SA Company Results: The Latest

Tuesday, 26 November 2024

Pepkor’s annual success spurred by fintech ventures

The retail monolith Pepkor, which owns brands such as PEP, Ackermans, Tekkie Town and Incredible Connection, has reported a 7.8% increase in revenue to R85.1-billion in its annual results for the year to the end of September 2024.

Focusing on credit and fintech to make retail as convenient as possible has proven to be a neat way to squeeze company growth from cash-strapped consumers. Meanwhile, a combination of recent economic trends may serve to deepen South African pockets and lead to more generous retail consumption in the future.

Pepkor says that factors such as the easing of load shedding and inflation ought to improve retail spending in the future by improving consumer confidence, lowering indebtedness and enhancing spending power.

Read more: The Finance Ghost — The market lowdown on Pepkor, Pick n Pay and Tiger Brands

A noteworthy area of Pepkor’s growth has been its fintech division, with three million users joining Pepkor’s retail-oriented fintech services. These include services such as A+, a credit account that Pepkor offers its consumers; the retail insurance service Abacus; and the smartphone rental service FoneYam.

Pepkor’s fintech segment grew by 28.8%, to more than R12-billion, and its revenue from financial services shot up by an astounding 40.3%, to R4.6-billion.

FoneYam, one of Pepkor’s newer fintech ventures, allows customers to hire smartphones on a month-to-month basis, using a flexible pricing model, showing considerable growth. This particular venture, which was rolled out to 1,000 stores by the end of March this year, boasted more than a million customers and more than 120,000 monthly activations by the end of September.

The group’s A+ credit base – a financial service which allows customers to shop on credit at participating Pepkor-owned retail businesses – gained 1.2 million new accounts this year, totalling almost three million accounts countrywide.  This had the benefit of incentivising cross-shopping between brands that belong to Pepkor, further driving sales. 

“Our business model’s resilience is evident in these results. We continue to gain market share at improved margins in a challenging trading environment. Furthermore, our strategic focus on digital inclusion and fintech has added another powerful dimension to our traditional retail strengths, positioning us to serve our customers better while building sustainable long-term value,” said Pepkor chief executive officer Pieter Erasmus. 

Read more: Black Friday 2024: South African consumers gear up for record sales amid economic challenges

Informal economy revenue boost

Flash, a subsidiary of Pepkor that focuses on providing electronic services to the informal economy, also saw impressive growth. The business’s revenue grew by 20.2% to R8-billion. South Africa’s informal sector accounts for 18.8% of the country’s employment, or 3.1 million people, according to StatsSA’s second-quarter labour force survey.

The group’s traditional retail segments saw a 4.8% growth in sales, and its clothing and general merchandise segment saw a 4.9% increase in sales. 

Pepkor reports that its subsidiaries account for most baby wear and school wear sales and half of all kids’ wear sales. 

Pepkor has a sizeable footprint overseas – Avenida, a brand owned by Pepkor Holdings in Brazil, reported a 20.1% growth in sales, opening 42 new stores. 

Numbers to note include a 13.5% increase in gross profit to R32.6-billion, and an 8.4% growth in operating profit to R9.8-billion. Dividends have been declared at 48.5 cents, while headline earnings per share (HEPS) have seen a 0.4% decrease to 140.2 cents.

The bounce-back

Pepkor’s profitability over the past financial year is a breath of fresh air after it ended the previous financial year with a R6.6-billion impairment. Management previously chalked up most of this impairment to “increased market volatility and higher interest rates” that affected its clothing and general merchandise segment.

The branded footwear market also dragged its feet across Pepkor’s balance sheets in 2023 due to the industry’s highly competitive nature.

Now, Pepkor seems to be entering the next year in high spirits. 

“This year hasn’t been without its difficulties, but we have continued to grow, adapt and innovate to meet the needs of our customers. The improving economic indicators, particularly declining food inflation and more stable electricity support a positive outlook for our customer base,” said Erasmus. Marthinus Botes/DM

Wednesday, 14 November 2024

Brait banks on bread, sweets and Virgin Active, but New Look remains a drag

Brait, the investment holding company with stakes in fast-moving consumer group (FMCG) Premier and fitness chain Virgin Active, has posted solid interim results for the year ended 30 September 2024 after 2023’s spectacular losses.

On Wednesday, 13 November, the company, which is dual-listed in Luxembourg and South Africa, reported a strong six-month operational performance from Virgin Active.

Virgin’s balance sheet is healthy: in June and September this year, it secured additional funding of £25-million and £34-million respectively, with Brait contributing £2.9-million and £24-million.

The gym group has seen a 6% year-on-year membership rise and yield increasing by 9%, resulting in a 16% revenue increase (excluding Kauai). When including Kauai health food cafes, revenue rose by 23%. Most of Virgin Active’s performance is driven by Italy (up 19%), South Africa (16%) and Singapore (34%), with lower growth in the UK (11%).

Virgin Active has more than 634,ooo active members in southern Africa, 188,000 in Italy, 63,000 in Asia Pacific and 139,000 in the UK, as at September 2024.

On the consumer side, Premier accounts for 28% of Brait’s assets. 

The FMCG group, which owns Mister Sweet, Snowflake, Lil-lets and Blue Ribbon bread, also reported a moderate 3.7% year-on-year revenue growth to R9.7-billion on Tuesday, in the face of high interest rates, soft commodity volatility and a depressed consumer environment. 

Premier’s improvement in earnings is attributed to a focus on margin management, cost savings and operational efficiencies. Operating profit was up by 17.3% to R945-million.

All Premier’s business units, excluding Companhia Industrial da Matola SA (or CIM) — Mozambique’s oldest food business, contributed to higher profitability, driven by a focus on margin management, cost-saving initiatives and operational efficiencies. 

Earlier this month, a long-standing strike at a Premier facility, Mister Sweet in Germiston, ended. Workers were set to return to work on 11 November, after being on an 11-week strike marred by violence and intimidation. 

Read more: Sour deal — protracted strike at Mister Sweet, marred by violence, enters 11th week

The Food and Allied Workers’ Union (Fawu), which is not affiliated with the Simunye Workers Forum, told Daily Maverick that they had tried for two months to help workers in the wage negotiations, but were rebuffed. 

Some members who had formed non-unionist forum Simunye demanded a salary of R19,500. After the company rejected the demand they went on strike. About 400 workers were involved. 

Difficult trading conditions in Britain

Up north, things are not looking good for New Look, Britain’s second-biggest womenswear retailer. Brait described trading conditions in Britain as difficult, saying retail remained highly competitive and promotional in 2024. This has forced fashion retailers into significant discounting to drive sales among cost-conscious and under-pressure consumers.

Rising shipping times and inflation are also squeezing profit margins, necessitating warehouse optimisation, supply chain streamlining and data-driven customer insights.

Unseasonal weather, shifting seasons and persistent wage inflation are exacerbating consumer anxiety amid rising living costs.

Gross profit increased just 1.3% to £233-million, while revenue decreased 3.5% to £13.9-million due to store closures and adverse weather conditions. Online sales remained robust, but increased promotional activity was needed to attract customers. The business has seen strong initial sales for autumn collections.

Rights off and recapitalisation

Early in 2023, on 31 March, Brait reported a net loss of R928-million for the fiscal year, compared with a net income of R624-million in the previous year. 

In June this year, Brait announced a recapitalisation plan to reduce its debt and free up capital, which included a share offering of up to R1.5-billion to ensure value for its assets, extending debt deadlines and adjusting the terms of a loan.

Brait had raised R3-billion in December 2021 through a rights offer to shareholders. The funds were used to issue BIH Exchangeable Bonds, which are dual listed on the JSE and Stock Exchange of Mauritius.

As part of the recapitalisation, in August 2024 the terms of the BIH Exchangeable Bonds were amended with the maturity date extended to December 2027, the interest rate increased to 6%, and a partial repayment of R750-million was made, reducing the exchange price.

At maturity, BIH may redeem the bonds at par, or shareholders may choose to convert them into Brait shares.

Yesterday, Brait said the group had completed its recapitalisation in August. Positive investor response to the restructuring has boosted Brait’s share price. Georgina Crouth/DM

Tuesday, 28 October 2024

Pick n Pay results — ‘It’s been a hell of a year’

Pick n Pay has posted another sizeable interim loss, of nearly three-quarters of a billion rand, although the retailer is confident it has made notable strides in its turnaround strategy, reporting solid progress across key areas.

Highlights include:

•  An increase in group trading profit of 159% to R82.5-million — largely because of Boxer’s 16% increase in trading profit.


• A 10% rise in clothing sales.


• A 79% hike in on-demand sales through Mr D and asap!


• A 60.6% increase in online sales due to the upgraded Pick n Pay asap! app.

In the first half of the year, Boxer grew sales by 12%. On Monday morning, the group issued a separate announcement on Stock Exchange News Services, formally stating its intention to list Boxer on the JSE, with a secondary listing on A2X, by the end of this year.

Pick n Pay initially said it was aiming to raise between R6-billion and R8-billion in the float; however, this has now shifted towards the upper end. The offer will include an over-allotment option of up to R500-million to support stabilisation.

Internal restructuring

The listing, subject to market conditions and regulatory approval, follows an internal restructuring, with Boxer Retail Limited becoming the sole owner of Boxer Group.

The Boxer initial public offering remains pivotal to the group’s strategy, and its performance continues to prove it is an exceptional business.

“We are excited to see it thrive as a listed entity,” said Summers. “It will be one of the most exciting listings on the JSE in years.”

While the focus this past year has been on strengthening its balance sheet and implementing the turnaround plan, Boxer’s listing will allow the group to start investing in refurbishing Pick n Pay stores and opening new ones.

Boxer is South Africa’s fastest-growing grocery chain, holding a leading position in the discount grocery market. As at 25 August 2024, it operated 489 stores, including 300 Superstores, 159 Liquor stores, and 30 Build stores. Over the past two years, it has opened 14% more stores. Expansion plans include 65 new stores focusing on affordable groceries, liquor and hardware.

CEO Sean Summers, who marks a year back at the retailer in October, said the work is not yet done: “It’s been a hell of a year.”

Summers told investors this morning that notwithstanding the year that they had been through, and what the Pick n Pay team had achieved over the past nine months, it had been extraordinary to see “how the team has come together, how it’s faced up to the realities of what we have to deal with. And it’s just been remarkable, truly, truly remarkable. There’s still a lot of work to be done. You bet.”

Optimistic

He remains optimistic, projecting a 50% reduction in trading losses in the Pick n Pay segment by the end of the year.

The group has invested heavily in training, with 35,000 staff upskilled in customer service.

It has also reassessed its store portfolio, which saw the closure of 14 underperforming stores, with some converted to the Boxer brand.

Another milestone this year is the group’s R4-billion rights offer, as part of its recapitalisation strategy.

Lerena Olivier, Pick n Pay’s chief financial officer, acknowledged that the group had now had margin contraction for three consecutive reporting periods, but said she was “comfortable to report that we believe we have cycled all of this out, and we do not expect any further correction from this nature in the second half of the financial year”.

In a company statement, Pick n Pay said the first six months to 25 August 2024 remained challenging, which was expected, but Summers expected it would reduce trading losses in the Pick n Pay segment by as much as 50% for the full year, due to improved store operations.

“Exactly a year ago, when I rejoined Pick n Pay, I forecast that this would be a multi-year journey and that it would get worse before getting better. Our earnings for the first half reflect this, and I am confident that the worst is behind us now,” Summers said.  Georgina Crouth/DM

Wednesday, 2 October 2024

Positive GNU sentiment triples value of PIC assets under management in six months

Africa’s largest asset manager released its annual results on Wednesday, which revealed disappointing performance back home due to adverse market conditions, compounded by greater difficulty in doing business beyond South Africa’s borders due to greylisting.

Subdued economic growth over the past year saw the Public Investment Corporation assets under management inch up just 3.6% to R2.69-trillion. However, in the six months since the corporation’s financial year end at the end of March, the positive sentiment driven by the national elections in May and the formation of the Government of National Unity has driven assets under management up 11.5% to a record R3-trillion. 

Kabelo Rikhotso, the Public Investment Corporation’s chief investment officer, said the assets under management increased by R95-billion to a new high of R3-trillion last week. 

In a lacklustre year for local markets, foreign markets pushed the corporation’s net profit up 22% from R222-million to R271-million.

The Government Employees' Pension Fund: diversified portfolio, which constitutes 87.97% of the Public Investment Corporation’s assets under management, grew by nearly R70-billion to R2.369-trillion, despite paying out R117-billion in benefits. 

The Unemployment Insurance Fund portfolio: grew by R16-billion to R150-billion, reversing R64-billion in outflows related to the Covid-19 relief scheme. 

The annual report revealed that the fund had to adapt to a challenging operating environment of sustained low growth and high inflation, both here and abroad. Rikhotso explained: “Global supply-chain disruptions from escalating geopolitical conflicts, national elections in major economies and elevated interest rates presented further risks to the investment outlook.” 

Domestically, severe electricity shortages, logistical problems, high government debt, rising unemployment, and inflation hampered economic growth in 2023, which affected the Public Investment Corporation’s operations, including costs, valuations, investment opportunities, profitability, and the ability to list or delist businesses. Many private equity funds had left South Africa, he noted, and deal activity and fundraising had slowed in both listed and unlisted markets.

Read more: SA’s largest asset manager, the PIC, feels the greylisting sting

Since South Africa was placed on the Financial Action Task Force’s grey list in February 2023, international transactions had become more complex, which meant that the Public Investment Corporation now faced increased scrutiny and oversight from its global counterparts. He added that local regulators were also more cautious about the corporation’s dealings in low-tax jurisdictions and foreign entities, which placed stricter client due diligence requirements on the corporation, its beneficial owners, and its co-investments.

Public Investment Corporation chairperson David Masondo said the operating environment during the year under review was volatile, driven largely by global events. 

“Persistent inflation spikes resulting from geopolitical tensions led central banks worldwide to raise interest rates, directly affecting already-constrained consumers.” Georgina Crouth/DM

Tuesday, 17 September 2024

Outsurance expects growth momentum in Irish venture after three years, break-even in five

Outsurance is hoping to break even in Ireland after five years, chief executive Marthinus Visser said yesterday on a media call to discuss the company’s financial results for the year to end June 2024.

Management expects investment income to grow as Australia and Ireland become larger parts of the business, with premium reserves held for longer periods.

“In South Africa, 99% of business is paid monthly, whereas in Australia it’s more like 50/50 and in Ireland, around 80% is paid annually. As such, you get a larger portion of your premium upfront in the international markets, and you hold that in a premium reserve – and that’s why we expect investment income to become a more prominent feature in our current earnings profile over time,” Visser explained.

Over the past five years, the Outsurance Group has invested in new product and channel initiatives, prepared for the launch of Outsurance Ireland, and transitioned to a listed group. The year under review was marked by strong revenue growth and robust profitability. Despite higher natural perils claims in Australia, earnings benefited from favourable underlying claims performance, cost efficiency and a significant increase in investment income.

“We have simplified our strategy and optimised capital utilisation by focusing on organic growth in our existing three geographies. With a more favourable economic outlook in South Africa, we are confident about the growth potential in our South African customer base, which could reverse the absence of real growth in the South African insurance market over the last decade,” Visser said.

Growth prospects of Youi in Australia looked positive with “strong runway for growth” off a relatively low market share in a large insurance market. Youi has just more than 5% of the motor market in Australia, the Ireland business is working off a zero base, while Outsurance has less than 4% market share in South Africa.

The Australian business already contributes to 58% of the group’s revenue and has been growing at 12.2% per year in rand terms since 2017, with a 39% contribution to total earnings, according to a report by Investment analyst at Sanlam Private Wealth, Gary Davids.

The Outbonus model is a new concept in Ireland, so Visser anticipates that take-up will accelerate after three years when consumers start seeing bonuses being paid out. Davids says the tenet of receiving cash back on a grudge purchase is central to customer satisfaction.

“With the Outbonus, customers feel rewarded by receiving a percentage of their premiums back for not claiming over a three-year period and may consider their actions more carefully when cancelling a policy or switching insurers. It’s a simple cash-in-hand rewards programme – no frills and no fuss. It also promotes better claims behaviour among policyholders. This aids in achieving a lower-than-industry claims ratio, which further drives the dichotomy between Outsurance and its peers, supporting the superior underwriting margin,” he says.

Outsurance plans to buy out minority shareholders, who own 7.7% of the company, within 18 months, with the aim of a simplified group structure. However, for now, shareholders will receive a final dividend of R113.2 cents per share, taking the full-year shareholder distribution to 174.4 cents and a further special dividend of 40 cents a share. The company’s share price climbed 29.24% over the past year to close at R55.25 yesterday. Neesa Moodley/DM

Thursday, 12 September 2024

FirstRand lifts annual earnings 4% but takes hit from UK motor finance probe 

South African lender FirstRand lifted its annual profit by 4%, a result that would have been better were it not for a R3-billion pre-tax accounting provision linked to a British probe into the vehicle finance market. 

Regulatory investigations can be costly, a point underscored by FirstRand’s annual results which were unveiled on Thursday. 

South Africa’s largest banking group by market value said its basic and normalised earnings per share rose 4% to 677.2 cents. But excluding a hefty R3-billion pre-tax accounting provision related to a UK probe into the vehicle finance market, the company’s normalised earnings increased 10%. 

“Despite a tough macro environment, a standout feature of these results is the operational outperformance delivered by FirstRand’s portfolio in the second half of the year,” the company said in a SENS statement. 

“This allowed the group to absorb an accounting provision raised for the UK motor commission review, and still produce robust growth in normalised earnings of 4% and a return on equity (ROE) of 20.1%, which is well within its target range. Excluding this provision, normalised earnings grew 10% and the ROE of 21.3% moved to the top of the stated range.”

The UK’s Financial Conduct Authority (FCA) in January launched an investigation which remains ongoing into dealer commissions and overcharging in the motor finance sector. The FCA has pointedly warned British lenders to make provisions to meet the potential costs of customer complaints.

FirstRand has made a provision of R3-billion linked to the probe and its possible consequences. On top of that, a whopping “... R300 million of legal and professional fees were incurred in relation to the investigation”. 

This underlines what a rich gravy train such an investigation is for lawyers and consultants. 

“The group continues to believe it did not operate outside legislation in the UK. However, given the uncertainty ... it took the decision to raise an accounting provision,” FirstRand said. 

FirstRand, of course, is hardly the only bank with exposure to this probe and its scale is relatively small. For example, in February, Lloyds said it had set aside £450m to cover the potential costs that could arise. Investec Plc said in May that it had set aside £30-million.

