Spar Group: Summary of Interim Results For The 26 Weeks Ended 28 March 2025

Lester Davids
2 days ago
5 min read

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As per my previous comment, the share traded back into the 50-day EMA which was followed by a rejection. Today, the group released it's interim results. Below is an A.I-assisted summary:

Summary of Interim Results For The 26 Weeks Ended 28 March 2025

Interim Financial Results Overview

The SPAR Group Limited has released its unaudited condensed consolidated interim financial results for the 26 weeks ending March 28, 2025, reflecting a period of strategic realignments and operational adjustments. The Group adopted a 52/26-week reporting framework to align with industry best practices, and all reported figures for continuing operations are presented on a comparable basis, factoring in the impact of this change. This period has seen the Group navigate a challenging economic environment while simultaneously making significant strides toward its strategic objectives.

Financial Performance of Continuing Operations

Despite a challenging market, the Group's revenue from continuing operations remained stable at R66.1 billion, a slight decrease from R66.2 billion in the prior comparable period. However, in constant currency terms, Group revenue saw a modest increase of 1.1%. Gross profit margin expanded to 10.7% from 10.6%, indicating improved efficiency in managing cost of sales. Operating profit before extraordinary items demonstrated a positive growth of 1.6% to R1.46 billion, and Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) also rose by 1.7% to R1.72 billion.

Headline Earnings and Cash Generation

Headline earnings per share (HEPS) from continuing operations experienced a marginal decline of 0.4% to 450.1 cents, compared to 451.9 cents in the previous period. Diluted headline earnings per share similarly saw a slight decrease of 0.5%. Despite the small dip in HEPS, the Group reported a substantial improvement in cash generated from total operations, which surged by 50.1% to R1.9 billion, highlighting enhanced working capital management. The Net debt/EBITDA ratio also improved, standing at 2.1x for South Africa and 1.9x for Ireland.

Strategic Milestones Achieved

The first half of 2025 was marked by the achievement of three critical strategic milestones. The disposal of SPAR Poland was successfully concluded in January 2025, streamlining the Group's international footprint. Furthermore, the Group's debt restructuring was completed in March 2025, strengthening its financial position and improving liquidity. Finally, in May 2025, SPAR announced its intent to divest from its operations in Switzerland and Appleby Westward Group (AWG) in the United Kingdom, following a comprehensive review of capital allocation and strategic focus, aiming to concentrate on its core Southern African and Irish markets.

Southern Africa Performance

In Southern Africa, wholesale turnover grew by 1.7%, with combined grocery and liquor wholesale revenue increasing by 1.1%. Retail revenue saw a rise of 1.9% (1.6% on a like-for-like basis). This growth occurred in a difficult trading environment characterized by lower food inflation, post-election unrest in Mozambique, the timing of Easter, and store closures in Gauteng. The Group observed strong growth in lower-income customer segments. The SPAR2U on-demand shopping app showed significant progress, with a 174% increase in delivery volumes, and a new partnership with Uber Eats launched in Q1 2025 expanded reach to new customers.

Southern Africa Operational Efficiencies and Segment Growth

Ongoing cost and margin improvements significantly contributed to the EBIT margin expansion in Southern Africa, with notable advancements at the KwaZulu-Natal distribution center. Reductions in warehouse and distribution costs bolstered overall profitability for grocery and liquor segments, maintaining the Group's trajectory toward its medium-term goal of achieving a 3% margin. Build it, South Africa's largest building materials retail brand, recorded solid growth with a 4.1% increase in sales and 5.4% retail like-for-like growth, supported by an improved gross margin. SPAR Health revenue grew by 13.7%, driven by strong gains in Wholesale and Scriptwise, alongside improved loyalty and robust performance of its Own Brand products.

Ireland Performance and Balance Sheet Strengthening

Ireland's local currency revenue saw a marginal decrease of 0.6%, in an environment where inflation is impacting retail convenience volumes. Despite this, the gross margin was positively influenced by product mix, and local performance benefited from lower gearing and cost savings, though partially offset by increased labor costs due to minimum wage increases. The Group made tangible progress in strengthening its balance sheet, with net borrowings for continuing operations at R6.6 billion. The successful refinancing in South Africa and Switzerland enhanced liquidity and balance sheet stability, and the anticipated divestments of SPAR Switzerland and AWG are expected to materially deleverage and strengthen the balance sheet further.

Cash Flow and Discontinued Operations

Cash flow performance saw a material improvement, largely attributable to tighter working capital management and a reduction in capital expenditure. CapEx was strategically moderated to prioritize critical projects, aligning with disciplined, needs-based investment. As part of its strategic review, SPAR Switzerland and AWG have been classified as discontinued operations, incurring aggregate post-tax losses of R4.4 billion, including R4.2 billion in impairments. These strategic divestments, along with the completed disposal of SPAR Poland, are aimed at realizing value and ensuring business continuity in these regions.

Dividend and Outlook

In line with the Group's capital allocation priorities and ongoing restructuring, no interim dividend for the 26 weeks ended March 28, 2025, has been declared. This decision will be re-evaluated based on future macroeconomic and operating conditions. Looking ahead, SPAR remains focused on continued margin improvement, robust operational execution in its core markets, a disciplined approach to capital allocation, and the completion of its strategic reset. Post-period trade has shown positive momentum across key regions, indicating a promising trajectory for the second half of the financial year.

Future Growth Strategies

The intended divestments of SPAR Switzerland and AWG are aligned with the Group's portfolio optimization objectives, aiming to unlock value by transitioning these businesses to owners with strong local knowledge. SPAR is currently in advanced negotiations for these acquisitions. Southern African operations are set to enhance retail segments and operational efficiencies through initiatives like optimizing category mix, leveraging partnerships with Uber Eats and Vida e Caffè, and expanding on-demand services. SPAR Health aims to double its pharmacy network by 2028. BWG Group's (Ireland) growth prospects center on enhancing its convenience retail brands by expanding own-brand ranges, driving everyday value, and growing its food services business. The Group anticipates continued margin improvement in the second half of the financial year as operational efficiency initiatives mature, maintaining focus on core market execution, top-line growth, cost discipline, and strategic portfolio decisions.

Previous Post (27 March): The share traded into the buy range and only spent one day below this level (07 April where there was high volatility). Since then we have seen a gradual rebound from R108 back to R120 (now R118). The 50-day EMA could act as a temporary resistance range.