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.