Spar posts profit increase despite consumer pessimism

South African retailer and wholesaler Spar Group said yesterday that normalised annual profit rose 10% in its latest financial year as it rode out poor consumer sentiment across all of its markets, sending its shares up more then 6%.

Spar, a grocery chain which also sells building materials and medicines in southern Africa, has been expanding in Europe amid a weak economy at home, but has also faced troubles in newer markets such as Ireland and Switzerland.

Spar chief executive officer Graham O’Connor said the economic backdrop was starting to improve in South Africa, its biggest market.

Sentiment should improve further, he added, as investment pledges encouraged by President Cyril Ramaphosa materialise to spur economic growth and reduce unemployment.

“We’re hoping that by the middle of next year some of the investment that has been promised has been made already and more will come. Those are all positive things,” he said.

Spar’s headline earnings per share (HEPS), the main profit measure in South Africa, stood at 1,129.1 cents for the full-year ended September 30, higher than 965.7 cents a year earlier.

On a normalised basis, which adjusts for expected future profits, foreign exchange losses and business acquisition costs, HEPS rose by 9.9% to 1,160.6 cents.

In its home market, Spar faced a stagnant economy, with high unemployment and rising living costs putting pressure on consumers’ wallets.

However, it managed to grow turnover in its southern Africa division by 8% – a result O’Connor said was “excellent” given the circumstances.

Meanwhile, uncertainty surrounding Britain’s exit from the European Union sapped consumer confidence in Ireland and south western England, where Spar also operates, it said. That unit still grew turnover by 6.2%, however.

The worst performing unit was Spar Switzerland, where turnover grew just 1.2% after aggressive marketing initiatives in the first half of the year failed to increase turnover.

“We didn’t do it cleverly,” O’Connor said. “It was actually poor on our behalf, we put too much emphasis on the deep cuts.”

Spar said tight margin management and cost controls had helped boost profits, with costs rising at a slower rate than revenues in both South Africa and Switzerland.

Since the end of the reporting period, the retailer said it had acquired a 50% stake in a southern African food wholesaler called Monteagle Africa. The purchase is still subject to regulatory approvals. –