THIS ISSUE: 16 Feb - 22 Feb
YOUR NUMBERS THIS WEEK
RETAILERS AND WHOLESALERS
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Shoprite The Red Wedge
Showing this week that it’s equally capable of going it alone, and doesn’t need any fancy mergers thanks very much, was Shoprite, which turned in a very tidy set of interims. Turnover was up 14.0% to R71.3billion, with operating profit climbing 9.4% to R3.7billion. The South African supermarkets business, making up 80% of total supermarket sales, grew 10.7% to R53.7billion, although there was zero like-for-like growth in the face of the highest internal inflation for a good long while. Lots of store openings though – 147 all told, including 29 net new SA supermarkets and 22 beyond our borders. But being Shoprite, what they really got excited about was that shifting and even arguable target: market share, where, they aver, they grew half a percent, adding to the customer base by 6.3%. Argue with that if you will.
Comment: Patchy but pleasing, particularly the sales growth in a tight economy.
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Shoprite “It’s aliiiiive!”… fzzzt... beeeeeeeeeeeeeeeeeeeep.
So Shopstein has lurched off the table and into the cold storage of history. The deal hinged as you know on an exchange of shares between parties, as follows: Shoprite were going to acquire the African retail assets of Steinhoff, including Pep, Ackermans, the Speciality Group, including Shoe City, John Craig, Refinery and Dunns, and the Pep and Ackermans African operations, making payment to Steinhoff in shares. The value of the transaction would be negotiated “taking into account the best interests of both Steinhoff and Shoprite shareholders.” Well, as it turns out, Steinhoff (read Oom Christo Wiese) and its biggest shareholders could not agree on an exchange ratio for the shares which were to change hands, and the deal is off, leaving Oom C. one presumes, to moodily throw a whole bunch of cash into a battered carry-on and go shopping in London instead.
Comment: We’re a little torn. The deal would have given the combined entity the scale to be a major global player, but on the other hand, too much retail consolidation is not good for us back here in the Beloved Country.
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Woolworths Strewth! Fair dinkum, etc.
Last week, those in the know would have received our timely and insightful mailer on the Woolies interims. For those who didn’t, a recap: turnover up +6.7%, with HEPS, the one true measure of profitability, down an extremely disappointing -4.3%. The culprit, as is the case with so many South African disappointments, was Australia, where slower economic growth due to lower commodity prices and muted consumer confidence have hit sales at Woolies’ now-substantial retail assets in that cursed and blighted land. Group wide, food put in a better showing than clothing, with sales up 9.5% from R12.1billion to R13.3billion and the latter growing only 3.5%. The decline in margin may be attributed to Woolies’ aggressive price cuts and promotions to maintain market share during a challenging ambit.
Comment: Over to you Mr Moir, as unrattled as ever: “A good performance in a tough market, both by clothing and by food. We did the right things at the right time”.
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Walmart Eye of newt, tongue of bat
The Oracle of Omaha has dropped Walmart from his portfolio like a ton of bricks, pronouncing ominously that a retailer in decline is difficult to turn around. Warren Buffett’s Berkshire Hathaway investment vehicle sold off $900million of Walmart stock in the last quarter, or about 90% of what he had left after years of slowly reducing his holding in the biggest big-box of all. Pundits the globe over are seeing Warren Buffett’s rejection of Walmart as symptomatic of a broader malaise in traditional retail, embattled as it is by rocketing online sales. "It is a big, big force,” he pronounces in doom-laden tones, “and it has already disrupted plenty of people and it will disrupt more. He avers that many businesses have worked out neither how to cash in nor how to counter it, a view which no doubt informed his Walmart decision.
Comment: Brick and mortar retailers had better figure out, and fast, how to compete with the online version or the carnage will continue.
