High-spirited Spar has a big year

Graham O’Connor.

Picture: Financial Mail

In the year to the end of September, the food and drug retailer said operating profit had climbed to R2.6bn from R2.3bn in the previous year. Headline earnings per share jumped 22.1% to R10.20 and turnover rose 23.8% to R90.7bn.

CEO Graham O’Connor said Irish-based BWG Group had given "a sterling performance".

The BWG Group, which is Ireland’s largest convenience retailer, increased turnover 36.8% to R23.1bn.

"BWG Group has produced strong results. Brexit did not really have an effect. On the border of Northern Ireland, there was a little bit of strain and the stronger euro hurt us a little bit. But overall, I’m delighted," O’Connor said.

Spar’s results come at a time when the retail sector is under investor scrutiny. While clothing retailers have borne the brunt of investors’ ire after a series of poor results, food retailers have not been unscathed.

Barclays Wealth & Investment Management investment analyst Chris Gilmour said Spar’s results were outstanding.

"This company is more of a distributor so it’s hard to make a valid comparison with other retailers. But the fact that they have ventured into the northern hemisphere and have been successful is a testament to how well management has done.

"However, I am a little concerned about Switzerland; I think it will be a tough nut to crack," Gilmour said.

The South African Spar group acquired 60% of its Swiss sister in April. Spar Switzerland contributed R6.5bn of the group’s revenue and R32.2m operating profit during the reporting period. Spar said the performance of this division during the first period of consolidation was well below plan.

O’Connor said Spar had identified the issues that needed to be tackled in the Swiss operations in order to achieve the expected profitability levels.

"The most important is the managerial control of expenses. We must also change its retail format to convenience. We only hold 2.5% of the market in Switzerland but we intend to change the retail space there,"
he said.

The group’s Southern African operations achieved turnover growth of 9.5% and a 6.2% rise in operating profit. Spar said this was due to higher marketing and information technology costs, contributions to closure costs of the Zimbabwean operation of R19.3m and net debt impairments rising by R15.7m.

Its store network in the region (including franchises) — which, besides its flagship grocery chain, includes Tops liquor outlets and the Build IT hardware chain — was 2,033 on September 30.

Kagiso Asset Management associate portfolio manager Simon Anderssen said Spar had delivered a credible performance in SA and Ireland. "The initial contribution from the Swiss division was disappointing but, looking ahead, management appear confident of an improving performance in this region," Anderssen said.

O’Connor said he expected a bumper Christmas. "I think it will be very competitive as it has been in the last couple of years. But I believe Pick n Pay, Shoprite and ourselves will do well."

Spar declared a final cash dividend of 410c per share, bringing the total gross dividend for the year to 665c.

Its share price closed 3.94% higher at R182 on Thursday. Spar is valued at about R33.7bn.