Spar Faces Steep Profit Decline in South Africa Crisis

  • Spar's Profits Plunge: Spar, a prominent South African retail group, anticipates a significant decline in profits due to various challenges, notably including technical issues stemming from the unsuccessful launch of a new IT system, causing substantial losses in KwaZulu-Natal.
  • Financial Setbacks and Impairments: The fiscal year ending September 30, 2023, was fraught with non-recurring financial setbacks, such as a massive operating profit impact of roughly R1.4 billion. The company also faced impairments due to strategic changes, including SAP implementation issues, operational strategy shifts, and evaluations leading to asset impairments in SPAR Poland.
  • Additional Challenges and Financial Strain: Spar encountered lower-than-expected turnover growth, exacerbated by inflationary cost increases across all operational regions. The company also experienced a significant increase in net finance costs due to higher interest rates in various markets, further straining its financial position.
Spar Faces Steep Profit

Spar, a prominent retail group in South Africa, anticipates a substantial decline in profits due to major technical issues experienced in KwaZulu-Natal. The company has revealed a forecasted operating profit ranging between R1.6 billion and R2.0 billion for the fiscal year concluding on September 30, 2023. This projection represents a significant reduction from the R3.4 billion reported in the previous fiscal year. Moreover, Spar anticipates a notable decrease in earnings per share, with expectations ranging from 288.4 cents to 156.5 cents, a substantial drop from the 1,118.2 cents reported in the previous fiscal year.

Attributing these financial challenges to ongoing difficulties, Spar expressed its concerns over the continuation of issues that initially impacted profitability in the first half of the 2023 financial year and persisted into the subsequent period. Complicating matters further, the group is currently in the process of divesting its interests in Poland, a decision that aligns with its strategic goals.

The fiscal year ending on September 30, 2023, was marred by significant setbacks, primarily related to non-recurring factors that substantially affected earnings. Notably, a substantial portion, approximately R1.4 billion, significantly impacted operating profit. This substantial loss was primarily attributed to severe disruptions caused by the unsuccessful launch of Spar’s new Enterprise Resource Planning Information Technology (ERP IT) system (SAP) at the KwaZulu-Natal distribution center.

The malfunction of the SAP system severely crippled trading performance in KwaZulu-Natal, resulting in an estimated loss of R1.6 billion in group turnover. This loss exacerbated the earlier warning issued in September regarding an estimated R1.42 billion turnover loss. The estimated overall profit loss in KwaZulu-Natal amounted to R720 million, directly stemming from issues arising from the SAP implementation.

Spar emphasized that the change in approach to the SAP implementation rollout for foreign regions led to a write-off of R94 million concerning the SAP ‘asset under construction.’ Additionally, the group incurred further impairments amounting to R120 million due to changes in the operational strategy related to onsite meat processing in the Irish business.

Further financial strain surfaced during the evaluation of SPAR Poland, resulting in impairments of associated goodwill and assets totaling R440 million following the board’s decision to initiate a process to sell the group’s interests in Poland.

The company also faced challenges stemming from lower-than-expected turnover growth, compounded by substantial inflationary cost escalations across all operational regions. Additionally, Spar experienced a substantial increase in net finance costs, totaling R433 million, owing to significantly higher interest rates prevalent across various markets.

These multifaceted challenges have had a substantial adverse impact on Spar’s financial performance, underscoring the complexities and difficulties faced by the company during the fiscal year ending September 30, 2023, and potentially affecting its near-term prospects in the South African market.



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