Still, it has hit the bottom line of FirstRand, which, through its WesBank unit, is a leader in the South African vehicle finance market. 

The overall macroeconomic environment remains challenging. 

“Absolute levels of year-on-year advances growth in the secured SA and UK retail portfolios softened relative to 2023 given customer affordability pressures and low demand. The previous momentum in SA residential mortgages has slowed,” FirstRand said. 

“Consumer strain continues to be elevated and will only start to moderate as the rate environment eases.”

The South African Reserve Bank is widely expected to begin cutting rates from next week in the face of slowing inflation and amid mounting prospects that the US Federal Reserve will do the same. 

“In South Africa, the economy should benefit from an increase in business and household confidence and the new Government of National Unity is expected to push ahead with the structural reform programme,” FirstRand said. 

“Whilst absolute advances growth from the South African franchises is expected to exceed the year under review, this growth will continue to be tilted to commercial and corporate, written at lower margins than retail unsecured. Retail advances growth will remain muted until households begin to feel the benefits of lower inflation and lower rates.”

Market reaction was muted with little change in FirstRand’s share price, signalling that the results were broadly in line with expectations.

This was the first set of results from the group since Mary Vilakazi took the helm as CEO in April. Ed Stoddard/DM

Tuesday, 3 September 2024

Shoprite to exit furniture business to focus on food

After 64 months of market share gains, Shoprite-Checkers’ run of good fortune is showing no signs of slowing down. The retailer has posted a 12% increase in group sales, which equates to core customers in South African supermarkets spending R21.4-billion more with them this year than last. 

As such, it is playing to its strengths by offloading its OK Furniture and House & Home brands, excluding its Angola and Mozambique operations, to Pepkor. The move, announced on Tuesday during the group’s annual results presentation, would allow it to focus on its core food retail business.

CEO Pieter Engelbrecht told investors today that with respect to its furniture business, Shoprite found itself at a crossroads because the business’s future growth and profitability were hamstrung because it required a level of investment that would have resulted in re-directing capital and project management resources away from that now dedicated to the food retail operations. 

“We believe the best outcome for OK Furniture and House & Home is for the business to operate in an environment where its required infrastructure and credit management expertise exists, thus allowing us to focus our resources on what we do best.” 

The group is also in advanced discussions to purchase the remaining 50% shareholding in its last-mile logistics provider, Pingo Delivery.
Its core business, Supermarkets RSA, saw merchandise sales increase by 12.3% to R195-billion, while group sales of merchandise increased by 12% to R240.7-billion. 

The group’s trading profit increased by 12.4% to R13.4-billion.

Over the past financial year, the group opened 292 stores, including 73 OK franchise stores and 63 new outlets in retail adjacencies (Pet, Baby, Outdoor and Clothing), and created 6,490 new jobs.

Other highlights include:

• Xtra Savings being named best loyalty programme in Africa at the International Loyalty Awards 2023;


• Being recognised as a Top Employer for 2024 by the Top Employers Institute and an Employer of Choice in the SAGEA Employer Awards;


• Winning Company of the Year at the News24 Business Awards;


• Garnering 17 private label brand awards, including 12 golds at the Food and Home Awards;


• Launching new general merchandise home delivery service;


• Partnering with four global retailers in the W23 Global Venture Capital fund to accelerate innovation Shoprite Holdings. The fund will invest $125-million over five years in the world’s most innovative start-ups and scale-ups with the potential to transform grocery retail and address sustainability challenges; and


• Launching its new partnership with Discovery Vitality’s HealthyFood benefit, on 1 September. The partnership has been endorsed by television chef and healthy eating advocate Jamie Oliver.

The group said its multi-year platform investment was delivering consistent results, with sales growth between 2021 and 2024 of 43.4% and store network growth of 25.7%.



Shoprite has certainly outpaced its competition: Supermarkets RSA sales have grown by 12.3% over the past year, which is almost double the pace of the rest of the market. Sales growth, excluding Massmart acquisition of Cambridge Food, Rhino and Massfresh, was 10.5%.

Checkers is the fastest-growing grocer in the premium food segment. Its Sixty60 online sales growth has surged by 58.1%.

Usave, the discount retailer, increased sales by 13.2%, while LiquorShop sales were up by 20%. Usave is the star performer in Shoprite’s RSA brand portfolio, with annual sales growing by 13.2%, which accelerated to 14.2% in H2.

Shoprite said the furniture business was under strain, as demand for big-ticket durables remained muted amid high interest rates.

Furniture sales increased slightly in the past year, but the number of stores declined. Sales in the furniture segment rose by 2.3%, and like-for-like sales increased by 2%. Credit sales remained consistent with the previous year. However, the number of stores decreased by four, with a total of 430 stores now operating (341 in South Africa and 89 outside the country).

The pharmacy divisions, Transpharm and Medirite, increased sales by 15.3%.

Outside South Africa, Shoprite’s stores in Angola, Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Eswatini and Zambia delivered strong sales growth of 22.1%.

Engelbrecht said Shoprite’s performance was testament to the team’s hard work and commitment, especially in a difficult economic climate. “Growth of this nature, in a highly competitive market and from a high base can only be achieved as a result of across-the-board commitment.”

He said Checkers and Checkers Hyper’s 12.3% sales growth reflected its customer focus, value positioning, culture of continuous improvement and commitment to serve. 

“(It has been) a busy year evidenced by 26 new stores and 12 store upgrades. Ongoing advances in fresh and private label development, together with market-leading execution from Checkers Sixty60, all reflect the brand’s commitment to its 12 million Xtra Savings rewards customers.”

Shoprite has increased its full-year dividend per share by 7.4% to 712c (2023: 663 cents). Georgina Crouth/DM

Tuesday, 3 September 2024

Aspen poised for growth but falls short of projections

After a few years of bedding down acquisitions and new projects, JSE-listed Aspen Pharmacare is poised on the runway for further growth in the years ahead. However, this didn’t appear to be sufficient to buoy the share price, which instead crashed by more than 12% yesterday to close at R207.94.

Management had pointed to mid-single-digit growth in normalised earnings before interest, tax and depreciation (Ebitda) when releasing interim results six months ago. But despite a 17% climb to a record second-half Ebitda of R6.1-billion, the Ebitda for the full period rose only by 1% to R11.3-billion.

Commenting on the company’s results for the year to the end of June, group chief executive Stephen Saad pointed out that manufacturing revenue grew by 25%, led by finished dose form revenue up by 33%, with commercial pharmaceuticals growing 4% after absorbing the impact of volume-based procurement in China. 

“Regionally concluded acquisitions in China and Latin America contributed to derisking the base commercial pharmaceuticals business which is well poised for future growth. 

“Robust cash generation from earnings was underpinned by sustainably lower working capital investment, assisted by the recently announced change in the operating model of our Heparin business which released R2,9-billion in inventory,” he said.

Group finance officer, Sean Capazorio, told Daily Maverick that the pharmaceutical manufacturer had clinched a lucrative licence in the rapidly growing GLP-1 market. GLP-1 drugs include the likes of Ozempic and are typically being used to treat diabetes and obesity. 

“The deal means we will be able to launch our own brand, which will benefit our commercial pharma business. There is still a long way to go, with patents only starting to expire from 2026 onwards, but we definitely see a huge opportunity for growth from that point on,” he said. That growth will largely come from emerging markets as the licensor will keep the US and European markets.

Solid operating cash flows, even after partial funding of the Latin American product portfolio acquisition of R2.1-billion, coupled with the benefit of reducing the group’s investment in Heparin inventory by R2.9-billion, were key catalysts moving the company’s financials to an upward trajectory. 

Net debt increased to R26.9-billion in June 2024, with net acquisitions of R7.7-billion. Neesa Moodley/DM

Tuesday, 3 September 2024

Motus ascribes muted SA showing to competition from East and adverse conditions

Diversification of income streams and internationalisation have helped Motus Holdings Limited mitigate the impact of adverse market conditions, with the automotive company delivering a resilient performance.

The group is a multinational provider of automotive mobility solutions and vehicle products and services, with a leading market presence in South Africa as well as a selected international offering in the United Kingdom, Australia, Southeast Asia and southern and East Africa.

In its results announcement on Tuesday, Motus said the financial year was marked by elevated vehicle and parts inflation, continued rand weakness against major currencies, ongoing high interest rates and intense competition, although its internationalisation and diversification strategies contained much of this external impact. 

Revenue over the year ending on 30 June 2024 increased by 7% to R113.7-billion (2023: R106.5-billion). 

Ebitda, a profitability measure, increased by 3% to R8.3-billion (2023: R8-billion).

Operating profit was down by 4% to R5.5-billion (2023: R5.7-billion)

Net asset value increased slightly to R102.03 per share. The company’s profit per share was down significantly by 28% to R14.79 per share. 

Cash flow improved significantly, with R3.5-billion in cash generated from operations.  

Motus, the exclusive importer of Kia, Renault, Mitsubishi and Hyundai in South Africa, operates in the UK and Australia, selling new and used vehicles, parts, accessories, servicing and maintenance, and offering vehicle rental and financial services. 

It is also a distributor, wholesaler and retailer of parts and accessories for out-of-warranty vehicles in southern Africa, the UK, Asia and Europe. Motus owns the Midas and Alert engine parts in SA.

Significant challenges

The automotive industry faced significant challenges in 2024, including economic uncertainty, rising costs and increased competition. Factors such as inflation, currency fluctuations, power outages, high interest rates and fuel price increases have put pressure on consumers’ wallets and businesses.

In South Africa, new competitors from the East have entered the market with attractive offers, making it more difficult for Motus to compete.

Global economic conditions remain challenging due to ongoing conflicts, rising costs and geopolitical tensions. These factors could hinder economic recovery and have an impact on the automotive industry in the coming years. Despite these challenges, Motus said, it would continue to focus on innovation, efficiency, product differentiation and customer service to maintain its position in the market.

The South African new vehicle market is under significant strain. After a slight uptick in July, the market saw a decline in August, with sales decreasing by 4.9% compared with the previous year, with both domestic and export sales falling. 

Naamsa’s latest statistics show export sales decreased by 14,658 units or 34.3%, to 28,073 units in August 2024 compared to the 42,731 vehicles exported in August 2023. Passenger car sales increased slightly, while light commercial vehicle sales fell by 21.5%. Medium and heavy truck sales were mixed, with the former increasing by 8.1% and the latter decreasing by 11.4%.

Motus CEO Osman Arbee, who retires at the end of October, said consumers the world over were delaying large purchases due to economic concerns, which was driving demand for spares. They are choosing more affordable vehicles, including pre-owned cars. This has led to increased demand for parts and maintenance services. The aftermarket parts industry is growing as people keep their vehicles for longer. The vehicle rental industry is recovering as travel increases. Interest rate cuts may help, but a strong economic recovery is not expected soon.

The UK economy is slowly recovering from a difficult period. While it’s expected to grow in 2024 and 2025, the pace is slower than in other developed countries because of high interest rates, inflation and economic uncertainty.

The UK’s new vehicle market has grown in the past year, with sales of passenger cars, light commercial vehicles and heavy commercial vehicles increasing. Motus has maintained its market share, especially in the commercial and van business.

Arbee told Business Maverick that the aftermarket parts industry was growing in the UK. However, the commercial vehicle market faced challenges due to oversupply and constraints in body building.

“The pond that we’re fishing in the UK is a huge pond, and demand is there, but people are holding back on big purchases for longer. There are 40 million cars in the UK; 36 million cars are outside warranty. There are quite a few players in the UK but the big player in that game always gives you a kicker.”

He said the UK market, being more affluent, could absorb price increases and would continue buying, unlike South Africa. 

“The UK market is treating us very well. South Africa was slightly down, but it won’t be down forever.”

In South Africa, Motus had problems with the supply chain, causing goods to be stuck at ports, although problems have started to ease. It also witnessed reduced demand in the South African market, compounded by inventory shortages.

During the year under review, Motus acquired Solway in the UK and, in October 2023, Motus acquired the Wagga Wagga dealerships in Australia, at a cost of R553-million.  

Operating profit declined by 4% due to lower profit margins, increased competition and weaker demand in the Import and Distribution, SA Retail, and SA Aftermarket Parts segments.

Cash flow from operations improved significantly, with R3.5-billion generated in 2024 compared to a R1.2-billion outflow in 2023.

A full-year dividend of 520 cents per share has been declared (2023: 710c per share). Georgina Crouth/DM 

Monday, 2 September 2024

RCL Foods’ annual results boosted by pet food and sugar sales

Pet food and excellent sugar sales, largely due to higher local and export prices, a more favourable sales mix and operational efficiencies, have helped lift RCL Foods’ annual results, in an economic environment it described as challenging. 

The food producer has resumed dividend payouts after the disposal of Vector Logistics last year and the unbundling of Rainbow Chickens, which took effect on 1 July 2024.

The Vector Logistics business was sold to EMIF II Investment Proprietary Limited, a subsidiary of AP Møller Capital, on 28 August 2023. RCL Foods provided transitional services to Vector Logistics for a year, which has now ended.

The Rainbow business, which had been separated internally in the 2022 financial year, was listed on the JSE on 26 June 2024. RCL is providing transitional services to Rainbow for two years on an arm’s length.

RCL, which is headquartered in Durban, released its annual results on Monday, with Rainbow’s financial results for the year ending 30 June 2024 included for the same period.

Revenue from continuing operations was up by 6.8% to R26-billion, primarily driven by higher selling prices to offset increased costs.

The producer of Yum Yum peanut butter, Supreme flour, Selati sugar and the Ultra Pet veterinary range of dog and cat food, said its Bread, Buns & Rolls operating unit faced intense competition, margin pressure and a 1.1% volume decline compared to the previous year. Rising wheat costs forced them to increase prices in October 2023, which led to decreased sales.

Despite higher input costs, RCL implemented average price increases of 6.8%, which is slightly below the national average for food and beverages.

The group also noted a volume upturn in the final quarter.

Baking volumes remain under pressure in a competitive environment, although the suspension of rolling blackouts has offered some relief.

Production in its Pies unit has stabilised after substantial work was done to resolve service level issues and improve margins, although lower demand in the Retail and Forecourt channels saw depressed volumes, with a 6.9% decline on the prior year. 

Earnings before interest, taxes, depreciation, amortisation and impairments (Ebitda) from continuing operations surged 36.8% to R2.3-billion, with strong performances from the Sugar business unit. The Groceries business unit saw improved profitability due to a recovery in Pet Food volumes and efficiency initiatives, although the Culinary category faced volume and margin challenges. The Baking business unit saw a slight decline, with improved margins in Milling and Speciality offsetting volume pressure across all operating units.

Rainbow’s revenue increased by 7.9% to R14.5-billion, primarily driven by higher volumes and pricing in the retail wholesale channel. Ebitda surged from R29.8-million to R629.7-million, with a margin of 4.3% (previously 0.2%). Underlying Ebitda rose to R672.1-million, despite a R202.6-million hit from the highly virulent strain of avian influenza.

It says improved farming practices, including the adoption of the Indian River breed, contributed to higher yields and reduced costs. The expansion of the Hammarsdale processing plant increased volumes and lowered costs. 

Effective cost management, including reduced load shedding costs, also contributed to improved financial performance. Higher pricing and increased retail and wholesale channel volumes further supported the positive results.

The consumer market remains challenging, especially in the Quick-Service Restaurant channel, which requires adapting product offerings and innovating, focusing on customer and product mix, cost reduction and market expansion.

The Animal Feed business maintained satisfactory profitability by improving margins and optimising the sales mix, despite facing pressure from excess production capacity in the market.

The Sugar business unit, comprising Sugar and Molatek molasses-based animal feed, achieved strong financial results. Revenue increased by 6.4% to R11.81-billion, and underlying Ebitda rose by 20.7% to R1.27-billion. This performance was driven by higher prices in both local and export markets, improved agricultural performance, and an exceptional result from Molatek Animal Feed.

Sugar sales volumes declined 8% compared with the prior year, primarily due to competitive local market pricing in the first half of 2024, although volumes improved in the second half as demand recovered. 

Sugar production was also down by 11.8%, hindered by delays in the crushing season caused by heavy rain. 

The group has declared a final cash dividend of 35c/share, bringing the total dividend for the year to 35c/share. Georgina Crouth/DM

Monday, 2 September 2024

Sibanye flags steep loss in H1 earnings as Montana operations burn cash

Sibanye-Stillwater said on Monday that it expects its interim earnings to plunge over 100% into the red as its palladium-rich operations in the US state of Montana continue to burn cash in the face of depressed prices. Once the shimmering jewel in Sibanye’s crown of assets, the operations are now breaking the bank. 

Sibanye-Stillwater’s share price sank more than 6% on Monday to its lowest historic level, taking its decline in the year to date to more than 34% after it flagged a sharp fall in its interim earnings that will be unveiled on 12 September. 

“Stakeholders are advised that Sibanye-Stillwater expects to report a loss per share for H1 2024 of between 250.8 SA cents (13.4 US cents) and 277.2 SA cents (14.8 US cents) compared with earnings per share (EPS) for the six months ended 30 June 2023 (H1 2023) of 262 SA cents (14 US cents), a more than 100% decline year on year,” the company said in a trading statement. 

“Earnings per share were significantly impacted by the impairment of property, plant and equipment from the US PGM [platinum group metals] operations amounting to R7.499-billion ($401-million), primarily due to lower medium- to long-term forecast consensus palladium price assumptions that resulted in a decrease in expected future net cash flows.”

Spinning cash

The Montana operations are rich in palladium and were spinning cash when the precious metal scaled record highs near $3,000 an ounce in February 2022. 

With palladium languishing at below $1,000 an ounce, Sibanye’s attempts to reduce costs at the operations have simply not gone far enough to make them profitable.

“... further actions to address the cost structures at the US platinum group metals operations are being assessed, as depressed platinum group metals prices remain a significant challenge,” read the trading statement. 

Sibanye CEO Neal Froneman said in July that one option would be to place the operations on care and maintenance, which would in effect mean halting production.

Read more: Sibanye-Stillwater CEO says firm prepared to mothball US mine

Sibanye spokesperson James Wellsted told Daily Maverick that all options are being explored and an update might be expected when the company’s interim results are published next week. 

“Will consider everything, including putting the mine on care and maintenance. We need to bring costs down to $1,000 an ounce,” Wellsted said. 

Once the shimmering jewel in Sibanye’s crown of assets, the operations are now breaking the bank. 

Read more: Once a wellspring, palladium-rich Sibanye-Stillwater’s Montana mine now breaks the bank

In June, Sibanye renegotiated its debt covenants to 3.5x earnings before interest, taxes, depreciation and amortisation (Ebitda) from 2.5x. Lenders can call in the loans if these thresholds are broken.

