In 2010, the world’s biggest retailer, Wal-Mart, acquired Massmart for $2.3 billion.

This has given Wal-Mart a huge presence in South Africa and has prepared the company for the further expansion into Africa. The US retail giant will also use this acquisition as a springboard into Africa.

Grant Pattison, the CEO of Massmart, addressing the annual general meeting of the firm on Wednesday, told shareholders that new stores have been opened in South Africa and other neighbouring countries in the first 21 weeks of this year.

“We have had new store openings in Makro in Alberton, Gauteng, Builders Warehouse in George, Western Cape and Saverite in Xai Xai, Mozambique,” Pattison said.

“Over the remainder of the financial year to December, we will open 27 stores, including a Makro in Amanzimtoti, Durban, and a Builders Warehouse store in each of Botswana and Mozambique.”

The firm has just finished buying seven Makro properties that were “previously lease-held” and has also won a loan from Wal-Mart to pay for this acquisition.

Massmart is expecting sales growth to stay flat for the remainder of the 12 months to December. The firm has strategies to boost sales, maintain gross margins and cut costs.

The fall in sales growth for the first 21 weeks of the financial year impacted all product categories and across all South African geographies.

“With the exception of one country, stores in Africa are trading well,” Pattison told shareholders, without naming the specific country.

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Workers at the car maker’s assembly plant had gone on a wildcat strike at the end of last week after the firm allegedly threatened to “subject all workers into a kangaroo-style disciplinary process for picketing.”

This move saw South Africa’s rand tumble to a new 4-year low as the market got nervous over continued threats of labour unrest. The local unit fell more than 0.7 percent to 9.4720, reportedly its frailest since April 2009.

This came shortly after workers at platinum miner Lonmin had returned to work after a two-day strike last week demanding the expulsion of rival union from its offices on the mine.

The frequency of the wildcat strikes in South Africa confirms what analysts have been saying, that overall the pattern of violence, illegal strikes and output loss will likely continue in the coming months.

Peter Montalto, an analyst at Nomura Group, said the impact of these strikes will be a wider current account deficit, revenue damage for the fiscal situation and lower economic growth.

“However, key flash points between violent and armed mine workers and police should be watched closely by the market,” Montalto said.

Lynette Skriker, Mercedez Benz spokewoman, said production will start on Tuesday 21 May, adding production in the plant had been negatively impacted by the two-day walkout.

Moneyweb quoted the National Union of Metalworkers of SA (Numsa’s) national treasurer, Mphumzi Maqungo, as saying the union would encourage workers to respect court decision.

He reportedly told Moneyweb the lunch-hour demonstrations had collapsed into a protest on Friday.

“The strike action was imposed on them (the workers) after serious provocation and threats by the employer to subject all workers into a kangaroo-style disciplinary process for picketing. We will never allow our members to be bullied for exercising their democratic right to embark on a picket,” he told Moneyweb.

“We fully support the demands of our members. We call on the management to re-open doors of engagement in order to settle the dispute.”

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The auto firm last held its annual general meeting a little more than two years ago as shareholder disputes dragged on, leading to the resignation of many directors on the company’s board. This has resulted in the suspension of the company’s listing on the Nairobi Securities Exchange (NSE).

The firm should have held the AGM before June 4 last year. This would have been in keeping with the Kenyan law which forces listed firms to organise the AGM less than 15 months before the previous meeting.

According to Business Daily, however, boardroom struggles and protracted court cases connected to shareholder squabbles incited the company to look for an alternative from the 15 month rule.

“The AGM will not happen on May 24 since we are still in discussion with the Capital Markets Authority (CMA) and we have also not issued the 21-day notice to shareholders,” Business Daily quoted Nelly Matheka, the firm’s secretary, as saying.

It is understood that the gathering will take place next month. She did not disclose the actual date of the next meeting.

It is also believed that capital markets regulator has stretched the suspension of the firm’s shares from trading to another date. According to Business Daily, June 14 is the actual date.

This is aimed at giving the company’s board of directors time to release the auto dealer’s future prospects before revoking the suspension.

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According to PPC, which has made $1 million tonne factories in Zimbabwe, Ethiopia and Rwanda, it aims to make 40 percent of its sales outside South Africa by 2016.

Reuters quoted the chief executive of PPC Ketso Gordhan, as saying: “By the last quarter of 2015 we should begin cement production almost simultaneously in Ethiopia, Rwanda and the DRC. Zimbabwe will probably be six to nine months later.”

PPC on Thursday reported an 18 percent drop in first-half profit, hit by charges related to a black empowerment deal in Zimbabwe. Excluding those charges, it said, earnings would have been slightly higher.

The cement producer’s shares fell about 1 percent on Thursday morning after the company reported flat operating profit of $900, 000 as rising costs hobbled earnings growth.

Earnings per share ended 21 percent lower at 62c per share, from 78c per share last year, but when charges related to PPC’s black economic empowerment deal and Zimbabwe indigenisation costs are excluded (normalised), earnings rose to 83c per share – up 4 percent on the prior period.

