Hollard’s Imperial deal cracks nod

Insurer Hollard’s R2.3bn bid for Imperial’s Regent group of companies advanced in December after the African leg of the deal (excluding SA) obtained the required regulatory approvals, Imperial said on Tuesday.

The logistics group said it sold the non-South African operations of the Regent Group — based in Botswana, Zambia and Lesotho — to Hollard International for R697m. The deal became unconditional after the Botswana competition regulator approved that country’s leg of the deal; and the Central Bank of Lesotho endorsed it.

The lion’s share of the deal, the disposal of the rest of general insurer Regent Insurance and life insurer Regent Life, is subject to Competition Tribunal approval after the Competition Commission declined to approve it in October, saying it would decrease competition.

Hollard is expected to contest the commission’s findings at the tribunal during the weeks of January 23 and April 3.

Warwick Bloom, the acquiring insurer’s spokesman, did not respond to questions.

Hollard offers short-term and long-term insurance products, similar to the Regent Group. The commission says the bid would lessen competition and allow the merged entity to corner the short-term motor insurance credit life cover.

The second phase of the acquisition deal includes the motor warranty provider SA Warranties and the body-repair insurer Paintech Maintenance.

The commission red-flagged Hollard’s involvement in MotoVantage, a motor warranty joint venture with FirstRand. MotoVantage is poised to buy SA Warranties and Paintech.

There was also the spectre of large job losses and possible exchange of sensitive information. The regulator found the merging parties’ remedies for the anticompetitive deficiencies unworkable, it said.

JP Morgan Cazenove analyst Necessity Ngorima said in October that the transaction had been drawn out longer than the market expected.

“Imperial announced the decision to sell its 100% interest in Regent, its highly cash generative insurance business, in May 2015,” she said. “Management examined its business clusters and decided that Regent’s short-term and life insurance did not fit in with Imperial’s core business.”

Ngorima said the deal would allow income from vehicle- insurance and value-added products to continue flowing to Imperial. The Regent Group contributed R3bn to Imperial’s revenue during its 2016 financial year. “The proceeds of the sale were [planned] to reduce debt and fund the expansion of Imperial’s core business.”

Source:Business DayDate: 2017/01/18

BAT raises offer for Reynolds

Cigarette giant British American Tobacco (BAT) has increased the price tag to buy out associate company Reynolds, but firmly believes that the $49bn deal will enhance the enlarged group’s ability to bolster margins and grow earnings.

On Tuesday, BAT, which already owns a 42% stake in Reynolds, outlined revised terms of the takeover, pitching a sweeter cash and scrip settlement. The revised offer will see Reynolds shareholders receiving a cash settlement of $29.44 per share in cash as well as a scrip settlement in the form of BAT American depository receipts listed on the New York Stock Exchange. The settlement implies a value of $59.64 per Reynolds share, a marked increase on BAT’s opening bid of 56.50 per share. The offer price represents a 26% premium on Reynold’s closing share price on October 20 2016, and gives the company an enterprise value of close to $100bn.

BAT is the second-largest company on the JSE with a market capitalisation of about R1.586-trillion. Both companies’ boards have given the transaction the thumbs up.

BAT CEO Nicandro Durante said the deal would create the largest and “most international” tobacco company in the world. Reynolds is the second-largest player in the US with a 34% market share in cigarettes. BAT holds key positions in emerging markets across South America, Africa, the Middle East and Asia.

He said 60% of the enlarged company’s volumes — which includes brands like Kent, Pall Mall, Lucky Strike, Camel and Newport — would still be generated in emerging markets.

“We have seen developed markets as a source of current profit growth, and emerging markets as future growth. Nothing has changed.”

BAT financial director Ben Stevens said strong cash flow generation would reduce the net debt-profit ratio from a full year pro forma ratio of about four times to a target of about three times by 2019.

One analyst at the BAT conference call suggested the takeover was driven by new generation products (electronic cigarettes and vapes) rather than combustibles (traditional tobacco products).

Durante discounted this, saying the deal made sense for both companies in all areas. “It’s winwin for shareholders in both firms. The deal was not made on any specific area … we will be stronger in all categories.”

Responding to analysts’ questions about margin enhancement for the enlarged group, Stevens said BAT’s aspirations were still to grow operating margins by 50 to 100 basis points over the longer term.

Durante said the main three synergies that would stem from the Reynolds deal were in procurement, product development and head office roles.

“But most synergies will come from procurement.”

BAT initially estimated annualised cost savings of at least 400m at the end of the third year after the takeover.

Stevens said there was now a lot more certainty regarding estimated cost savings after BAT had been able to look more closely at Reynolds’ operations. “Hopefully, as we work more closely with Reynolds, we might see more cost savings.”

