Wholesaler grocery and building materials group Spar plans to sell its head office and other properties and lease its fleet as part of measures to reduce its R9bn debt pile.
The group said in the 2024 annual report published on Wednesday that its engagement with its lenders in the year under review focused on its debt structure and plans to reduce the debt and the ability of the SA business to take on the residual Polish debt that had been guaranteed.
The company was exploring several measures to reduce its gearing, including disposing of its Pinetown-based headquarters.
“We are in the process of selling noncore property assets, including the Pinetown head office, the Knowles Shopping Centre and the group’s West Rand property, which will allow us to free up capital that will be used to reduce debt,” it said.
“We are exploring leasing our fleet, which enables us to unlock capital tied up in fixed assets. We are actively marketing certain of the corporate stores currently owned, which will not only generate capital, but also reduce their negative financial impact.”
The company in September said it had found a buyer for its loss-making operations in Poland in local retailer Specjal for R185m, marking the end of a costly venture that has drained the group’s resources since 2019.
As part of the deal, Spar is required to recapitalise the Polish business to the tune of R2.7bn, which includes settling the existing guaranteed debt and certain restructuring costs.
The funding has been sourced from SA lenders in the form of a bridge loan of R2bn, with the remaining amounts expected to be funded by the group.
The group’s recently retired CFO, Mark Godfrey, in his letter to shareholders said significant challenges, as well as areas of recovery, have characterised the financial year under review.
“We concentrated on key stakeholder concerns, including the performance of our SA operations, the group’s debt levels, the Polish disposal and challenges with SAP implementation. Addressing these issues is crucial to securing the group’s long-term financial health and stability,” he said, adding there are no plans to approach shareholders for funding.
“To address the Polish debt, we negotiated a bridge facility of R2bn that was activated in late September 2024 to allow us to settle the Polish term debt as required by the sale terms. This short-term facility, with a further R2.5bn of local bank overdrafts, will be converted into a medium-term loan in the new financial year. In Southern Africa, Spar has several levers available to manage this debt effectively, while also improving liquidity and financial flexibility.”
The company also revealed that a joint RMB/Nedbank team conducted a debt advisory review of the Southern Africa business to assess its capacity to take on the residual Polish debt and evaluate the optimisation of working capital facilities.
Spar said it had made progress in restoring the botched SAP enterprise resource planning implementation that cost the company R1.6bn. The group, worth R26.7bn on the JSE, said the SAP implementation at its KwaZulu-Natal distribution centre had affected financial performance and operational efficiency.
“The distribution centre, which previously generated profits of R350m-R400m per annum, reported a loss of R280m this year.”
It added that shareholders and financiers had raised concerns about the financial strain from losses in Spar Poland and the associated recapitalisation, affecting the group’s stability, and the decline in operating margins, including the impact of the SAP implementation in Southern Africa and concerns about debt management.
Spar operates mainly as a wholesaler, but its success depends on how well stores perform and how quickly independent retailers adapt to major market trends.
Spar CEO Angelo Swartz in his letter to shareholders said he was confident that Spar is on the right trajectory.
“Looking ahead, our attention will shift from internal problem-solving to growing the business and addressing external market challenges. Over the next 12-24 months we will concentrate on the growth of our footprint and the business rather than solely on the internal issues that we have dealt with over the past 12 months,” Swartz said.
“Our executive management team is more energised than before, with a clearer focus on capital allocation and cash generation priorities now central to our strategy. With a renewed emphasis on capital allocation, operational efficiency and sustainability, I believe we are on the right path to creating lasting value for our stakeholders.”
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