Release Date: November 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spar Group Ltd (JSE:SPP, Financial) achieved a 4% increase in turnover to ZAR152 billion, driven by strong performances in Southern Africa and Ireland.
- Operating profit grew by 15.1% to ZAR2.9 billion, reflecting successful cost control initiatives, particularly in Southern Africa and Switzerland.
- The company generated ZAR5.4 billion in cash, up 7.8% from the prior period, indicating strong cash flow management.
- Spar Group Ltd (JSE:SPP) reduced group debt borrowings by ZAR2 billion, improving the net debt-to-EBITDA ratio to 2.41 times.
- The company opened 179 new stores and expanded SPAR2U to 525 sites in Southern Africa, demonstrating growth in retail presence.
Negative Points
- Retailer loyalty declined by 1.2 percentage points to 78.7%, indicating challenges in maintaining retailer relationships.
- The Swiss business faced a tough macroeconomic environment, with a decline in core convenience departments and cross-border shopping impacting volumes.
- The UK operations reported a significant decline in performance due to macroeconomic pressures and poor summer trading conditions.
- The Polish business, treated as a discontinued operation, reported a loss of ZAR1.3 billion, impacting overall financial results.
- The Southern African wholesale grocery business experienced challenges with SAP issues in KZN, affecting retailer loyalty and sales growth.
Q & A Highlights
Q: Can you provide more detail on the Swiss intention to sanction?
A: The Swiss business has been served notice by the Swiss ComCom authorities regarding their involvement with a service and trading cooperative. This matter has been under investigation for over three years. We are working with our legal team in Switzerland to present our defense, and currently, there's no indication of what the final sanction might be.
Q: Can you elaborate on the ZAR900 million of business acquisitions? Is SPAR moving from a wholesaler to a retailer?
A: Of the ZAR900 million, ZAR400 million is identified in South Africa, with ZAR150 million for upgrades and revamps of existing corporate stores. The rest relates to an option agreement with a single retailer. The intention is not to hold these stores but to onsell them back into retail. The remaining ZAR450 million is a potential CapEx spend flagged by our Irish colleagues.
Q: What is the outlook for SPAR Southern Africa growth and operating margins?
A: We aim to achieve a 3% operating profit margin in South Africa by the second half of FY26. For FY25, we expect to make significant progress, targeting an operating margin between 2.2% and 2.3%. We will tighten OpEx and increase GP margin to achieve this.
Q: Are you considering selling the Swiss business due to poor return on invested capital?
A: We are reviewing our European operations and targeting a decision by June 2025. While there has been inbound interest, we are cautious and want to ensure the best value for shareholders. The NAV valuation for Switzerland is around CHF170 million.
Q: Can you explain why wholesale is still lagging retail growth in SPAR Grocery?
A: We've struggled with loyalty in the SA business, mainly due to SAP issues in KZN and a drop in loyalty in other divisions. This has narrowed in the second half of the year, and we have a plan to correct it over time.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