PPC said it expected the positive trend in demand for cement in South Africa to continue in the near to medium term after it reported a 6 percent rise in sales volumes and a 4 percent rise in selling price.

“The key to improved growth in South Africa remains the government’s execution of their infrastructure programme,” it said. “PPC is exploring a number of avenues to see how it can play a complementary role and add momentum in its execution.”

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Speaking at the announcement of what has been dubbed the Electronic Vehicle Industry Road Map, the Minister said: “Producers of electric cars would have to make 5 000 of such vehicles before they qualify for an incentive.”

“South Africa must not be left behind in greening initiatives and technology,” he told reporters in Johannesburg on Thursday.

The government has pledged to reimburse manufacturers with 35 percent of production cost over three years.

Davies said the map is meant to encourage development of infrastructure for the local production of electric cars.

“What will make these vehicles sellable in South Africa will be entirely dependent on whether these cars are made in South Africa.”

Davies said the government was looking at consumer incentives, but that production is taking preference at the moment.

“These are the very early stages for the cars in manufacturing.

“There are zero of these cars being produced in the country and that is why we need to get the programmes going.”

Water and Environmental Affairs Minister, Edna Molewa announced a public-private pilot test project for an emission-free electric car in February.

She disclosed on Thursday that three charging stations which are solar powered will be made available in the country by 2015.

“We aim to have 50 charging stations for the cars in the country by 2015.”

Last year, Optimal Energy chief executive Kobus Meiring was disappointed after his company – the first developer of South Africa’s electric car – was closed because it failed to get further funding from the government and the Industrial Development Corporation (IDC).

Meiring was also disappointed the project would not continue but also grateful for the government support of the vision to develop electric cars. He acknowledged Optimal Energy would never have got as far as it did in developing the Joule (The electric car) without government support.

He said the official reason provided for not supporting the electric car project any further was that the commercial risk was too high.

Meiring said the IDC was very vocal that the project needed more support than could be provided by the new industrial policy action plan and that it should be put on the national agenda and budgeted for in the national budget.

“From an IDC perspective, if the government could not do this, the IDC could not continue to fund the project,” he said.

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He noted that the decision to halt the plan could have been necessitated by the visiting team from the parent company during their feasibility study. The high empowered delegation witnessed the Marikana killings of 34 miners killed by the police near Rustenburg.

He also said he was having a close look at labour situation in South Africa, and that the imminent round of negotiations with the National Union of Metalworkers of South Africa (Numsa) was “very important indeed” with regard to a decision on GLK production in South Africa.

However, Zimmermann said the German car manufacturing company was mooting the expansion project of its lineup at its East London plant to include cars like: GLK, SUV.

According to him, the parent company was watching the political and economic situation in the country and would in the long term construct a new body shop in South Africa

Meanwhile, Numsa told reporters it would enter into negotiations with the Automotive Manufacturers Employers Association next month with a demand for a 20 percent across-the-board wage hike, far ahead of inflation.

Zimmermann confirmed that despite the halt, the expansion project has embarked on a recruitment and skills-training drive to prepare the workforce for production on the W205.

Mercedes-Benz employs about 2,800 people at its East London plant.

Karl Cloete Numsa’s deputy general secretary said Tuesday dismissed fears for the automobile company. He stated that:” There is nothing to fear about the collective bargain.”

He also added that the union welcomed the potential investment as “necessary to help us tackle the triple crisis”. Highlighting that the automotive sector was used to dealing with strong unions in their home territories.

Mercedes-Benz’s possible expansion comes in the context of the rapid improvement of efficiencies at car factories globally, and is only possible in South Africa as a result of startling improvements in productivity at the East London plant.

Paul Norton, an independent economist said the mooted expansion at the East London plant, which improved productivity by 30 percent since 2008, would also boost the passenger vehicle production in South Africa.

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South Africa is facing tough economic conditions and the South African Reserve Bank is anticipating only a 2.7 percent GDP growth this year.

Sydney Soundy, the head of Vehicle and Asset Finance at Standard Bank South Africa (SBSA), said clients seemed to be taking advantage of the low interest rate environment in South Africa.

“And clearly they (consumers) still have an appetite for secured credit,” Soundy said.

Vehicle sales were pushed by passenger vehicles and individual acquisitions.

“About 65 percent of consumers are purchasing cars that cost less than R200 000. Toyota, Hyundai and Volkswagen are some of the manufacturers that have met the need for buying economical vehicles, capturing 50 percent of the new car market in this segment,” Soundy said.

“Smaller engine vehicles (<1.7 litres) have seen the biggest sales growth in recent times, growing by just under 12% in 2012 from 2011, compared to growth of 9 percent and 1 percent for medium (1.8 to 3 litres) and large (>3 litres) engine vehicles respectively.”

In the first three months of this year, SBSA has seen an upsurge in the number of applications for vehicle finance.

But the percentage of applications with deposits has waned with more consumers looking to rather finance vehicles without a deposit.

Soundy said the traditional monthly payment sale contract continued to be very popular.

In addition, alternative financing options such as rental and leasing, are gaining momentum.

