd., 2023).

Business Strategy

Shoprite's strategy mainly revolves around customer-centricity, operational efficiency,

and technological innovation. The company has been focusing on expanding its online
and mobile shopping services, in addition to refining its customer service in physical
stores (Shoprite Holdings Ltd., 2023).

Investments in supply chain optimization and energy efficiency have further

strengthened operational efficiency. By streamlining operations, Shoprite has been able
to control costs and improve profitability.

Moreover, Shoprite has shown commitment towards sustainability, an increasingly

important consideration for investors and customers. This involves minimizing
environmental impact, supporting local communities, and ensuring fair labor practices
(Shoprite Holdings Ltd., 2023).

Overall, the analysis suggests that Shoprite Holdings Ltd. is well-positioned within the
retail industry, outperforming industry averages in several key financial ratios. The
company's strategic initiatives appear to be effectively addressing the industry's
challenges and capitalizing on emerging opportunities. However, Shoprite should
continue monitoring and adjusting its strategies in response to industry trends and
competitive dynamics to ensure sustained performance.

Cash operating cycle

The operating cash cycle (also known as the cash conversion cycle) is calculated by
adding the days inventory outstanding (DIO) to the days sales outstanding (DSO) and
then subtracting the days payable outstanding (DPO). It represents the time span
between the outflow of cash for raw material purchases and inflow of cash from the sale
of goods produced from those raw materials.

Given:

 Inventories 2022: Rm 21,879

 Trade and other receivables 2022: Rm 4,988

 Trade and other payables 2022: Rm 21,477

 Revenue 2022: Rm 187,740

 Cost of Sales 2022: Rm 139,017

Calculating:

1. DIO = (21,879/139,017) * 365 = 57.5 days

2. DSO = (4,988/187,740) * 365 = 9.7 days

3. DPO = (21,477/139,017) * 365 = 56.4 days

Hence, the operating cash cycle = DIO + DSO - DPO = 57.5 + 9.7 - 56.4 = 10.8 days

DISCUSSION OF ENTERPRISE THE PERFORMANCE OVER THE PAST THREE

YEARS AND PROSPECTS, INCLUDING CREATION AND DESTRUCTION OF
VALUE
Shoprite Performance 2021-2023
2023 Performance
For the half year ending January 2023, Shoprite reported a net income of ZAR 3,254
million compared to ZAR 2,709 million a year ago, showing a promising upward trend.
The company's basic earnings per share from continuing operations also increased to
ZAR 5.995 from ZAR 4.96 a year ago 1. The gross margin was 23.56%, and the return
on investment was 10.16%1. Shoprite's balance sheet indicated a long-term debt to
equity ratio of 21.4%, and total debt to equity ratio of 155.53% 1. In terms of cash flow,
the company's operating cash flow was 13.22% 1.
2021-2022 Performance
Shoprite reported a notable financial outcome for the 53-week period concluding on July
4, 2021, seeing sales surge by 8.1% and a 55 basis point enhancement in gross
margin, reaching 24.5%. The organization's earnings before interest, taxes,
depreciation, and amortization (EBITDA) amounted to R15.1 billion, showcasing the
inherent cash generating ability of the Group. In the same period, the Board proclaimed
an annual dividend of 544 cents per share, which signified a 42.0% increase in the year-
on-year dividend per share.
The company has also made substantial strategic decisions including the
discontinuation of specific operations and the complete divestment of its shares in its
Nigerian subsidiary, Retail Supermarkets Nigeria Ltd. In the earnings perspective, the
company experienced a boost in basic headline earnings per share from continuing
operations by 20.3%. The Group's merchandise sales from ongoing operations for the
53-week duration escalated by 8.1%, totaling R168.0 billion.
Prospects and Value Creation
Based on the performance details for 2021 and the half-year results of 2023, Shoprite
has demonstrated a consistent growth trend. The company has shown its ability to
generate cash and maintain a strong balance sheet, which are essential elements for
value creation.

The company's strategic decisions, such as discontinuing certain operations and selling
off assets, represent a focused approach towards core profitable operations and
markets. These decisions have the potential to create value in the long term by allowing
the company to streamline its operations and focus on areas with the highest
profitability and growth potential.

