Spar falls short, but Europe is still the spur

THE Spar group’s expectations have fallen short just a year after the purchase of Spar Switzerland, as the rand’s strength worked against the retailer. Yet Europe still seems to be the next growth frontier for the company.

This week, at the group’s release of its results for the six months ended March 2017, Spar reported that its Swiss business made an operating loss of R8.3-million as the sales declined because of muted economic growth and deflation.

Spar CEO Graham O’Connor said despite the poor performance of the Swiss business there was “no question that it’s a brilliant acquisition”.

“We bought the business as a rand hedge, and as an element of going into a market where we can withstand the economic environment,” he said.

“We weren’t quite chuffed about the rand strengthening against other currencies, but it is what it is,” said O’Connor.

He added that despite the poor performance of the Swiss business, “we’ve made some changes and hopefully we’ll put these into place”.

Part of these changes include the appointment of former managing director of the KwaZulu-Natal division Rob Philipson to run Spar’s Swiss business as CEO in an attempt to address the issues that the offshore business has had.

“But we’ve got a good distribution centre, a good base and the retailer there is excited and we can make it positive going forward,” said O’Connor.

Despite the poor performance in Switzerland, O’Connor said there were other acquisitions in Europe on the horizon.

“The South African economy is tough and we have big players and the growth opportunities aren’t nearly as good as they are offshore. That’s why we’ve looked said O’Connor.

Spar Switzerland’s total network was 301 stores for the period.

Alec Abraham, a senior equity analyst, said: “If you are going to go overseas, you want to build scale and to get the economies of scale. Now they have established themselves in Europe, why not expand?” elsewhere,”

Abraham said Spar would get diversification of earnings because South Africa was under a lot of pressure and “they’ve got some very good margin improvements from Ireland as they build scale”.

“So he [O’Connor] is minimising the business risk and diversifying sources of income,” said Abraham.

For the period, Switzerland’s turnover was the smallest contribution to the group’s total, declining 13.1% to R5.7-billion, while Ireland grew 1.6% to R9.8-billion and in Southern Africa turnover rose 4.9% to R32.5-billion.

The local retail market has not been a positive one for the retailer either as consumer spend remains constrained.

But O’Connor maintained that despite negative sentiment in the economy he expected to create greater efficiency within the business.

However, he disputed claims of job cuts.

“The last thing on the horizon for us is job cuts. We want to grow our business . . . as far as jobs go, we will do things, we will do things more efficiently,” said O’Connor.

In terms of where O’Connor would like to the see Spar Group by the end of this year, he said: “We’d like to see Spar continue to grow and we’ll go and acquire businesses that suit us.”

The group share price gained 0.32% to R160.77 by the close of the JSE on Friday.

The growth opportunities aren’t as good as they are offshore