In August, the company refinanced and upsized its Revolving Credit Facility, from R5.5-billion to R6-billion with the refinanced facility, and concluded a R1.8-billion gold prepayment arrangement to boost its balance sheet. 

All of these measures signal that a company that was once a dividend darling is facing hard times and tough decisions. 

Among other factors, platinum group metals producers are hoping that the US Federal Reserve begins cutting rates this month, a move that could lift demand for the petrol and diesel vehicles that require the metals in emissions-capping catalytic converters. 

Meanwhile, Sibanye’s Montana operations look like they could get shut down until prices recover significantly. Ed Stoddard/DM

Thursday, 29 August 2024

Santam pins hopes on geocoding to turn the tide on natural catastrophe claims

Losses through weather and natural catastrophes remained a theme in Santam’s interim results released on Thursday, but its management is pinning hopes on technology such as geocoding to turn this tide in future.

Inclement weather conditions across the Western Cape, Eastern Cape and KwaZulu-Natal resulted in three catastrophe events with total losses of R607-million, compared with weather-related catastrophe losses of R150-million in 2023. Other significant losses amounted to R98-million, declining from R358-million in 2023.

Heavy rains in KZN, Eastern Cape, Western Cape and Free State resulted in severe flooding, while the Western Cape experienced strong winds. A sustained rise of more than 1.5°C in temperatures increases the risk of more severe climate change impacts, extreme weather events and a growing protection gap.

Tavaziva Madzinga, group chief executive for Santam, said the claims environment had been under pressure for the entire general insurance industry.

Inclement weather increases

“The frequency and severity of losses from inclement weather conditions have increased substantially over the past decade, including in South Africa, which has traditionally been seen as a benign catastrophe environment,” he said.

“We have, as a result, remained steadfast in implementing a number of underwriting actions in response to the elevated levels of claims frequency, severity and inflation experienced over the past number of years. We have also successfully addressed power surge losses, which in part was aided by an improved Eskom performance and the profitability of the motor book,” said Madzinga.

Zelda Els, a technical specialist at Santam, explained that the Santam underwriting viewer, developed with geographic information systems technology (also known as spatial intelligence), overlays geocoded addresses with scientific data sets to determine the exposure to specific perils at a given location — for the first time allowing underwriters to see all the data layers they need to be aware of to apply appropriate policy conditions to a property.

“Abroad, US, UK and EU insurers are well versed in using similar technology to aid with accurate loss forecasting and proactive risk management regarding hurricanes. All policies are geocoded and models have been developed to determine the threat of approaching hurricanes to estimate potential losses before a hurricane has even hit the ground,” she said.

Although clients are largely unaware of the technology that comes into play on the back end during the underwriting process, Els says the use of tech such as geocoding allows for site-specific underwriting and prevents attaching policy conditions to properties outside the determined hazard area. 

“Neighbouring plots can carry entirely different levels of risk, depending on their proximity to a flood line and elevation above a water source, for instance,” she pointed out.

Identifying high-risk exposures

In January this year, Santam was already in the early stages of developing a veld fire risk data set in the viewer, in correlation with Santam thatch accumulation on its personal lines policies where thatch risk applies. Small, localised studies have been completed; the methodology will be expanded at a national level to identify exposures to high-risk areas.

Factors that help determine the level of risk include the type of vegetation surrounding a property, history of wildfire, topography data such as slope, land cover and historical fire claim incidents in the area. The study results will enable the development of a fire hazard map and inform property mitigative measures and an appropriate fire risk rating to be applied to a property.

Els said the uses would be wider than simple underwriting for the insurer. “The aim is for the collective data to eventually extend beyond insurance needs, to be used by, for example, spatial planners to inform spatial planning guidelines where there are data gaps in the planning process, to benefit communities. For example, in cases where there has been a lack of motivation and/or funding from district municipalities, Santam has carried out flood line estimation studies for some of South Africa’s largest rivers including the Crocodile and Vaal rivers,” she said.

Looking ahead, management is expecting La Niña to lead to increased rain in the third quarter of this year, along with the usual hail season.

Underwriting profit increased by 82% at a margin of 6.5% for 2024, well within the insurer’s 5%-10% target range, albeit still below the midpoint. The margin in 2023 was 3.8%.DM

Tuesday, 6 August 2024

Nedbank interim results boost share price by more than 10%

Nedbank’s new chief executive, Jason Quinn, is ‘cautiously optimistic’ on the back of the market-friendly Government of National Unity outcome of SA’s general election.

The market reacted positively to Nedbank’s interim results on Tuesday, with the share price increasing by 10.6% to close at R277.88. It has risen by 17% over the year to 6 August.

The bank’s headline earnings were up by 8% year on year to R7.9-billion for the six months ended 30 June, underpinned by lower impairment charges and targeted expense management. The operating environment in the first half of 2024 was challenging as economic activity remained weak.

“We remain cautiously optimistic around the potential benefits associated with SA’s Government of National Unity and expect better macroeconomic conditions in the second half of 2024 and into the medium to long term,” said Quinn.

He said factors that hurt domestic activity ahead of the elections included geopolitical uncertainty, persistent inflation, high interest rates and political uncertainty.

Acknowledging Eskom’s apparent progress in stabilising electricity supply, Quinn said other infrastructure constraints remained limited. 

“Our relatively strong financial performance in the first half of 2024, including the progress made in executing our strategy and better economic prospects, give us confidence in making progress towards our medium-term targets and our aim to increase our ROE to 17% by 2025 and above 18% in the long term.”

Headline earnings per share (Heps) increased by 11% to 1,699 cents, diluted Heps increased by 12% to 1,650 cents and basic earnings per share increased by 12% to 1,700 cents.  The group’s balance sheet remained very strong. Shareholders will receive an interim dividend of 971 cents per share, up by 11.5% from last June, at a payout ratio of 57%.

Technology platform 95% complete

The bank said it had seen efficiency gains with client satisfaction scores at the top end of the South African banking peer group; good main-banked client growth; higher levels of cross-selling; and market share gains in areas that create the most value, including retail deposits, home loans, vehicle finance and overdrafts. 

Computer processing costs increased by 7% to R3.6-billion, reflecting the impact of continual investment in digital and cloud solutions and increased IT volumes.

Going forward, Nedbank will focus on commercialising its technology platform to make banking easier and more affordable for clients by migrating existing accounts on to new products. 

Nedbank Money app active clients grew by 16% to 2.6 million in the first half of this year, while transaction volumes on the Money app rose by 13% and transaction values by 19%. Revenue from value-added services including prepaid data, voucher and electricity purchases, and sending money to cellphones, grew by 28% year-on-year.

Overall, the number of digitally active retail clients in SA increased by 9% yoy to three million. Nedbank expects SA’s economy to fare better in the second half of 2024 and throughout 2025 if the recent improvements in electricity supply and confidence are sustained. Consumer spending is also expected to recover as inflation falls further, real household incomes return to growth and debt service costs decline on lower interest rates.

“Households are likely to be highly sensitive to the timing of anticipated interest rate cuts. If inflation proves sticky and interest rates stay higher for longer, household demand for credit could weaken more than anticipated,” the bank said in its results statement.

The good news is that Stage 3 loans (where borrowers have defaulted or are likely to do so) have been reduced by R7-billion year-to-date, down to R3.4-billion.

Unlike many other South Africans, Nedbank employees received an average salary increase of 6%, leading to an overall 9% increase in salaries and wages to R9-billion.DM

Tuesday, 16 July 2024

Jewellery sparks slight uptick in Richemont sales

Luxury goods group Richemont has reported sales growth of just 1% for its first quarter ending 30 June 2024, in economic conditions described as challenging. 

Sales were up in most regions, particularly Japan, which saw a 59% surge, and the Americas. Europe, the Middle East and Africa were also buoyant, although in China, sales were down by 27%. Jewellery sales were up by 4% while demand for luxury watches dropped by 13%, due to weaker sales in Asia Pacific. 

Direct-to-client sales also continued to rise, particularly for Jewellery Maisons. Cartier, Van Cleef & Arpels and Buccellati drove performance with a 4% sales increase against demanding comparatives (an increase of 24% in the prior-year period). Richemont’s “Other” business, which covers Fashion & Accessories, saw a 6% sales increase.

Overall, sales growth of just 1% was disappointing, although the luxury goods holding company labelled them as “resilient”. In the Asia Pacific region, there was a significant decline in sales due to weak consumer confidence. 

Specialist Watchmakers experienced a decline, despite strong performance in Japan, due to weaker sales in Europe and Asia Pacific (especially in China, Hong Kong and Macau).

YOOX NET-A-PORTER (an Italian online fashion retailer created by the merger of Yoox Group and Net-a-porter Group), or YNAP, which has been classified as discontinued operations, saw a sales decline. Richemont is in talks to sell off the loss-leading e-commerce fashion platform. In May, Draper Online reported that Richemont’s losses incurred, mostly through YNAP, amounted to €1.5-billion in the year ending 31 March. 

Richemont’s net cash position increased to €7.3-billion at the end of June 2024, up from €6.6-billion in the previous year, which excludes the net cash position of YNAP.

China’s once-booming luxury market is cooling due to an economic slowdown, rising unemployment and a shift towards less conspicuous consumption. 

This week, the world’s largest watchmaker, Swatch Group, announced a significant drop in sales and profits during the first half of 2024. This downturn was primarily attributed to a slump in demand for luxury goods in China, a key market. The company remains optimistic about the second half of the year, expecting improved performance due to cost-cutting measures and stronger growth in regions such as Japan and the US.

While the Swatch brand itself saw a 10% sales increase in China, overall sales for the group plummeted by 14.3%, which led to a sharp decline in both operating and net profit. 

Luxury fashion brand Burberry is also facing a major crisis. The company has sacked CEO Jonathan Akeroyd after just two years and issued a profit warning. Sales have plunged by 21% in the last quarter due to a failed attempt to reposition the brand as a higher-end luxury label. To turn things around, Burberry has appointed former Coach boss Joshua Schulman as its new CEO. The company is also scrapping its dividend to invest in a turnaround and will adopt a “more familiar” brand image.DM

Monday, 24 June 2024

Prosus and Naspers toast ‘standout’ year as e-commerce finally becomes profitable

Prosus and its South African parent company, Naspers, have finally turned the corner in e-commerce, reaching profitability in this division for the first time — six months ahead of target.

The diverse Prosus e-commerce portfolio includes iFood (Brazil) and PayU (India). The full-year trading profit of $38-million for the year ending 31 March, follows on from significant investments, improvements in efficiencies and cost-cutting.

The group is on solid ground as new incoming CEO Fabricio Bloisi is set to take up his position on 1 July, when interim CEO Erwin Tu will be shifting into a new role as group president and chief investment officer. 

A year ago, Naspers and its Amsterdam-based investment arm said they would unwind their convoluted relationship with each other. The cross-holding, introduced under former CEO Bob van Dijk (who resigned abruptly in September last year) was set up to address Naspers’ dominance on the JSE, which was artificially inflated due to its large Tencent stake. By 2020, Tencent’s market cap had reached nearly $1-trillion. 

Naspers bought into Tencent in 2001, after Koos Bekker invested $34-million for a 46.5% stake in Tencent, which was a rising Chinese tech giant at that time. 

Naspers split off its holding of Tencent and other tech companies into Prosus in 2019, with a listing on the Amsterdam Stock Exchange.

In 2021, the convoluted “cross-holding” structure was created, essentially moving a portion of Naspers’ ownership from the JSE to Amsterdam.

With last year’s approval by the South African Reserve Bank, Naspers would buy back shares to eliminate this cross-holding, simplify the structure and ensure that its ownership reflects its economic interest of 43% in Prosus. The remaining 57% would continue to be held by the Prosus free float, also aligned with its existing economic stake.

Group-wide, consolidated revenue moved from $6-billion to $6.4-billion, driven by strong performances at OLX and iFood. 

For the first time, e-commerce recorded a trading profit of $24-million, from a trading loss of $435-million in FY23, driven by food delivery and classifieds.

Basil Sgourdos, group chief financial officer for Prosus and Naspers, said core headline earnings have almost doubled, and the e-commerce results and performance at Tencent have driven a threefold increase in free cash flow. 

The classifieds division’s OLX Group grew consolidated revenue by 27%, driven by a strong performance in OLX  Europe, especially in the motors category, and a recovery in OLX Ukraine. Trading profit more than tripled to $172-million, with trading profit margin increasing 13 percentage points, to 24%. 

PayU, a core payments service provider business, saw improved overall profitability. Consolidated revenue grew 38% to $1.1-billion.

Iyzico, PayU’s Turkish PSP business, has grown revenue by 119% in nominal terms and declared a trading profit of $17-million. Another strong performer was Remitly, an online remittance service, which increased revenue by 44% and Ebitda margin by 5%. 

iFood’s gross merchandise value was up 20%, orders by 18% and revenue by 22%. Its core restaurant business almost tripled its trading profit to $260-million

Consolidated trading losses for the group have reduced by $486-million from $640-m in FY23.

South African businesses 

In South Africa, business was constrained by “challenging” economic conditions, although Phuthi Mahanyele-Dabengwa, the South Africa CEO of Naspers, said local business arms were continuing to innovate and explore new opportunities, singling out Takealot, which has now surpassed 10,000 active sellers on its marketplace. 

“We believe that the platform economy is a catalyst for economic growth, innovation and job creation in South Africa,” she said. 

However, Takealot has taken a beating over the past year, incurring a loss of $14-million (R253-million) due to competition from Shein and Temu, as well as high interest rates and inflation.

Mr D and Superbalist, which fall under the Takealot Group, saw gross merchandise value increases of 16% and 7% respectively. 

Mr D has also reached profitability for the first time, with a trading profit of $3-million.

The online marketplace for vehicles and boats, AutoTrader, has reported an 11% rise in user traffic, with platform growth of 97% since 2019.

Property24 has acquired a stake in  GraceNineteen, a black-owned property technology providing tenant solutions. 

Media24, whose losses are projected to reach R200-million over the next three years, plans to close the print editions of five newspapers and migrate three others to digital only. 

Managing director Ishmet Davidson has blamed structural declines in circulation and advertising, as well as rising distribution costs, saying they had “simply run out of options”. DM

Tuesday, 11 June 2024

Premier Foods rises to the occasion by delivering maiden dividend

Premier Foods, the manufacturer of Snowflake flour, Mr Sweets and Lil-Lets tampons, has closed FY 2024 on a strong note, with better-than-expected results. 

Established in 1824, the group was the first to list on the JSE last year after it was spun out of holding company Brait. It has now declared a maiden dividend of 220 cents per share, in line with its stated policy at listing. 

It equates to a final gross dividend of R283.6-million (ordinary shares) and R2.6-million (for “A” ordinary shares).

In March this year, Brait placed a further 15 million ordinary shares into the market.

Premier holds 27% of the bread market share in South Africa, 37% of the wheat market and 18% of the maize market. 

It also manufactures 15% of our sweets and 22% of our femcare products. In the UK, where it has a sales office, it has 76% of the non-applicator tampon market share.

For the year ended 31 March 2024, the group increased revenue by 3.6% to R18.6-billion, which it said was as expected, attributing its Millbake and Groceries and International categories to the growth, which rose by 3.7% and 3.3% respectively. 

It said the slowing revenue growth was caused by significant soft commodity inflation experienced in the previous year, which has subsequently stabilised.

Earnings before finance income and finance costs, tax, depreciation and amortisation (Ebitda) increased by 18.6% to R2.1-billion. Operating profit was up by 26.4% to R1.6-billion.

Millbake’s Ebitda grew by 20.6%, while the Groceries and International Ebitda grew by 3.7%. 

In a company statement, Premier said it maintained an “unrelenting focus” on optimising operational efficiencies, margin management and upskilling its people, which has paid off.

Operating profit grew by 26.4% to R1.6 billion. 

Premier Foods’ cash flow from operations surged by 54.8%, reaching R2.4-billion due to stronger profitability and efficient working capital management, as improved debtor collections and lower inventory balances further strengthened their cash flow position. 

Premier has also acquired a 30% shareholding in Goldkeys — a rice distributor in KwaZulu-Natal — which took effect on 3 June 2024.

Goldkeys is one of the largest rice importers into South Africa, supplying branded Thai and Indian-sourced rice under its own brands as well as house brands to retailers and independent wholesalers. 

Premier said it remained committed to its pre-listing strategy, prioritising efficiency and adaptable execution, but was mindful of the ongoing volatility in soft commodity prices and inflationary pressures. Despite this, they expect revenue growth to continue in the coming year. DM

Tuesday, 21 May 2024

Transaction Capital reins in losses after shifting WeBuyCars

Unbundling WeBuyCars has helped the holding company pay off a substantial amount of debt.

Two months after announcing a separate listing for its profitable division WeBuyCars, Transaction Capital can finally announce it is able to pay down a substantial amount of its debt. 

A key highlight of the holding company’s half-year results, for the period ended 31 March 2024, was the successful unbundling of WeBuyCars on the JSE, which helped Transaction Capital return R5.2-billion in WeBuyCars shares to shareholders. 

It also raised R1-billion through the listing, placing it in a net cash position at holding company level.

By migrating from an operational group to an investment holding company, Transaction Capital now comprises the holdco with two primary assets, Nutun (previously Transaction Capital Risk Services, the largest collections agency in the southern hemisphere) and Mobalyz (SA Taxi and Gomo). It has net cash of about R120-million.

For its troubled SA Taxi lending division, time is running out. 

A year ago, Transaction Capital’s share price tanked by more than 40% after news that it planned an aggressive restructuring of SA Taxi, which needs to be concluded by the end of next month. 

Support for the new business plan from SA Taxi’s existing debt funders is critical for Mobalyz’s survival, says Transaction Capital. 

SA Taxi’s gross loans and advances are down 5% to R16.2-billion (H1 2023: R17.1-billion), with 76% fewer loans originated. Its collection rate has slumped by 72%, which it attributes to the tough economic conditions for customers, which are not expected to improve soon. 

However, its credit tightening strategy is achieving better outcomes, with an improvement expected in the loan portfolio over the medium to long term.

Group-wide, Transaction Capital has reported a basic loss per share decrease of 20.7% to 178.3c, a decrease in headline loss per share of 26.6% and a 100% decrease in Core earnings per share from continuing operations, to a loss per share of 186.9c. 

Mobalyz has made a core loss from continuing operations of R1.8-billion, largely by the reduction of the absconsion, violation and credit shortfall cover in SA Taxi’s insurance business, which it said was necessary to create a sustainable insurance business. This has caused a once-off net loss of R966-million. 

