Dynamic and growing
The company is living up to the new image it acquired when it began overseas expansion
The words “dependable but unexciting” once described Spar Group. But the wholesale distributor changed all that in August 2014, when it snapped up an 80% stake in BWG, owner of the Spar brand in Ireland and southwest England.
In keeping with its new, more dynamic , identity, Spar struck again recently, acquiring a 60% stake in Spar Switzerland from the Leuthold family for R690m. The deal was closed on April 1.
“We have known the Leuthold family for 30 years,” says Spar CE Graham O’Connor. “They modelled their business on ours in SA.”
The deal brings with it 58 companyowned and 247 independent retailer stores operating under Spar brands, and 11 companyowned stores in the country’s second-biggest cash-and-carry business, TopCC.
The revenue it will add should amount to R12.8bn, based on Spar Switzerland’s annual results to December 2015, boosting total group revenue to just on R100bn, of which about 35% will be from offshore.
It will consolidate Spar’s position among SA-based retailers as second only to Shoprite, which should produce revenue of about R135bn in its current year — firmly ahead of Pick n Pay, which recently reported revenue of R72.4bn.
Sasfin Securities analyst Alec Abraham says: “It is further derisking the business by increasing exposure to varied consumer markets.”
The deal comes with an option for Spar to acquire the remaining 40% of Spar Switzerland from the Leuthold family in five years’ time.
The family also has an option to sell its stake to Spar.
And O’Connor has great ambitions for Spar Switzerland. “Its market share is only 2.5%,” he says. “We have a big opportunity to grow its store footprint.”
O’Connor also promised big things for BWG, and the unit has lived up to his promise.
BWG, bolstered by Londis, which it acquired in June 2015, shone in the six months to March. Londis has 200 convenience stores.
Revenue from its now 1,100store base lifted 45% to R11.3bn, of which Londis contributed R1.4bn. Taxed profit was up an even stronger 109.5% to R118.6m. In euros, taxed profit rose 88% and revenue grew 23%. It was an exceptional result in a market in which food prices fell 0.5%.
“We are mainly in the less affected convenience-store sector,” says O’Connor. “But we are certainly gaining market share.”
BWG played a big role in Spar’s results to March, which reported an increase of 17.2% year on year in headline earnings per share (HEPS), adjusted for a noncash R42m foreign exchange loss.
Even this gain does not fully reflect Spar’s performance, says O’Connor.
The company also took a noncash charge related to the R804.6m it expects to pay for the remaining 20% of BWG between 2019 and 2021. Excluding the charge, adjusted HEPS were up 18.5%, says O’Connor. While BWG provided the kicker in the six months to March, Spar’s operations in its home market also performed admirably. Overall, across its Spar business as well as its Tops liquor chains and the Build it 21,000 20,000 building materials operation, revenue at the wholesale level was up 9.2% to R31.2bn.
At the retail level sales lifted by 11% to R42.6bn.
The core Spar chain put in a particularly strong showing in a market more competitive than ever.
At the retail level sales increased by 9% to R36.8bn. Volume adjusted for internal inflation rose 5%, in line with increases reported by Shoprite in the six months to December and Pick n Pay in the year to February.
It was a particularly strong showing, given that only eight new Spar stores were opened during the six months, taking the total to 888 and increasing trading space by a marginal 0.5%.
By comparison, in their latest respective reporting periods Shoprite opened 70 new SA supermarkets and Pick n Pay added 27 corporate supermarkets and 59 franchised stores.
Seemingly proving that people drink in good and bad times,