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Preliminary summarised results for the year ended 30 September 2018 and cash dividend declaration
THE SPAR GROUP LTD
REGISTRATION NUMBER: 1967/001572/06
ISIN: ZAE000058517
JSE SHARE CODE: SPP
THE SPAR GROUP LIMITED (SPAR or the company or the group)
www.spar.co.za
PRELIMINARY SUMMARISED RESULTS
FOR THE YEAR ENDED 30 SEPTEMBER 2018 AND CASH DIVIDEND DECLARATION
SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
YEAR ENDED SEPTEMBER
% 2018 2017
Rmillion Change Restated*
Revenue 6.0 103 007.5 97 209.3
Turnover 5.9 101 018.0 95 373.1
Cost of sales (90 225.0) (85 163.3)
Gross profit 10 793.0 10 209.8
Other income 1 989.5 1 836.2
Net operating expenses 5.6 (10 001.8) (9 469.0)
Trading profit 2 780.7 2 577.0
BBBEE transactions (1.4) (0.9)
Operating profit 7.9 2 779.3 2 576.1
Other non-operating items (144.2) (54.6)
Interest income 169.3 193.7
Interest expense (192.9) (176.6)
Finance costs including foreign exchange gains and losses (136.5) (64.4)
Share of equity-accounted associate (losses)/income (10.9) (8.8)
Profit before taxation (0.1) 2 464.1 2 465.4
Income tax expense (636.9) (644.8)
Profit for the year attributable to ordinary shareholders 0.4 1 827.2 1 820.6
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of post-retirement medical aid (0.3) 11.4
Deferred tax relating to remeasurement of post-retirement medical aid 0.1 (3.2)
Remeasurement of retirement funds 157.9 432.1
Deferred tax relating to remeasurement of retirement funds (26.8) (67.9)
Items that may be reclassified subsequently to profit or loss:
Gain/(loss) on cash flow hedge 1.6 (4.6)
Tax relating to gain/(loss) on cash flow hedge (0.2) 0.6
Exchange differences from translation of foreign operations 131.9 42.0
Total comprehensive income (6.3) 2 091.4 2 231.0
EARNINGS PER SHARE
Basic earnings per share (cents) 0.4 948.9 945.5
Diluted earnings per share (cents) 0.3 942.2 939.4
* Refer to restatement note 9.
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
YEAR ENDED SEPTEMBER
Rmillion Notes 2018 2017 2016
Restated* Restated*
ASSETS
Non-current assets 13 079.6 11 956.3 11 137.8
Property, plant and equipment 6 966.9 6 553.9 6 160.3
Goodwill and intangible assets 4 436.6 4 162.2 4 008.3
Investment in associates and joint ventures 156.7 117.3 38.4
Other investments 57.9 57.7 54.2
Operating lease receivables 208.3 125.4 100.5
Loans 696.4 406.2 217.8
Block discounting loan receivable 10 542.4 512.2 521.5
Deferred taxation asset 14.4 21.4 36.8
Current assets 18 166.3 16 879.5 16 806.9
Inventories 3 933.1 3 816.4 3 810.9
Trade and other receivables 12 134.4 10 814.3 10 544.0
Prepayments 109.8 78.1 75.4
Operating lease receivables 50.4 60.7 63.4
Loans 97.9 116.9 46.8
Current portion of block discounting loan receivable 10 225.8 248.3 222.2
Income tax recoverable 7.7 4.1 4.2
Other current financial assets 0.3 0.2
Cash and cash equivalents - SPAR 1 377.6 1 565.6 1 611.8
Cash and cash equivalents - Guilds and trusts 229.3 174.9 428.2
Assets held for sale 9.6 141.0 160.7
Total assets 31 255.5 28 976.8 28 105.4
EQUITY AND LIABILITIES
Capital and reserves 7 109.8 6 560.4 5 627.8
Stated capital 2 231.5 2 231.5 2 231.5
Treasury shares (10.0) (16.1) (18.7)
Currency translation reserve 181.8 49.9 7.9
Share-based payment reserve 274.8 293.0 261.1
Equity reserve (749.1) (717.0) (713.0)
Hedging reserve (30.8) (32.2) (28.2)
Retained earnings 5 211.6 4 751.3 3 887.2
Non-current liabilities 8 037.3 7 875.2 8 126.5
Deferred taxation liability 413.1 361.2 290.7
Post-employment benefit obligations 787.6 940.2 1 392.2
Financial liabilities 5 2 042.9 1 700.1 1 568.0
Long-term borrowings 3 976.5 4 160.4 4 164.3
Block discounting loan payable 10 553.6 525.1 536.4
Operating lease payables 231.0 141.4 116.0
Other non-current financial liabilities 3.3 4.9
Long-term provisions 29.3 41.9 58.9
Current liabilities 16 108.4 14 541.2 14 351.1
Trade and other payables 15 236.0 13 452.7 13 162.5
Current portion of long-term borrowings 433.6 364.4 265.9
Current portion of block discounting loan payable 10 232.3 255.7 228.3
Operating lease payables 51.5 62.8 65.6
Provisions 43.2 45.3 38.0
Income tax liability 103.1 91.8 83.7
Bank overdrafts 8.7 268.5 507.1
Total equity and liabilities 31 255.5 28 976.8 28 105.4
* Refer to restatement note 9.
