SPAR halves FY dividend to fund SAP

Grocery wholesaler and distribution group Spar has slashed its dividend for the full year ending September by 51% to 400 cents, putting into effect its new temporarily-adjusted dividend policy which looks to cut down dividends to fund the group-wide implementation of SAP.

The policy change – which was first announced in February – was proposed by the group’s board as a more favourable alternative to financing the SAP strategy, as opposed to exposing the group to higher levels of debt.

This way, the group said it will have the necessary flexibility to manage its medium-term capital requirements and pursue growth initiatives, while still paying out dividends to shareholders.

The new policy – which sees dividends covered by headline earnings increasing from 1.45 times to 2.90 times – is meant to be in place for two consecutive financial years, including the current reporting period and the following period ending 30 September 2023.

Spar on Wednesday said it is pleased with the implementation of the SAP strategy thus far, having already launched it at its Southern African central office in October.

“The distribution centre in KwaZulu-Natal (KZN) is due to launch the new system early in 2023, post the busy Christmas-trading period,” Spar said.

“The remaining distribution centres in South Africa will follow individually after KZN, to minimise potential business disruption.”

Spar’s foreign regions are also preparing their businesses for the SAP implementation.

Read: Spiralling oil price fuels Spar’s operational expenses

Key metrics

The JSE-listed group has posted a resilient full year performance, despite its franchise grocer model coming under pressure in South Africa and its out-of-Africa operations facing varying challenges – including the loss of retailers in the Poland business.

Looking at overall group performance, Spar reported a 6% increase in turnover to R135.6 billion. However, the group has noted that profitability has continued to be affected by the consequences of the pandemic, which hurt the first half of the current reporting period.

Profits have also been hurt by the emergence of geopolitical tensions – sending fuel and energy costs globally to uncomfortable highs – as well as heightened levels of load shedding in its South Africa operations.

Full year operating profit increased by a muted 1.1% to R3.4 billion this period.

Diluted headline earnings per share (Heps) dropped by 2.9% to 1 159.1 cents, compared with 1 193.7 cents in the previous comparable period.

Its Spar Southern Africa operations – the business which contribute 65% to group turnover – delivered strong growth in wholesale turnover, posting an increase of 8.4% to R88.1 billion.

The core grocery business reported a 5.3% increase in sales, as it leaned more on promotional offerings that would attract cash-strapped consumers to its stores.

Build it – the group’s home improvement and construction materials brand – reported a 3.1% increase in turnover. This was despite retailers reporting a normalisation of the home improvement boom, which supported the retail category’s growth in 2020 and 2021.

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Out of Africa

BWG Group, the group’s Ireland and South West business, reported a 7.6% increase in turnover (in euro-denominated currency), supported by BWG Foods’ new store openings and the recovery in food services and licensed trade.

Spar Switzerland, however, continued to feel the Covid-19 pandemic pinch with Spar convenient stores – which increased in popularity during the height of the pandemic – reporting a 3% decline in turnover.

“Swiss food inflation rates increased substantially during the latter part of the financial year, which has seen cross-border shopping returning to pre-pandemic levels.”

“While this phenomenon traditionally impacted larger supermarkets more than smaller convenience stores, Swiss consumers will continue to seek cheaper alternatives in neighbouring countries as prices increase,” the group said.

Spar Poland has also faced some challenges this period.

According to the group, 58 retailers made the decision to exit Spar Poland due to low levels of purchasing loyalty.

This comes as the Poland business battles retailer loyalty issues, which have forced the group to terminate contracts with a group of retailers and undergo a restructuring of its distribution centres.

“The loss of these retailers has negatively impacted turnover growth in the second half of the financial year. But despite this, Spar Poland delivered turnover growth of 8.2% in PLN-denominated currency terms. Operating losses for this region reduced by 9.5% in local currency terms.”

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