SPAR Group Sees 7.9% Turnover Growth, Faces Operational Challenges

  • SPAR Group reports a 7.9% increase in turnover, reaching R77.2 billion.
  • Operational challenges include SAP integration issues and an R721.1 million impairment for SPAR Poland.
  • Management remains optimistic for an improved second half with strategic initiatives in place.

Spar Limited Performance

SPAR Group has released its unaudited condensed consolidated interim financial results for the six months ended March 31, 2024. The company reported mixed performance amid challenging economic conditions and significant operational shifts.

Continuing Operations: Turnover and Profit Margins

SPAR’s continuing operations achieved a turnover increase of 7.9%, reaching R77.2 billion. However, operating profit saw a marginal increase of only 0.2% to R1.6 billion.

Table: Continuing Operations Financial Highlights

Financial MetricSix Months Ended March 31, 2024Six Months Ended March 31, 2023% Change
Turnover (R million)77,161.471,541.47.9%
Operating Profit (R million)1,572.01,569.50.2%
Profit Before Tax (R million)1,146.41,290.6-11.2%
Earnings Per Share (cents)451.7484.9-6.8%
Headline EPS (cents)465.0503.3-7.6%

Discontinued Operations: SPAR Poland

SPAR Poland has been classified as a discontinued operation. The exit process is on track, expected to complete by September 2024. The operating loss for SPAR Poland includes an R721.1 million impairment of assets held for sale.

Regional Performance: Southern Africa

SPAR Southern Africa saw a 4.8% increase in wholesale turnover. The wholesale grocery business reported a sales growth of 4.0%. SPAR’s private label turnover increased by 7.6%. The SPAR2U app, now in 420 sites, saw online volumes rise by 463%.

Liquor and Construction Business Performance

TOPS at SPAR reported a strong recovery with a 12.8% increase in wholesale turnover. However, the Build it division experienced a 0.4% decline in wholesale sales, reflecting a subdued construction industry.

Pharmaceutical Business Growth

S Buys Pharmacy at SPAR delivered 15.0% turnover growth, increasing its contribution to Southern Africa’s turnover from 1.5% to 1.7%.

International Performance: Ireland and South West England

BWG Group, covering Ireland and South West England, reported a 5.7% turnover increase in EUR terms and 16.0% in ZAR terms. The EUROSPAR format in Ireland faced pressure from shoppers turning to larger supermarkets and discounters.

Swiss Operations: Turnover Decline

SPAR Switzerland saw a 4.6% turnover decline in CHF terms but an 8.7% increase in ZAR terms. The Swiss business faced challenges from large supermarket chains and cross-border shopping. Despite these challenges, improved gross profit margin management supported strong profitability.

Table: Regional Performance Highlights

RegionTurnover (R million)Operating Profit (R million)Operating Margin %
Southern Africa49,341.1929.71.9%
Ireland19,844.4504.62.5%
Switzerland7,975.9137.71.7%
Total (Continuing Operations)77,161.41,572.02.0%

SAP Implementation Challenges

Following the SAP ERP and warehouse management system launch in KZN, SPAR faced integration issues. Buyers had less pricing visibility, impacting gross margins. Inefficiencies in the warehouse management system also posed challenges. Solutions are being implemented, with improvements expected by September 2024.

Banking Facilities and Financial Covenants

For the period ended March 31, 2024, SPAR’s financiers agreed to amend banking covenants. The group is not in breach of any financing covenants. SPAR has a balance sheet optimization review underway and is clear on debt refinancing options.

Dividend Decision

The Board decided against declaring a dividend for the period ended March 31, 2024. The decision will be revisited based on future macroeconomic and operational conditions. The Board prioritizes improved capital allocation and aims to resume dividends when appropriate.

Outlook

Management is confident in an improved second half due to cost-saving initiatives and improvements in the KZN region. Despite the challenging operating environment in South Africa, SPAR’s private label approach aims to offer better value. In Ireland and South West England, although grocery inflation has slowed, prices continue to rise. Swiss operations expect improved volumes in the summer, the strongest trading period.

Strategic Shifts and Future Focus

Significant changes at the Group executive and Board levels aim to drive a new strategic era. Faster decision-making and a shift towards greater accountability are evident. These changes are expected to enhance support for SPAR’s independent retailers and improve competitiveness.

Conclusion

SPAR Group navigates through a challenging period with strategic initiatives to address operational issues and optimize financial performance. Management remains optimistic about improved trading conditions in the second half of the year.


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