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share-
Currency based Non- Attributable
Stated Treasury translation payment Retained Equity Hedging controlling to ordinary
Rmillion capital shares reserve reserve earnings reserve reserve interest shareholders
Capital and reserves at 30 September 2016 2 231.5 (18.7) 7.9 261.1 3 902.3 (713.0) (28.2) - 5 642.9
Effect of restatement (15.1) (15.1)
Restated capital and reserves at 30 September 2016* 2 231.5 (18.7) 7.9 261.1 3 887.2 (713.0) (28.2) - 5 627.8
Profit for the year attributable to ordinary shareholders 1 820.6 1 820.6
Loss on cash flow hedge (4.0) (4.0)
Remeasurement of post-retirement medical aid 8.2 8.2
Remeasurement of retirement funds 364.2 364.2
Recognition of share-based payments 33.3 33.3
Take-up of share options 131.0 (77.2) 53.8
Transfer arising from take-up of share options 77.2 (77.2) -
Settlement of share-based payments 1.4 (1.4) -
Share repurchases (129.8) (129.8)
Dividends paid (1 251.7) (1 251.7)
Exchange rate translation 42.0 (4.0) 38.0
Restated capital and reserves at 30 September 2017* 2 231.5 (16.1) 49.9 293.0 4 751.3 (717.0) (32.2) - 6 560.4
Profit for the year attributable to ordinary shareholders 1 827.2 1 827.2
Gain on cash flow hedge 1.4 1.4
Remeasurement of post-retirement medical aid (0.2) (0.2)
Remeasurement of retirement funds 131.1 131.1
Recognition of share-based payments 23.9 23.9
Take-up of share options 227.5 (122.4) 105.1
Transfer arising from take-up of share options 122.4 (122.4) -
Settlement of share-based payments 59.7 (42.1) (17.6) -
Share repurchases (281.1) (281.1)
Dividends paid (1 357.8) (1 357.8)
Non-controlling interest arising on business acquisition 27.6 27.6
Purchase obligation of non-controlling interest (26.8) (27.6) (54.4)
Exchange rate translation 131.9 (5.3) 126.6
Capital and reserves at 30 September 2018 2 231.5 (10.0) 181.8 274.8 5 211.6 (749.1) (30.8) - 7 109.8
* Refer to restatement note 9.
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER
2018 2017
Rmillion Notes Restated*
CASH FLOWS FROM OPERATING ACTIVITIES 1 975.8 1 411.2
Operating profit before: 2 779.3 2 576.1
Non-cash items 738.9 680.9
Net loss on disposal of property, plant and equipment 37.2 15.7
Net working capital changes 416.3 13.0
- Decrease/(increase) in inventories 94.7 (23.7)
- Increase in trade and other receivables (1 094.0) (221.7)
- Increase in trade payables and provisions 1 415.6 258.4
Cash generated from operations 3 971.7 3 285.7
Interest received 94.0 109.9
Interest paid (123.3) (106.1)
Taxation paid (608.8) (626.6)
Dividends paid (1 357.8) (1 251.7)
CASH FLOWS FROM INVESTING ACTIVITIES (1 453.3) (1 496.0)
Acquisition of businesses/subsidiaries 4.4 (453.2) (142.7)
Proceeds from disposal of businesses 4.2 47.7 48.0
Proceeds on disposal of assets held for sale 27.5 25.9
Investment to expand operations (456.1) (842.1)
Investment to maintain operations (316.2) (248.8)
- Replacement of property, plant and equipment (352.9) (330.0)
- Proceeds on disposal of property, plant and equipment 36.7 81.2
Proceeds on loans and investments# 398.8 450.9
Repayments of loans and investments# (701.8) (787.2)
CASH FLOWS FROM FINANCING ACTIVITIES (428.0) 3.4
Proceeds from exercise of share options 105.1 53.8
Proceeds from borrowings# 156.2
Repayments of borrowings# (252.0) (76.8)
Share repurchases (281.1) (129.8)
Net movement in cash and cash equivalents 94.5 (81.4)
Net cash balances at beginning of year 1 472.0 1 532.9
Exchange rate translation 31.7 20.5
Net cash balances at end of year 1 598.2 1 472.0
* Refer to restatement note 9.
# Restatement of presentation of investing and financing activities.
The presentation of cash flows relating to loans and investments and borrowings have been re-presented to reflect the gross movements in line with IAS 7
(para 21). The restatement of the presentation did not result in a change to the net cash flows from investing and financing activities respectively.
NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL RESULTS
1. BASIS OF PRESENTATION AND COMPLIANCE WITH IFRS
The summarised consolidated financial statements contained in this preliminary report are prepared in accordance with the requirements of the JSE Limited Listings
Requirements (Listings Requirements) for preliminary reports, and the requirements of the Companies Act, 71 of 2008 (Companies Act) applicable to summary financial
statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim
Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements from which the summarised consolidated financial
statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual
financial statements.
Neither this announcement nor the preliminary report has been audited but are extracted from the underlying audited information. The annual financial statements
were audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audited annual financial statements and the auditor's report thereon
are available for inspection at the company's registered office. The directors take full responsibility for the preparation of the preliminary report and that the
financial information has been correctly extracted from the underlying annual financial statements.
2. SALIENT STATISTICS AND HEADLINE EARNINGS
YEAR ENDED SEPTEMBER
% 2018 2017
Rmillion Change Restated*
SALIENT STATISTICS
Headline earnings per share (cents) 1.4 965.7 952.8
Diluted headline earnings per share (cents) 1.3 958.9 946.6
Dividend per share (cents) 8.0 729 675.0
Net asset value per share (cents) 8.4 3 692.2 3 407.0
Operating profit margin (%) 2.8 2.7
Return on equity (%) 26.7 29.9
HEADLINE EARNINGS RECONCILIATION
Profit for the year attributable to ordinary shareholders 1 827.2 1 820.6
Adjusted for:
Loss on disposal of property, plant and equipment 34.2 13.9
- Gross 37.2 15.7
- Tax effect (3.0) (1.8)
Profit on disposal of assets held for sale (4.4) (7.5)
Fair value adjustment to assets held for sale 1.2
Impairment of goodwill 12.3 9.3
Profit on disposal of businesses (9.7) (2.8)
Headline earnings 1 859.6 1 834.7
* Refer to restatement note 9.
3. SEGMENTAL REPORTING
Segment accounting policies applied in the summarised consolidated financial statements are consistent with those adopted for the preparation of the consolidated
financial statements.
The principal segments of the group have been identified on a primary basis by geographical segment, which is representative of the internal reporting used for
management purposes as well as the source and nature of business risks and returns. These geographical segments also represent operating segments as they meet the
quantitative thresholds.
The Chief Executive Officer (the Chief Operating Decision Maker) (CODM) is of the opinion that the operations of the individual distribution centres within
Southern Africa are substantially similar to one another and that the risks and returns of these distribution centres are likewise similar. The risks and returns
of the Ireland and Switzerland operations are not considered to be similar to those within Southern Africa or each other.
As a result, the geographical segments of the group have been identified as Southern Africa, Ireland and Switzerland. All segment revenue and expenses are directly
attributable to the segments. Segment assets and liabilities include all operating assets and liabilities used by a segment, with the exception of inter-segment
assets and liabilities, and IFRS adjustments made by segments to their management report for the purposes of IFRS compliance. These assets and liabilities are all
directly attributable to the segments.
The principal activity of the operating segments is the wholesale and distribution of goods and services to SPAR grocery stores and multiple other branded group
retail outlets.
The group deals with a broad spread of customers, with no single customer exceeding 10% of the group's revenue.
Analysis per reportable segment:
Switzerland
Southern IAS 19 Consolidated
Rmillion Africa Ireland Switzerland adjustment total
2018
Statement of profit or loss
Total revenue 69 453.2 22 951.6 10 602.7 103 007.5
Operating profit 2 080.3 574.4 122.5 2.1 2 779.3
Profit before tax 1 841.6 537.9 82.5 2.1 2 464.1
Interest income 155.1 11.0 3.2 169.3
Interest expense 124.0 42.9 26.0 192.9
Depreciation 216.8 236.3 245.0 698.1
Statement of financial position
Total assets 16 436.1 9 777.5 5 041.9 31 255.5
Total liabilities 12 718.1 7 263.5 3 857.3 306.8 24 145.7
2017 Restated*
Statement of profit or loss
Total revenue 65 068.1 20 939.8 11 201.4 97 209.3
Operating profit 1 998.9 508.2 95.2 (26.2) 2 576.1
Profit before tax 1 933.7 465.8 92.1 (26.2) 2 465.4
Interest income 180.2 11.1 2.4 193.7
Interest expense 97.2 50.5 28.9 176.6
Depreciation 194.2 203.2 260.3 657.7
Statement of financial position
Total assets 14 843.0 9 272.3 4 861.5 28 976.8
Total liabilities 10 851.6 7 364.7 3 791.7 408.4 22 416.4
Material non-cash items, relating to the movement in the group's financial liabilities, are presented in note 6.
* Refer to restatement note 9. The comparative segment information has been restated, as the CODM considers these operations based on IFRS financial information.
4. BUSINESS COMBINATIONS
4.1 Acquisition of S Buys pharmaceutical wholesaler
The group purchased a 60% shareholding in Fifth Season Investments 126 (Pty) Ltd which trades as S Buys, a pharmaceutical wholesaler, effective 1 October 2017.