Source:Business DayDate: 2017/01/18

Funds released in BEE move by PPC

PPC has concluded the components of its 2008 broad-based black economic empowerment (B-BBEE) transaction, releasing R1bn in funding.

Strategic black partners and community service groups subscribed for 15.6-million shares as part of earlier agreements. Subsequently, PPC received R1bn on December 15 2016.

“The company will use the R1bn to reduce debt and fund capital expenditure further, in particular, relating to the Slurry Kiln 9 project near Lichtenburg,” it said on Tuesday.

PPC had invested about R1.7bn to upgrade kiln lines in North West to obtain higher clinker production.

The transaction had reduced the company’s empowerment credentials, the cement group said. But it was working to implement a new B-BBEE transaction, which would be communicated to shareholders in the first half of 2017.

As part of the transaction PPC bought back and cancelled 48.6-million shares at 10c a share. This resulted in group net stated capital being reduced by 33-million shares to about 1.6billion shares.

Gareth Visser, cement analyst at Avior Capital Markets, said scheme participants subscribed for shares at R67 a share. “The scheme structure has R1bn cash available, which has been used to purchase 15.6m shares — R1bn cash inflow to PPC — which have been in the scheme since its inception.

“Because the scheme structure cannot afford to subscribe for all the shares as per the original agreement, the remaining shares that have been set aside — which amounts to 33-million shares — have been purchased back at 10c a share and cancelled. This is simply the winding up of the … scheme as per its terms,” he said. The effect of the transaction on PPC’s net stated capital was “negligible”.

Azola Lowan, PPC executive for strategy and communications, said the R1bn received was a paper profit offset by the dilution of shares.

Source:Business DayDate: 2017/01/18

Rest of Africa helps drive superb sales for Shoprite

Last year may have been a difficult year for retail in Africa but consumers still came in droves to Shoprite, which reported double-digit sales growth on the continent in the six months to December.

In a welcome surprise, the group’s non-South African supermarkets recorded sales growth of 32.2% — a result that was achieved in the face of low commodity prices and forex shortages in certain countries.

Africa’s largest food retailer reported a 10.7% increase in sales from its local operations supported by good festive trading. Growth on a like-forlike basis was 7.4% with internal inflation averaging 7.4% for the period.

Absa Wealth & Investment Management analyst Chris Gilmour said Shoprite had done remarkably well outside of SA.

“This speaks well about how well positioned they are in the rest of Africa. It’s an outstanding result,” he said.

Shoprite operates in Ghana, Nigeria, Democratic Republic of Congo, Uganda, Angola, Zambia, Malawi, Mozambique, Namibia, Botswana, Madagascar, Lesotho, Swaziland and Mauritius.

In Nigeria, Shoprite operates about 23 stores. Tight capital controls and currency volatility combined to make 2016 a challenging year for the oil-rich nation. With oil prices plummeting to an average of about 45 per barrel — down from highs of $115 in 2014 — Nigeria faced a significant drop in revenue in 2016.

Overall, non-South African supermarket growth on a likefor-like basis was 14.2%. Taken at constant currencies, sales grew 51.7%.

Cratos Wealth senior analyst Ron Klipin said Shoprite had shown consistent strength and its competitors would be hard-pressed to produce better numbers.

“Africa was the star performer; those operations are looking very good indeed. Furniture looks strong as well despite the National Credit Act having had some impact on that sector. I would say its numbers look well ahead of its peers,” Klipin said.

Shoprite’s core market is the lower-income consumer. Woolworths, which serves the interests of higher-income consumers, reported a slide in food sales volumes last week.

Shoprite said its furniture division grew sales 10% for the period. The other operating segments had achieved growth of 10.5%, mainly driven by the OK Franchise division’s strong performance, the company said.

These will be the last results with Whitey Basson at the helm. Basson retired at the end of 2016.

New CEO of the group, Pieter Engelbrecht, is a mere 18 days into the top job. The responsibility now falls on him and his management team to flesh out a possible deal with Steinhoff.

Following the release of the update, Shoprite’s share price initially rallied 2%, but ended the day down 1.23% at R176.50 — valuing the company at about R104bn.

Source:Business DayDate: 2017/01/18

Holdsport keeps sales climbing gently

Holdsport, the retailer of specialist sport and outdoor apparel and equipment, has reported a 5% rise in sales for the four months to end December 2016.

Retail sales for comparable stores, however, fell 0.7% over the period.

Holdsport operates through a network of 39 Sportsmans Warehouse and 22 Outdoor Warehouse Stores.

It has a strategic investment in Performance Brands, which is independently managed and supplies technical apparel for the sporting goods industry under the First Ascent and Capestorm brands.

The company said sales increased 0.5% at Sportsmans Warehouse while comparable sales fell 2.3%.

At Outdoor Warehouse, sales increased 8.4% with comparable sales up 4.3%.

