Ramaphosa’s investment drive helps retail sales, says Spar CEO
Grocery group's Graham O’Connor says performance has firmed up since its financial year ended in September
The CEO of SA’s second largest grocer by turnover says it is already seeing the positive effect of President Cyril Ramaphosa’s investment drive, with sales rising after its latest set of results.
Spar Group CEO Graham O’Connor said the government’s effort to foster an environment that’s friendlier to business is a move in the right direction and should be supported. “Government is listening to business.”
Since becoming president earlier in 2018, Ramaphosa has made it his priority to turn around the struggling economy by getting local and foreign businesses to commit to investing billions of rand in it.
O’Connor said these efforts were starting to pay off, as the move had triggered a change in sentiment, with sales firming up since the end of its financial year in September. “They actually got better after that.”
Overall turnover rose 6% to R103bn and operating profit jumped 7.9% to R2.78bn for the period. The group has operations in Ireland and Switzerland, but the performance of its Southern Africa operation, which increased turnover 6.7% to R68.8bn, was the biggest growth driver.
O’Connor may be seeing the early shoots of an economy on the mend, but Sasfin Bank senior equity analyst Alec Abraham was more circumspect. Abraham said although Spar had done well over the period, he did not think the government was doing nearly enough to fix the economy.
The latest Statistics SA Retail report for September showed how much pain the retail sector was still going through, with retail sales up only 0.7% year on year for the month.
Against this background, O’Connor said he was happy with the group’s local operations, driven largely by the performance of its liquor, pharmaceuticals and DIY operations.
Spar's purchase of pharmaceuticals wholesaler S Buys for R74.9m a year ago made a notable difference, said O’Connor. He said it had never really made a profit, but the inculcation of S Buys now enabled its pharmacies to source more affordable products.
Abraham agreed, saying: “Having a wholesaler improved its profitability.”
Acquiring several specialised wholesalers worked out well for Spar’s local and offshore operations, Abraham said. It was one of the main reasons its operation in Ireland had produced impressive numbers, and why Switzerland was turning around.
Turnover for its Irish operation grew 9.6% to R22.49bn and operating profit rose 13% to R574.4m.
The turnover for its operations in Switzerland however, was worse than it appeared, as Spar got rid of its underperforming stores and retained its more profitable stores, said Abraham. Turnover for this operation had fallen from R10.4bn to R9.8bn but operating profit shot up from R69m to R124.9m.
O’Connor said its South African operations also got a boost from an increase in the number of stores it operated. This figure would rise further following the deal it struck with Shell, to operate forecourt stores.
Abraham said that while the group did well operationally an accounting charge relating to the buying out of the minority interest in the Irish operation had clouded its earnings. Net earnings were down 6.3% to R2.1bn and basic earnings per share were up only 0.4% at 948.9c.
The accounting charge of R136.5m stemmed from having to increase the figure for buying out the minority interest, as a result of the improved performance of its Irish business.