The final consideration paid for these shares was R74.9 million. This purchase was made in order to grow the Pharmacy at SPAR business. The group will purchase
the remaining 40% shareholding in S Buys between 30 September 2022 and 31 December 2022 for an amount based on a multiple of the profit after tax for the 2022
financial year. This obligation to purchase the remaining shareholding is recognised as a financial liability at the present value of the obligation, discounted
from the expected settlement date to the reporting date. At acquisition, the non-controlling interest was recognised at the proportionate share of the net assets
of the business. The non-controlling interest's share of profits or losses are not recognised in equity, but as the movement in the fair value of the discounted
financial liability to purchase the remaining shareholding. None of the goodwill recognised on acquisition is expected to be deductible for tax purposes. The
initial accounting for the acquisition of S Buys was provisional for the value of intangible assets acquired, as the valuation of these assets had not yet been
completed. This process has now been finalised with no resulting changes to the values disclosed for the business combination.
Purchase of commercial property
The group purchased a commercial property for R165.0 million, which is a shopping centre in Pinetown, KwaZulu-Natal, adjacent to the SPAR head office. This
shopping centre houses a range of tenants, including certain group functions, from which the company derives rental income. The property was purchased by a
wholly owned subsidiary of The SPAR Group Ltd, Knowles Shopping Centre Investments (Pty) Ltd. This acquisition was funded from available cash resources. The
initial accounting for the acquisition of the commercial property was provisional for the value of deferred tax. This is now finalised with no resulting change
to the values disclosed for the business combination.
Retail stores acquired
During the course of the financial year the group acquired the assets of seven (2017: seven) retail stores in South Africa. GCL 2016 Ltd (Gilletts), a subsidiary
of The BWG Group, acquired the assets of two (2017: four) retail stores in the United Kingdom (UK) as well as one store in Ireland (2017: nil). The principal
activity of these acquisitions is that of retail trade and all its aspects. These stores were purchased in order to protect strategic sites, and the goodwill
arising on the business combinations is an indication of future turnover expected to be made by the group as a result of these acquisitions. These acquisitions
were funded from available cash resources.
Acquisition of 4 Aces Wholesale Limited (4 Aces)
The BWG Group acquired the entire issued share capital of 4 Aces Wholesale Limited, a leading independent wholesaler supplying the grocery retail, licensed and
foodservice trades in Ireland. Formal approval and clearance was received from the regulating authority in early May, and the acquisition completed on the
11th of May 2018.
Assets acquired and liabilities assumed at date of acquisition
2018 2017
Knowles
Fifth Shopping
Season Centre
Invest- Invest- UK 4 Aces SA UK SA
ments 126 ments retail Whole- retail retail retail
Rmillion (Pty) Ltd (Pty) Ltd stores sale stores Total stores stores Total
Assets 196.8 165.0 58.5 234.7 32.7 687.7 2.1 15.1 17.2
Property, plant and equipment 2.8 165.0 32.7 31.1 231.6 15.1 15.1
Goodwill 30.0 30.0 -
Deferred tax asset 4.9 4.9 -
Inventories 73.2 6.7 63.7 1.5 145.1 1.7 1.7
Other financial assets 0.4 0.4 -
Current tax receivable 0.1 0.5 0.6 -
Trade and other receivables (net of provision) 84.1 2.0 110.1 196.2 0.4 0.4
Cash and cash equivalents 1.3 17.1 60.4 0.1 78.9 -
Liabilities (127.8) - (14.0) (134.8) (1.6) (278.2) - - -
Finance lease liability (0.4) (0.4) -
Trade and other payables (126.5) (13.9) (134.8) (1.6) (276.8) -
Income tax liability (0.1) (0.1) (0.2) -
Bank overdraft (0.8) (0.8) -
Total identifiable net assets at fair value 69.0 165.0 44.5 99.9 31.1 409.5 2.1 15.1 17.2
Goodwill arising from acquisition 33.5 7.1 81.5 52.4 174.5 15.2 107.3 122.5
Non-controlling interest (27.6) (27.6) -
Purchase consideration transferred 74.9 165.0 51.6 181.4 83.5 556.4 17.3 122.4 139.7
Paid in cash 74.9 165.0 41.4 150.2 83.5 515.0 17.3 122.4 139.7
Contingent consideration 10.2 31.2 41.4 -
Cash and cash equivalents acquired (0.5) (17.1) (60.4) (0.1) (78.1) -
Business acquisition costs 0.7 1.1 1.8 3.0 3.0
Contingent consideration (10.2) (31.2) (41.4) -
Net cash outflow on acquisition 74.4 165.7 24.3 90.9 83.4 438.7 20.3 122.4 142.7
4.2 Assets and liabilities at date of disposal
The assets and liabilities disposed of relate to previously disclosed as non-current assets held-for-sale relating to ADM Londis
in the United Kingdom and four South African retail stores (2017: three retail stores).