“Astute consumers are well aware that a vehicle cannot be deemed an asset. They are shifting the risk of vehicle ownership and residual values, and the responsibility of disposing the vehicle at the end of the contract, to the financier,” Soundy said.
 

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“Our subsidiary Nicoventures is preparing to launch its first nicotine inhalation product in the UK and through our recent acquisition of CN Creative, another British company, we are now exploring the development of electronic cigarettes,” Burrows said in his speech at the company’s annual general meeting (AGM).

“That way, consumers will be satisfied, public health is likely to improve and our business will continue to grow. The scientific community widely agrees that it is the toxicants in tobacco and tobacco smoke, not the nicotine that cause the majority of tobacco related diseases,” he furthered.

He told shareholders that these are exciting times for the BAT as the company sees its nicotine products as important growth areas.

“…we are determined to develop smoke-free, reduced-harm nicotine products that will have the same appeal to smokers as their favourite cigarettes.”

He blamed the black market as a place where youngsters have easy access to cheap cigarettes with no age controls.

He added that the company is ranked in the top quartile of the world’s largest companies in a study on transparency in corporate reporting carried out by Transparency International, a leading anti-corruption organisation.

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The acquisition will give Aspen the right to intellectual property licenses, net assets and shares in the Infant Nutrition (IN) businesses presently conducted by Pfizer which distributes a portfolio of IN products in Australia and certain Southern African territories like South Africa, Botswana, Namibia, Lesotho, Swaziland and Zambia.

The IN portfolio covers all age stages (infants, toddlers and early childhood) and consists of premium, specialty and standard ranges supported by strong umbrella brands including S26 Gold, S26 and SMA.

The revenue for the Australian and Southern African IN businesses amounted to AUD 83 million ($85.5 million) and ZAR 180 million ($19.5 million), respectively in 2012.

Australian competition authorities have approved the acquisition, while South African and Namibian approval is pending, Aspen said in a statement on Thursday.

The $215m deal would award Aspen the exclusive right of use of certain Nestlé’s S26 and SMA IN product trademarks in Australia and Southern Africa for a period of ten years, while allowing the group to retain the right to co-brand the licensed products over this period.

Also, for a further ten-year period, commencing after the initial ten year exclusive license period, Nestlé would be precluded from commercialising the licensed products, effectively providing Aspen with a 20-year period to establish equivalent Aspen-branded infant nutrition products.

Aspen would also have a perpetual licence to product technology, technical know-how, and formulations existing at the effective date, as well as access to an agreed licensed product pipeline and technology developments for a period of five years.

The transfer of ownership of the operating businesses from Nestlé to Aspen would include the transfer of the employees within those businesses.

Aspen will also be provided with transitional service arrangements by Nestlé and Pfizer, which includes the manufacture and supply of licensed products under a non-exclusive arrangement.

“The transaction presents a good commercial and strategic fit for Aspen, given its heritage with these brands and its strength in the infant nutrition market in South Africa, coupled with its local manufacturing capabilities,” the drugmaker said.

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Result overview

This is one of those result that fails to deliver organic growth yet increased profitability by almost 50%. How was this possible? Despite delivering flat revenue growth the company managed to cut down cost of sale by nearly 8billion naira ($50 million) resulting in a 55% boost in gross profit. The more than 100% rise in SG&A could be attributed to the high cost of doing business, a common peculiarity with manufacturing companies. But that is more of a worry than excuse, considering that the rise is the highest in the last 4 years of operations. Before now SG&A was highest in 2009 at 4 billion naira ($25 million). To get a grip of what this means is to imagine the impact of revenues remaining flat in the next couple of years and expenses rising at this trajectory.

Naysayers to my worry will probably look to the wider economic outlook for the industry to allay my concerns. The GEJ government last year boosted the local sugar industry when it announced it will remove import duties on machinery and spare parts used for sugar processing. A tax holiday was also announced as part of the incentives including a higher tariff for importers of raw sugar. A recent article on Financial Times also suggest that by 2020 Sub Saharan Africa will rely less on imported sugar and become a net exporter of the commodity. Nigeria consumes about 1.4million metric tons of sugar per year and produces about 1million metric tons. What this all means is that the prospect for growth is there for Dangote and in typical fashion, with the help of the government.

Buying opportunity?

Dangote Sugar share price ironically dropped 4.6% today to 8.3 naira per share. The share price has risen nearly 150% year on year and currently, has a price multiple to earnings of 9.2x. It is proposing a dividend per share of 50kobo, representing 56% of current year’s earning and a current yield of 6%. The company still has a revenue reserve in excess of 20 billion naira ($126 million) and a cash pile of about 25 billion naira ($158 million) at the end of the period making its related party loans innocuous. I wouldn’t miss this buying opportunity if I have the cash.

Some might wonder if the current price is a bargain? That depends on your metric and what you are looking for. An ROE of 25.3% looks impressive to me and justified by an equally good ROA of 21%. The company also has no debt, rendering the high price to book ratio (2.5x) unnerving. Surely, all this attributes may not classify the share price as cheap but it certainly isn’t expensive.

Dangote Sugar 2012 Annual Report was posted on the website of the NSE

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