The group said significant progress has been made in developing Mobalyz’s service offering as well as the restructuring and rightsizing of SA Taxi’s operations. It hopes the proposed business plan for SA Taxi, if accepted, will allow originations to continue uninterrupted. 

Transaction Capital is rationalising its board and head office structures to improve operating efficiencies – and sold Nutun Australia. The sale of Nutun Transact is currently underway. DM

Tuesday, 21 May 2024

Astral Foods seems to have broken the fever, posts 461% jump in profits

The chicken producer has bounced back after last year’s dismal results, owed to bird flu, rolling blackouts and other problems.

The food sector is a hard nut to crack and for those in the poultry sector, it’s been a tough few years. Vulnerable to business interruption due to disease outbreaks, energy crises and supply chain issues, poultry producers have operated in an environment plagued by a litany of problems, including power cuts and failing municipalities, import costs, product dumping and higher feed prices. Add avian influenza into the mix, widespread culling and no compensation, and it’s clear the industry’s on its knees. 

After posting a R512-million loss in September 2023, due largely to the rolling blackouts crisis and the outbreaks of the highly pathogenic avian influenza (HPAI), Astral Foods seems to have broken the bird flu fever.  

In its half-year results, released on Monday, Astral Foods reported a 4% revenue increase, a 441% hike in headline earnings per share and a 461% jump in operating profit from R98-million to R550-million. Six months ago, the group, which owns Country Fair, Goldi, Meadow Feeds and the Tiger Chicks hatchery, bemoaned its first loss in its 23-year history, having run up an operating loss of R620.90-million. The previous year, it reported an operating profit of R1.44-billion. 

The group’s operating profit margin of 5.3% was a marked improvement after the poor interim financial results posted a year ago, which reflected a R740-million loss due to rolling blackouts. Revenue for Astral’s Poultry Division was up by 6.7% to R8.7-billion (from R8.2-billion in March 2023), owing to increased sales and selling prices. 

Broiler sales volumes were up by 4.2%, despite broiler bird numbers being held back from an average of 5.8 million birds per week in September 2023 to 5.4 million birds per week for the six months ended 31 March 2024. The group was forced to hold back supplies to balance demand due to weak consumer spending. 

Broiler performance has improved significantly, after the normalisation of bird age and live weight as the backlog in the slaughter programme was cleared. The feed bill and factory overtime costs have also come down substantially. 

Astral’s results point to an improvement in the sector but the worst is not necessarily over. Egg and broiler producers have seen significant losses due to the new strain of bird flu (H7N6), which spread in both Gauteng and Mpumalanga. There are still about 20 open bird flu outbreaks in Gauteng. The poultry industry has warned that bird flu still poses a significant threat in the country. South Africa has yet to introduce a vaccination programme because it lacks capacity. There is a critical shortage of veterinarians and veterinary resources in South Africa.

At last week’s FairPlay media roundtable on lessons learned about the HPAI outbreak, Izaak Breytenbach, the general manager of the SA Poultry Association’s broiler board, explained that the industry has suffered about R9.5-billion in losses from culling infected birds.

The government’s “stamp-out” bird flu policy was unmanageable because farmers were not compensated for doing so. The policy requires that if an infected bird is detected, the entire flock is destroyed, the poultry houses are cleaned and sterilised, all at the operator’s cost. Failure to compensate could lead to producers choosing not to cull birds, which poses a significant risk to other flocks around the country. DM

Thursday, 9 May 2024

AB InBev toasts Corona’s performance as beer giant enjoys solid start to 2024

South African Breweries (SAB) has released its Q1 results, reflecting record growth in its premium sector.

This year has got off to a good start for SAB, with double-digit revenue growth in South Africa, largely owing to its super-premium sector and Beyond Beer categories. 

Corona and Stella have done particularly well for the brewer, which is part of AB InBev.

The Belgium-based brewing giant has reported revenue growth in about 75% of its markets, driven by a revenue-per-hectolitre increase of 3.3%, which it attributes to “revenue management initiatives and ongoing premiumisation”. 

Total volumes were down by 0.6%, with own beer volumes down by 1.3% and non-beer volumes up by 3.5%. 

Growth in the Middle and South Americas, Africa and Europe was offset by performance in Asia Pacific and North America.

Underlying profit (which is profit attributable to equity holders of AB InBev excluding non-underlying items and the impact of hyperinflation) was $1.509-billion in Q1 2024, compared with $1.31-billion in Q1 2023.

Revenue from the global no-alcohol beer portfolio grew by the high teens, led by Corona Cero and Budweiser Zero. 

On the super-premium side, global megabrands such as Leffe in Europe and Spaten in Brazil helped drive revenue by 5.2%, while Corona grew by 15.5%. 

But in the US, where a consumer boycott of Bud Light — AB InBev’s top-selling beer brand — began a year ago in response to a social media campaign with transgender TikTok influencer Dylan Mulvaney, revenue was down by 9.1%. 

Sales to retailers were down by 13.7%, mostly due to the volume declines of Bud Light. 

SAB CEO Richard Rivett-Carnac explained that while the super-premium category has contributed most substantially to their revenue growth, their traditional brands — Castle and Black Label — are performing well. 

“Although most of the growth in terms of percentages came from our premium portfolio, Corona, which is doing very, very well, we saw good growth in the traditional brands and Beyond Beer as well. So it’s not that the traditional brands are doing badly; the super-premiums are just doing particularly well.”

Beyond Beer, volumes of Brutal Fruit and Flying Fish are not disclosed but Rivett-Carnac said they have performed particularly well. 

“We launched Brutal Fruits more than 20 years ago as an innovation in the market. What we’re seeing is ‘sweet-seeker’ consumers — roughly 30% of South African consumers have a sweet palate and prefer a sweeter profile in their alcoholic drinks. They are a big part of the market that we weren’t maybe accessing through our traditional beer portfolio. 

“We also launched Black Crown, our gin and tonic ready-to-drink, which is also doing well.”

The legal age youth market is interesting, he said, as there is a worldwide trend towards non-alcoholic drinks and those who are of drinking age are behaving differently. 

“But there’s no doubt that people who come into legal drinking age and start consuming alcohol are more health conscious and are more aware that consuming less alcohol is a good thing.” DM

Tuesday, 23 April 2024

Capitec’s success story — 22m clients and counting…

Once upon time, it was the “newcomer” in the banking industry, but Capitec has grown to become a leading case study in banking success, boasting an active client base of 22-million, earnings of R10.6-billion, and 11.2-million app users for the year to end February 2024.

Transaction volumes increased 21% to 9.9 billion, driving a 29% increase in transaction and commission income to R14.8-billion. Gerrie Fourie, chief executive officer of Capitec, says this growth aligns with the bank’s strategy of shifting the market towards digital banking.

Strategic initiatives such as “value-added services”, payments and Capitec Connect, contributed R2.9-billion in net income, while the insurance business contributed R3-billion, and the relatively recently launched business banking division brought home R478-million in profit after tax.

Capitec App users increased by 180,000 a month and registered more than 11 million logins a day – that’s more than 500,000 people using the app every hour, illustrating how the brand has become a part of people’s daily lives. Fourie says the bank’s strategy has remained razor-focused on the future.

“Over the last three years, we’ve invested R6.3-billion in re-platforming our systems and migrating our data to AWS Cloud services, developing innovative payment solutions and building three new businesses,” he says.

Card payments increased by 30% to 2.5 billion, which means the Capitec card was used 6.6 million times daily across South Africa and in top international destinations. The bank further introduced Capitec Pay, the first API-based payment solution in South Africa, which enables secure card-free online shopping by simply entering a cellphone number and authenticating it using the Capitec app. Capitec Pay processed 134 million transactions with a value of R26.7-billion.

Clients with inflows of more than R15,000 a month into their Capitec account have increased by 17%.  Fourie says more than 2.9 million clients have net salaries of more than R15,000 paid into their Capitec accounts, with 600,000 clients depositing salaries of more than R50,000 a month.

The bank implemented a new online banking platform that allows clients to onboard remotely in minutes with no paperwork, for a low monthly fee of R50 and the same low transaction fees as personal banking for all businesses, regardless of size.

It seems that having conquered the South African market, Capitec is looking to expand not only in offerings, but also to other shores.

In March this year, the bank got the green light from the South African Reserve Bank to increase its ownership of Cyprus-based AvaFin, an international consumer online lending group, from 40% to 97% at a price tag of around R530-million. Fourie says Avafin presents a strategic opportunity to diversify the bank’s income sources and build on its experience in foreign markets. DM

Monday, 25 March 2024

Cash-flush private education group AdvTech hikes dividend by 45%

Private education provider AdvTech’s CEO, Roy Douglas, enters retirement on a high note, helping the market leader achieve double-digit revenue growth and solid enrolments in both schools and tertiary divisions. 

AdvTech has also hiked its dividend by 45%. 

Since Douglas took over from interim CEO Frank Thompson in November 2015, the group has almost doubled its enrolments, from 47,209 to 93,728, at an annualised growth rate of 8%. 

The latest financial year, ended 31 December 2023, saw AdvTech basking in strong demand for quality education, helping it grow revenue by 13% to R7.86-billion (up from R6.96-billion in 2022), and headline earnings per share by 19%.

Over the same period, operating profit increased by 18% to R1.57-billion (2022: R1.33-billion) and the operating margin improved to 20.1% (up from 19.1%). 

AdvTech’s tertiary division — which includes Varsity College, Rosebank College, Vega and Capsicum Culinary Studio — has done exceptionally well for the group, with revenue up by 10% and operating profit increasing by 16% to R787-million. 



Schools in South Africa (Trinity House, Crawford, Evolve online school and Junior Colleges) continue to do well, seeing 13% growth in revenue to R2.8-billion, while the rest of Africa (Kenya and Botswana) had boosted revenue by 14% to R381-million and hiked operating profit by 43% to R114-million. 

It saw a marked improvement in collections during the year and the more favourable ageing of the debtors’ book, with the loss allowance reduced from R438-million to R405-million.

The group is cash-flush too: it says cash generated by operating activities was up 10% to R1.94-billion, which helped fund R669-million in capital expenditure and pay R189-million in finance costs, R415-million in dividends and R375-million in tax; repay R78-million in lease liabilities and settle debt of R190-million. 

In a statement, board chairman Chris Boulle said Douglas successfully led the group in its expansion strategy during his tenure.

“He has refocused the educational division brand portfolios into well-positioned brands with distinct value offerings. This, together with a focus on effectiveness and efficiencies, resulted in a solid competitive advantage, and an agile and adaptive business model.”

Boulle praised Douglas’ leadership during the pandemic for being responsive to a dynamic environment, where more than 70,000 students were seamlessly transitioned to an online environment. 

“He leaves AdvTech in a strong position to continue its growth trajectory.”

Douglas has an MBA and a degree in economics and has previously worked at Unilever, Nampak, Deloitte and House of Fraser (in the UK). He told Daily Maverick that while Covid was a stressful period, they look back at it now with a “great deal of fondness” because it helped the group stress-test the business.

“We had made several changes to structures and systems processes within the organisation school division in particular. We were able to leverage the technical expertise, knowledge and experience that we had in the group in terms of online education in a matter of three weeks. We never dropped a single academic day during that period.”

Geoff Whyte, another economist, replaces Douglas as group CEO.

Whyte is described as a commercially focused business leader with more than 30 years of experience across various industries, including Nando’s, Unilever, PepsiCo, Cadbury Schweppes and SABMiller. 

Douglas said AdvTech had great growth in revenues, margins and operating profits, which enabled them to fund expansion programmes, acquisitions and developments.

Due to strong cash generation, the board has seen the opportunity to significantly enhance the dividend this year. 

“It’s been a wonderful 10 years and I look back with great fondness.” DM

Monday, 18 March 2024

Sun International rides the gaming and tourism wave

Sun International has reported a strong set of results, with earnings from gaming up 78% and exceptional growth in some of its resorts and hotels, buoyed by leisure, conferencing and sports tourism.

SunBets is up by almost 80% year on year, while resorts and hotels have been reinvigorated by a surge in leisure, sports and business. 

International leisure travellers have also driven up demand for the group’s Cape Town hotels. Tourism has made a notable recovery, as reflected in Stats SA’s latest tourism and migration data, showing that 20.1% (195,423) of all South Africa’s visitors in December were from abroad. 

Sun International has cashed in handsomely on this segment, with revenue from rooms, food and beverages growing by 24.1% year on year.

The group’s income is up 7% to R12.1-billion, driven by record income from SunBet, which has generated 116.2% more income for the year, exceeding its five-year targets, and what it describes as “impressive” performance from its resorts and hotels. 

Sun’s resorts and hotels were up 17.4% to R3-billion on 2022, driven by its top three performers: Sun City (up 14.8%), The Maslow (up 24%) and stellar performer The Table Bay Hotel (up 54.6%).

Gaming income, which brings in 76.8% of total group income, was 3.3% stronger year on year — despite the economic climate, increased competition and rolling blackouts. 

Sun International chief executive Anthony Leeming said Sun’s gaming division has seen phenomenal growth in income and profitability. 

“Sun City has seen record Ebitda [operating performance] — the highest it has ever made — and SunBet has had record Ebitda and profitability, rising from R733-million to R221-million in a year.”

SunBet also saw substantial growth in its key performance indicators, including almost 270% more unique active players, 268% more first-time depositors and 162.5% more deposits. 

The Table Bay has delivered a phenomenal performance, largely due to foreign tourism, while at Sun City “everything’s up”.

“If you look at the restaurants across the group — our food and beverage income from concessionaires is doing incredibly well, with double-digit growth in the urban casinos as well.”

However, urban casinos were still under strain, he said, which reflects the general economy, uncertainty around the upcoming elections, crime, pressure on disposable income, the energy crisis and high interest rates. 

Echoing the sentiments of other business leaders, Leeming said they need the general economy to grow so that their urban casinos can grow. 

“We have to push really hard. We still expect strong growth, but everything is under pressure.” DM

Thursday, 14 March 2024

Distressed consumers fatten up Standard Bank’s bottom line

Standard Bank’s headline earnings leapt 27% to R42.9-billion for the 12 months to the end of December 2023 with a return on equity of 18.8%. 

However, markets did not react favourably, with the share price falling about R13 intraday to close at R186.92 on Thursday.

Net asset value grew by 8% and the bank declared a final dividend of 733 cents per share, which, when combined with the interim dividend, equates to a dividend payout ratio of 55%.

Standard Bank Group chief executive Sim Tshabalala attributed the financial success to differentiated franchises with key performances from Africa Regions and offshore franchises.

On a more sombre note, the effect of the increasing interest rate environment over the past year has never been more evident.

Credit impairment charges increased 22% to R16.3-billion.

The increase in charges was driven by new loan origination, client strain driving partial payments, negative sovereign risk migration and new defaults.

In South Africa, credit impairment charges increased across all portfolios, compounded by the non-recurrence of credit recoveries on the payment holiday portfolio in the 2022 financial year (R500-million).

In Africa Regions, balance sheet growth, client-specific provisions and risk migrations led to higher credit charges. 

The group’s credit loss ratio increased from 83 basis points in the 2022 financial year to 98 basis points in the past year, at the top of the group’s through-the-cycle credit loss ratio target range of 70 to 100 basis points.

The bank notes that clients are likely to remain constrained until interest rates decline.

Credit impairment charges are expected to peak in the first six months of 2024, driven primarily by ongoing strain in personal and private banking. 

Looking ahead, the credit loss ratio is expected to remain within but near the top of the group’s through-the-cycle credit loss ratio range of 70 to 100 basis points for the 2024 financial year.

Operating expenses increased by 15% to R79.7-billion, impacted by inflationary pressures, particularly in Africa Regions. 

Standard Bank is investing in human resources with a 17% increase in staff costs driven by a larger staff complement, annual increases and higher performance-linked incentives. DM

Monday, 11 March 2024

Absa crosses the R100bn revenue threshold, sinks money into IT and new staff

Absa’s financial results for 2023 showcase a mixed bag of gains and pains, with a tidy sum of R126-million from insurance for riot-damaged property.

Absa’s financial statements for the year to the end of December 2023 received an injection of R126-million from insurance proceeds for damage sustained to property and equipment as a result of the KZN riots of 2021.

The banking group crossed the R100-billion revenue threshold for the first time as revenue grew 8% to R104.5-billion, with stronger growth coming from African regions.

“We are seeing the benefits of the strategic choices we made in 2018, as is evident from our diversified business, growing customer franchise and engaged workforce,” says Arrie Rautenbach, Absa group chief executive officer. 

The bank’s customer base expanded 4% to 12.2 million in 2023 from 11.7 million a year earlier, but in the face of rising inflation and interest rates, credit impairment charges climbed 13% to R15.5-billion. South Africa’s prime rate of 11.75% at 31 December 2023 was 125 basis points higher than at 31 December 2022 and 475bps above the bottom of the rate cycle from mid-2020 to late 2021. 

The credit loss ratio increased from 96bps to 118bps, exceeding Absa’s through-the-cycle target range of 75 to 100bps. Non-performing loans increased to 6.05% of total gross loans and advances as a result of elevated inflows into later-stage delinquencies in the South African retail portfolios.

Non-performing loans grew by a whopping 20% to R80-billion from R67-billion the year before.

In addition to its investment in a BBBEE transaction which placed 7% of group shareholding (equivalent to R11.2-billion at the time) in the hands of employees and communities, Absa has invested significantly in the recruitment of additional frontline staff. Recruitment, together with spend on digital, contributed to a 10% increase in operating expenses. Absa expanded its employee base and, at the same time, invested more in new digital capabilities to enhance customer experience both in branches and online. The number of digitally active customers increased from 3.4 million to 3.8 million.

Chris Snyman, Absa group interim financial director, says the bank has strengthened its balance sheet, with a 7% compound growth in revenues since 2018, while the cost-to-income ratio has improved to 52% from 58% in 2018. DM

Tuesday, 5 March 2024

Sibanye swings into loss on PGM price meltdown, $2.6bn in impairments

The sharp downturn in platinum group metals (PGMs) prices has hit producers hard, with Sibanye-Stillwater taking a $2.6-billion knock in asset impairments. It all adds up to a loss of $2-billion for the 2023 financial year versus a $1.2-billion profit for 2022. 

Diversified metals producer Sibanye released jarring results on Tuesday which showed it had fallen deep into the red in 2022 as the PGM price meltdown chowed its earnings and mangled the value of assets. 

It’s a dramatic shift from a couple of years ago when PGM producers were reaping record profits from record prices. 

The company’s rivals, including Northam Platinum and Impala Platinum, have also posted sharply lower earnings, but have managed to stay in the black. 