The wholesale division’s total sales increased 46.7% and external sales rose 110.8%.

The share price has held up better than its bigger rivals in the retail sector. Mr Price Group, which also released a trading update on Tuesday, fell 20.22% in 2016 and Truworths finished down 12.59%. Holdsport ended the year up 4.43%.

Lentus Asset Management chief investment officer Nic Norman-Smith said the retail sector was experiencing a downturn. “There doesn’t appear to be any reason to expect a massive change in current fortunes,” he said.

Source:Business DayDate: 2017/01/18

Machines will cut jobs, CE survey finds

Global CEs are planning to hire — rather than fire — more employees in the next 12 months, as they recognise the most difficult and important skills to find are those that cannot be performed by machines, according to a PwC survey.

“Computers far outstrip humans when it comes to analysing vast quantities of raw data, for example. But they lack the intuition, empathy and creativity required to make sense of that data. Creative, innovative leaders with emotional intelligence are in very short supply,” PwC finds in its 20th Global CEO Survey.

Views from interviews with 1,379 business leaders in 79 countries are presented in the recent survey.

Technology has profoundly affected the global workforce: at 1.8-million, there are more than twice the number of industrial robots worldwide today than 20 years ago, while the advent of self-driving delivery trucks and automatic supermarket billing are examples of jobs threatened by technological innovation.

Yet only 16% of the CEOs surveyed planned to cut their company’s headcount in the next 12 months, with just a quarter saying this is primarily due to technology.

Conversely, more than half the CEOs surveyed plan to hire more employees.

This number is even larger among CEOs who are more confident about their company’s growth prospects.

Machines cannot replicate the skills considered most important by CEOs, the survey finds. These skills, ranked in order of importance to organisations are problem-solving, adaptability, leadership, emotional intelligence and creativity and innovation.

Three-quarters of CEOs said creativity and innovation were the most difficult to find among prospective employees, followed by leadership (75%) and emotional intelligence (64%).

Organisations continue to need people for several reasons, according to PwC. These include the length of time it takes to adopt new technologies, the regulatory environment and the degree to which technology, at least at this stage, can replicate more complex jobs.

“Ultimately, however, it’s the ability to acquire new skills that’s kept people employed through past disruptions like the industrial revolution,” says PwC.

Companies are looking farther and wider to find the skills they need, with 74% of CEOs saying they seek out the best talent regardless of geography and 78% saying they have changed their talent strategies to reflect the skills their companies will require in the future.

Less than a third of CEOs are confident global economic growth will improve in the next 12 months, with 38% — up from 35% in 2016 — saying they are very confident about the 12month revenue prospects for their companies.

Positively, 51% say they are very confident in their organisations’ three-year revenue prospects. CEOs list uncertain economic growth, overregulation, the unavailability of key skills, geopolitical uncertainty and the speed of technological change as the greatest threats to growth prospects.

As global trade slows down, CEOs are looking at a mix of countries in which to find opportunities to expand.

Emerging markets are no longer the world’s foreign direct investment darlings, with the US, China, Germany and the UK topping the list of destinations that CEOs consider most important to their growth prospects.

Source:Business DayDate: 2017/01/18

Weak update hurts Mr Price

Worried investors punished Mr Price Group on Tuesday, sending the share price down close to 5% after the retailer released a mediocre trading update.

Mr Price said total retail sales in the quarter to December were 0.5% lower at R6.1bn compared with the year-earlier period, while comparable stores sales dropped 2.9%.

36One Asset Management retail analyst Evan Walker said it was a disappointing performance from the group.

“This is probably the retailer that should be doing better in this environment. It’s a slight improvement from their last update, but still disappointing.”

Walker said it was unlikely to get easier for retailers going forward as the promotion and discounting trend would continue for some time.

“Additionally, Edcon is going to become more of a threat to all retailers in 2017 and 2018. I’ve looked at the price points in Edcon and they have come down quite substantially. It will be a bigger threat in the next 12 months,” said Walker.

Lentus Asset Management chief investment officer Nic Norman-Smith said given the share price weakness, the update had not been expected. “They [Mr Price] are operating in an increasingly competitive environment at a time where the consumer is coming under pressure. This is on the heels of a decade of tailwinds driven by low interest rates and credit extension. It is not unexpected that the sector will undergo a downturn in the business cycle. Retail is a volatile and difficult business to operate,” he said.

In the update, Mr Price said poor economic growth, low levels of consumer confidence and higher selling prices driven by a weak and volatile exchange rate had resulted in a competitive retail environment, with persisting high levels of price discounting and promotional activity.

“Given this situation and the need to manage inventory levels going into the new year, higher promotional markdowns were required, particularly in MRP Apparel,” the company said.

