Spar has slashed its net debt by 40% in the past year as the retailer completes its painful exit from unprofitable operations in Poland and Switzerland.
The group said the disposals had strengthened its financial position, creating some breathing room after two years marked by writedowns, weak trading and costly offshore mistakes. With the balance sheet now lighter and cash generation improving, Spar said it was preparing to resume returns to shareholders over the short to medium term, either through dividends or share buybacks.
“The group’s net financing costs in the current period were about 20% higher than the prior period, mainly due to Spar Poland-related debt, which was assumed in SA, as previously communicated. This also increased the group’s effective tax rate as a result of the associated unproductive interest. Both items contributed to the decrease in [headline earnings per share],” it said.
“Pleasingly, group net debt reduced by 40%, from R9.1bn in the prior period to R5.4bn due to strong cash generation and the sale of Spar Switzerland.”
The debt reduction comes while the retailer is still working through the effect of heavy impairments that wiped R5.2bn off the value of its assets this year, including writedowns on corporate stores at home and another reassessment of the Appleby Westward business in the UK. These challenges have pushed the group into a deep accounting loss, driving earnings lower.
Spar expects headline earnings per share (HEPS) for continuing operations for the year to end-September to fall 11.5%-16.5% while earnings per share are expected to dip 45%-55% due to one-off impairments.
While the impairments dragged earnings sharply lower, Spar said they were necessary to ensure the balance sheet accurately reflected the true value of its assets.
The group said it had seen signs of improvement in the markets closer to home, with Spar Southern Africa recording a better second-half performance helped by firmer grocery and liquor sales and tight cost controls.
Its Ireland business also posted positive results with sales growth in the second half though currency weaknesses diluted some of the gains when converted back to rand.
But the cleanup of the Polish business continues to weigh on the retailer. Spar said it has had to absorb related debt onto the South Africa books, driving costs up by more than 20% and pushing the tax rate higher because of interest that generated no returns.
However, those pressures could ease if the group continued to deleverage, Spar said.
The company is now focusing on execution. Spar has rolled out several initiatives aimed at fixing margins, improving supply chain efficiency and strengthening support to its independent retailers. This includes investments in technology, process improvements and logistics systems designed to create a more agile operation.
The group said those changes would take time but should start lifting margins and returns over the medium term.
The group will release its full-year results on December 8. Its share price closed down 4.35% at R103.50 on Friday, taking its year-to-date fall to almost 30%.
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