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Spar Group out with pedestrian FY revenue growth

‘We are very positive about our entry into the Sri Lankan market,’ says CEO Graham O’Connor

WARREN THOMPSON:  Today mass retailer Spar Group announced results that were characterised by pedestrian revenue growth, slightly improving gross margins, but a 19% increase in operating expenses. This meant headline earnings per share declined by 6% to R9.52/share.

I spoke with CEO Graham O’Connor a little earlier today. This is what he had to say.

Graham, we saw fairly pedestrian revenue growth, top-line growth in line with inflation. In South Africa, you said that your gross profit margins declined slightly. Just give us your take on trading conditions in the three key geographies you operate in.

GRAHAM O’CONNOR:  In South Africa it was really tough, as you all know. The economy is under pressure and consumers under severe pressure, and we felt that in our margin and certainly our growth.

As far as Ireland goes, they’ve had deflation in Ireland, so the market is also tough there. But that produced an outstanding result, with some 20% growth in euro terms to the profit line.

Switzerland had a very nice turnaround from loss-making for the first half to quite a nice profit in the second half. So I’m very positive about that.

WARREN THOMPSON:  Just give us an idea, a sense of what’s happening in Switzerland, which now accounts for roughly R10 billion of your R90 billion-odd in sales. How was trading there?

GRAHAM O’CONNOR:  Trading is tough as well, because of the strength of the Swiss franc. That’s very strong. But we are getting better and better. We’ve laid out our new store format – that’s working very well. We’ve relaunched stores and that’s also going well. So some really positive signs in Switzerland.

WARREN THOMPSON:  One of the bright spots in the local operation was the growth in the liquor sales through Spar Tops, which I admit I use quite often [chuckling]. Sales rose from 2016 to 2017 by 11%. Just tell us – are you still rolling out stores there, or what are you seeing in the liquor sales area?

GRAHAM O’CONNOR:  We are rolling out extra stores. But our growth was strong on the Tops side. People get happy and they drink and then they get sad and they drink. So that’s a really positive element for us and it’s been a massive addition to our business.

WARREN THOMPSON:  And the strategy is really to put the liquor store right next to the Spar grocery store, the Spar shops.

GRAHAM O’CONNOR:  Yes.

WARREN THOMPSON:  They are not trading on their own – I don’t think I’ve seen any of them where they occupy a space on their own.

GRAHAM O’CONNOR:  We have to as Spar retailers serve Tops, but some guys have got more than one. So if there is another one close by, they can go there as well. And that helps us to grow, because it’ll be by 1% or 1.5%.

WARREN THOMPSON: Great. You also indicted in the presentation today you are now entering a new market, undertaking a joint venture operation in Sri Lanka. Tell us about that.

GRAHAM O’CONNOR:  That’s been on the cards – I mentioned it last year. It’s been too slow for me, but we’ll be opening our first store at the end of March, so I’m really looking forward to that. It’s a really smart country, 21 million people, 5% unemployment, 95% literacy. So we are very positive about our entry into the Sri Lankan market.

WARREN THOMPSON:  Is that going to expand quite quickly, Graham?

GRAHAM O’CONNOR:  We hope so. I think that probably in the first six months we’ll have another four stores, and then we’ll see how we go.

WARREN THOMPSON:  Just in terms of the capital that you are putting into new stores, because I know you’re consistently revamping stores, what is the sort of breakdown geographically among the now four geographies you operate in?

GRAHAM O’CONNOR:  Well obviously here is the biggest by a long way, with over 2 000 stores and then Tops. And then you talk about Ireland with 1 050, and Switzerland with 300, and Sri Lanka obviously the first one going. So that gives you a sense of how much will be spent each place.

WARREN THOMPSON:  Thanks very much for your time this evening, Graham.

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