The group’s liquor division outperforms growth in the general retail division while overall results disappoint

Despite difficult economic conditions, South Africans continued spending money on alcohol, lifting The Spar Group’s results, with its liquor division outperforming growth in the general retail division.

On Wednesday, the group reported its liquor division, Spar Tops, which makes up about 10% of the wholesale business, recorded double-digit growth.

Portfolio manager at 36One Asset Management, Evan Walker, said that while the group’s results were disappointing, the liquor division had done well to strategically capture its share of the market through its model of convenience.

“Tops have been accessible to consumers,” he said.

“Tops’s stores have taken a huge market share from independent operators, who have struggled under the tight financial environment.”

However, portfolio manager at Gryphon Asset Management Casparus Treurnicht said if the liquor division was stripped out, Spar underperformed rivals Pick n Pay and Shoprite by a substantial margin.

The Spar Group’s overall revenue grew 5.4%, to R97bn.

CEO Graham O’Connor said a significant slowdown in sales had exposed the group to cost pressures and resulted in net margin contraction.

Its Southern African stores grew revenue by 4.6% to R65bn, contributing 67% of the group’s total revenue.

Continued rand strength against the euro substantially eroded the European results on final consolidation.

In Ireland, turnover grew 1.5% to €1.4bn. But when measured in rand, its Irish stores suffered an 11% decline in turnover to R21bn, contributing 21% of the group’s total.

While it experienced strong performances in Ireland, the group’s Swiss acquisition underperformed expectations. Turnover from its Swiss stores rose 72% to R11.2bn and pre-tax profit rose 4% to R92m. But chief financial officer Mark Godfrey said hard work had gone into turning around the business in that country, with the company changing strategy so more stores would be run by independent franchisers instead of being in corporate hands.

The group plans to launch another store in Sri Lanka in March 2018, where there is only a 5% unemployment rate. “The territory presents opportunity for growth, we are excited to move there,” O’Connor said.

Headline earnings per share dropped 6.6% to 952.5c due to the effect of additional share issues for Swiss acquisition and a broad-based black empowerment scheme.

The board approved a final dividend of 435c per share, resulting in a total annual dividend of 675c per share, representing growth of 1.5%.

Spar’s operating expenses were up 8.7%.

The share price was little moved by the results, dropping 0.87% to close at R169.21.