Gryphon Asset Management portfolio manager Reuben Beelders said it was clear retailers were at the bottom of the cycle based on the recent updates. “One thing Mr Price has been quite open about, which I’m not sure the other retailers are being transparent with, is the effect that sales and discounts are having on their margins.”

Including “other income” of R284.4m from interest and insurance charges along with cellular airtime sales‚ the group managed to report a small rise of 0.4% in revenue to R6.4bn.

Source:Business DayDate: 2017/01/18

Shoprite expects interim turnover to rise 14% year on year

By Andries Mahlangu

Grocery retailer Shoprite said on Tuesday total turnover lifted 14% R71.3bn in its first half‚ with like-for-like turnover growing 8.6%.

In an operational update‚ the blue-chip company said sales in the supermarket operation in SA rose 10.7%‚ supported by “good festive trading”.

Growth on a like-for-like basis was 7.4%‚ with internal inflation averaging 7.4% for the period.

Sales growth on the African continent‚ excluding SA‚ rose 32%‚ assisted by higher inflation. Growth on a like-for-like basis was 14.2%. Taken at constant currencies‚ sales grew 51.7%.

Its furniture division grew sales 10% for the period. The company noted that credit sales continued to be affected by the changes in the National Credit Act.

The other operating segments achieved growth of 10.5%‚ driven mainly by the performance of its OK franchise.

The stock initially rallied 2% before reversing course to trade just less than 1% weaker at R178.39‚ giving the company a market capitalisation of about R102.5bn.

The interim results are expected on February 21.

Source:BDproDate: 2017/01/18

Cashbuild increases revenue following expansion

Cashbuild says its revenue from the 20 new stores it has opened since July 2015 have contributed to a 4% increase in revenue for the second half of 2016.

It told the market yesterday that while new stores contributed to the increase‚ existing stores remained at similar levels to that of the comparable period a year ago.

The group had 219 stores before it opened the new ones.

The group said revenue‚ which included that of P&L Hardware‚ amounted to growth of 14% for the second quarter and 15% growth for the first half of the financial year when compared with that of the previous year.

It said the total number of items it had sold over the period‚ from new and old stores‚ had risen by 6%‚ from 7% in the preceding half. Old stores had contributed a 1% increase.

It said that selling inflation was 3% higher at the end of December 2016 when compared to the previous year’s prices while gross profit percentage margins remained at similar levels to those reported for the full prior financial year.

Source:BDproDate: 2017/01/18

Harmony Gold's first-half output up 8%

By Allan Seccombe

Harmony Gold‚ which has mines in SA and Papua New Guinea‚ said its gold output in the first six months of its financial year was 8% higher than the six months to end-June last year.

Harmony‚ which has mines in Gauteng and the Free State‚ attributed the increased production to its grades remaining above 5g a tonne.

It will release its interim results on February 2.

Harmony is on the hunt for additional mines to add to its portfolio‚ aiming to lift output to 1.5-million ounces in three years as it shuts old‚ mined-out operations over the next five years.

Harmony CEO Peter Steenkamp has said the company is searching in Africa and Papua New Guinea for opportunities.

Harmony’s share price rose 3% to R34.90 on Tuesday morning following the announcement.

Source:BDproDate: 2017/01/17

British American Tobacco lights up Reynolds deal

By Robert Laing

British American Tobacco (BAT) raised its bid for Reynolds by 5.6% on Tuesday‚ turning the deal from a potentially hostile takeover into a friendly one.

The cash component of British American Tobacco’s offer has been lifted to $29.44 from $24.13‚ but the share component has been reduced to 0.5260 from 0.5502 British American Tobacco shares per Reynolds share.

British American Tobacco said this raised its bid to $59.64 from $56.50 per Reynolds share.

Reynolds’s share price rose 0.41% to $55.97 in New York while British American Tobacco rose 0.34% R784.99 on the JSE following the announcement.

British American Tobacco first announced its intention to buy the 57.8% of Reynolds it does not already own on October 21.

Its initial offer was reportedly rejected by Reynolds’s largest shareholders.

British American Tobacco said in Tuesday’s statement that the new offer was unanimously approved by a transaction committee of independent Reynolds directors.

At current share prices‚ British American Tobacco will pay $49.4bn to buy the remaining 57.8% of Reynolds.

Reasons given for the deal included “at least $400m of annualised cost synergies anticipated by the end of year three‚ supporting continued margin improvement”.

“We have been shareholders in Reynolds since 2004 and we have benefited from the success of the present management team’s strategy‚ including its acquisition of Lorillard‚ which we supported with our own investment in 2015‚” British American Tobacco CEO Nicandro Durante said.

Reynolds was the second-largest player in the US market‚ with three out of the four top-selling cigarette brands‚ British American Tobacco said.

