The poor implementation of Spar Group’s new SAP software system at its distribution centre (DC) in KwaZulu-Natal has resulted in an estimated turnover loss of R1.6 billion for the financial period ending September 2023.
The JSE-listed grocery retailer confirmed the estimated figure to investors in the release of its financial results on Thursday.
According to Spar, the botched job cost about R720 million in lost profits.
The group further noted that a strategy shift with the system’s implementation has seen it register a R94.1 million write-off related to SAP’s ‘asset under construction’.
Spar launched the new system in October 2022 and later began testing it at the KZN DC in February 2023. The rollout didn’t go as planned, and the retailer had to rely on other DCs to meet stock demands at its affected stores.
According to the group, the KZN DC resumed operations in August this year after resolving many issues with the software system. However, despite this, the retailer said it would halt a further rollout of the system to other jurisdictions to monitor its performance.
“While the SAP solution is stable and performing consistently at the KZN DC, the rollout of SAP has been delayed in other Southern African regions until management is satisfied with the optimisation of the system at the KZN DC. The learnings during this transition phase have been immense,” the group said.
“Management believes that they have identified the key issues that resulted in the shortcomings of the KZN DC SAP rollout and that they now have the right team and resources in place to appropriately plan for future implementations in Southern African regions.”
Profit slump
Spar recorded a 10.1% growth in turnover to R149.32 billion, boosted by the 21.9% growth (in ZAR terms) recorded in the Irish business.
However, the poor launch of the SAP system, along with the operating losses in Spar Poland, higher debt levels and some non-recurring items on the balance sheet, significantly impacted the group’s profitability.
As a result, Spar’s group operating profit came in 47% lower at R1.81 billion compared to R3.42 billion in 2022, while the group’s diluted headline earnings per share (Heps) registered a 47.7% decline to 606.3 cents.
Spar’s board is withholding a dividend for the period.
“This result reflects some of the tough decisions the group has had to make to reposition itself as a stronger organisation for the benefit of all Spar’s stakeholders,” said newly appointed CEO Angelo Swartz.
“We are confident about the future of our business and are set to benefit from positive momentum going into 2024,” he added.
Angelo Swartz, Spar’s new CEO, who came into the hot seat in October 2023. Image: Supplied
“It has been a challenging year for all our regions, dealing with inflationary cost pressures and tough trading environments, while South Africa also had to contend with prolonged bouts of load shedding.”
“The Spar Group recognises this, and through our private label offering, we are trying to ensure we deliver the best value for our independent retailers and our Spar shoppers,” added Swartz.
Despite the profit slump and no annual dividends this year, the group’s share price traded more than 5% up just before midday on Thursday. However, its gains moderated on the day, with the stock closing just over 1% up on the JSE, at R116.50 a share.
With Spar’s proposed sale of its Poland business and SAP hit seemingly absorbed, the market and shareholders may be pricing in a turnaround in the group.
Spar’s share price
