Release Date: June 04, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Spar Group Ltd (JSE:SPP, Financial) reported a 5.5% increase in operating profit in Southern Africa, demonstrating effective cost discipline and margin management.
- The company successfully exited its operations in Poland, Switzerland, and the UK, aligning with its strategy to focus on core high-return markets.
- Gross margin improved to 10.7%, driven by better product mix, enhanced procurement, and tight promotional management.
- Cash generated from operations was strong at 1.4 billion rand, with net debt decreasing and leverage well within covenant limits.
- The company is making significant progress with its SAP rollout, which is expected to enhance operational efficiency and margin optimization.
Negative Points
- Sales growth was below expectations, with Southern Africa experiencing specific softness in inland regions and Ireland facing modest sales declines.
- The company faced challenges from macroeconomic volatility, cybersecurity risks, and shifts in consumer behavior.
- The Swiss and UK operations were classified as discontinued, with significant impairments recognized, impacting overall financial performance.
- The timing of Easter negatively affected sales growth in both Southern Africa and Ireland.
- The company is operating in a challenging environment with high unemployment and cost of living pressures affecting consumer spending.
Q & A Highlights
Q: Can you provide any updates on the Switzerland business, including who you are in talks with and the timing of the potential sale?
A: We are in an exclusive process regarding the Switzerland business, and it's a sensitive stage, so we can't comment further. Our priority is to ensure the best outcome for our employees, retailers, and suppliers, ensuring a sustainable business post-sale. (Respondent: Unidentified_4)
Q: Why did the Swiss business move into an operating loss so quickly, and why was this not guided?
A: The loss in Switzerland was primarily due to a cyberattack. We didn't guide specifically on this as Switzerland is a small portion of the group and not deemed material for specific guidance in trading updates. (Respondent: Unidentified_4)
Q: What is the outlook for South Africa's growth and operating margins for the full year, given the weak revenue growth momentum?
A: Post-period sales have improved, though not to desired levels. We expect to maintain our previous guidance of a 2.1% to 2.3% operating margin for the full year, likely towards the lower end of that range. (Respondent: Unidentified_1)
Q: Can you update us on the Janooppoulos litigation process, and have you made any provision in the accounts for a potential settlement?
A: There has been no movement on the Janooppoulos matter since our last update. We are awaiting the discovery phase, and no provision has been made for a settlement at this stage. (Respondent: Unidentified_1)
Q: Do you think Spar can reduce net debt for the full year, assuming disposals are not finalized by year-end?
A: Our gearing is essentially flat compared to last year, despite taking on Polish debt. This demonstrates the cash generation ability of the SA business, and we are confident in reducing gearing regardless of the disposals. (Respondent: Unidentified_2)
Q: What was the wholesale internal inflation for the H1 period, and what was it post-period?
A: For the first six months, wholesale internal inflation was about 2.8% for groceries and liquor, and about 3.5% for Build it. (Respondent: Unidentified_2)
Q: You mentioned a trajectory towards achieving a 3% margin in SA. What is the timeframe for this, and is the target for the entire SA business or just the wholesale grocery segment?
A: We expect to operate within the 2.1% to 2.3% range for the full year. Achieving a 3% margin in the second half of next year is possible but will require accelerated sales momentum. The 3% target is for the entire SA business, not just the grocery segment. (Respondent: Unidentified_1)
Q: Are you seeing loyalty levels increasing or remaining flat post-year-end?
A: Loyalty levels have shown a slight increase in the short term, but they are roughly flat over the full financial year. (Respondent: Unidentified_1)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