“Reynolds has a 34% cigarette market share‚ with Newport the leading brand in menthol‚ Pall Mall the leading value brand and Natural American Spirit‚ the fastest-growing premium brand. Reynolds’ American Snuff subsidiary also has a 33% share of the growing moist snuff segment‚ led by its Grizzly brand‚” the company said.

Source:BDproDate: 2017/01/17

Rockwell blames poor results on contractor's 'malicious legal action'

By Allan Seccombe

Rockwell Diamonds levelled accusations of “malicious legal attacks” and “sabotage” at third parties and blamed its poor third-quarter performance on these factors as its new CEO Tjaart Willemse painted a brighter outlook for the company.

Rockwell‚ which is under new executive leadership‚ has agreed to sell its Saxendrift and Remhoogte/Holsloot assets to Nelesco 318 for R45.5m‚ reduce its workforce‚ cut liabilities by more than 80% and inject $8m into the company to bring its Wouterspan operation in the Northern Cape into production from March.

The R45.5m will be paid in three tranches as various conditions are met and the first payment of R20m is expected before the end of January.

Rockwell will cut its workforce to 297‚ down from 604‚ with a large number of people transferred with the Remhoogte/Holsloot and Saxendrift assets.

“It has been a tough quarter‚ but I am confident we have turned the corner on our way back to profitability‚” Willemse said.

Operationally‚ it had been a tough three months to end-November‚ with disruptions to the development of Wouterspan caused by a disgruntled contractor attempting to secure the mining fleet through a spoliation order from the courts‚ which Rockwell successfully defended with costs.

The cost of production in the quarter shot up by 67% compared with a year earlier and 78% compared with the previous quarter because of “suspended operations and delays in the development of Wouterspan caused by malicious legal activity and sabotage by a previous contractor‚” Rockwell said.

“The company is also engaged in vigorously defending an unfounded application for liquidation by former contractor‚ which no other creditors have supported‚” it said.

Willemse said once Rockwell’s employees restarted mining at Wounterspan after defeating the spoliation order in court they could not ramp up production as they had hoped to do.

“On restarting the operations production ramp-up has been slower than anticipated‚ mostly as a result of unexpected challenges with earth-moving equipment after it was found to have been tampered with during the period following the interim spoliation ruling in favour of the contractor.

"Not all challenges have been overcome yet but this is receiving due attention‚” Willemse‚ a former De Beers employee‚ said.

“The company was taken back from being effectively operated by third parties and is now managed by its management — the way it should be‚” he said.

Rockwell plans to reduce off-mine costs by a quarter and cash operating costs will be cut by 45% once the mine and plant at Wouterspan have reached the 200‚000 cubic metres of ore a month.

Diamond sales for the quarter fell to C$2.4m compared with C$6.9m in the previous year. For the first nine months of its financial year sales dropped to C$25m versus C$27.5m.

The quarterly loss narrowed to C$5.5m from a C$9.3m loss in the same quarter a year earlier‚ while for the nine-month period‚ the loss fell to C$5.5m from C$13.4m.

Source:BDproDate: 2017/01/17

IHL lands GBP17.7m hotel in Edinburgh

Europe-focused hotel and leisure property investment vehicle International Hotel Properties Limited (IHL) has acquired a premium asset in Edinburgh, the UK’s second- strongest hospitality market after London.

On Monday, IHL completed the acquisition of the Holiday Inn Express Edinburgh City Centre for £17.725m plus costs.

“The acquisition marks IHL’s continued growth and investment into the European hotel sector and is the business’s ninth hotel purchase since August 2015. This property adds a further 161 hotel bedrooms and takes IHL’s portfolio to nine hotels with a total of 1,135 bedrooms,” said CEO Jon Colley.

“This is a high-quality asset in the most stable hotel market in the UK, outside of London, and is an excellent addition to IHL’s growing portfolio,” he said.

“The hotel consistently trades at a very high occupancy and is a mature, stable business having been open for over 12 years.”

Colley said the hotel experienced high occupancies throughout the year, especially during the Edinburgh and Fringe festivals in August.

“Edinburgh is a corporate city during the week but it also has a strong transient leisure market,” he said.

Chief financial officer David Hart said the acquisition was value accretive to IHL and would result in a positive boost to distributable earnings.

IHL listed on the JSE in 2015 as it looked to attract investors seeking sterling-denominated returns as they diversified away from local assets.

Source:Business DayDate: 2017/01/17

Carlyle buys into ratings company

Private equity group Carlyle has acquired about half of Global Credit Ratings (GCR) for an undisclosed amount, it was expected to say on Tuesday.

GCR provides credit ratings and analysis services to insurers, financial institutions, the public sector and other corporate entities. Carlyle is buying the shares from GCR’s founding managers and German development financier DEG.