2018 2017
ADM SA retail SA retail
Rmillion Londis stores Total stores
Non-current assets 101.7 45.2 146.9 45.2
Property, plant and equipment 11.5 11.5 6.4
Non-current assets held for sale 101.7 101.7
Goodwill 33.7 33.7 38.8
Current liabilities (108.9) - (108.9) -
Trade and other payables (7.4) (7.4)
Deferred consideration payable for ADM Londis (101.5) (101.5)
Profit on disposal of businesses 7.2 2.5 9.7 2.8
Proceeds - 47.7 47.7 48.0
4.3 Impact of subsidiaries on the results of the group
Contribution to results for the year
2018 2017
Fifth Knowles
Season Shopping
Invest- Centre
ments Invest- SA 4 Aces UK UK SA
126 ments retail Whole- retail retail retail
Rmillion (Pty) Ltd (Pty) Ltd stores sale stores Total stores stores Total
Revenue 952.7 17.5 328.6 319.0 17.2 1 635.0 4.6 468.3 472.9
Trading profit/(losses) before acquisition costs 17.9 8.3 (22.9) 5.5 0.2 9.0 (0.5) (42.0) (42.5)
4.4 Cash flow on acquisition of business/subsidiaries
The cash flow on acquisition of business/subsidiaries is noted as being the amount disclosed in note 4.1 and other similar business acquisition costs incurred relating
to prospective business acquisitions.
Rmillion 2018 2017
Net cash outflow (Note 4.1) 438.7 142.7
Other business acquisition costs 14.5 -
Total net cash outflow relating to acquisitions 453.2 142.7
5. FINANCIAL LIABILITIES
5.1 The SPAR Group Ltd acquired a controlling shareholding of 80% in the BWG Group, which is held by TIL JV Ltd, a wholly owned subsidiary of The SPAR Group Ltd,
effective from 1 August 2014. The SPAR Group Ltd has agreed to acquire the remaining 20% shareholding from the non-controlling shareholders at specified future
dates and in accordance with a determined valuation model. An election was made not to recognise a non-controlling interest, but to fair value the financial
liability. The financial liability is calculated as the present value of the non-controlling interests share of the expected purchase value and discounted from
the expected exercise dates to the reporting date. As at 30 September 2018, the financial liability was valued at R1 216.2 million (2017: R963.8 million) based
on management's expectation of future profit performance. The group has recognised 100% of the attributable profit.
Repayments will commence in December 2019 and continue in 2020 and 2022.
Interest is recorded in respect of this liability within finance costs using the effective interest rate method. The net exchange differences on the financial
liability have been presented in finance costs. The estimated future purchase price is fair valued at each reporting date and any changes in the value of the
liability as a result of changes in the assumptions used to estimate the future purchase price are recorded in profit or loss.
In both 2018 and 2017 a fair value adjustment was made to the TIL JV Limited financial liability relating to changes in forecast profits.
5.2 The SPAR Group Ltd acquired a controlling shareholding of 60% in SPAR Holding AG, which is held by SAH Ltd, a wholly owned subsidiary of The SPAR Group Ltd,
effective from 1 April 2016. Part of the purchase price of this 60% shareholding is a deferred consideration of CHF 16.0 million, which will be paid between
December 2020 and February 2021 with the purchase of the remaining 40% of SPAR Holding AG. The purchase of the remaining 40% shareholding is at a set price of
CHF 40.3 million. The total obligation of CHF 56.3 million was accounted for as a financial liability at the present value of the obligation, discounted from
the expected settlement date to the reporting date. An election was made not to recognise the non-controlling interest's share of profits or losses in equity,
but rather as the movement in the fair value of the discounted financial liability to purchase the remaining 40% shareholding.
Interest is recorded in respect of this liability within finance costs using the effective interest rate method. The net exchange differences on the financial
liability have been presented in finance costs.
5.3 The SPAR Group Ltd acquired a 60% shareholding in Fifth Season Investments 126 (Pty) Ltd which trades as S Buys, effective 1 October 2017. The SPAR Group Ltd
agreed to purchase the remaining 40% shareholding in S Buys between 30 September 2022 and 31 December 2022 for an amount based on a multiple of profit after tax
for the 2022 financial year. This obligation to purchase the remaining shareholding will be recognised as a financial liability at the present value of the
obligation, discounted from the expected settlement date to the reporting date. An election was made not to recognise the non-controlling interest's share of
profits or losses in equity, but rather as the movement in the fair value of the discounted financial liability to purchase the remaining 40% shareholding. As
at 30 September 2018, the financial liability was valued at R49.2 million based on management's expectation of future profit performance.
Interest is recorded in respect of this liability within finance costs using the effective interest rate method. The estimated future purchase price is fair
valued at each reporting date and any changes in the value of the liability as a result of changes in the assumptions used to estimate the future purchase price
are recorded in profit or loss.
