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South Africa: Spar to Grow As Country Tightens Belt
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Business Day (Johannesburg)
15 May 2008
Posted to the web 15 May 2008
Nicola Mawson
Johannesburg
FOOD retailer Spar is focusing on growing organically, bolstering offerings and improving efficiencies as consumers tighten their belts.
The group, which yesterday reported revenue of R13bn in the first half of the year, expects strong growth in the second half, although not at the same pace as inflation bites into wallets, CEO Wayne Hook said.
Spar (SPP) reported revenue growth of 21% from last year's R10,8bn, while operating profit rose 24,8% to R496m from R397,5m and headline earnings per share grew 28,7% to 201,2c from 156,3c.
Spar's immediate challenge was escalating food prices, which it would attempt to mitigate as much as possible through efficiencies and tightening up operations. Hook said companies could not keep passing on pricing and hoping that volumes kept rising.
Spar's retailers had bolstered group growth in the half year, Hook said, and would continue to invest in new outlets as the group looked beyond the cycle.
The group, which had benefited from new stores during the period, would continue to open outlets at a similar rate to that of the first half. About 20 Spars , 20 Tops and 15 Build It stores would be opened.
Spar, which had 817 stores at the end of the period, saw 15 new stores opened in the half year, representing space growth of 2,4%. In addition, 85 Spar stores had undergone major upgrades.
Absa asset management private clients analyst Chris Gilmour said Spar was gaining market share in rural areas because of its large footprint.
He said the group had maintained its trading margin at 8,1%, which implied that it was not facing margin squeeze, despite rising input, fuel and transport costs .
Tops, with 321 stores, has become the biggest retail liquor chain in the country based on turnover and store numbers.
Thirty-six Tops stores were opened during the period.
Gilmour said Tops was in the right sector of the market and "going like a steam train".
Build It, with 254 outlets, opened 16 new stores. The chain was benefiting from smaller builders and the home improvement market as well as the cash building market, which is under less stress although the sector slowed over the past few months.
Spar would continue to invest in distribution centres and would spend R400m on its distribution facilities, which should improve efficiencies, Hook said.
In April, the new distribution centre at Sheffield Business Park in Phillipi, Cape Town, was opened, while facilities at the South Rand distribution centre were being improved with new dry goods space on stream in November and perishable space coming on stream in October next year . Construction of a R185m perishable goods facility at Mount Edgecombe in KwaZulu-Natal is expected to start soon.
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Spar's share price rose 1,51% to close at R57,50.
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