SPAR going from zero to hero

SPAR’s operational performance recovered remarkably in the past financial year, with the retailer reporting strong profit growth. 

This strong growth excludes the company’s Polish unit, which it is in the process of selling after years of poor performance. 

SPAR has been steadily recovering from a R1.6 billion loss from the botched integration of a SAP enterprise resource planning (ERP) system at its South African business. 

In the past financial year, which ended on 30 September 2024, the retailer managed to contain the impact of the failed integration on its distribution centre in KwaZulu-Natal and made significant upgrades to the system. 

SPAR said that the new system has improved the visibility of pricing and subsidies for buyers and has addressed warehouse management inefficiencies. 

This financial year also saw the implementation of a two-year plan to reshape its balance sheet, with SPAR saying it will complete the restructuring of its debt by the end of the calendar year. 

It said it remains committed to these plans and has no intention of seeking additional funding from shareholders to support its balance sheet. 

In September, SPAR secured a R2 billion bridge facility from South African lenders, withe R1.2 billion being used to partially settle the sale of its Polish business. 

This facility will be converted into a medium-term loan by the end of March 2025. The remaining funds will settle the Polish business’s working capital facilities at disposal closure.

Importantly, net borrowings reduced by R2.0 billion, from R11.1 billion as at 31 March 2024, to R9.1 billion at 30 September 2024. 

Despite these headwinds and a difficult operating environment, SPAR’s business proved resilient as it grew turnover by 4% to R152.3 billion. 

Crucially, excluding the discontinued Polish business, the company’s profit after tax rose by 21% to R1.65 billion for the year. Headline earnings per share were up 11% to 917.9 cents. 

“Our journey towards future-proofing SPAR and solidifying our status as the retailer of choice has gained strong momentum in recent months,” SPAR CEO Angelo Swartz said. 

The Polish business is expected to be fully disposed of by early January 2025 after Polish anti-monopoly authorities approved the sale this month. This business made a considerable R1.3 billion loss for the year. 

SPAR said it will continue to review its other European businesses to ensure they contribute positively to the company’s overall financial performance. 

Gross profit margins remained stable at 11.9% compared to the previous financial year as efforts to mitigate the impact of the botched SAP integration were successful. 

Whilst interventions to resolve the SAP impacts in the KZN region are well underway, it will take some time for the full effects to be felt and for the overhang on gross margins to be eliminated, the retailer said. 

Gross profit margin for SPAR South Africa, including SPAR, Tops and Build it, decreased from 8.7% to 8.5%. 

BWG Group, SPAR’s business in England, saw a slight increase in its overall gross profit margin from 15.1% to 15.2%, driven by a more favourable category mix. 

Improved margin management within the wholesale and TopCC cash and carry business saw SPAR Switzerland’s gross margin improve from 17.8% to 18.3%.  

Operating expenses were well managed, increasing by 3.5% to R18.7 billion, underpinned by an increased focus on cost management and efficiency initiatives.

The translation effect of foreign currency also impacted this performance as the rand strengthened versus the Swiss Franc and British Pound over the financial year. 

SPAR delivered an operating profit of R2.9 billion, reflecting a 15.1% year-on-year increase, with an improvement in operating profit margin to 1.9% (2023: 1.7%).

The retailer did not declare a dividend for the financial year, given its focus on ensuring it remains financially stable and can execute its strategic priorities. 

“Our independent retailer model offers powerful opportunities for retailers, showcasing the value we deliver and the potential we unlock through fit-for-purpose retailer development, eCommerce innovations, discounted supermarket formats, and specialised business offerings,” Swartz said.

SPAR’s tiered private label is set to grow, with the launch of a bespoke high-end offering in the coming year to capture the higher-income consumer segment.