Super Group, the JSE-listed logistics and mobility company, has flagged political uncertainty and high unemployment as key factors impeding South Africa’s economic activity ahead of elections in May.
Despite an 11.9% firming in revenues to R33.2 billion for the interim period to December 2023, pretax profits in Super Group softened 6.2% to R1.41bn. This forced downwards the company’s headline earnings per share (Heps) by as much as 16.2% to R2.12 per share.
Super Group blamed the plunge in its profitability for the half-year period under review to elevated interest rates that drove up finance costs and prevented consumers from spending more. Net finance costs for the company firmed up by 40.6% to R621.5 million against the backdrop of “increased trade receivables” and “the funding of acquisitions” during the period.
The company has acquired AMCO, a UK logistics firm, for R700m and Right Side Up, a distribution solutions company. Weaker margins in Super Group’s supply chain Europe and its dealerships UK division impacted overall margins for the company.
Anthony Clark, an independent analyst with Smalltalkdaily Research, said: “Finance costs was one of the main detractors to Heps loss. It is very challenging out there; the second half will be challenging and they don’t see much room for improvement. Until interest rates in UK, SA and Europe start to roll over, the company will struggle to get any material positive for earnings extraction.”
Super Group CEO Peter Mountford said in the key South Africa market, “a number of factors continued to impede economic activity” including “high unemployment and political uncertainty”.
Analysts say this is likely to worsen ahead of elections slated for May, with populist rhetoric and policy positions likely to ratchet up.
Mountford also cited load shedding, protracted port delays and rail capacity constraints as problematic for the South African economy.
Performance of Super Group’s industrial and commodity transport businesses was “negatively impacted by significant border delays and slow turnaround times” at the South African ports.
“The attendance of borders and port’s staff was exceptionally erratic throughout the final quarter of calendar 2023. The rerouting of vessels resulted in lower revenues and margins across the supply chain division (and) the industrial businesses were also negatively impacted by weaker customer volumes and lower operating margins,” the company said.
Nonetheless, Super Group’s dealerships division in South Africa reported revenue growth of 4.4% on the back of stronger new and used vehicle sales.
New vehicle sales volumes for the company firmed up by 8.9%, strongly outperforming the 4.7% decline reported by the National Association of Automobile Manufacturers South Africa for the period under review.
The used vehicle sales volumes for Super Group during the interim period to December 2023 also increased by 4.9%, with optimisation of inventories and trade-in values partially mitigating price erosion in the South African market.
The South African headwinds sharply contrasted the resilience in the company’s Australian market.
Despite cost-of-living pressures and higher interest rates, tender and new business activity reached record levels for Super Group in Australia, although the supply of mainstream vehicle models remained constrained.
With economic growth in Germany remaining weak amid high energy prices, tight monetary policy and weak foreign demand hampering progress, the manufacturing sector in the European country continued to contract.
The UK economy also remained sluggish, with consumers facing ongoing financial pressure due to extended high interest rates, Super Group explained. The UK market had proven to be “difficult for the new car sales” with profits down to R86m.
Super Group’s net debt position for the period rose from R4.38bn to R6.98bn, translating to a net debt-to-equity ratio of 36.5% compared to 22.4% a year earlier. The company continues to meet its debt covenants though, with operating cash flow surging 3.2% to R4.19bn.
The working capital cash outflow of R1.04bn for the period was higher than the R104m in the previous contrasting period due to “strong festive season activity and product price escalations in the consumer supply chain” businesses.
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