“[The] GCR management team has created a truly local rating agency, which combines global best practice with an onthe-ground team with deep knowledge of the local markets,” said Eric Kump, who jointly heads the Carlyle sub-Saharan Africa team.

GCR, led by Marc Joffe, now has the biggest share of credit ratings in Africa – more than S&P Global Ratings, Moody’s and Fitch – and has offices in Johannesburg, Harare, Lagos and Nairobi.

Joffe said the three large ratings agencies may have cornered the market internationally, but the picture was different in emerging markets. GCR serves 400 customers in 20 African countries.

He said the Carlyle investment would help in “further augmenting GCR’s brand, market position and credibility”.

Kump said GCR was reasonably priced compared to its larger competitors.

“[The competitors] have a narrow focus and high fees reflecting their high cost structures. We and GCR think there is an opportunity for a local, high quality and reasonably priced competitor which is willing and able to serve the full spectrum of companies and structured products.”

Carlyle will pay for the investment from its 698m Carlyle sub-Saharan Africa Fund, which has invested in five companies in Africa. It expects the deal to close early in 2017.

The GCR deal is its third investment in SA, following on investments it has made in Ti-Auto, a tyre retailer and wholesaler which owns Tiger Wheel & Tyre; and telecommunications provider CMC Networks.

Kump said Carlyle would leverage its global expertise in the credit-ratings sector gleaned through its investment in Canada’s DBRS to help it expand further. Carlyle and fellow private equity firm Warburg Pincus bought a stake in DBRS in 2015.


Source:Business DayDate: 2017/01/17

Consumer spend lifts Massmart

Walmart-owned Massmart has bounced back with a more positive trading update after consumers splashed out more towards the end of 2016.

Massmart said on Monday it had seen a “slight pick-up” in sales in its local operations while sales on the rest of the continent continued to decline.

In an update, the retailer reported a 7.7% increase in total sales for the year to December25 to R91.3bn. Comparable stores sales increased by 5.4%, while product inflation was estimated at 6.7%.

Ashburton Investments fund manager Wayne McCurrie said Massmart had performed a lot better than expected.

“Their last trading update was quite poor. But they have managed to do well. The numbers show real growth in turnover, significantly better than in the last reporting period. The share climbed over 3% on the news. All in all, a good update,” said McCurrie. In the Massdiscounters division, total sales increased by 5.3% with comparable sales growth of 1.5%. Inflation averaged 4.8%.

Masswarehouse increased sales by 11% with comparable sales growth of 7.6%. Inflation was at 6.5%.

Massbuild sales rose 5.6% with comparable sales of 1.7%. Inflation was recorded at 4.7%.

At Masscash, total sales were up 7.5% with comparable sales growth of 7.9%. Inflation averaged 9.3%.

Mergence Investment Managers equity analyst Peter Takaendesa said the group’s full-year sales growth was largely in line with consensus expectations. “As we have seen with other retailers that have reported so far, Massmart’s sales growth rate in its key South African operations has shown an improvement over the last three months of 2016.”

Takaendesa said it seemed the market was pleased with the reported sales and that the latest update suggested a reversal of the declining trend for the company over the past 18 months.

“The only areas of concern are the continuing tougher trading conditions in its non-South African operations and if they have managed to improve profit margins in the core South African operations,” he said.

Massmart, headed by CEO Guy Hayward, operates in 13 countries in sub-Saharan Africa. These include Botswana, Ghana, Zambia and Namibia.

Massmart has indicated it will seek new store opportunities across Africa in 2017.

By the close of the JSE on Monday, Massmart’s share price was up 3.71% to R131.11, valuing the company at about R27.5bn.


Source:Business DayDate: 2017/01/17

Shoprite and Steinhoff release full of hot air

Great excitement on the day before the day that marks the last working day of the year for many of us; on December 14, Shoprite and Steinhoff released a Sens statement entitled “joint detailed cautionary announcement relating to the establishment of an African retail champion”.

Turns out that was a bit misleading. It should have read: “Lots of fuzzy chat about creating the sort of African retail champion that would ensure the enthusiastic backing of the Public Investment Corporation (PIC), but few real details.”

The most important detail left out was the exchange ratio that was going to be used in the Steinhoff share-for-Shoprite share exchange. It was perhaps understandable. The controlling shareholders in these two listed entities – essentially Christo Wiese and the PIC – wanted to get their ducks in a row and see how the market responded to the idea before announcing the very detail that would make or break the deal.

But it’s now almost five weeks later and we’re still waiting for an announcement about that all-important detail. In fact it is so important that on December 14, the joint announcement would have been much more useful if it had merely stated: “The Steinhoff share-forShoprite share exchange will be X” and left out all the guff about an African retail champion.