Sibanye bit the impairment bullet and shut off the dividend taps as it hunkered down for a turnaround in the PGM market, which has been hit by a perfect storm of global economic anxiety, premature obituaries of the internal combustion engine and an unexpected decline in rhodium demand from Chinese makers of fibreglass. 

“The Group’s financial results for the year ended 31 December 2023 were similarly impacted by the sudden and sharp decline in PGM and nickel prices,” the company said. 

“The 33% year-on-year decline in the average PGM basket prices, in particular, resulted in a dramatic fall in the profitability of the US and SA PGM operations, which in recent years have contributed the bulk of Group earnings and cash flow.

“The significant decline in metal prices and uncertain outlook, along with specific operational performance factors, also resulted in the Group having to recognise impairments of R47.5-billion ($2.6-billion) against various assets, which was a primary driver of the Group reporting a loss for 2023 of R37.4-billion ($2-billion) compared with a R19-billion ($1.2-billion) profit for 2022.”

The impairments were applied to the US PGM underground operation, SA Gold’s Kloof operation, the Burnstone gold project in South Africa and the Sandouville nickel refinery in France. These are non-cash items and an accounting write-down of the value of the assets. 

But only #4 shaft at the SA Gold’s Kloof operation is closing down as it is nearing the end of its life. 

The US PGM operation, known as Stillwater, has already returned plenty of cash to shareholders and will do so again if and when the market rebounds from its current nosedive. 

“Stillwater has paid for itself and shareholders have benefitted from dividends generated from the operation,” Sibanye CEO Neal Froneman told Daily Maverick in an interview.

Indeed, a couple of years ago, Stillwater, located in the US state of Montana, accounted for half of the group’s Ebitda (earnings before interest, taxes, depreciation and amortisation).

Sibanye maintains that the fundamentals of the PGM market point to an eventual rebound. 

“We continue to see emerging signals that ... support our long-held, robust view on PGM demand,” the company. 

These include forecast production growth for the rest of this decade in light-duty vehicles – or cars, simply put – powered by internal combustion engines that require platinum, palladium and rhodium for emissions-capping catalytic converters. 

Alongside this is a moderation in growth rates for battery electric vehicles which require other metals. Primary supply is also falling in the face of low prices. 

Sibanye has warned before of looming layoffs in South Africa’s PGM sector, but the company did not announce any new planned retrenchments, known as “Section 189” notices. 

However, Froneman told Daily Maverick that he wouldn’t “rule any out” in the future. DM 

Tuesday, 5 March 2024

Shoprite outruns competitors with 14.6% hike in interim sales

South Africa’s biggest and most successful retailer isn’t focusing on what is going wrong. Instead, it’s honing in on what it is doing right.

While its biggest competitor appears to have lost the plot, Shoprite just keeps on winning. South Africa’s biggest and most successful retailer has sold 13.9% more merchandise and gained R4-billion in market share in the past six months – and it expects an even brighter future.

Over the past six months, the group made R121-billion in sales.

On Tuesday, the retailer released its unaudited results for the period ended 31 December 2023. 

After almost five years of uninterrupted market share gains, Shoprite is dishing up some stiff competition for Woolworths and Spar and is clearly eating Pick n Pay’s lunch. 

Last month, Pick n Pay — which posted its historically worst results in October 2023  — announced it would be listing its prized asset, Boxer, in order to pay off debt. 

South Africa’s former darling retailer has also attracted the wrong attention after reports that it planned to liquidate one of its biggest franchisees, owned by the Baladakis family. 

Back to Shoprite, where the focus is not so much on where competitors have gone wrong, but on what it has done right. 

Shoprite CEO Pieter Engelbrecht kicked off his presentation with an apparent dig at Pick n Pay – which has repeatedly bemoaned the difficulty of doing business in South Africa – saying he could “spend an hour on all the excuses of why things are not great or why the performance could be better or what the reasons are that makes doing business in South Africa extremely challenging, but we’re not going to do that. It’s not what we do.”

Rather, Engelbrecht said, they would focus on how well they did, how the company developed, its increased employment, leadership, and the fun it had with its advertising. 

“I’m very happy to say that we have managed to win 34 awards for innovation in retail in the last six months.” 

In South Africa, the group’s supermarket sales hit R97.5-billion over the period – a 14.6% increase on the previous six months. 

Checkers and Checkers Hyper saw a 13.7% increase in sales, while Shoprite and Usave increased sales by 13.2% and 12.3%, respectively, which Engelbrecht attributed to the focus on putting the customer’s challenges and needs front and centre in the business, a commitment to the lowest prices, in-stock availability, efficient operations, and ongoing product and store development. 

Shoprite also increased its foothold in the country, opening 369 new stores over the past year.

Checkers Sixty60, which is on a massive winning streak, hiked its sales by 63.1% over the past six months.

Engelbrecht said while the operating context in South Africa was challenging and costly, especially due to the cost of blackouts, they were pleased to report an increase in profits and dividends for the period.

“The group continues to invest in the business on a number of fronts: tech and digital, supply chain, stores and, of course, people. 

“Over the six months, we added a net of 197 new stores to total 3,543 stores and, as a group, our commitment to employment growth resulted in the creation of 2,617 new jobs.” 

The board has declared an interim dividend of 267c per ordinary share, which shareholders can expect on 2 April 2024. DM

Monday, 4 March 2024

Aspen expels pig intestines and moves on to greener pastures

Multinational pharmaceutical manufacturer Aspen Pharmacare is poised for strong organic growth after switching manufacturing agreements for the supply of heparin-based syringes to a toll contract manufacturing arrangement. 

The move will effectively reduce Aspen’s investment in heparin inventory, and increase operating cash flows in the current financial year and the next. 

In the six months to the end of December 2023, Aspen’s investment in heparin inventory was reduced by R1-billion, with a further R2-billion reduction anticipated by the end of June this year.

The active ingredient for Heparin, a blood-thinning drug, is sourced from pig intestines. An outbreak of swine flu and African swine fever in recent years raised concerns globally, prompting a major recall of the injectable anticoagulant by the US Food and Drug Administration and their counterparts in Europe, Australia and New Zealand.

Aspen has countered this weakness in its supply chain with the transition to a toll manufacturing agreement, which means the company’s customers will own and source the active ingredient while Aspen will handle the manufacturing contract. 

“It effectively takes away the drag on our bottom line and makes it a working capital-light model,” says Sean Capazorio, group finance officer.

The other big move Aspen made in the first half of the year was the conclusion of a Sandoz agreement, which included acquiring the Sandoz business in China for a net upfront consideration of €27.9-million followed by potential net milestone payments of €9.2-million. 

Management expects to get competition authority approval for the deal in May. 

Capazorio says the deal will materially mitigate the negative impact of volume-based procurement on Aspen’s existing business in China from next year.

Stephen Saad, Aspen’s group chief executive, says the company has completed the necessary steps to reach the commercialisation stage for the manufacture of mRNA platform products which will augment revenue in the second half of the year. 

Revenue climbed 10% to R21.1-billion while operating cash flow per share jumped 44% to 553.2 cents.

The second half of the year will be further boosted by the distribution and promotion agreement with Lilly for sub-Saharan Africa, and the product purchase agreement with Viatris for Latin America. 

The agreement with Lilly is effective from January 2024. 

Subsequent years will benefit from the launch of key pipeline products including Lilly’s Tirzepatide, marketed globally as Mounjaro. 

Viagra, Lipitor, Norvasc, Lyrica and Celebrex are key brands included in the product portfolio acquired for Latin America. 

Aspen’s share price has climbed 16.55% over the last year to close at R205.21 on Monday afternoon. DM

Thursday, 29 February 2024

FNB takes a hit of almost R1bn as clients benefit from fee reductions

First National Bank (FNB) will absorb a hit of almost R1-billion in the current financial year on the back of fee reductions, says FirstRand Group chief executive Alan Pullinger.

“Bank fee increases were below inflation across the board in July 2023 and in addition to that, we reduced fees on instant payments,” Pullinger says. 

The relatively muted growth in FNB’s fee and commission income for the six months to the end of December was due to sub-inflation fee increases across both retail and commercial accounts. 

In addition, with the introduction of PayShap, FNB reviewed its pricing structures for low-value, real-time payments and decided to reduce all related fees and absorb the entire impact of the repricing in one financial year (to 30 June 2024).

“The resultant 30% increase in real-time payment volumes that FNB has already experienced since the repricing action demonstrates this is the correct outcome for customers. 

“In the first six months of the current year alone, this resulted in a cumulative R477-million reduction in customer fees,” he says.

Advances growth from FNB’s commercial segment were up 10%, compared with a 14% increase at RMB and a 9% increase at FNB Broader Africa. 

The bank says these numbers reflect a consistent origination strategy to focus on sectors showing above-cycle growth, and which are expected to perform well even in an inflationary and high interest rate environment.

Normalised earnings increased 6% to R19.1-billion, driven by strong topline growth, particularly net interest income, which was supported by growth in both advances and deposits. 

Advances now total R1.6-trillion.

Pullinger says the credit loss ratio of 0.83% is particularly pleasing since it is well below the midpoint of the group’s through-the-cycle range of 80bps to 110bps. 

“This is a commendable result given the prevailing inflation and interest rate cycle and has enabled continued advances growth as the group services the needs of customers through judicious and tactical origination,” he noted.

Across the portfolio, deposits and transactional balances increased strongly, both of which have provided an underpin to the return profile. The retail and commercial segments of FNB in particular registered excellent growth in deposits off an already high base.

This performance reflects the benefit of the group’s approach to origination, particularly post the pandemic when new business was weighted towards the low- and medium-risk categories, and was achieved despite the current pressures from high inflation and interest rates.

Total group operating expenses were 9% higher and in line with expectations. 

FNB grew costs below inflation, but this was offset by a significant increase in costs from RMB (+13%) due to elevated investment in platform and geographic expansion.

The UK operations’ ongoing investment in systems and people contributed to cost growth of 11%. Overall, the cost-to-income ratio decreased to 49.9%, given the strong topline growth in the period.

Commenting on second-half prospects, Pullinger said the group expects the macroeconomic environment in the jurisdictions where it operates to remain largely unchanged, characterised by high interest rates and persistent elevated inflation.

“Given this backdrop, we anticipate softer overall advances growth and, given the current high base, deposit growth will slow as households draw down on savings, although commercial deposit gathering is expected to remain resilient,” he said.

Pullinger concluded by indicating that the group expects to generate earnings in the second half similar to the first. 

Shareholders will receive an interim dividend of 200 cents per share, representing a payout of 59%. DM

Wednesday, 28 February 2024

Woolworths shows food basket brims with potential

Woolies Food delivered solid growth, with turnover and concession sales growing by 8.4% and 7.2% on a comparable store basis, despite the impact of rolling blackouts, bird flu and the taxi strike.

Subdued spending on discretionary items — particularly apparel — dragged down Woolworths’ half-year profits. And the weak economy is not helping.

In South Africa, Woolworths’ operations were also hamstrung by load shedding, congestion at the ports and the impact of bird flu. It’s not likely to get easier over the rest of the financial year, with the upcoming elections and growing geopolitical uncertainty.

The retailer released its interim results on Wednesday, for the 26 weeks ended 24 December 2023, but said the first half of the 2024 financial year was not directly comparable to that of the prior period because of the inclusion of the David Jones contribution in the 2023 period.

Nobody is immune from the challenging macroeconomic environment, which loomed large in the results, owing to the cost of living crisis and interest rate increases. The retailer said this affected footfall and resulted in a bigger-than-expected pullback in discretionary spending.

Consumers are still spending on food, though. 

Once again, Woolworths Food delivered solid growth, with turnover and concession sales growing by 8.4% and 7.2% on a comparable store basis, despite the impact of rolling blackouts, bird flu and the taxi strike.

In the last six months of the period — the height of the festive season spending — sales grew by 8.6%. Online sales through the Dash app were up by 46.6%, although that only comprised 5.1% of South African sales.

Its gross profit margin increased to 24.6%, which it attributed to targeted and effective promotions and value chain efficiencies. 

Adjusted operating profit grew by 13% to R1.6-billion. Adjusted for the impact of the blackouts, operating profit grew by 13.2%.

Fashion, Beauty and Home (FBH) was making steady progress. 

Woolworths CEO Roy Bagattini said the standout performer was its food business, but FBH — in particular Beauty — was up 16%. 

“We’ve doubled our Beauty business in the last three years and our plan is to double it again in the next two to three years. We’re investing heavily in Beauty… It’s a big play for us.

“If you want to establish yourself as a beauty destination, you really have to have the scope of offering different categories and you need to have the right products and experiences. We now have 20% of the beauty market in South Africa.” 

Sales for the period under review were affected in part by the late arrival of some summer ranges owing to the ports crisis. Turnover and concession sales grew by 2.2%, with store sales increasing by 1.5%. 

The group’s turnover and concession sales from continuing operations were up by 5.4%. 

The final six weeks of the period, which included festive season trade, was up by 7.2%. 

The apparel business — which is struggling in Australia — saw a 7.4% decline in earnings per share (EPS) from continuing operations, while headline EPS declined by 7.5% and 31% across the group.

The economic environment in South Africa was and remained challenging, exacerbated by the energy and logistics crises which hurt business and consumer confidence.

However, despite the difficulties, its combined southern Africa business grew operating profit by 10% on last year.

Woolworths Financial Services (WFS) showed a 4.9% increase in new accounts and credit card advances. The annualised impairment rate for the period was up slightly to 6.3%, from 5.5% in the prior period. 

Bagattini said WFS was a “very interesting business”. 

“Obviously, it is very much subject to the economic cycle. We’ve seen a significant return to profitability and performance of that business. We’re also growing our book. 

“But if you look at the impairment ratio, we have the lowest level of impairment, given our approach to credit and given the relative target market of our other financial offerings. It is the healthiest book in this sector.”

In Australasia, trading conditions have worsened: consumer sentiment in Australia is at near-record lows and household savings are the weakest since the global financial crisis.

Woolworths noted in a statement that there was a marked shift from spending on goods to services.

Country Road’s sales were down by 5% and 9.5% in comparable stores, although it said the brand was delivering a market-leading performance across key categories.

“Overall trading space increased by 6.6% during the period, supported by the ongoing expansion of our wholesale and concession channels. The contribution from online sales increased marginally to 26.8% of total sales.”

The rest of the financial year was likely to remain difficult, with rising inflation and high interest rates putting pressure on consumers the world over – but South Africa also had the energy, ports and other crises to contend with, alongside the upcoming elections and ongoing global geopolitical tensions. DM

Wednesday, 31 January 2024

Astral Foods reports its first loss in 23 years

If 2023 was a disastrous year for Astral Foods, the chicken producer seems to be more hopeful for the future. After last year’s intensive rolling blackouts, water supply issues, record high input costs and a crushing outbreak of the highly pathogenic avian influenza (HPAI), Astral reported its first loss in its 23-year history. 

On Wednesday, it was more optimistic, saying that it was expecting to return to profitability in the first quarter of the financial year ending 30 September 2024, after making good headway in addressing some of its recent issues, including maintaining emergency backup generator capacity at all its operations; benefitting from lower stages of rolling blackouts, which helped keep a lid on diesel costs; putting uninterrupted water supply systems in place to reduce downtime; keeping feeding costs low; and normalising the poultry sales mix, which was previously affected by heavy promotional discounting.

Despite reduced levels of blackouts, Astral was still forced to run its Standerton poultry processing plant on diesel because of municipal power supply interruptions. 

It also said it had managed to avoid a shortage of chicken during the outbreak of HPAI, which increased costs as it had to import broiler hatching eggs. 

Owing to what it called “depressed consumer spending”, Astral said it had aligned broiler slaughter numbers to adapt to the current market conditions, and was committed to recovering its input costs. 

Of the International Trade Administration Commission’s (Itac’s) announcement on poultry sector rebates, which was in response to HPAI-related shortages, Astral said it was dismayed at Itac’s recommended poultry import tariff rebate structure. 

“No shortage of chicken has been experienced or expected in the local  supply chain with industry production at normalised levels due to numerous contingency plans implemented.”

After last year’s disastrous results, Astral now says it expects that earnings per share and headline earnings per share for the six months ending 31 March 2024 could increase by “at least 300%” to 647c and 654c, respectively.

Importers, however, hailed Itac’s announcement.

Hume International’s logistics and operations director Roy Thomas said consumers had reason to celebrate, as Itac confirmed that it was lifting punitive tariffs on imported chicken.

“This decision was made in response to the impacts of [HPAI] ... which has ravaged both global and local poultry supplies. Heeding calls and warnings from importers and businesses such as Hume International regarding the serious consequences of the outbreak on the cost of chicken, Itac’s tariff rebate represents a welcome reprieve for consumers – especially low-income households.”

Thomas said despite claims that bird flu had little impact on supplies or prices on shelves last year, Statistics South Africa’s latest inflation figures showed that egg prices surged by 38%, chicken giblets by 18.3%, fresh chicken portions by 14.6%, whole chicken by 8.4% and individual quick frozen portions by 6.4% — all above average inflation for 2023.

“These price increases clearly reflect the ongoing impacts of bird flu both locally and abroad, in addition to the effect of new import tariffs implemented in August last year.” DM

Tuesday, 30 January 2024

Checkers Sixty60 delivers a competitive edge for Shoprite

Reliable, convenient and quick home deliveries have given South Africa’s largest retail group, Shoprite, the upper hand, boosting sales through its Checkers Sixty60 delivery platform by 63.1% over the past six months.

The group ended the second half of 2023 on a high, with sales up by almost 14% to R121.1-billion, helped along by a record Black Friday and festive season trade. 

In an update on Tuesday, Shoprite said its Shoprite and Checkers Xtra Savings rewards programme had also saved customers R8.4-billion over the period.

The group’s core business in South Africa enjoyed a healthy 14.6% jump in sales.

Internal selling price inflation for the period was 7.7%. Checkers and Checkers Hyper grew sales by 13.7%, Shoprite and Usave were up by 13.1% and liquor sales, through LiquorShop, were up by 25.2%.

The group said its robust sales were favourably boosted by its acquisition of  94 stores from the Massmart group, which added 51 Shoprite, one Usave and 42 Shoprite LiquorShops to its stable. 

Over the past 12 months, the group grew by 285 stores, bringing its total number of stores to 2,237. 

Outside South Africa, where Shoprite has outlets in Ghana, Angola, Mozambique and Zambia, sales were up 20%, increasing in rand value by 6.2%. It has added nine more stores in nine countries over the past year, bringing that total to 258.

Reflecting the impact of the cost-of-living crisis on consumers’ pockets, furniture sales were in the doldrums: OK Furniture and House & Home increased sales by just 1.7%. 

Consumers are increasingly cash-strapped, spending less on discretionary items like clothes and appliances while channeling their money towards the necessities of life. 

