Ten years after launching an aggressive international growth strategy, Spar South Africa has come to the costly realisation that the grass is not greener on the other side. Not even close.
So, a tough new management team sold the expensively acquired Polish business at a hefty cost, and has finally persuaded the Irish team to stop buying stuff and instead use profits to reduce their voluminous borrowings. Better still, they’ve cajoled the Irish into managing their stock levels a bit more aggressively. And, to top it off, they’ve persuaded the Irish banks to release the South African parent from its guarantee of the Irish debt.
Soon it will be time to sort out the debt-burdened unperforming Swiss business.
No wonder the attractions of home are something that new CEO Angelo Swartz is keen to emphasise during an interview with Currency shortly after the release of the group’s results for the 12 months ended September 2024.
“The key for us now is getting the South African business growing again,” he says. At the very least, Spar needs to secure itself from increasingly aggressive local competitors.
Without growth on the home front, it’s unlikely this wholesale distribution group will ever be able to resume its generous dividend payments. For the second year in a row no dividends have been declared; a shock to shareholders who were accustomed to generous pickings – consider 400c a share in 2022 and 800c in 2021. Mind you, if it was a shock, it was deserved, given that for years shareholders seemed oblivious to the group’s mounting problems.
“We’re quite positive about South Africa, we think in the next 12 months consumers will be better off and we’re hoping that interest rates will continue to decline,” Swartz says, before cautioning that there’s a chance moves by the US Fed may not allow further rate cuts. But whatever happens, Swartz is determined that Spar will get its “fair share” of the improved consumer sentiment.
Even without this, Swartz seems intent on knocking Spar back into shape and reclaiming its former glory. But he’s realistic about the challenges ahead. For instance, he remarks with much disappointment how Spar’s retailers are growing faster than Spar itself. That means Spar franchisees are buying outside the Spar system. “For a long time retailers bought from us not just because of the prices we offered but because we made their lives convenient.”
The disastrous rollout of the SAP system in the distribution centres in KwaZulu-Natal was a major reason why Spar’s franchisees in that province looked elsewhere for supplies.
Pricing was also an issue. Swartz says when things are tough the retailers look around for better options. “We have to work hard to undo what’s happened, we have to make it really convenient for our retailers and make them feel good about us,” he says.
For now, the market is still keeping the faith, and Spar’s shares have rallied 23% over the past 12 months.
Legal woes
Yet while the new management team is making excellent progress on many fronts, it seems that not all of the group’s previous challenges have been addressed. And Swartz and his team are going to have to work exceptionally hard if they want to make one of their largest retailers feel good about the company again.
Remember that “contingent liability” back in the 2022 annual financial statements? The one relating to a damages claim in excess of R2.1bn? Well, not only did it not go away, it’s now a lot bigger than it was in 2022. In fact, it’s R1.6bn bigger.
Back in October 2022 the Giannacopoulos family, which owns 45 Spar stores, instituted a damages claim against the Spar Group for various losses the family said it suffered as a result of action taken against them by Spar over several years. The family claims the Spar head office had unsuccessfully attempted to perfect notorial bonds over some of their stores and had essentially tried to expropriate their businesses by pushing them out of the Spar trading group.
The amended claim was filed this week and relates to damages and losses allegedly suffered by the Giannacopoulos’s property-owning company.
This latest development will disappoint investors who assumed, based on statements by Spar made over a year ago, that a peace deal had been brokered with the family. The statement implied only a few minor issues remained to be resolved.
While there had been discussions between the parties, Harry Giannacopoulos tells Currency there has been no progress dealing with the major damages claim. He’s determined to fight on.
Swartz says he has not received notice of the amended damages claim but adds: “We were expecting something like that so we’re not completely surprised.”
He tells Currency that he and chair Mike Bosman had engaged with the family in a bid to find a reasonable settlement.
“We felt the amount they wanted was too high,” says the phlegmatic Swartz, who hopes the matter will be settled through arbitration rather than in court.
A long-drawn out court battle is certainly not what Spar needs right now given that its recovery is far from robust.
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