South African grocer Spar Group Ltd. withheld its dividend for the first time since the company listed in 2004 as high inflation and increased operating expenses eroded its profit and logistical constraints added to uncertainty.
(Bloomberg) — South African grocer Spar Group Ltd. withheld its dividend for the first time since the company listed in 2004 as high inflation and increased operating expenses eroded its profit and logistical constraints added to uncertainty.
The decision not to declare a dividend for the six months through March is a reflection of the state of the South African economy and the group’s current business condition, Michael Bosman, the chairman and interim chief executive officer, said by phone on Wednesday after an earnings release. While the turnover for the six months through March rose from a year earlier, net income dropped almost 30% and net debt rose to 12.8 billion ($693 million) from 9.8 billion rand at the end of September.
“It’s a conservative approach, but I think that it’s a very important approach for us to take at the moment,” he said.
South African businesses face challenges from poor logistics and unreliable electricity supply. Government-owned ports and rail operator Transnet SOC Ltd. suffers regular disruptions due to vandalism and a shortage of parts to repair its infrastructure, while power utility Eskom Holdings SOC Ltd. subjects the country to daily power cuts — locally known as loadshedding — as it can’t meet demand with its aging coal-fired plants.
Read more: Spar 1H Net Income 818.2M Rand Vs. 1.17B Rand Y/y
“We are not 100% sure when the ports are going to be open and when they’re going to be closed, and when the roads are going to be open, and when they’re going to be closed. And what the loadshedding impact is going to be on us through the winter,” Bosman said. The company has had to hold extra stock to counter inefficiencies in the South African logistics and every extra day of stock that it holds costs 120 million rand, he said.
Operating expenses for the group’s Southern Africa division, which account for almost two-thirds of total revenue, rose by 17% from a year earlier. That was in part driven by a 27% jump in fuel and distribution costs as the company used more diesel to mitigate the impact of power cuts and also an increase in provision for bad debts, demonstrating the continued financial pressure on its retailers due to the impact of higher levels of power cuts, the group said in its earnings release.
Spar’s shares dropped as much as 2.5% on Wednesday and was 1.12% down by 1:44 p.m. in Johannesburg.
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