The group’s other operating segments, comprising OK Franchise, Transpharm, Medirite Pharmacies, Red Star Wholesale Catering Services  (previously Checkers Food Services) and Computicket, reported sales growth of 23.1%.

The OK Franchise division was up by 25%, increasing its store base by 70 stores over the year. A total of 605 stores are now franchises.

Diesel, to power generators due to increased rolling blackouts, cost Shoprite half a billion rand over the period. DM

Monday, 29 January 2024

Truworths owes buoyant sales to Office stores

Clothing retailer Truworths owes most of its healthy recent sales to shoe sales at the group’s UK-based Office stores, which saw a double-digit increase — in pounds — over the past six months.

Store account sales have been flat since 2022, comprising 70% of all retail sales, while 0.9% fewer customers were paying for their goods in cash.

The retail group released a trading update today, for the period from 3 July 2023 to 31 December 2023, which showed an 8.2% increase in retail sales to R12.2-billion compared with the previous financial period from 4 July 2022 to 1 January 2023.

Sales at Office grew by 15.6% to £162-million relative to the prior period’s £140-million, which in rand terms saw growth of 33.1% to R3.8-billion.

It said Office was benefiting from its “unique market positioning, brand partnerships and strong online presence”. Online sales comprised 47% of Office’s retail sales in the current period, growing by 3% in the prior period. The last nine weeks of 2023 saw an 11.7% increase in retail sales to £71-million. Office is expected to grow by 12% for the 2024 financial period, due to greater investment in stores and renovations.

Truworths Africa was down by 0.3%. Poor economic conditions and high interest rates ate into consumers’ disposable income, which affected sales. The group granted less credit due to consumers’ declining credit health, which also hurt sales. Retail sales were down 1.6% to R4-billion for the last nine weeks of the year. Online sales, though, were robust, increasing by 41% and contributing 4.2% to Truworths Africa’s retail sales.

Once again, a retailer blames port congestion for weaker-than-expected sales, which resulted in reduced deliveries ahead of the Christmas season. 

Last week, Mr Price said the Durban port congestion disrupted festive season trade, as it kept an eye on the instability of the Red Sea shipping route which has increased time on the water. This also increased shipping costs, although Mr Price said its rates were contracted until June.

TFG said economic conditions in all its operating territories remained challenging. 

In its update on 24 January, TFG said: “In South Africa, this was exacerbated by continued load shedding and delays experienced at ports, which impeded the planned flow of inventory. The impact of these import delays was offset to an extent by the ability to increase volumes from TFG’s local manufacturing capacity.”

Woolworths, too, said in its half-year results that the energy crisis — compounded by the fiasco at South Africa’s ports, the cost-of-living crisis and bird flu — had weighed down sales. DM

Wednesday, 24 January 2024

TFG reports healthy growth in turnover 

TFG’s latest results show e-commerce is booming. Bash, its online sales platform, grew by almost 45% over the nine months leading up to 30 December, contributing 4.2% towards the group’s Africa business. 

The group also saw a 9% growth in turnover, largely owing to robust festive season trading and growth in its Africa division. 

In a trading update released on Wednesday, the group, which owns the Foschini, @Home, American Swiss, Coricraft and 30 other brands, said it also grew turnover in the last three months of 2023 by 4.5%. 

Turnover was healthier closer to home than in the UK and Australia: TFG Africa grew turnover by 5.1% in Q3 and for the month of December, by almost 12%. TFG Africa’s cash turnover — which grew by 6.6% in Q3 FY2024 — now comprises 75.8% of the division’s Africa turnover and 82.4% of group turnover.

Once again, a retailer has bemoaned rolling blackouts: On Tuesday, Woolworths noted in its half-year results that the energy crisis — compounded by the fiasco at South Africa’s ports, the cost-of-living crisis and bird flu — had weighed down sales. 

TFG says turnover has been affected by a softer Black Friday period in South Africa, with Stage 6 load shedding implemented over that weekend. 

Its London operations saw a 3% decline in turnover, after the strong bounceback after Covid-19 recovery base in Q3 of 2022, while TFG Australia was down by 7.3% in Australian dollars.

Bash, the group’s online shopping platform, grew turnover by 29.2% in Q3 FY2024.

TFG Africa’s online turnover was also up, by 44.8% in Q3.

Credit turnover was minuscule, up by just 0.7% in Q3, as the group kept a beady eye on the economic climate and accepted only 17.8% of new accounts.

In a Sens announcement, TFG said economic conditions in all its operating territories remain challenging. 

“In South Africa, this was exacerbated by continued load shedding and delays experienced at ports, which impeded the planned flow of inventory. The impact of these import delays was offset to an extent by the ability to increase volumes from TFG’s local manufacturing capacity.”

Both TFG London and TFG Australia’s performances were to be viewed in the context of exceptional performance after Covid recovery, the group said, adding that consumers were under pressure from the cost-of-living crisis. 

TFG said trading conditions and consumer confidence were likely to remain under pressure, due to inflation and interest rates, and South Africa’s energy crisis and port chaos. DM

Tuesday, 23 January 2024

Woolies counts on food as other divisions hit by ports, energy, bird flu and economic crises 

Congestion at the ports, bird flu and the energy crisis are all weighing heavily on Woolworths’ sales in South Africa, which have also been dragged down in both its home market as well as Australia by the cost-of-living crisis. 

The food, apparel and homeware retailer released its half-year results on Tuesday for the year ended 24 December 2023, which reveal strong growth from its robust food business in light of a difficult economic environment. 

Building on the 15 November 2023 update it released on Sens, it said its performance for the current period has been shaped by an increasingly difficult macroeconomic backdrop due to the sustained effect of interest rate increases and higher living costs. 

This was evident in reduced footfall and a greater-than-expected pullback in discretionary spending in both SA and Australia.

South African operations were further bruised by higher levels of rolling blackouts, congestion at the ports and the impact of the bird flu outbreak that was affecting key food product lines. 

Woolworths said the economic environment in South Africa “remains challenging, exacerbated by the country’s energy and logistics crises, which continue to impact both business and consumer confidence”.

Despite bird flu, the energy crisis and the port snarl-ups, the food business delivered solid growth, with sales up by 8.4%.

Online sales, via Woolworths Dash, rose by 46.6% and contributed 5.1% towards South African sales.

But the fashion, beauty and home business — reliant on imports — suffered over this period, with turnover and concession sales up by just 2.2%, during what should have seen peak sales.

Black Friday and the festive season helped boost sales in the last six weeks of the period under review by 3.8%.

More customers were signing up for credit, as Woolworths Financial Services saw a year-on-year increase of 4.9% to the end of December 2023, as customers opened new accounts and credit cards. 

Impairments were up by 6.3%, compared with 5.5% in the prior period, suggesting customers were under increased strain. 

Country Road was battling in Australia and New Zealand, as trading conditions worsened in both countries: sales were down by 5% and 9.5% in comparable stores, although it said this should be viewed off a high base in the prior period, which saw sales growth of 25.5% after the strong recovery from the Covid lockdowns. DM

Wednesday, 29 November 2023

Naspers doubles profits, says profitability in e-commerce is within reach

Naspers has released its interim results alongside its Amsterdam investment arm, Prosus.

Naspers has doubled profits over the past six months. The multinational internet and tech group released its interim results on Wednesday for the half-year ending 30 September, alongside those of its Amsterdam-based investment arm, Prosus.

September marked the fourth anniversary of listing Prosus on the Euronext Amsterdam, which created Europe’s largest consumer internet company.

Naspers and Prosus announced in June that they would unwind their convoluted relationship, which undermined shareholder value.

Introduced two years ago, Prosus owned nearly half of its South African parent (49.5%), while the latter owned 61% of Prosus, in the cross-holding arrangement. The South African Reserve Bank approved a buy-back scheme that allowed Naspers to buy back more of its shares and work to undo the cross-holding, the companies announced in June. 

The group said it had made significant progress on its commitments to steer Prosus’s e-commerce to profitability by the first half of 2025 – it is now targeting profitability for the second half of 2024 – and continue its open-ended share repurchase programme; simplify its structure through removing the cross-holding, and highlight the value in its portfolio of assets.

The ongoing open-ended share repurchase programme has reduced Naspers’s net share count by 14% and generated $25-billion for shareholders.

Naspers funds its share repurchase programme with regular sales of Prosus shares.

Ervin Tu, interim group CEO for both Prosus and Naspers, said in a company statement that they were making substantial progress towards driving profitable growth.

“Through active management of our portfolio, we have delivered improved results as our e-commerce portfolio is now close to break-even and growing at scale.

“We’ve simplified our group structure, and the open-ended buyback programme is driving daily NAV (net-asset value) per share growth, magnifying returns over the long term. 

“With deep institutional knowledge across a number of technology domains, including AI, we are well positioned to support exceptional technology companies around the world.

“We remain ambitious in our plans and disciplined in our approach to drive real returns for all of our stakeholders,” said Tu.

Core headline earnings more than doubled, increasing by 112%, due to improved e-commerce and Tencent profitability. 

Its free cash inflow increased to $677-million – an eightfold year-on-year improvement, and it has access to more than $15.1-billion in cash. 

Takealot has sold more products and grown revenue by 15% and 9% respectively. Naspers attributed rising interest rates, inflation, depressed consumer demand and rolling blackouts for creating strain on the business.

The Takealot group has reduced its trading losses by 85% when measured in US dollars. Takealot.com grew its total sales by 15% and expanded its marketplace seller base, which reached about 10,600 sellers in September 2023.

Mr D, its food, grocery and convenience delivery service, grew revenue by 11% and sales by 15% in rand value.

It said Mr D’s partnership with Pick n Pay continues to grow.

Prosus held 25% of Tencent at the end of the reporting period.

E-commerce trading losses were sharply down, reducing from a peak of $270-million to $38-million in the period under review.

Consolidated group revenue from continuing operations increased by $248-million, or 9%, due primarily to strong revenue growth in classifieds, food delivery, and payments and fintech. DM

Monday, 27 November 2023

Oceana thanks its Lucky Star for jump in profits

Fishing and food processing company, Oceana has seen a 28.9% jump in net profit, thanks largely to its popular Lucky Star range of tinned fish and record performance from its international subsidiary, Daybrook Fisheries. 

Daybrook produces fishmeal and fish oil, sold primarily to the US pet food and global animal and aquaculture markets.

Lucky Star has seen a surge in sales this year, in a constrained environment, as consumers switch to more affordable forms of protein. Oceana released its annual results on Monday for the year ended 30 September 2023, which revealed a 28.9% rise in headline earnings, to R980-million, largely driven by strong performances from Daybrook, which raised operating profit in dollar terms by 30%, and Lucky Star, which grew sales by 9%. Another element in Lucky Star’s favour: Rolling blackouts, because customers are increasingly drawn to shelf-stable products like tinned fish because they are a safe and convenient protein.

Local canning production volumes were up by 13.1% to 5.2 million cartons. Inventory levels were 18.7% higher than the previous year.

Revenue was up by 22.6% to R10-billion, supported by improved pricing across its products and the effect of the weaker rand on exports, while operating profit from continuing operations climbed by almost 20% to R1.5-billion – the highest level since 2016.

The group also reduced its debt levels to the lowest since it acquired Daybrook in 2015. 

Despite positive price movements, the group said its gross margin reduced from 30.8% in 2023 to 28.6% this year, due to rising input costs, which were not passed on to consumers to maintain affordability, lower catch volumes and fish oil yields in both the SA and the US fishmeal and fish oil operations, poorer catch rates for its SA hake and horse mackerel fleets and costs related to rolling blackouts.

Its profit after tax increased by 25.2% to R990-million.

Oceana CEO Neville Brink said a diversification strategy across species, geographies, and currencies helped it to deliver strong growth despite the operating environment being characterised by high inflation and interest rates, currency volatility, a low-growth domestic economy and increased rolling blackouts. 

“Diversification enabled us to benefit from higher demand and better hard-currency pricing for many of our products. Record global fish oil prices particularly helped Daybrook. By building and holding higher inventory levels we were able to capitalise on the demand. In the domestic market, investing in our volume strategy for Lucky Star by absorbing some inflationary input costs and protecting consumers has paid off, as reflected in our sales growth.”

Oceana’s new canned meat factory opened in October 2023. It plans to leverage the brand strength of Lucky Star to release other canned food categories in the new year.

Brink said Oceana would continue to grow Lucky Star sales by ensuring high levels of availability and keeping the product affordable relative to competing proteins.

“While we will remain responsive to the impact of rand weakness on Lucky Star margins, our high exposure to foreign-currency earnings provides a natural hedge against rand volatility.”

The shift in the weather cycle to the El Niño effect is expected to improve fishing conditions and catch rates of South African hake, horse mackerel and squid.

Oceana was recently allocated a 15-year fishing right. DM

Tuesday, 21 November 2023

African Bank swings from a loss to a profit intra-year on the back of acquisitions

African Bank’s net profits after tax swung from a loss of R44-million in the first half of the year to a profit of R549-million in the second half. However, this was partially due to a boost from the R1.5-billion acquisition of Grindrod Bank in 2022.

As part of its growth strategy, management has also been quite deliberate in diversifying, moving from what was largely a retail consumer-focused bank to a bank looking to strengthen its offerings through alliances that now bring business banking and insurance to the table.

“There was a very clear focus this year to integrate the Ubank businesses that we acquired, the Grindrod business and further organic growth beyond our comfort zone of consumer unsecured lending. The resultant derisking of the balance sheet positions us favourably for both scale and sustainability going forward,” says group chief executive officer, Kennedy Bungane, announcing the company’s annual results to the end of September 2023.

Despite a worrying jump in non-performing loans (NPL), which climbed to 42% from 37% last year, African Bank remains confident that it is firmly on the path to success

Management says the rising NPL number is due to several factors including:

• More selective disbursements in consumer banking resulting in a shrinking advances book, where NPLs comprise a bigger percentage of the total book.


• Refocused collections processes and workstreams have been implemented and are starting to bear fruit.

The bank revealed that it had grown active customer numbers to just under four million. However, more than half of this number comes from Alliance Banking or banking partnerships with MTN Momo, Shoprite Checkers and fintech company Lesaka.

Sibongiseni Ngundze, chief executive of consumer banking, says the bank saw a 52% growth in transaction volumes over the year, moving to  53 million transactions, largely at point-of-sale and ATMs.

These transactions added up to a hefty R58.6-billion in value. DM

Monday, 20 November 2023

Bird flu and rolling blackouts take R1.6-bn toll on Astral Foods 

Six months after it announced that rolling blackouts had cost three-quarters of a billion rand in just half a year, South Africa’s second-biggest poultry producer, Astral Foods, has released its annual results, revealing that it had incurred a R1.6-billion loss over the past year. 

This is Astral’s first loss in its 23-year history. 

It also had to write off more than a million birds due to the bird flu outbreak, which cost it more than R400-million.

Revenue for the year ended 30 September 2023 was R19.3-billion, in line with that achieved in FY2022, but while revenue in its feed division was up slightly year-on-year, revenue in the poultry division – which adds 82% towards its total revenue – was down due to a 9.6% drop in sales.

The group has reported a full-year loss before interest and tax of R621-million (last year, it made R1.4-billion in profit), due to costs associated with rolling blackouts, the outbreak of avian influenza and poor market trading conditions.

It spent R398-million on emergency diesel generators and additional water cost a further R168-million. The group has a R1.74-billion overdraft.

Astral’s poultry division was further hit by increased expenses of R1.6-billion (rolling blackouts), R31-million (water supply interruptions) and R400-million due to bird flu.

Revenue was down 0.8% due to a decrease in broiler sales volumes and a “less than ideal” product mix, it said, because of a backlog in the slaughter programme caused by rolling blackouts. This resulted in heavier and older birds staying on the farm for longer. 

Broiler slaughter numbers were down by 15.3%, sales volumes were down by 9.6% and frozen poultry stock levels were higher.

The feed division’s revenue was up by 11.9% to R11.6-billion, due to higher feed selling prices.

“Biological asset write-downs”, or costs associated with culling chickens due to bird flu, cost the group R400.5-million. 

Local chicken producers have been ravaged by the bird flu outbreak. Quantum Foods, the country’s biggest chicken and egg producer, announced on 10 November that it had incurred a loss of R155.3-million, due to culling. DM

Netcare posts healthy results and sets ambitious climate targets

The hospital group saw revenue climb by 9.5% to R23.7bn, while higher activity levels saw normalised operating profit increase by 24% to R2.8bn.

Despite diesel generator costs catapulting by 235% year on year to R124-million, Netcare posted pleasing results for the year to the end of September, giving shareholders more than R1.1-billion in dividends and share buybacks.

The hospital group has ambitious climate targets, having set itself a goal of achieving 100% utilisation requirements from renewable sources, with zero waste to landfill and an additional 20% reduction of impact on water sources by 2030. It has already reduced energy intensity per bed by 39%, exceeding the initial 10-year target set in 2013, and has achieved cumulative operational savings and benefits of more than R1.5-billion to date, yielding an IRR of 40%.

Less than a month ago, Netcare concluded an agreement for a renewable energy supply arrangement with NOA Group Trading, a renewable energy trader. From the first quarter of 2026, up to 100% of six Netcare sites’ energy consumption — comprising about 11% of Netcare’s total energy consumption — will be supplied from renewable energy sources through a combination of wind and solar farms. 

Outgoing chief executive Richard Friedland, who has agreed to stay on for another six months until his replacement is ready to take over the reins next year, noted that there were several headwinds in place.

“First, we have interest rates that are at a 14-year high. Then there is the catastrophic collapse of the grid, which still remains incredibly fragile and uncertain. We’ve seen some high inflationary changes coming through on the back of service delivery failures. All these factors make for an incredibly difficult macro-environment,” he said.

Despite this, the hospital group saw revenue climb by 9.5% to R23.7-billion, while higher activity levels saw normalised operating profit increase by 24% to R2.8-billion.

In line with the mental health crisis that has persisted since the Covid pandemic, Netcare’s Akeso clinics’ mental healthcare patient days increased by 12.7%. The newly opened Netcare Akeso Gqeberha facility, along with the 36-bed Netcare Akeso Richards Bay facility commissioned in May 2022, contributed to this growth.

The strong increase in mental healthcare activity resulted in occupancies improving to 72.7% in the 2023 financial year from 68.1% the previous year. The market reacted favourably, with Netcare’s share price moving up by 6% on Monday to close at R13.77. DM

Friday, 17 November 2023

Life Healthcare to shed Alliance Medical Group business, operating profits slide 12%

Life Healthcare will sell off its Alliance Medical Group diagnostic imaging business to iCON Infrastructure in a deal that is expected to net R10.8-billion.