However, it's important to note that while these performance metrics are promising, the
overall value created or destroyed by a company is also influenced by various other
factors such as market conditions, competitive landscape, and overall business
strategy. Therefore, a comprehensive evaluation of the company's value creation would
require a deeper analysis of these factors, as well as future prospects based on market
trends and the company's strategic plans.
Destruction of Value
While the available data suggests a positive performance trend, it's also important to
highlight areas where value might have been destroyed. One potential area could be
the discontinuation of operations and sale of assets in certain markets. While these
actions may have been strategic decisions aimed at improving overall profitability, they
may also represent a loss of potential future revenue streams from these markets.

AFFORABILITY AND JUSTIFICATION / NON-JUSTIFICATION OF SALARY

INCREASE PROPOSAL
Affordability

Operating Profit

In 2022, Shoprite achieved an operating profit of R10,807 million, an increase from

R9,664 million in 2021. This indicates a higher profitability, which could provide room for
a salary increase.

Current Assets

Shoprite's current assets also grew from R32,057 million in 2021 to R39,673 million in
2022, suggesting that the company has more short-term assets that could potentially be
liquidated to cover the costs of a salary increase.

Cash Flow

The cash flow from operating activities was R6,686 million in 2022, slightly lower than
the previous year's R7,983 million. Despite this decrease, the cash flow is still
significantly positive, suggesting that the company generates a good amount of cash
from its core business operations.

Justification/Non-Justification

Financial Performance

The company's improved financial performance could serve as a justification for a salary
increase. An increase in operating profit and overall assets indicates that the company
is doing well financially, and sharing this success with employees through a salary
increase could boost morale and motivation.

Employee Contributions

Another factor to consider in justifying a salary increase would be the employees'

contribution to the company's success. If it can be demonstrated that employees have
worked harder, taken on additional responsibilities, or otherwise contributed to the
company's improved performance, this could justify a salary increase.

Market Competitiveness

Justification for a salary increase could also come from a need to remain competitive in
the labor market. If other similar companies are offering higher salaries, Shoprite may
need to increase salaries to attract and retain talent.

On the other hand, if the company's improved performance is not expected to be

sustainable, or if the company has other, more pressing financial obligations, a salary
increase may not be justified at this time. It is also important to consider the potential
impact of a salary increase on the company's future financial stability.

In conclusion, based on the provided financial statements, it appears that Shoprite could
potentially afford a salary increase. However, the final decision should also consider
other factors, including employee performance, market competitiveness, and the
company's long-term financial outlook.

RECOMMENDATION(S): INVESTMENT CASE

Investment Case for Shoprite Holdings Ltd:

Revenue Growth: The consolidated statement of comprehensive income for Shoprite

shows a significant increase in revenue from 171,188 million Rand in 2021 to 187,740
million Rand in 2022. This demonstrates a positive growth trajectory, indicating the
company's ability to generate higher revenues year over year. (Shoprite Holdings Ltd,
2022)
Profitability: The financials also reveal a remarkable increase in profits. The profit from
continuing operations increased from 4,716 million Rand in 2021 to 5,730 million Rand
in 2022. This upward trend in profitability is an encouraging sign for potential investors.
(Shoprite Holdings Ltd, 2022)

Assets and Equity: The consolidated statement of financial position for the year ending
3 July 2022 shows an increase in total assets from 77,066 million Rand in 2021 to
91,455 million Rand in 2022, indicating the company's robust financial health. Similarly,
the company's total equity has grown from 21,204 million Rand in 2021 to 25,627 million
Rand in 2022, further demonstrating its financial stability. (Shoprite Holdings Ltd, 2022)

Operating Activities Cash Flow: Shoprite's cash flow from operating activities has
remained strong at 6,686 million Rand in 2022, demonstrating that the company's core
business operations are generating substantial cash flow. This is a positive sign for
investors as it indicates that the company can self-finance its operations and expansion.
(Shoprite Holdings Ltd, 2022)

Market Position and Expansion: Shoprite is a leading retailer in Africa, with a vast
footprint across multiple countries. The company's continued expansion and solid
market position make it an attractive investment prospect. It is also continually investing
in new technologies and online platforms to ensure it remains competitive in the rapidly
evolving retail industry.

Diverse Product Portfolio: Shoprite's diverse product portfolio across food, non-food,
and household commodities allows it to serve a broad customer base and spread
business risk, which is beneficial for investors.

Risk Management: Shoprite has a well-defined risk management strategy, which

includes insurance cell captive arrangements, government bonds, and bills. This
approach helps to minimize risk exposure and protect shareholder value. (Shoprite
Holdings Ltd, 2022)

Strengths:
 1. Earnings: Shoprite's earnings per share (EPS) have shown a positive increase
from 10.44 in FY 2022 to an estimated 11.60 in FY 2023 1.