MANUFACTURERS AND SERVICE PROVIDERS
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Kraft Heinz We hardly knew ye
This weekend markets and analysts were all aquiver on the news that Kraft Heinz had put in an offer for Unilever. We ourselves greeted the announcement with cries of alarm, but more of that later. Kraft had offered $143billion for the business, at a premium of 18% on last Thursday’s share price. Unilever simply rejected this on the grounds that it saw no merit "either financial or strategic" in the transaction. Unilever shareholders were looking forward to years of resilient growth from the Grand Bleu, apparently, and saw no reason to give it all up at this point. It has been pointed out that Kraft is the more profitable business, with a margin of around 30% compared with 15% over at Unilever. Kraft and majority shareholder 3G of Brazil would in all likelihood have implemented some fairly austere measure had the acquisition gone forward. "Unilever and Kraft Heinz hold each other in high regard," said the almost-couple, in the manner of Taylor Swift and Tom Hiddleston.
Comment: We breathe a sigh of relief, in the belief that Unilever still has much to continue accomplishing in the area of sustainable, planet-friendly growth in the years to come.
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Nestlé Souring prospects
Nestlé has a new boss and he has some stern words for those with an interest in the fortunes of the dairy giant: it’s going to take years to return to the growth rates targeted by his more optimistic predecessors, and he’s willing to take an axe to underperforming assets if that’s what it takes to turn the rig around. Growth, says Mark Schneider, will hit somewhere between 2% and 4% this year, rather than the anticipated 5% to 6%, and restructuring costs will eat into profits to the tune of R6.47billion in Swiss Francs. Among Nestlé’s litany of woes are deflation in Europe, declining sales in China, inflation in Brazil and Russia, and increasing competition in the US chocolate market.
Comment: The growth targets, known as the ‘Nestlé Model’ have guided the strategies of the business since 2005, when they were adopted. Ditching them will be a bitter pill for punters to swallow.
TRADE ENVIRONMENT
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SA Economy Interesting Times
By the time you read this, we will have dragged ourselves through a budget speech which at time of writing promises a bleak vision of a South Africa which has reached its financial limits and must now face a future of tax hikes and spending cuts until we can rebuild investor confidence in our Beloved Country, treading a fine line between fiscal probity and fiscal austerity of the sort which has set countries like Greece ablaze in recent years and caused half of all British voters to collectively lose their marbles and exit the EU. On the upside, growth may yet return in 2017, more likely in 2018 – as the worst effects of the drought recedes. And the ruling party may yet surprise us and elect someone to leadership this year who will give foreign investors something to look forward to. And then there’s the dear, battered old rand, surprising friends and detractors alike as it rose to R12.88 to the dollar this week, approaching purchasing parity with the US currency.
Comment: Betting against South Africa has never been the safest investment.
IN BRIEF
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IMPERIAL Logistics Surging growth, gettit?
IMPERIAL Holdings is buying a 70% stake in Kenyan pharmaceutical group Surgipharm for R470million in cash, should the authorities give it the nod. Surgipharm distributes pharmaceutical, medical and surgical supplies in Kenya, turning over about R940million annually. “Our entry into pharmaceutical distribution in Kenya is… opportune at a time where there is GDP growth, rising income levels and a rising middle class in the region,” says Don Marco.
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RCL FOODS To the barricades!
RCL FOODS is donning the chicken hat of activism and taking to the streets in protest against dumping. Latest in the campaign is its promotion of a Fair Play petition calling on the government to take all steps necessary to stop the dumping of chicken into South Africa, primarily from EU countries. If you’d like to throw your weight behind this cause, and maybe save some South African jobs, sign here.
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Twinsaver Soft power
Tissue giant Twinsaver is expanding its portfolio with the purchase for an undisclosed sum of Validus Medical, a manufacturer of hygienic disposable products including Clemens and Bumbies. “The acquisition is a significant move forward for our business as it will enable us to further diversify our product proposition (and) service new consumer segments,” says aptly-named Twinsaver CEO Garth Towell.
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Tesco The Booker Prize
Over in the UK, where Tesco’s performance over the last few years can kindly be called patchy, the UK retailer is making its first foray into wholesale with the purchase of the Booker Group for £3.9bn, leading many analysts, our own Uncle Syd Vianello among them, to argue that Tesco is hot on the trail of that rarest of beasts in this industry, a turnaround.
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