While a pending R21-million deal spells good news for listed hospital group Life Healthcare, the market did not react favourably on Wednesday to its annual results for the year to end September, with the share price falling more than 6% intraday, and more than 8% over the past three months.

Although group revenue climbed 10% to R22.6-billion, operating profit slid 12% to R2.4-billion.

However, management hastened to reassure investors, pointing out that the group remains in a strong financial position, with net debt to Ebitda at 2.0x, compared with the 2.17x reported for the six months to 31 March 2023.

Southern Africa chief executive, Adam Pyle, said operations in the southern Africa region saw excellent volume growth, as the case mix continued to normalise. 

“We concluded two significant funder network deals, which contributed to increased activities and occupancies. We rolled out our renal integrated care product across our renal dialysis business and we made good progress in expanding our imaging and nuclear medicine businesses in southern Africa” he says.

The R21-million deal will see Life Healthcare sell off its Alliance Medical Group diagnostic imaging business to iCON Infrastructure in a deal that is expected to net R10.8-billion in proceeds, pending approval from shareholders and regulators.

Shareholders are expected to see about R8.4-billion of this money, while R2.4-billion will be reserved for future growth initiatives. DM

Monday, 6 November 2023

Dis-Chem’s weakening performance shows that Covid-era profits are over

The soaring profits of the Covid era appear to be over, judging by Dis-Chem’s latest interim results, which reveal that profit has declined sharply over the past six months, despite a 9.4% revenue increase to R17.9-billion.

For the period from 1 March to 31 August, revenue grew by 8.1% to R15.6-billion, with pharmacy store revenue growth at just 5.9%. Covid-19 vaccines and testing had weighed heavily on the prior period’s results: if factored out from both periods, retail revenue would have grown by 9.2%. 

Over the past six months, the group, which has a market cap of R21.72-billion, opened or acquired 10 retail pharmacies, which swells its footprint to 268 retail pharmacy stores and 54 retail baby stores.

In the period under review, Dis-Chem reserved R279-million in capital expenditure: R156-million for expansion (including stores as well as IT) and R123-million to maintain the existing retail and wholesale networks. 

Last month, the Competition Commission approved the purchase of the 63,000m² distribution centre in Gauteng, which will cost Dis-Chem R502-million and will hike capex for H1.

Dis-Chem’s wholesale revenue, which is still its biggest revenue driver, grew by 13.5% to R13.7-billion. The Local Choice franchises grew by 19.1%, while its independent pharmacies grew by 18%.

Contrast that with market leader Clicks, which expanded its retail footprint to 885 stores with the opening of 45 new stores in a year. The group now has a network of more than 880 stores and 710 pharmacies, supported by a growing digital presence. Over the past year, its turnover grew by 8.2% (excluding vaccinations) to R41.6-billion, with retail turnover increasing by 12.2%. 

Clicks plans to open between 40 and 50 new stores and 40 to 50 pharmacies, with a capex of R880-million for the 2024 financial year. This includes R487-million for new stores and pharmacies and the refurbishment of 50 to 60 stores. It’s also investing R393-million in supply chain, technology and infrastructure.

The retail pharmacy space is heavily concentrated: the Spar group has more than 140 independently owned Pharmacy at Spar stores nationwide, including clinics at selected stores, the Shoprite group (trading under the MediRite name) has 134, and the Link group has more than 200 across southern Africa.

Dis-Chem’s total income grew by 5.1% to R5.4-billion and retail total income grew by 6.5%, with retail margins down from 30.2% to 29.8%. 

Basic earnings per share and basic headline earnings per share are 58.3 cents and 58.2 cents per share, respectively, which are down by 16.7% and 17.2%, respectively.

The group’s retail expenses grew by 11.3%, as Dis-Chem invested in new stores and acquisitions. Other costs included a sharp rise in employee costs of 9.8%, higher diesel costs to run generators during power outages, higher IT costs due to a new point-of-sale system roll-out, and increased advertising expenditure. Wholesale expenses grew by 5.5% due to the increase in volumes through the wholesale space resulting in an increase in casual labour shifts as well as higher diesel and municipal costs.

It has declared an interim cash dividend of 23.24348 cents per share, based on 40% of headline earnings, which is down by 17.3% from the prior comparable period. 

Last year’s interim results painted a more upbeat picture: Dis-Chem reported double-digit group and retail income increases, as the Covid threat receded and customers spent on non-pandemic-related items. Its aggressive expansion programme added 251 retail pharmacy stores and 53 retail baby stores over the period, and total income grew by 22.8% to R5.2-billion for the six months ended 31 August. Group revenue also grew 9.3% to R16.3-billion, with retail revenue rising to R14.4-billion. 

Commenting on the results, CEO Rui Morais, who succeeded Ivan Saltzman on 1 July, said they were satisfied with the group’s performance during the period, notwithstanding a tough trading environment. 

“The constrained economic environment, higher interest rates and costs associated with load shedding have resulted in a weaker performance by the group over the prior comparative period.”

He said the group had also been affected by the base effects of the prior year’s performance, which were distinctly different across the two halves of the year, with the first half of the prior year delivering a strong performance when compared with the second half of the prior year.

“A more equal distribution of earnings across halves is expected in the current financial year. Contributing to the stronger first-half performance in the prior year was the acquisitions of the warehouse properties resulting in a R72-million once-off gain from the release of the lease liability and right-of-use asset as well as the impact of Covid-19 vaccine administration and testing services, which has ended and did not contribute in the current financial period.” DM

Thursday, 2 November 2023

Pepkor customers under socioeconomic pressure, group says in trading update 

The cost-of-living crisis is eating into the profits of one of South Africa’s most affordable retail groups, Pepkor Holdings.

Pepkor, which counts PEP, Ackermans, Shoe City, HiFi Corp and BUCO among its subsidiaries, issued a trading update on Thursday for the year ended 30 September, ahead of its annual results, which are expected at the end of November.

The investment and holding company said its customers were under financial pressure due to the high cost of living, high unemployment, rolling blackouts and the disruption of social grant payments.

In May, when announcing its interim results to the end of March 2023, Pepkor ​​raised concern about the disruptions to SA Social Security Agency payments, which were hurting its low-income customers. At the time, it said its customers had no choice “but to prioritise spending on necessities to contend with high levels of inflation, in particular, the increased cost of food and transport”, adding that their ability to earn an income was also affected by “unprecedented levels of electricity load shedding and disruption in social grant payments”. 

It said trading hours lost by the group due to rolling blackouts had increased by close to 500% during this period (211,000 hours). Diesel costs increased by 142% to R72-million for the period.

Business has bounced back for Pepkor in the second half of this year, with group revenue, which included a 53rd trading week, increasing by 7.7% to R87.4-billion. The group’s Avenida business in Brazil (which it acquired in February 2022) added 4.3% in FY23 to Pepkor’s revenue, from 2.4% in the previous year.

On a comparable 52-week basis, group revenue increased by 6.5% for the year.

Revenue grew sharply in the second half to 8.8%, boosted by stronger sales: Merchandise sales were up by 6.4%, with sales growing by 8.2% in the second quarter, as compared with just 4.8% in H1.

Key product categories did well for business units: PEP grew its babies, adults and home segments; Ackermans gained market share in its schoolwear, younger girls and lingerie segments; and the JD Group (which owns Russells, HiFi Corp and Incredible Connection) expanded in computer and audio-based merchandise.

The group said trading in durable products and the building materials market was weaker, which weighed on the JD Group and The Building Company’s performance, but both businesses did better than their peers.

BUCO (The Building Company) was relatively stagnant, with sales at the hardware stores up by 0.8% in both H1 and H2. 

Stats SA’s latest building update, released on 19 October, suggested that residential completions were down by 9.4% year on year. Confidence among builders also dipped in Q3 of this year, according to the Bureau for Economic Research. 

Pepkor’s group cash sales were up by 5.6% and credit sales were sharply up, by 35.6%, due to the implementation of the group’s credit interoperability strategy in its South African clothing, footwear and home retail brands. 

However, with 90% of its sales in cash, Pepkor said “credit is not a material sales enabler for the group. Credit continues to be granted on a prudent basis within the group’s conservative credit methodologies.”

Tenacity Financial Services opened a record number of new accounts (794,000) during the year, which helped sales via cross-shopping by customers in group retail brands.

“The group maintained its conservative approach to credit granting. Collections, non-performing  loans and provision levels remain well within tolerable levels across all credit books.” 

However, its credit book growth had increased debtors’ costs for the year.

It opened 324 new stores this year, which brings Pepkor’s total to 5,917 stores. 

Pepkor’s annual results will be published on 29 November. DM

Tuesday, 31 October 2023

SAB’s Zamalek drives sales for AB InBev in South Africa

It’s been a thirsty season and Zamalek – also known as Carling Black Label, South Africa’s top beer brand – has given AB InBev’s local operator South African Breweries (SAB) a healthy boost this quarter, with volume growth in the high teens.

Volumes of global brands grew by more than 35%, driven by Corona and Stella Artois, said the world’s biggest brewer, AB InBev, reflecting on its results for the third quarter of 2023. 

The brewing giant’s local unit, SAB saw revenue per hectolitre (hl) growth in the high-single digits, driven by what it said was “revenue management initiatives and continued premiumisation”.

Richard Rivett-Carnac, SAB’s CEO, said their volumes had increased by high-single digits. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) grew by mid-single digits, as top-line growth was partially offset by anticipated transactional foreign exchange and commodity cost headwinds.

In the first nine months of the year, revenue grew by the mid-teens, with high-single-digit revenue per hl growth and a mid-single-digit increase in volume. Ebitda increased by 9.6%.

The group’s top line grew by 7.1% in South Africa, with revenue per hl increasing by 7.3%. Volumes were flattish, growing by 5.7%

“The momentum of our business continued in the third quarter, gaining share of both beer and total alcohol, according to our estimates. Carling Black Label, the number one beer brand in the country, led our performance this quarter with high-teens volume growth, and our global brands grew volumes by more than 35%, driven by Corona and Stella Artois.”

Globally, total revenue was up 5% per hl, with growth of 9%. Underlying profit was up $1.735-billion in Q3 2023 compared to $1.682-billion in Q3 2022.

Budweiser, Stella Artois, Corona and Michelob Ultra did well for the brewing giant outside their home markets, with a 16.3% increase in Q3.

However, despite the top-line increase of 5%, revenue growth in about 80% of their markets was driven by pricing actions, ongoing premiumisation and other revenue management initiatives.

Volumes were down by 3.4%, as growth in the Middle Americas, Africa and Asia Pacific regions was primarily offset by performance in the US and a soft industry in Europe.

The no-alcohol portfolio grew: Sober October wrapped up on Tuesday, and AB InBev has seen strong growth in the no-alcohol portfolio globally, driven by Budweiser Zero in Brazil and Corona Cero in Canada, Mexico and Europe.

Revenue from premium brands grew by 15.1% outside their home markets: Corona was up by 18.8%, Budweiser by 11.8%, Stella Artois by 20.3% and Michelob Ultra by 11.5%.

The Beyond Beer category saw a mid-single-digit increase, globally offset by a soft malt-based seltzer industry in the US. Global growth was driven by the expansion of Flying Fish in Africa and the Vicky portfolio in Mexico.

Leveraging their digital direct-to-consumer products, the group is developing new consumer insights and consumption occasions. 

Across Latin America, Zé Delivery and TaDa are driving increased in-home consumption of returnable glass bottle packs by making them more available and convenient, said Michel Doukeris, CEO of AB InBev.

“The strength of our global footprint delivered another quarter of top and bottom-line growth. Revenue increased by 5% with an Ebitda increase of 4.1%. We continue to invest in our strategic priorities for the long-term.” 

About 66% of the group’s revenue is through B2B digital platforms, with the monthly active user base reaching 3.4 million users.

On 25 October, AB InBev’s rival, Heineken, reported that it had sold 4.2% less beer in the third quarter, as the Dutch brewer faced a difficult macroeconomic climate and consumers were turned off by higher prices.

In August, Heineken sold its Russia operations for one euro – more than a year after saying it would quit its business there due to the war in Ukraine, and a month after a South African representative assured Daily Maverick in July this year that it had long since exited its Russian business.

Heineken in August sold its business in Russia to domestic firm Arnest Group, which took 100% of shares and assets, including its seven breweries, for a symbolic single euro. It said it had provided employment guarantees for 1,800 employees for three years.

The company had faced criticism for dragging out its departure from Russia, which it vowed to exit in March 2022 shortly after the full-scale invasion of Ukraine. Heineken and other large firms with manufacturing operations in Russia have said leaving has been a complex process with a high risk of assets falling under state control.

CNBC reported that volumes were down 4.2% on the previous year, taking the decline across the first nine months of 2023 to 5.1%. Revenue was higher in the quarter due to price hikes, up 2% to $10.17-billion. DM

Thursday, 26 October 2023

Clicks says 2024 trading likely to be constrained despite resilient results 

Leading pharmacy chain Clicks seems fit as a fiddle after declaring its annual results for the year ended 31 August 2023, although it warned that trading conditions were likely to remain constrained in the new financial year.

The health and beauty retailer and pharmacy group has a network of over 880 stores and 710 pharmacies, supported by a growing digital presence.

It has revealed that group turnover for 2023 was up 8.2% (excluding vaccinations) to R41.6-billion, with retail turnover increasing by 12.2%.

Distribution turnover grew by 1.5% for the year as UPD – which provides bulk distribution services for the Clicks Group, major private hospital groups and 1,200 independent pharmacies, as well as pharmaceutical manufacturers – was affected by lost sales opportunities to Clicks and private hospitals during a systems implementation in the first half, as well as lower demand from pharmacies and a shift of products within UPD.

Adjusted total income grew by 10.8% to R12.2-billion (up 7.6% including the insurance recoveries). 

The retail margin expanded by 130 basis points and saw strong growth in higher-margin private label products and the recovery in the beauty category, while the low-margin vaccination programme came to an end. 

Retail costs were affected by higher insurance premiums and diesel costs, increasing by 11.4%, while retail costs grew by 7.4%. 

Retail sales, which includes Clicks, GNC, The Body Shop and Sorbet, increased by 12.2% (excluding vaccinations). 

Clicks expanded its retail footprint to 885 stores with the opening of 45 new stores in the year under review. Its national pharmacy presence has grown by a further 38 pharmacies, bringing the total to 711. 

UPD’s total managed turnover, combining wholesale and bulk distribution, increased by 4.8% to R32.1-billion. 

Distribution costs also increased by 13.4% due to higher insurance, transport and diesel costs, as well as increased employment costs. 

Rolling blackouts loaded a further R53.8-million on to their running costs. 

The retail operating margin was up by 60 basis points to 10% due to the growth in higher-margin product categories. 

Total headline earnings, including insurance recoveries in the previous year, grew by 0.8% to R2.5-billion. Basic earnings per share was down by 3.5% to 1,042 cents, with diluted Heps increasing by 1.1% to 1,045 cents. 

Improving margins and strong cash flow generation contributed to adjusted diluted headline earnings per share increasing by 11.5%. 

Clicks said the group had delivered stronger second-half turnover growth and recorded market share gains in all core product categories in an “environment of growing pressure on consumer disposable income”.

Strong growth in private label sales and the sustained recovery in the beauty category were boosted by the Clicks ClubCard loyalty programme which has grown to 10.4 million active members. 

Clicks ClubCard members earn one point for every litre of fuel pumped at Engen garages, with double-up points on Fridays. 

Three strategic investments, valued at a total of R320-million, have boosted the group’s dominance in the health and beauty retail sector. It now owns the Sorbet beauty salon franchise chain of 194 outlets, M-Kem – a long-established 24-hour pharmacy in the Western Cape – and 180 Degrees, a pharmacy software development company.

The group has allocated record capital expenditure of R930-million to expand its store network, refurbish existing stores and pharmacies, and integrate the supply chain, as Clicks opened its 850th store and 700th pharmacy during the year. 

The group has also expanded its total income margin by 150 basis points to 29.2% due to the stronger growth of retail relative to distribution.

Cash generated by operations totalled R5.9-billion.

The group says it expects trading conditions to remain extremely constrained in the new financial year. 

“The business model remains resilient and defensive and the group has proven its ability to adapt to changing market dynamics.”

Clicks plans to open between 40 and 50 new stores and 40 to 50 pharmacies, with a capex of R880-million for the 2024 financial year. This includes R487-million for new stores and pharmacies and the refurbishment of 50 to 60 stores. R393-million will be invested in supply chain, technology and infrastructure.

The board of directors has approved a final gross ordinary dividend for the period ended 31 August 2023 of 494 cents per share (up from 457c in 2022. DM

Tuesday, 24 October 2023

Famous Brands is bullish about its prospects in Africa and the Middle East

Famous Brands, the owner of Wimpy, Steers and Turn ’n Tender, is looking beyond South Africa’s borders to expand operations despite slow business growth back home, it announced in its interim results for the six months ended 31 August.

On Tuesday, the group said the South African restaurant industry was under strain due to rising costs, alternative power costs and reduced consumer spending, with customers facing several challenges including political uncertainty, water shortages, the electricity crisis, high food and fuel prices and rising interest rates. 

Rolling blackouts are costing restaurants in terms of lost revenue, higher food input prices resulting in menu increases, higher operating costs and capital investment, more risk of food waste and disrupted deliveries to consumers.

Consumers are spending more time in shopping centres, especially during the cold winter experienced in Johannesburg and Cape Town. Hospital foot counts are also up, which supports Famous Brands restaurants in those locations.

Consumers are still spending at its restaurants, which Famous Brands says offer “affordable indulgent moments as a reprieve from their daily challenges. However, with tighter budgets, consumers do not eat out as lavishly as before”.

Famous Brands has four divisions: Brands, Manufacturing, Logistics and Retail. It operates franchised, master-licenced and company-owned restaurants. 

The group’s restaurant portfolio includes quick-service outlets such as Steers, Debonairs Pizza and Fishaways; the Wimpy and Mugg & Bean casual dining restaurants; and signature brands Mythos, Turn ’n Tender, Salsa Mexican Grill and Lupa Osteria.

Famous Brands has 2,522 restaurants in South Africa; 311 in 17 countries throughout Africa and the Middle East; and 65 in the United Kingdom. 

It said while the supply chain challenges and inflationary pressures related to the Russia/Ukraine war have eased somewhat, food inflation remains elevated due to the costs of rolling blackouts. It imports its hake and coffee, which have become more expensive due to the weak rand, while eggs, chicken, pork and vegetable prices have risen sharply.

The potato harvest has been poor this year due to unusual weather patterns, which has led to a sharp increase in the cost of frozen chips.

