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Cape Town - The Spar Group [JSE:SPP] announced on Wednesday that it achieved positive growth for the six months to March 31 2017, largely supported by the recent diversification of its operations into international markets (it has operations in Ireland and Switzerland).
Spar Southern Africa defended its market position with continued growth in turnover and stable gross margins, despite a challenging trading environment characterised by heightened competition and constrained consumer spending.
The store network grew to 2 069 stores with new stores opened across all brands, and the group completed 89 store upgrades.
Turnover of the group rose 12.6% to R47.4bn (2016: R42.1bn), with 31.4% of total turnover generated in foreign currency. The southern African business, with reported turnover growth of 4.9%, was impacted by tough trading conditions which are being aggravated by the uncertain economic and political landscape, the Sens stated.
The group's gross margin increased to 9.6% (2016: 8.7%) with Spar Southern Africa maintaining its gross margin at 8.1%, despite the competitive market.
Group operating expenses rose 54.5%, mainly due to the inclusion of the SPAR Switzerland which came to effect on April 1, 2016. By excluding SPAR Switzerland, operating expenses effectively increased 8.3%. In southern Africa operating expenses were up 12.9% due to increased costs associated with the defensive purchase of corporate stores which contributed 3.1%.
Profit before tax was up 7.8% to R1.2bn (2016: R1.1bn), as a result of net interest income of R2.5m compared to net interest expense of R44.2m a year ago.
Profit after tax improved 10.0% to R908.0m (2016: R825.4m), due to lower effective tax rates in Ireland and Switzerland.
Slight drop in Heps
Headline earnings per share declined marginally by 0.9% to 475.5 cents (2016: 480.0c), fundamentally due to the higher weighted average number of shares of 192.5 million shares (2016: 173.1 million shares) as a result of the issue of shares in April 2016 to part fund the foreign acquisitions, as well as settling the BBBEE share schemes in August 2016.
The board approved an interim dividend of 240c.
The group's capex during the period included operational investments of R213.3m in southern Africa. This comprised expenditures totalling R95.6m to expand the perishables facilities at the North Rand and Western Cape Distribution Centres. In addition, the group invested in IT infrastructure upgrades and software development.
Further investments of R111.1m were made to acquire six corporate stores, defending strategic retail locations in South Africa.
The capital expenditure budget in southern Africa for the next six months is about R500.0m and includes land purchases for future expansion at the KwaZulu-Natal distribution centre and for the construction of a future distribution centre west of Johannesburg.
SA turnover reflects tough environment
The turnover of Spar Southern Africa increased 4.9% to R32.5bn (2016: R31.0bn) reflecting a weak retail market. Continued growth in liquor sales, albeit at a slower pace than in prior periods, positively supported this performance, whereas depressed building material sales had a converse effect.
Combined food and liquor wholesale turnover growth was recorded at 5.4%, compared to internally calculated food inflation of 8.2%.
The retail turnover of Spar stores, reflecting the tough market conditions, increased 4.5% to R38.5bn (2016: R36.8bn) and recorded organic like-for-like growth of 3.8%. Combined food and liquor retail sales, which allow for a better industry comparison, increased by 5.0%.
The retail turnover of Tops at Spar increased 9.1% to R5.2bn (2016: R4.7 bn), as growth was impacted by competitors' aggressive entry into the liquor market. Same store growth amounted to 5.6% for the period. Wholesale turnover closely followed the retail performance and grew 8.9% to R3.0bn (2016: R2.7bn). During the period, the Tops at Spar store network increased by 14 stores on a net basis to 705 stores while 13 stores were revamped.
Constrained consumer spending had a significant sector-wide impact on demand for building materials with Build it's retail turnover growth slowing to 3.6% for the period, slightly higher than building sector inflation of 3.3%.
On the JSE Spar shares were trading 2.84% down at R178.78 at 10:31.
