Spar can toast alcohol sales
• The group’s liquor division outperforms growth in the general retail division while overall results disappoint
Despite difficult economic conditions, South Africans continued spending money on alcohol, lifting The Spar Group’s results, with its liquor division outperforming growth in the general retail division.
Despite difficult economic conditions, South Africans continued spending money on alcohol, lifting The Spar Group’s results, with its liquor division outperforming growth in the general retail division.
On Wednesday, the group reported its liquor division, Spar Tops, which makes up about 10% of the wholesale business, recorded double-digit growth.
Portfolio manager at 36One Asset Management, Evan Walker, said that while the group’s results were disappointing, the liquor division had done well to strategically capture its share of the market through its model of convenience.
“Tops have been accessible to consumers,” he said.
“Tops’s stores have taken a huge market share from independent operators, who have struggled under the tight financial environment.”
However, portfolio manager at Gryphon Asset Management Casparus Treurnicht said if the liquor division was stripped out, Spar underperformed rivals Pick n Pay and Shoprite by a substantial margin.
The Spar Group’s overall revenue grew 5.4%, to R97bn.
CEO Graham O’Connor said a significant slowdown in sales had exposed the group to cost pressures and resulted in net margin contraction.
Its Southern African stores grew revenue by 4.6% to R65bn, contributing 67% of the group’s total revenue.
Continued rand strength against the euro substantially eroded the European results on final consolidation.
In Ireland, turnover grew 1.5% to €1.4bn. But when measured in rand, its Irish stores suffered an 11% decline in turnover to R21bn, contributing 21% of the group’s total.
While it experienced strong performances in Ireland, the group’s Swiss acquisition underperformed expectations. Turnover from its Swiss stores rose 72% to R11.2bn and pre-tax profit rose 4% to R92m. But chief financial officer Mark Godfrey said hard work had gone into turning around the business in that country, with the company changing strategy so more stores would be run by independent franchisers instead of being in corporate hands.
The group plans to launch another store in Sri Lanka in March 2018, where there is only a 5% unemployment rate. “The territory presents opportunity for growth, we are excited to move there,” O’Connor said.
Headline earnings per share dropped 6.6% to 952.5c due to the effect of additional share issues for Swiss acquisition and a broad-based black empowerment scheme.
The board approved a final dividend of 435c per share, resulting in a total annual dividend of 675c per share, representing growth of 1.5%.
Spar’s operating expenses were up 8.7%.
The share price was little moved by the results, dropping 0.87% to close at R169.21.
The Spar Group is the second JSE-listed company to move to comply with the new requirement of the Independent Regulatory Board for Auditors (Irba) that external auditors be rotated every 10 years. Mandatory audit firm rotation will come into force in 2023.
In March, the JSE informed shareholders it had appointed E&Y as its external auditor to replace KPMG. The move, in response to Irba’s campaign, was announced months before the Gupta-related scandal led to several listed companies dropping KPMG.
On Wednesday, Spar advised shareholders that PwC had been appointed external auditors, replacing Deloittes. “The change in audit firm is effective immediately,” the company said. The change had been initiated as a result of the adoption of an audit firm rotation process, it said.
Deloittes has been Spar’s external auditor for 50 years, but its reappointment faced stiff opposition at the February 2017 annual general meeting.
Irba executive director Bernard Agulhas welcomed the move and commended Spar “for recognising the importance of mandatory audit firm rotation as a means to guard the independence of its external auditors”.
The Spar board may have had little option but to appoint a new external auditor following its last annual general meeting.
At that meeting an unprecedented 36% of shareholders voted against the reappointment of Deloittes. The appointment of auditors is an ordinary resolution and only needs the approval of 50% of shareholders.
Remarkably the Public Investment Corporation (PIC), which has 12.52% of Spar, did not vote against the reappointment of Deloittes. Given that the PIC has consistently voted against auditors’ reappointment it seems inevitable it would have voted no at the 2018 meeting.