So what’s the delay? Some or other form of this deal has been on the cards for a long time. The plan to pay Shoprite’s justretired CEO a R50m bonus was the final detail that needed to be sorted out before the go-button could be pushed. That was done months ago. But here we still are, waiting.

And, while we wait, we can hear the minority shareholders, particularly those in Shoprite, muttering about the absence of compelling sense and the danger of being squeezed out at an unacceptable exchange rate.

Meanwhile, in the past week, Shoprite’s share price has recovered a bit of the value it lost on the initial announcement.

Nepi Rockcastle, the real estate business that will result from the merger between New Europe Property Investments (Nepi) and Rockcastle Global Real Estate, should inspire consolidation among other South African property companies that have invaded Eastern Europe.

Several South African commercial property professionals have been criticised over the past few years for investing in countries such as Romania, Poland, Croatia and the Czech Republic. The concern is that they are too inexperienced and unconnected to compete with European investors in the regions. Nevertheless, some South African funds have had early successes, typically choosing to take domestic investment partners.

Nepi got going about a decade ago and soon realised it needed a Polish partner. Rockcastle is that partner.

Another big South African player, Redefine Properties, partnered with Echo Investment in 2016 in Poland. Its rival, Growthpoint Properties, has a Romanian partner. The market is anticipating more information about its expansion in Europe.

Some of the smaller South Africans trying to make waves in the region would do well to consolidate their operations. Prime candidates are Tower Property Fund, which has assets in Croatia, and Accelerate Property Fund, which has invested in Austria and Slovakia.

Neels Blom edits Company Comment (

Source:Business DayDate: 2017/01/17

Grinch steels Mr Price’s Christmas cheer

By Robert Laing

Budget clothing retailer Mr Price suffered a 0.5% decline in sales to R6.1bn over the Christmas quarter even before taking into account high product inflation of 10.8%.

Including “other income” of R284.4m from interest and insurance charges along with cellular airtime sales‚ the group managed to report a small rise of 0.4% in revenue to R6.4bn for the 13 weeks to December 31 from the matching period in 2015.

Excluding new stores‚ Mr Price’s Christmas sales drop was 2.9%.

Higher promotional markdowns were required to clear inventory‚ which was reduced by 5% and is generally in better shape than at the end of the December quarter in 2015‚ Mr Price said in its sales update.

Sheet Street was the group’s only chain to report comparable store growth.

Along with the basic sales growth figures‚ Mr Price’s sales update provided figures adjusted for an extra week in the comparative figures.

The adjusted figures showed Sheet Street grew overall sales 5%. Its trading space decreased 0.2% from the previous December quarter. Comparable store sales growth was 4.8%.

The group’s flagship apparel chain suffered a 1.1% decline in sales. It grew its trading space 4.9%‚ and its comparable sales growth was 3.3%.

Sales were down 0.6% at Miladys. The store kept its trading space level‚ but comparable sales dropped 1.2%.

Mr Price Home grew total sales 1.2% while trading space was down 2.7%. Comparable sales fell 1%.

In terms of trading space‚ Mr Price Sport was the group’s fastest-growing chain‚ with a 6% increase in floor space. Its total sales grew 2.6% but comparable growth fell 4.9%.

Cash sales‚ which constitute 83.2% of total sales‚ decreased by 0.5%. Credit sales growth‚ which had slowed significantly as a result of consumer caution and legislative changes limiting new account applications‚ showed an improvement from the reduction at the half year‚ and increased by 0.3% over the corresponding period.

Source:BDproDate: 2017/01/17

Investec fund buys in Australia

By Alistair Anderson

Investec Australia Property Fund (IAPF) has bought two office properties to expand its exposure to New South Wales‚ Australia’s largest and strongest-performing economy.

The fund‚ the only property company on the JSE that invests solely in Australia‚ has been a good performer since listing in 2013‚ providing a total return of 67.59% to shareholders.

IAPF acquired 2 Richardson Road‚ North Ryde and 20 and 24 Rodborough Road‚ Frenchs —Forest in a deal worth A$160m ($119.54m).

The assets held long-term benefits for IAPF‚ according to CEO Graeme Katz.

“These properties secure medium-term income for the fund with a weighted average lease expiry of at least 4.1 years. Furthermore‚ the buildings have extremely low vacancy rates‚ are occupied by quality tenants‚ and are ideally located to benefit from rezoning initiatives and surrounding infrastructure developments‚” said Katz.

IAPF would spend A$85m‚ excluding transaction costs for the North Ryde property‚ which equated to an initial yield of 7%.

It would spend A$75m‚ excluding transaction costs‚ for the Frenchs Forest property‚ equating to an initial yield of 7.5%.

The North Ryde property is a four-level‚ A-grade office building 10km northwest of the central business district of commercial capital Sydney in the North Ryde commercial precinct.

