Spar’s earnings rise as it makes progress on its strategy

The Spar Group, which has reported higher full-year earnings, made strides in its strategic priorities as its SA operations stabilised their market share.

Group turnover from continuing operations for the year to end-September was up 4% at R152.3bn. The group said turnover growth slowed in the second half across all geographies. This was due to the rand translation effects of foreign subsidiaries as the currency strengthened, slowing levels of food inflation, increased competition across all markets and consumers facing cost-of-living constraints.

Earnings before interest, tax, depreciation and amortisation (ebitda) were 13.9% higher at R3.8bn.

Profit after tax grew 20.9% to R1.6bn while headline earnings per share (HEPS) rose to 917.9c from 826c before.

Spar has been focused on addressing various challenges over the past 18 months to ensure financial stability and balance sheet resilience, and to position itself to take advantage of growth opportunities.

The group said gross profit margins remained stable at 11.9%. While interventions to resolve the fallout from the failed SAP project in the KwaZulu-Natal region were under way, it would take some time for the full effects to be felt and for the overhang on gross margins to be eliminated.

Spar has made “significant strides” in its strategic priorities as it aimed to optimise operations and achieve its growth objectives, it said. “While significant progress has been made, work remains ongoing in these areas. Consequently, the board believes it is prudent to not declare a dividend for the year,” it said.

“This decision will be reconsidered based on future macroeconomic and operating conditions. Prioritising improved capital allocation, including shareholder returns, remains important to the board.

“Amid navigating a challenging trading environment and addressing consumer pressures across various territories, together with the ongoing impacts of the SAP system implementation in SA, Spar’s continuing operations [gave] ... a resilient performance,” it said.

Spar SA has arrested recent market share declines and stabilised its share among its key customer base over the past year with monthly market share staying flat since February, according to NielsenIQ. In the case of the liquor segment, which remains a crucial contributor to Spar’s overall market position, monthly market share has grown year on year.

Spar Southern Africa, including Spar, Tops, Build it and Pharma, reported a 3.7% increase in turnover, while turnover in Ireland and southwest England, represented by BWG Group, grew by 2.8% in euros and 6.7% in rand.  The Swiss macroeconomy showed little signs of recovery for consumers, leaving them opting for cheaper alternatives locally and abroad. Spar Switzerland’s turnover declined by 6.2% in Swiss franc terms.

The group is exiting its Polish business. The sale of the group’s interest in Spar Poland was approved by the Polish anti-monopoly authorities on November 19 and the buyer is conducting a final confirmatory due diligence. The disposal business will be completed once this process is finalised. Management is expecting to finalise the exit from Poland by early January 2025.

Spar said progress had been made in resolving SAP integration issues, including improving visibility of pricing and subsidies for buyers, as well as addressing warehouse management inefficiencies that increased labour and transport costs through the selection of a new warehouse management system.

The group said in 2025 it would focus on supporting its independent retailers, defining the target operating model, improving group profitability, and finalising the enterprise resource planning (ERP) system modernisation plan.

mackenziej@arena.africa