6. FINANCIAL RISK MANAGEMENT
2018 2017
Rmillion Restated*
Financial instruments classification
Net bank balances 1 598.2 1 472.0
Loans (1) 794.3 523.1
Block discounting loan receivable (1) 768.2 760.5
Block discounting loan payable (2) (785.9) (780.8)
Other equity investments (3) 57.9 57.7
Trade and other receivables (1) 12 134.4 10 814.3
Trade and other payables (2) (15 236.0) (13 452.7)
FEC liability (4) (3.3) (4.9)
FEC asset (3) 0.3 0.2
Borrowings (2) (4 410.1) (4 524.8)
Financial liabilities (3) (2 042.9) (1 700.1)
(1) Classified under IAS 39 as loans and receivables.
(2) Classified under IAS 39 as financial liabilities measured at amortised cost.
(3) Classified under IAS 39 as financial assets or liabilities at fair value through profit or loss.
(4) Designated as a hedging instrument.
* Refer to restatement note 9.
Fair value hierarchy
The group's financial instruments carried at fair value are classified into three categories, defined as follows:
Level 1 financial instruments are those that are valued using unadjusted quoted prices in active markets for identical financial instruments.
Level 2 financial instruments are those valued using techniques based primarily on observable market data. Instruments in this category are valued using quoted prices
for similar instruments or identical instruments in markets which are not considered to be active; or valuation techniques where all the inputs that have a significant
effect on the valuation are directly or indirectly based on observable market data. Financial instruments classified as level 2 are mainly comprised of other equity
investments.
Level 3 financial instruments are those valued using techniques that incorporate information other than observable market data. Instruments in this category have been
valued using a valuation technique where at least one input, which could have a significant effect on the instrument's valuation, is not based on observable market data.
The following financial instruments are carried at fair value and are further categorised into the appropriate fair value hierarchy:
Financial instruments
Fair value
Carrying
Rmillion value Level 1 Level 2 Level 3
2018
Other equity investments 56.9 56.9
FEC liability designated as a hedging instrument (3.3) (3.3)
FEC asset at fair value through profit or loss 0.3 0.3
Financial liabilities (2 042.9) (2 042.9)
Total (1 989.0) - 53.9 (2 042.9)
2017
Other equity investments 55.3 55.3
FEC liability designated as a hedging instrument (4.9) (4.9)
FEC asset at fair value through profit or loss 0.2 0.2
Financial liabilities (1 700.1) (1 700.1)
Total (1 649.5) - 50.6 (1 700.1)
Level 2 valuation methods and inputs
The level 2 financial instruments consist of the investment in Group Risk Holdings (Pty) Ltd (GRH) and the Hypo Vorarlberg bank security deposit. The value of the
investment in GRH is based on the group's premium contributions relative to other shareholders in GRH. The Hypo Vorarlberg bank security deposit is a portfolio of
listed shares and bonds, the value of which are observable in the market.
Level 3 sensitivity information
The fair value of the level 3 financial liabilities of R2 042.9 million (2017: R1 700.1 million) was estimated by applying an income approach valuation method
including a present value discount technique. The fair value measurement is based on significant inputs that are not observable in the market. Key inputs used in
the valuation include the estimated future profit targets for TIL JV Ltd and Fifth Season Investments (Pty) Ltd, and the discount rates applied. The estimated
profitability was based on historical performances but adjusted for expected growth.
The following factors were applied in calculating the financial liabilities at 30 September 2018:
TIL JV Ltd
- Discount rate of 6.7% (2017: 7.2%)
- Closing rand/euro exchange rate of 16.46 (2017: 15.96)
SPAR Holding AG
- Discount rate of 2.0% (2017: 2.0%)
- Closing rand/Swiss franc exchange rate of 14.44 (2017: 13.95)
Fifth Season Investments (Pty) Ltd
- Discount rate of 13.3%
The following tables show how the fair value of the level 3 financial liabilities would change in relation to the discount rate if the discount rate increased or
decreased by 0.5%.
Discount Sensitivity Liability
rate % % change Rmillion
TIL JV Ltd
2018
Financial liability 6.7 0.5 (11.7)
Financial liability 6.7 (0.5) 11.9
2017
Financial liability 7.2 0.5 (14.0)
Financial liability 7.2 (0.5) 14.3
SPAR Holding AG
2018
Financial liability 2.0 0.5 (8.8)
Financial liability 2.0 (0.5) 8.7
2017
Financial liability 2.0 0.5 (11.9)
Financial liability 2.0 (0.5) 12.1
Fifth Season Investments (Pty) Ltd
2018
Financial liability 13.3 0.5 (1.0)
Financial liability 13.3 (0.5) 1.0
The following tables show how the fair value of the level 3 financial liabilities would change in relation to change in the estimated future profit targets by 5.0%.