The property was built in 2004 and comprises 15‚055m² of office space‚ 150m² of ground floor retail space and 492 undercover and on-grade car parks.

The Frenchs Forest Property comprises two separate buildings‚ 20 Rodborough Road and 24 Rodborough Road.

The 20 Rodborough Road building is a campus-style office building that provides 12‚366m² of office space‚ 325m² f ground floor retail space and 453 undercover and on-grade car parks.

The building has recently undergone an extensive A$1.3m refurbishment programme :D:that included upgrades to the lifts‚ refurbishment of some :D:of the office levels‚ upgrades :D:to the bathrooms and new disabled amenities.

The 24 Rodborough Road building is a modern office and warehouse facility with two levels of office space totalling 3‚219m²‚ one level of high-clearance warehouse space totalling 3‚979m² and a total of 130 undercover car parks.

Source:BDproDate: 2017/01/17

Market applauds TFG’s 14.5% sales growth

By Colleen Goko

Retailer TFG reported double-digit sales growth for the nine months to December‚ a feat that was widely applauded by the market‚ sending the share price soaring more than 6% in intraday trade.

The upbeat update was a welcome surprise for investors following a poor showing by both Woolworths and Truworths last week.

In the nine months to December 24‚ TFG reported a 14.5% rise in group sales. Between November 27 and December 24 2016‚ sales increased 14.6% compared with the year-earlier period.

TFG’s share price closed 5.29% higher at R168.50.

Mergence Investment Managers equity analyst Peter Takaendesa said the sales growth rate was a bit better than consensus expectations of 13.5%.

“What’s quite clear in the results is that TFG is continuing to execute better than its peers and the retail sector in general experienced better trading conditions over the December festive period‚” Takaendesa said.

“The weaker pound is likely to continue to dilute the results from their UK operations as evident in results for the latest three months to December but we expect the improvement in their South African operations to offset that pound headwind.”

In the nine months‚ turnover growth for TFG International was 47.8% in pound terms. TFG said the international operations were performing in line with management’s expectation.

Growth for TFG Africa was 9.7% with same store sales growth of 3.7%. Cash sales grew 17.4% and credit sales 2.7% in the period under review.

Ashburton Investments fund manager Wayne McCurrie said TFG was doing extremely well.

“The performance exceeded management’s own expectation. What we can see is that they are not suffering from the increasing foreign competition yet. They [TFG] are getting their clothing ranges and price correct. They can offer their merchandise at a competitive price.”

TFG’s broader range of merchandise categories compared with its retail peers has cushioned it against the economic headwinds that the retail sector has endured. Its brands include apparel retailers Markham‚:D: Due South and G-Star Raw‚ jewellery brands Sterns and American Swiss‚ and furniture store @home.

Last week Truworths reported a 21% increase in group sales for the 26 weeks to December 25‚ to R10.2bn (including sales from its UK fashion footwear chain Office Retail Group). But Truworths’ like-for-like retail sales (excluding Office Retail Group) decreased 3%.

Truworths cited increased pressure on consumers from rising inflation‚ a weak employment market and soft real growth in incomes as factors for its poor performance. It expects to report a decrease of between 2% and 6% in interim diluted headline earnings per share.

Woolworths reported a volume decline in both the clothing and food divisions in the 26 weeks to December 25.

Source:AFPDate: 2017/01/17

TFG shares shoot up as retailer provides a rare bright spot in the sector

By Colleen Goko

TFG’s share price shot up more than 6% in midday trade on Monday after the retailer said its Christmas sales exceeded expectation.

In the nine months to December 24‚ TFG reported a 14.5% rise in group sales.

Between November 27 and December 24 of 2016‚ sales increased by 14.6% compared with the year-earlier period.

Growth for TFG International was 47.9% in sterling‚ and growth for TFG Africa was 11.5% with same-store growth of 5.6%. Price inflation in the Africa division averaged 8.5%.

TFG’s results are a welcome surprise after updates from Woolworths and Truworths sparked fear of a further downturn in the retail sector.

TFG’s broader range of merchandise categories compared with its retail peers has cushioned it against the economic headwinds that have depressed the retail sector.

Its brands include apparel retailers Markham‚ Due South and G-Star Raw‚ jewellery brands Sterns and American Swiss‚ and furniture store @home.

Last week Truworths reported a 21% increase in group sales for the 26 weeks to December 25‚ to R10.2bn (including sales from its UK fashion footwear chain Office Retail Group). However‚ Truworths’ like-for-like retail sales (excluding Office Retail Group) decreased by 3%.

Woolworths reported a volume decline in both the clothing and food divisions in the 26 weeks to December 25.

At 11.15am on Monday‚ the TFG share price was up 5.91% at R169.49‚ valuing the company at about R35bn.

Source:BDproDate: 2017/01/16

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