Switzerland and Ireland shine for Spar, but Southern African growth slows

The Spar Group, which owns grocery and wholesale businesses in South Africa, several African countries and in the European nations of Switzerland, Ireland and Poland, posted a positive set of interim results for the half-year ending March 31, 2021 on Tuesday, increasing group turnover by 7.5% to R64.2 billion and normalised diluted headlines earnings per share (Heps) by 34.4% to 608.3 cents.

However, the growth was largely driven by its operations in Switzerland and Ireland, instead of its significantly larger operations in Southern Africa (including SA).

Spar, which is headquartered out of Pinetown west of Durban, highlights in its latest Sens statement the “exceptionally strong performances from operations in Switzerland and Ireland” while it also notes the “reduced operational losses in Poland”.

Its Swiss business (Spar Switzerland) reported an increase in turnover of 21.6% for the six-month period, which translated into a noteworthy 11.1% growth in CHF or Swiss Franc-denominated terms.

BWG Foods, its business in Ireland and South West England, delivered double-digit turnover growth of 13.3%. However, this translated to 3.3% growth in euro-denominated terms.

In contrast, Spar Southern Africa delivered wholesale turnover growth of 3.1% for the half-year, which the group says continues “to reflect the weaker consumer spend and disruptions to the liquor business”.

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Spar notes that “the strong underlying performance of the group (is) fundamentally driven by the foreign regions”.

A worrying figure Spar cites in its results is that its “core Spar grocery business” in Southern Africa reported turnover growth of just 0.8%.

This is in stark contrast to its JSE-listed peers Shoprite Group and Pick n Pay, which have seen strong growth locally despite ongoing uncertainty around the Covid-19 pandemic.

“Turnover growth slowed significantly in the month of March 2021, as it lapped the extraordinary performance recorded in March 2020, when consumers stocked up in advance of the Covid-19 lockdown,” Spar points out.

“Spar house brands performed ahead of the business delivering growth of 3.4% to R7.7 billion and represents 24.2% of core Spar turnover,” it adds.

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However, its Tops at Spar liquor business continued to be affected by Covid-19 restrictions in South Africa during the half-year, as was the case with all liquor retailers.

“Tops at Spar continued to be negatively impacted by the reduced retail hours and lost trading days, effectively losing 72 trading days, approximately 40% of available trading days during this period,” Spar says.

“Although the liquor business has started to recover in the last quarter, the impact of the lost trading days saw wholesale liquor sales decline by 7.8% for the period,” it notes.

Meanwhile, the group has also been impacted by a drop in cigarette sales, which it says has not recovered.

“The cigarette business was severely impacted by the initial restrictions on the sale of cigarettes. This business has not seen any meaningful recovery since restrictions were lifted and turnover was down 13.1%,” Spar highlights in its Sens.

In-line with the boom in home-improvement retail, Spar says its Buildit business continued to outperform expectations.

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Sales of building materials surged by “a remarkable 26.2%” it notes.

“The consumer in this market remains surprisingly resilient and continued to invest in home improvements. The total Southern African store network increased to 2 457 stores, with 43 net new stores across all formats,” adds Spar.

The board of Spar Group declared an interim gross cash dividend of 280 cents per share for the six-months ending March 2021, which it notes “has been declared out of income reserves”.

This is compared to an interim dividend of 200 cents per share for its 2020 half-year, which means its interim dividend for 2021 is 40% up on the corresponding half-year.

Spar’s share price was up 0.7% around midday on Tuesday, at R185.75 per share. However, the stock is trading around 1.6% down year-to-date, while Shoprite and Pick n Pay are up in the double digits.