Sensitivity Liability
% change Rmillion
TIL JV Ltd
2018
Financial liability 5.0 59.2
Financial liability (5.0) (59.1)
2017
Financial liability 5.0 46.8
Financial liability (5.0) (46.7)
Fifth Season Investments (Pty) Ltd
2018
Financial liability 5.0 2.3
Financial liability (5.0) (2.3)
Movements in level 3 financial instruments carried at fair value
The following tables show a reconciliation of the opening and closing balances of level 3 financial instruments carried at fair value:
Rmillion 2018 2017
TIL JV Ltd
Balance at beginning of year 963.8 824.4
Finance costs recognised in profit or loss 72.3 60.1
Net exchange differences arising during the period 40.6 27.7
Fair value adjustment 139.5 51.6
Balance at end of year 1 216.2 963.8
SPAR Holding AG
Balance at beginning of year 736.3 743.6
Finance costs recognised in profit or loss 14.3 14.2
Net exchange differences arising during the period 2.9 (37.6)
Foreign exchange translation 24.0 16.1
Balance at end of year 777.5 736.3
Fifth Season Investments (Pty) Ltd
Balance at beginning of year -
Initial recognition 54.4
Initial recognition reducing non-controlling interest balance 27.6
Initial recognition in equity reserve 26.8
Finance costs recognised in profit or loss 6.4
Fair value adjustment (11.6)
Balance at end of year 49.2 -
Total financial liabilities 2 042.9 1 700.1
7. COMMITMENTS
Land and
Rmillion buildings Other
7.1 Operating lease commitments
Future minimum lease payments
2018
Payable within one year 1 623.6 78.2
Payable later than one year but not later than five years 5 434.0 124.8
Payable later than five years 4 023.9 13.9
Total 11 081.5 216.9
2017
Payable within one year 1 804.0 69.9
Payable later than one year but not later than five years 5 495.4 144.0
Payable later than five years 4 357.3 16.0
Total 11 656.7 229.9
Future minimum lease payments relate to obligations under non-cancellable lease contracts.
Rmillion 2018 2017
7.2 Operating lease receivables
Future minimum sub-lease receivables
Receivable within one year 952.7 1 124.7
Receivable later than one year but not later than five years 3 132.3 3 185.9
Receivable later than five years 1 938.4 2 093.9
Total operating lease receivables 6 023.4 6 404.5
Rmillion 2018 2017
7.3 Capital commitments
Contracted 200.5 549.8
Approved but not contracted 143.5 94.8
Total capital commitments 344.0 644.6
Capital commitments will be financed from group resources.
8. FINANCIAL GUARANTEES
The financial guarantees may be provided by the group to subsidiaries and affiliates. These financial guarantees are accounted for under IFRS 4 and initially measured
at cost and subsequently in terms of IAS 37 which requires the best estimate of the expenditure to settle the present obligation. Management have assessed that the
amount that it would rationally pay to settle the obligation is nil.
Management's assessment is based on the ability of subsidiaries and affiliates having sufficient cash resources, in country, to service the underlying debt
instrument's obligations as and when these become due.
The risk relating to financial guarantees is managed per geographical region through review of cash flow forecasts, budgets and monitoring of covenants.
The board has limited the guarantee facility to R190.0 million (2017: R190.0 million) relating to Numlite (Pty) Limited. In 2009, the company sold its investment
in retail computer equipment and ceded its right to receive payment of the existing and future rental streams to Numlite (Pty) Ltd, who in turn raises finance via a
loan facility with an independent financial institution. The group has provided a limited guarantee relating to this loan facility.
The table below represents the full exposure of the group in relation to this financial guarantee as at 30 September 2018.
Rmillion 2018 2017
Financial Guarantees 169.7 168.5
Guarantee of Numlite (Pty) Ltd finance obligations 169.7 168.5
9. PRIOR PERIOD RESTATEMENT AND CORRECTION OF PRESENTATION
9.1 Correction of presentation
During the year, the Group assessed all income streams from suppliers.
This evaluation revealed that the group had erroneously accounted for certain rebates and income within other income and in some instances recognised these net in
operating expenses.
In performing this assessment the following principles were considered:
- Agreements with suppliers whereby volume-related rebates, promotional and marketing allowances and various other fees and discounts, received in connection with the
purchase of goods are accounted for as a reduction to cost of sales.
- Income which is earned for a distinct service is recognised as other income.
- Income which is a genuine and specific recovery of a selling cost is recognised as a recovery of operating expenses.
9.2 Prior period restatement
SPAR gives out loans at the prime interest rate to retailers which are immediately sold at prime less one percent to an approved financial institution under a block
discounting agreement with recourse. These loans were previously disclosed as contingent liabilities due to SPAR providing financial guarantees against these
discounting agreements, which have effectively transferred the loan receivable to the financial institution.
As these loans have been discounted to the financial institution with full recourse resulting in SPAR still being exposed to the credit risk on this transaction, it
has been concluded that these loans which represent financial assets do not meet the derecognition criteria in terms of IAS 39. This has resulted in the recognition
of a financial asset held at amortised cost which represents the amount owing by the retailer, and a financial liability held at amortised cost which represents the
amount owing to the financial institution.
