Spar shares drop on costs

Spar Group, a South African food and liquor retailer, reported profit growth that slowed from a year earlier due to rising costs.

Johannesburg - Spar Group, a South African food and liquor retailer, reported profit growth that slowed from a year earlier due to rising costs from the acquisition of ADM Londis of Ireland and other one-time charges. The shares fell the most in five months.

Net income increased 5.6 percent to R1.42 billion ($99.9 million) in the 12 months through September, Spar said in a statement on Wednesday.

That compared with a 13 percent increase a year earlier. Londis acquisition costs, including expenses related to the closure of the warehousing facility and job cuts, were R46 million. Normalised earnings per share excluding one-time items rose 21 percent.

“We’re not bullish about the local economy going forward,” CEO Graham O’Connor said in a phone interview. “That’s why I say, I think the performance for the last year was exceptional.”

The shares fell as much as 4.3 percent, the most since June 2, and traded 3.4 percent lower at R188.67 as of 1:19 p.m. in Johannesburg, valuing the company at R33 billion. Spar raised its annual dividend 17 percent to R6.32.

The Durban-based company bought BWG Group, the owner of the Spar brand in Ireland and southwest England, for R800 million in August 2014 in an effort to boost growth outside its home market. In South Africa, retailers are battling with muted consumer confidence as unemployment of 25 percent and almost daily power cuts earlier this year weighed on households.

“The South African outlook remains muted, but the Irish business is proving to be a good growth engine,” Alec Abraham, an equities analyst at Sasfin Securities in Johannesburg, said by phone. “The once-off costs and related charges skew the picture somewhat, but the normalized or underlying growth is solid.”

Operating profit climbed 23 percent to R2.3 billion, helped by the acquisition of the BWG Group. Excluding the BWG contribution, Spar operating profit rose by 10 percent. The Londis purchase helped the retailer add 252 stores across both territories, bringing the total to 3 267.

Store growth in Africa next year will be similar to 2015, O’Connor said. About 30 stores will be added in southwest England after Spar agreed to open convenience outlets at Euro Garage petrol stations, he said.

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