Spar Group posted strong results, but net profit growth has slowed
New stores boost revenue
GROCERY and liquor retailer, the Spar Group, yesterday reported a slowdown in its annual profit growth, which caused its shares on the JSE to fall.
The group reported that fullyear net profit for the year to September gained 5.6 percent to R1.42 billion as the company opened more stores in Ireland. This compared with growth of 13 percent in net profit in the previous year.
Spar’s shares fell by as much as 4.25 percent to R187.07, which was the stock’s lowest level since October 5.
The stock yesterday closed down 3.01 percent to R189.50, which valued the company at R32.8bn.
Sales increased by 34.6 percent to R74bn, helped by the acquisition of the BWG Group in Ireland last year.
The retailer added 252 stores across both territories, bringing the total to 3 267 shops.
“I think we had brilliant results, our turnover growth is very strong. I thought our trading profits were very strong and normalised headline earnings rose by 20.5 percent, which was also very strong.
“We had a strong dividend in a challenging environment so we had a good performance in South Africa and a good performance in Ireland as well, that combined the two together in this economy is a plus,” Spar chief executive Graham O’Connor told Business Report.
Milestone year
In its results announcement on the JSE, the group said it had a milestone year in 2015 as the first full year of operating in a global context.
“The board and management recognised at the time of the Ireland acquisition that the inclusion of the BWG Group was a fundamental shift for Spar. It has increased Spar’s exposure to global thinking in different market environments, allowing us to gain and share knowledge,” the group said.
The Spar group bought BWG Group, the owner of the Spar brand in Ireland and south-west England, for R800 million in 2014 in an effort to boost growth outside its home market.
Since its acquisition, ADM Londis has contributed R614m in revenue and R11m in operating profit to the results of the group.
The group said had all the acquisitions been consolidated from October 1, 2014, they would have contributed additional revenue of R2.572 billion and operating profit of R62.3m.
“The big part of it is the fact that they acquired those businesses in Ireland, and I think that certainly contributed to that positive performance. If you look at the South African business, you probably would have only seen maybe about 10 percent growth but because you have those businesses in Ireland, that certainly boosted the performance,” Alec Abraham, an equities analyst at Sasfin Securities, said.
He said the group’s performance was pretty much in line with his expectations.
“Firstly, from the point of view of benefits from the rand hedge, they are in a hard currency and the reason why they bought those businesses is that they are upside in terms of growing the margin there and, secondly, I think they have done a good job in improving the margin in Ireland. Had it not been for that I think you would have seen probably 10 percent growth maybe,” he said.
O’Connor said although the prospects for the coming year continued to be grim with gross domestic product revised down to 1.5 percent and the possibility of a repo rate hike is imminent, the group was confident it would continue to grow because it offered value to its customers.
“We plan to have good results going forward. We are positive about the sales. We are positive about the profits. In Ireland, we are very positive about the operating profit improving because we put something in motion to make the best of next year and that combines with other positives going forward,” he said.