Consumer behaviour is also changing due to the weak economy. Customers are spending less at restaurants and opting for takeaways, deliveries and drive-throughs. They’re also seeking out value deals, discounts, smaller and cheaper meals, competitions and loyalty programmes.

Famous Brands said the Western Cape’s eight-day taxi strike in August caused restaurant closures and delivery cancellations, which further hurt its bottom line.

Rolling blackouts also increased significantly during the period under review which affected prime trading hours, although about 91.3% of its Leading Brands portfolio had alternative power solutions and saw an 18% increase in sales during blackout periods.

From March 2023, the group helped franchisees with a 1% reduction (0.5% royalty and 0.5% marketing) on their franchise fees for sales generated while trading during rolling blackouts, which, at the end of August 2023, amounted to total financial relief of more than R11.6-million.

The 2023/24 insurance renewal cycle, which fell within the review period, saw a 470% increase in premiums (to R22-million) for property damages and business interruption insurance, due to higher reinsurance costs as food facilities are deemed greater risks than before.

Performance

In the review period, Famous Brands saw some organic growth, but earnings are lower, mostly due to the Gourmet Burger Kitchen liquidation dividends of R75-million received in the first half of 2023.

Excluding the liquidation dividends, basic earnings per share is 8% up on the prior period.

Total revenue for the review period was up by 10% to R3.94-billion, with a 6% reduction in operating profit and a 7% decline in headline earnings per share (a profit measure stripping out some items).

The group said it was bullish about its prospects in Africa and the Middle East (AME) region, which saw sales increasing by 15.3%. Several African markets have abnormally high inflation due to political instability, poor economic policies and external shocks.

“Here, we will cautiously enter three new markets (Côte d’Ivoire, Egypt and the Democratic Republic of Congo) with the Debonairs Pizza and Steers brands.

“We will split the management structure for AME so that the Southern African Development Countries are managed by the Leading Brands team in South Africa. The rest of Africa, where we have a smaller footprint, will be managed out of the Middle East.

“We believe this will refocus our attention on those countries where we need to invest and build our brands and networks.”

The board has declared an interim dividend of 138c per share, which it will pay out on 18 December 2023. DM

Wednesday, 18 October 2023

Pick n Pay’s 97.5% loss in trading profit means it’s back to basics, says CEO Summers

It’s back to basics for Pick n Pay, says CEO Sean Summers, as the retailer returns to the drawing board after posting dismal results reflecting a 97.5% loss in trading profit for the half-year to 27 August, reaching just R31.8-million compared with the R1.25-billion it achieved in 2022. 

In reporting its first interim loss, Pick n Pay described its results as “disappointing”. That is an understatement; the retail giant has declared a pro forma loss before tax and capital items of R837.2-million. 

Reality check

Trading profit would have been R597-million, not the R31.8-million declared, had it not been for the R565-million of incremental abnormal costs (R190-million spent on net incremental energy costs; R116-million on duplication of supply chain costs from the Longmeadow/Eastport DC handover; and R259-million spent on retrenchments).

Gross profit margin was down by 0.9% to 18.5%.

Yet again, the cost of keeping stores powered ate a chunk out of its profits: it spent R396-million on diesel to run generators and keep stores open, which not only affected its expense growth but also limited its ability to run promotions.

Group turnover grew by 5.4% (like-for-like 2.3%), with Boxer South Africa delivering an exceptional performance, growing by 16.1%.

Silver linings

It wasn’t all terrible, though, as Boxer enjoyed strong overall growth over the 26 weeks to 27 August 2023. 

Other highlights included online sales, value-added services and keeping a lid on internal inflation, which the group kept at 8.3%, well below CPI Food of 11.4% for the period. 

Online sales grew by 76.3% – driven by on-demand platforms Pick n Pay asap! (which was refreshed this month) and Takealot’s Mr D. 

On-demand sales doubled year-on-year.

Value-added services income grew 13.5%, as the group maximises opportunities in banking and financial services, and mobile.

Its Rest of Africa segment contributed R2.7-billion in sales, up 14.4% year on year (or 12.2% in constant currency).

“Project Future” saved the group R334-million in the first half of the year, with R124-million in energy savings.

During the period under review, the group opened its new Eastport distribution centre and sold Longmeadow. It also modernised its franchise model to increase its franchisee loyalty rate and acquired Tomis, a state-of-the-art abattoir and meat packaging business, which will help boost the quality of its fresh meat offering.

‘Potent cocktail’

Pick n Pay chairman, Gareth Ackerman, said the six months from March to August were among the most difficult consumers have had to endure in the recent past. Rolling blackouts reached the worst level since they were first introduced in 2008, which has had a disproportionately negative impact on the retail industry.

“Food inflation topped 14% in March, its highest level in 14 years, and the price of fuel has risen by about 20% so far this year. Interest rates also reached their highest point since 2009, thanks to 10 successive increases since the end of 2021.

“All of this has proved to be a potent cocktail that has once again put consumers under extreme financial pressure.”

Ackerman said although they were proud of their efforts to support consumers with lower prices and keep internal price inflation well below CPI Food, there was no avoiding the fact that the group’s result was extremely disappointing.

“There are, however, some encouraging signs and the Pick n Pay story currently is really one of two main operating brands – Boxer and brand Pick n Pay.

“Boxer delivered double-digit South African sales growth and is the main growth driver for the group at the moment.”

The group has 454 Boxer stores countrywide and plans to expand the low-cost offering.

Pick n Pay Clothing’s sales at standalone stores also grew in double digits, leading the market, which Ackerman says proves that its strategy is working.

“We have seen superb online sales growth, driven by strong growth in our on-demand platforms, asap! and Pick n Pay groceries on Takealot’s Mr D app. Income from value-added services also grew encouragingly, as the group focused on maximising opportunities in banking services, financial services and mobile.”

More than 40% of the group’s 1,599 stores in South Africa are owned and run by franchisees.

On 1 October, Pick n Pay announced Summers had replaced Pieter Boone, under whose watch the retailer lost significant market share to Shoprite Checkers.

The announcement sent the share price plummeting by almost 15%, after stating that it expects to report a half-year loss of between 79.31 and 98.18 cents per share, which is down between 184% and 204% year on year.

Bring on Summers

Summers, back with Pick n Pay after a 16-year absence, reassured shareholders and staff, saying the results are “not the end of the world”.

“It’s a huge privilege and an honour to be back in the place that I love,” said Summers.

“It’s equally distressing for me as it is for all of us in this room (to see these results). My focus is to return the core supermarkets business to growth and profitability, and maintain the growth of other key parts of the business.”

He said Pick n Pay is an exceptional company and a much-loved brand with a rich heritage. 

“We have a lot of work to do, and I have received strong support from our people. They want to see Pick n Pay succeed, and my task will be to see that we work hard on the basics and improve significantly both on customer service and on execution in our supermarkets.”

He said their buying capabilities need work, and they will be engaging closely with their suppliers as a matter of urgency.

“Importantly, we need to rekindle customers’ affection for the Pick n Pay brand and energise our staff to focus their efforts on the critical road ahead.” DM

Thursday, 28 September 2023

Capitec increases market share, grows customer base to 21.1m

Capitec saw headline earnings growth move up 9% to R4.7-billion for the six months to end August, while increasing its client numbers to a whopping 21.1 million.

Gerrie Fourie, chief executive at Capitec, says the bank has grown its non-interest income streams through product diversification and digitalisation, insurance licensing and broadening payment services.

“Our ongoing investment in innovation and 11% active client growth resulted in an 18% increase in retail transaction volumes. Net insurance registered 33% growth to R1.5-billion,” he says.

The digital bank’s latest results reveal that the number of clients embracing digital transactions has grown 8% to 11.7 million, while the number of app users climbed to 10.2 million, making Capitec the biggest digital bank in South Africa. 

Fourie says this surge has propelled digital transaction volumes by 21% to 957 million, with the banking app claiming 83% of these transactions. Income from Send Cash payments and voucher sales soared 56% to R1.1-billion. DM

Thursday, 21 September 2023

Grim impact on Astral: Rolling blackouts and bird flu ‘ravaging’ the chicken industry

Astral Foods was a top loser on the JSE on Thursday after a trading update sent its share price crashing by 13.1% in early morning trade, regaining just 2.12% at the close. 

The leading chicken producer had previously warned that rolling blackouts and water issues were expected to have a significant impact on their production for the remainder of the financial year ending 30 September 2023, as the outages increased extra costs to power diesel generators, cutting back on poultry production due to a backlog in the slaughter programme, higher feed costs (to maintain older broilers), and overtime costs.

For the six months ended 31 March 2023, these costs came to R741-million, and for the remainder of the financial year, they are forecast to rise to an additional R919-million. 

Astral said operating diesel generators was now an embedded expense burden that was costing it R45-million every month. 

Rolling blackouts, including capital costs of R200-million, are expected to cost the group about R1.9-billion this year, which is the biggest reason for the sharp decline in its results. 

The slaughtering backlog, which was caused by the blackouts, was cleared at the end of June 2023, increasing broiler efficiencies on targeted age, live weight and feed consumption. 

In the Sens statement, Astral said it had been forced to discount its big birds at a time when chicken consumption had slowed over winter. 

The selling prices for chicken were not sufficient to recover input costs.

However, other factors have weighed down its financial performance during the second-half period – the biggest among them is causing its chickens to “die like flies”, Astral CEO Chris Schutte confirmed during an investor call.

Astral and other producers have been forced to cull their broiler breeding stock to control the disease, incurring additional costs beyond the birds, including measures taken for their safe disposal and implementation of biosecurity measures.

The poultry industry has seen significant losses as the new strain of bird flu (H7N6) has inundated producers in Gauteng and Mpumalanga, causing short supplies of table eggs and a likely dwindling supply of chicken.

This is the worst bird flu outbreak the country has seen: it has already cost producers about R220-million.

Astral expects this year’s profits to be down by about 165% on last year’s.

Schutte told investors that the poultry industry was being “ravaged” by the current outbreak, which started in Paarl in the Western Cape before mutating into a different strain by June, which is now dominant in Gauteng, the Free State and Mpumalanga. 

Dr Abongile Balarane, the CEO of the South African Poultry Association, told Daily Maverick on 13 September that the situation was ruining farmers.

“It’s been catastrophic. We’ve lost about 15% of national production, which is more than four million chickens.”

Last week, Anthony Clarke, of Smalltalkdaily Research, predicted that Astral’s pre-closed briefing “will be pretty fowl”.

“Despite being a well-managed and plucky bird, Astral Foods has had to endure factors way beyond its control in 2023. These will come to peck it badly, especially in its second half. It’s tough currently in the domestic poultry sector but Astral Foods and its management team box on as best they can.”

He said he has had a “buy” position on Astral for some months, with a target of 21,500 cents.

“I’m not changing that. However, the market needs to prepare itself – if my scenario is correct – for a pretty nasty pre-closed update on 21 September.” DM

Monday, 18 September 2023

Oceana expects energy, raw material costs and a weaker rand to take their toll

Oceana’s Lucky Star brand might have sold 8% more cans over the past 11 months, but even with an increase in selling prices and a reduction in freight costs, the past five months have been less stellar as sales volumes declined by 5% due to above-inflation increases in energy, the cost of tin cans and tomato paste, and the impact of the weaker rand against the US dollar on the cost of imported raw materials. 

On the local front, canning production volumes in South Africa were up by 15% to 4.7 million cartons (compared with 4.1 million cartons in August 2022). The company expects strong demand going forward, driven by continued demand for affordable and shelf-stable protein.

In its SA fishmeal and fish oil business, strong fish oil pricing and the weaker rand resulted in a 32% increase in average rand selling prices for the 11-month period. Sales volumes of 21,246 tonnes were also 8% lower than the prior year-to-date period and a 24% drop in production volumes due to adverse weather conditions impeding fishing.

Rolling blackouts cost the group’s canning, fishmeal and fish oil operations R28-million over the period. 

In the US, above-average water temperatures in the Gulf of Mexico and abnormally lower water levels in the Mississippi caused a 5% decline in catches. The 28-week season ends on 31 October. Fish oil yields were also down by almost 8%, due to the landed fish’s lower fat content.

Fishmeal and fish oil sales were up by 49% and 27%, respectively, but the cancellation of Peru’s main anchovy fishing season (related to the effect of El Niño on fish stocks) hurt fishmeal and fish oil production levels from that supplier in the period, which drove up sales prices by 9% and US-dollar fish oil sales prices by 38%.

The R72-million insurance payout from Hurricane Ida plus a 10% weaker rand also helped to lift performance.

Closer to home, horse mackerel sales volumes were in line with the prior period as improved catch rates and vessel utilisation in Namibia were offset by poorer catch rates and vessel utilisation in SA. But hake sales volumes were down by 38% due to fewer sea days and lower catch rates.
Selling the group’s interest in its cold storage business on 4 April realised a profit of R370-million after tax, which was used to settle debt in South Africa.

The group’s results are expected to be released on Monday, 27 November. DM

Thursday, 14 September 2023

FirstRand at the bottom of the ‘bad debt highway’ despite SA’s poor macroeconomic environment

Group chief executive Alan Pullinger was not fazed, explaining that the company’s ‘bad debt highway’ falls within the 80 to 110 basis points range. 

FirstRand Bank posted an 11% rise in profits for the year to the end of June, with 60% of its profits coming from First National Bank (FNB), the star in the stable. The overall credit performance for the year was in line with expectations with a credit loss ratio of 78 basis points. 

Group chief executive Alan Pullinger was not fazed, explaining that the company’s “bad debt highway” falls within the 80 to 110 basis points range. 

“Right now, we are just touching the bottom of the highway. Our cost to credit over a 10- to 15-year period should be on that highway. We think in the next 12 months, we are going to get into the middle point of that highway, and that would be around 95 basis points,” he told Daily Maverick. 

Pullinger says the low credit loss ratio is a direct outcome of the group’s origination strategy from mid-2020 to late 2021, as the country emerged from the Covid-19 pandemic. 

“The decision to tilt origination to low- and medium-risk customers has resulted in a credit loss ratio below the group’s range, despite a higher interest rate and inflation cycle than initially anticipated. Over the past 18 months, the group has gradually lifted origination back to pre-pandemic appetite,” he says. 

TymeBank hot on the heels of FirstRand performer FNB

The star in the stable, FNB delivered on its strategy of gaining more customers and increasing interactions with existing customers, growing its client base by 5% to 11.5 million. However, this is no time to rest on its laurels. African Rainbow Capital, which is the majority shareholder in digital challenger TymeBank, revealed this week that the bank had grown its customer base to 7.7 million. An impressive feat, given that TymeBank launched just over four years ago. 

The newcomer has been aggressive in its strategy, offering customers zero bank fees and higher interest rates. In May, Tymebank reported that it was signing up as many as 200,000 customers a month. 

FNB chief executive Jacques Celliers says the retail division increased advances by 7%, primarily driven by growth in residential mortgages, while deposits increased by 10%. FNB Commercial increased advances by 8% and delivered a robust 14% growth in deposits. 

FNB’s wealth and investment management accounts increased by 5% to 629,000 and it has the leading market share of household deposits in South Africa. FNB Life has paid out R644-million in pre-emptive life claims to customers since its launch. This refers to its process of proactively paying out life insurance claims by routinely checking the National Population Registry for deceased policyholders. DM

Wednesday, 13 September 2023

Momentum Metropolitan shareholders might be smiling, but the market was unimpressed

Momentum Metropolitan shareholders will realise a final dividend of R1.20 a share, up 20% on last year and in addition to a share buyback scheme.

At an average price of R17.87 per share, the shares were purchased at a 43% discount to the 31 December 2022 embedded value per share of R31.39. 

The board approved a further R500-million for the buyback programme of the group’s ordinary shares 

Risto Ketola, group finance director, says the company’s dividend policy remains to declare dividends within a payout range of between 33% and 50% of normalised headline earnings.  

“Our next set of results will be prepared according to the new accounting standard (IFRS 17), which will more closely align the economic and insurance outcomes with the accounting treatment,” he says.

Operating profit climbed 31% to R4.4-billion on the back of improved mortality experience post-Covid and a positive investment variance of R1.1-billion, compared with R353-million in the previous financial year.

However, lower new business volumes, higher distribution costs and a general change in new business mix towards lower-margin products across many of the business units saw the value of new business fall 4% to R600-million.

Management highlighted concern around recent pressure on sales volumes. 

“Disposable income will remain under pressure due to rising interest rates and high inflation, as well as the lack of economic growth in South Africa. This is likely to put ongoing affordability pressure on new business volumes, particularly on long-term savings and protection business. 

“Investment business is negatively affected by other factors such as low confidence in SA asset classes and by consumer preference to maintain their assets in liquid low-risk investments. New business volumes and profitability are receiving significant management attention,” the company said.

Incoming group chief executive Jeanette Marais noted the insurer paid out more than R38-billion in claims over the year to end June 2023, forked out R7-billion in staff remuneration, and invested more than R280-million on training and development. 

The market seemed unimpressed, with the share sliding 1.6% from its close of R20.14 on Tuesday to close at R19.82 on Wednesday. DM

Monday, 11 September 2023

Fun and games at Sun International after group posts stellar interim results

Sun City has performed exceptionally well, with a 25.5% hike in income.

Sun International’s online betting and gambling platform, SunBet, is coining it. The hospitality group posted its interim results on Monday, revealing that SunBet generated record income over the past six months, with an increase of just over 138% on the first half of last year.

SunBet’s adjusted Ebitda – a profit measure – increased from R14-million during the prior comparative period to R90-million in the review period, which is a 542.9% increase. 

It has grown unique active players by 702.8%, first-time depositors by 469.2% and deposits by 216.2%.

Gaming makes up 78% of the group’s income, which is also up by 6.6% despite the difficult economic climate, increased competition and rolling blackouts. 

Sun International’s casino income was up by 3.2%, although Sun Slots was down slightly from the prior period due to the power crisis.

Group income for the first six months was up 11.7% to R5.8-billion, with adjusted headline earnings – a measure of how current performance stacks up to previous years’ performance – up by 10.1%  to R482-million.

Sun City has performed exceptionally well, with a 25.5% hike in income. 

The group has declared an interim cash dividend of 148 cents per share – up by 68.2% to R388-million.  

Income from urban casinos was up 4.2%.

Sun International CEO Anthony Leeming said SunBet offers the group exciting growth potential: the business model is self-funding and capex-light. 

“We have made significant improvements to registrations, customer deposits and withdrawal processes as well as an overhaul of the customer contact centre. 

“Our customers are now able to interact with us seamlessly and we are well positioned operationally for higher volumes of business.” - Georgina Crouth/DM

This corporate portal will be updated continually as company results are announced.