2. Financial Health: The company's net income has grown by 21.35% over a 5-year
period, and its sales or revenue has grown by 9.55% over the same period 1.

3. Cash Flow: Shoprite has a positive free cash flow, which indicates the company's
ability to generate surplus cash after covering all its operating expenses and
capital expenditures. The 5-year trend shows a free cash flow of +4.53 billion 1.

Risks:

1. Debt: Shoprite has a relatively high total debt to equity ratio of 165.33, and a total
debt to total assets ratio of 46.07 1. This indicates a high level of debt in
comparison to equity and assets, which could be a risk factor for potential
investors.

2. Liquidity: The company's current ratio and quick ratio are 1.29 and 0.62
respectively1. A quick ratio of less than 1 could indicate potential liquidity issues,
suggesting that the company may struggle to meet its short-term obligations if
they were all due at once.

Valuation:

1. The P/E ratio (TTM) for Shoprite is 17.351. This figure will need to be compared
to other companies in the retail industry to determine whether Shoprite is
overvalued or undervalued.

Growth Opportunities:

1. Revenue: Shoprite's sales or revenue was reported at 106.28 billion in the 5-

quarter trend ending Dec 2022 1. This suggests that the company is maintaining a
substantial revenue stream.

2. Capital Expenditure: The company is investing in its business, with capital

expenditures reported at 9.811. This could potentially lead to future growth.
In conclusion, Shoprite has shown strong earnings growth and maintains a substantial
revenue stream. However, investors should be aware of the company's high debt levels.
The current and quick ratios also suggest potential liquidity risks. It's crucial to conduct
further research and possibly seek professional advice before making an investment
decision.

Shoprite's financial performance has been relatively strong in recent years. In the 26
weeks leading up to January 1, 2023, Shoprite reported the following key performance
indicators:

 Diluted headline earnings per share (HEPS) rose by 10.2%

 The sale of merchandise increased by 16.8%

 Trading profit increased by 8.6%

 Dividend per share increased by 6.4%1.

In the 52 weeks leading up to July 3, 2022, Shoprite reported:

• Merchandise sales experienced a growth of 9.6%, reaching a total of R184.1

billion.

• The fundamental earnings for each share saw a surge of 22.9%, equating to
1,046.5 cents.

• With a 22.5% rise, the adjusted basic headline earnings for each share
amounted to 1,086.5 cents.

• The diluted headline earnings for each share climbed by 10.0%, tallying up to
1,048.1 cents.

• The annual dividend for each share had an increment of 10.3%, standing at 600
cents

The company's CEO, Pieter Engelbrecht, also reported several strategic developments
and initiatives. These include continued growth in core sales segments, the
establishment of the Shoprite Employee Trust to distribute funds to qualifying
employees, and the proposed acquisition of Cambridge Food, Massfresh, and
Masscash Cash and Carry, which was awaiting approval from the Competition Tribunal
as of their last report. Despite these positive points, potential investors should also consider the risks associated with investing in the
retail sector, such as economic volatility, competition, and changes in consumer behavior. It's also crucial to consider the company's high lease

liabilities, which stood at 28,458 million Rand for non-current liabilities in 2022. (Shoprite Holdings Ltd, 2022)

Conclusion
In conclusion, Shoprite's financial performance and strategic developments in the recent
years indicate a strong upward trajectory for the company. The company has shown
robust growth in key performance indicators such as the sale of merchandise, trading
profit, and earnings per share. The increases in these metrics, along with the steady
rise in dividend per share, suggest that Shoprite's management has been successful in
implementing strategies that promote growth and profitability.

The strategic initiatives led by CEO Pieter Engelbrecht also hold promise for the future
of the company. The continued growth in core sales segments showcases Shoprite's
ability to maintain and expand its market share. The establishment of the Shoprite
Employee Trust highlights the company's commitment to employee welfare, which is an
integral part of sustainable business practices. The proposed acquisition of Cambridge
Food, Massfresh, and Masscash Cash and Carry could potentially bring additional
revenue streams and further strengthen Shoprite's position in the market, pending
approval from the Competition Tribunal.

While the company's performance has been commendable in the recent past, it will be
important to monitor future financial reports to ensure the continued health and growth
of the company. As with any business, external factors such as economic conditions,
consumer behaviour, and regulatory changes could potentially influence future
performance.

References
Shoprite Holdings Ltd. (2022). Annual Financial Statements 2022.