Spar Group tightens belt to offset soft sales

Disappointing sales and debt restructuring are working against the Spar Group’s efforts to drive growth, although it says it is making “significant progress” in addressing its short-term priorities.

The Spar Group’s restructuring includes the disposal of its Polish operations; stabilising the SAP software system at its KwaZulu-Natal distribution centre, which cost the group around R1.4-billion; and focusing on margin improvement in South Africa.

The group reported that its R10-billion debt restructure would be completed by the end of this year, adding that its two-year plan to reshape its balance sheet was also “comfortably on track”.

In a trading update for the 47 weeks to 23 August 2024, the Spar Group announced that the sale of its Polish division was well under way, subject to regulatory approval.

Spar’s foray into the Polish market in 2019 was a strategic move aimed at expanding its international footprint, but the acquisition of the struggling supermarket chain Piotr i Paweł proved messy.

Significant hurdles

Despite acquiring the Polish chain for a symbolic €1, Spar faced significant hurdles in revitalising the business, because 66 stores and a warehouse of the chain were in business rescue.

Moneyweb reported that some of the chain’s 250 franchisees abandoned the brand shortly after the deal was completed. After a franchisee boycott in 2022, about 60 retailers left the group, with just 164 stores remaining by June 2022. Last year, Spar CEO Angelo Swartz and the board of directors announced that they would dispose of the Polish business.

On 4 September, Spar announced it had found a buyer and agreed to sell its entire shareholding in Spar Poland to Przedsiebiorstwo Produkcyjno Handlowo Uslugowe Specjal Spólka.

“The net impact of R2.53-billion will be funded by Spar bringing the Polish debt of R1.96-billion back to South Africa, which will be sourced from South African lenders, and the remaining R566-million sourced and funded from group subsidiary companies into the Polish business.”

Poland turnover was down by 6.5% in zloty terms but up by 3.7% in rand terms.

Swartz attributed the local currency decline primarily to the loss of 13 retailers and a “slight reduction” in retailer loyalty after the group announced its intention to divest from the Polish market.

In South Africa, liquor sales were up strongly, grocery sales were muted and Build it — the group’s builders merchant — was showing signs of recovery. Spar was toasting a miniscule recovery in its building supplies business, after shrinkage earlier this year, largely due to rolling blackouts having stopped (for now). Retail sales in Build it were up by 2.4% to the end of August.

Swartz noted a welcome upturn in Build it sales after the two-pot retirement withdrawal system kicked in and interest rates started easing, adding that customers seemed to be enjoying more disposable income.

Supermarket and liquor retail growth ‘remains resilient’

“Strong cost discipline across the broader business is helping offset softer sales in certain divisions like wholesale,” said Swartz.

Total revenue from ongoing operations increased by 4.1% during the trading period.

In southern Africa, total sales were up by 3.5%, with mixed results across different business units, which Swartz said would now be a focus.

“We are committed to restoring the South African business to a 3% operating profit margin by the end of 2026. To achieve this, we’re currently evaluating our target operating model to identify opportunities for value maximisation.”

A review of the group’s European portfolio was under way, he added, saying they would need to “accelerate decision-making in this regard” over the coming months. DM