Woolworths missed boat on David Jones
In hindsight it looks as though Woolworths paid a hefty price for David Jones just as a tsunami of change was about to hit global retail markets.
Sadly for Woolworths’ shareholders, in the years leading up to the 2014 acquisition, few had any appreciation of just how much change was coming their way. This meant there would have been no chance of getting the Australian retail group at a knockdown bargain price.
Even when Woolworths went after the minority stake in Country Road a short while later, it was forced to pay a premium price by shareholder activist Lew Solomon.
Excitement about diversifying earnings outside SA resulted in the share price moving above R100 after the deal, peaking at R104 in November 2015. From there, it has drifted steadily back to R64, where it was before the David Jones acquisition.
Analysts seem unperturbed by events of the past 12 or so months and appear confident the group is in the right hands.
“They’re doing as well as can be expected,” said one analyst, who is forecasting 7% earnings growth for financial 2018. That growth will come from efficiencies rather than sales, which are expected to remain subdued.
Food is the exception, with strong growth forecast not just in SA, but also in Australia where David Jones is making inroads into the high-end food market.
In the light of Shoprite’s recent results, Woolworths will know not to take its position for granted. Shoprite’s excellent figures for the same 12 months to June showed its Checkers chain had made inroads into Woolworths’ dominant position in the top end of the market. Perhaps, even more change lies ahead.
The figures of illegal mined chrome flowing out of SA are astonishing, but reports suggest that they have slowed to a trickle from the million-tonne peak of 2016.
Chrome and platinum miner Tharisa CEO Phoevos Pouroulis says the volume of illegally mined chrome ore sent abroad started accelerating two years ago and peaked in 2016, before the police and Department of Mineral Resources stepped in to curtail it.
Consider that SA, as the world’s leading source of chrome ore, produced 7.75million tonnes in 2016. The million tonnes that is not in this figure is large, more than Turkey’s output, the next biggest source of chrome ore after SA. Turkey produced 825,000 tonnes in 2016, from a million tonnes in 2015. China imports 10-million to 11-million tonnes a year.
As Pouroulis says, these illegal flows had a “significant impact” on the market. China is the main buyer of SA’s chrome ore, with ferrochrome producers there turning it into the stainless steel ingredient. The market is best described as volatile.
These numbers cut to the heart of the debate about illegal miners. There are calls to decriminalise them, but the question remains about the effect on the market of minerals mined cheaply, but far more dangerously than in the tightly regulated formal sector.
When big volumes of material such as chrome ore can leave the country without being regulated, it is clear that someone has made a lot of money, particularly in 2016 when prices peaked. It feeds into criminal syndicates and creates lawlessness on many levels of a society already beset by social ills, the most pressing of which are unemployment and poverty.