The restatement is effective for the year ended 30 September 2018 and has been applied retrospectively. This has resulted in a restatement of the comparative 2017 and
2016 figures on the statement of financial position. The aggregate effect of the restatement for these periods is as follows:
9.3 Prior period restatement and correction of presentation impact
Prior period restatement and correction of presentation impact on statement of profit or loss and other comprehensive income
2017 Effect of
Originally Reclassi- Effect of 2017
Presented fication Restatement Restated
Revenue 97 174.2 41.5 (6.4) 97 209.3
Turnover 95 461.1 (88.0) 95 373.1
Cost of sales (85 830.2) 666.9 (85 163.3)
Gross profit 9 630.9 578.9 - 10 209.8
Other income 1 713.1 129.5 (6.4) 1 836.2
Net operating expenses (8 760.6) (708.4) - (9 469.0)
Warehousing and distribution expenses (2 871.7) (83.3) (2 955.0)
Marketing and selling expenses (4 000.4) (578.0) (4 578.4)
Administration and information technology expenses (1 888.5) (47.1) (1 935.6)
Trading profit 2 583.4 - (6.4) 2 577.0
BBBEE transactions (0.9) (0.9)
Operating profit 2 582.5 - (6.4) 2 576.1
Other non-operating items (54.6) (54.6)
Interest income 123.2 70.5 193.7
Interest expense (113.2) (63.4) (176.6)
Finance costs including foreign exchange gains and losses (64.4) (64.4)
Share of equity accounted associate (losses)/income (8.8) (8.8)
Profit before taxation 2 464.7 - 0.7 2 465.4
Income tax expense (644.6) (0.2) (644.8)
Profit for the year attributable to ordinary shareholders 1 820.1 - 0.5 1 820.6
cents cents cents cents
Basic earnings per share 945.2 - 0.3 945.5
Diluted earnings per share 939.1 - 0.3 939.4
Headline earnings per share 952.5 - 0.3 952.8
Diluted headline earnings per share 946.4 - 0.2 946.6
Prior period restatement impact on statement of financial position
2017
Originally Effect of 2017
Presented Restatement Restated
Block discounting loan receivable 512.2 512.2
Deferred taxation asset 15.7 5.7 21.4
Current portion of block discounting loan receivable 248.3 248.3
Retained earnings 4 765.9 (14.6) 4 751.3
Block discounting loan payable 525.1 525.1
Current portion of block discounting loan payable 255.7 255.7
2016
Originally Effect of 2016
Presented Restatement Restated
Block discounting loan receivable 521.5 521.5
Deferred taxation asset 30.9 5.9 36.8
Current portion of block discounting loan receivable 222.2 222.2
Retained earnings 3 902.3 (15.1) 3 887.2
Block discounting loan payable 536.4 536.4
Current portion of block discounting loan payable 228.3 228.3
Prior period restatement impact on statement of cash flows
2017
Originally Effect of 2017
Presented Restatement Restated
Cash flow from operating activities 1 141.2 1 141.2
Cash generated from operations 3 292.1 (6.4) 3 285.7
Interest paid (112.5) 6.4 (106.1)
10. BLOCK DISCOUNTING LOANS
Rmillion 2018 2017
Restated*
Block discounting loan receivable 542.4 512.2
Current portion of block discounting loan receivable 225.8 248.3
Total block discounting loan receivable 768.2 760.5
Block discounting loan payable 553.6 525.1
Current portion of block discounting loan payable 232.3 255.7
Total block discounting loan payable 785.9 780.8
SPAR gives out loans at the prime interest rate to retailers which are immediately sold at prime less one percent to an approved financial institution under a block
discounting agreement with recourse. The financial institution fulfils all administrative activities relating to the repayment of these loans, and will only revert
to SPAR in the unusual instance of default on the part of the retailer.
As these loans have been discounted to the financial institution with full recourse resulting in SPAR still being exposed to the credit risk on this transaction, it
has been concluded that these loans receivables do not meet the derecognition criteria for financial assets in terms of IAS 39. This has resulted in the recognition
of a financial asset held at amortised cost which represents the amount owing by the retailer, and a financial liability held at amortised cost which represents the
amount owing to the financial institution.
Retailer loans are secured by notarial bonds over assets, deeds of suretyship, cession and pledge of shares and in some instances, lease options. The recoverability
of amounts owed by retailers is regularly reviewed and assessed on an individual basis. A provision will be raised to the extent a loan is no longer considered
recoverable. No provision has been raised at year-end as no material amounts are past due at year end. This is estimated considering past experience and additional
risk factors such as significant actual or expected changes in the operating results or business conditions of the retailer. To the extent a loan is considered
irrecoverable, the debt is written off.
Schedule of repayment of borrowings
2018 2017
Rmillion Restated*
Year to September 2018 302.7
Year to September 2019 285.8 215.2
Year to September 2020 236.7 164.7
Year to September 2021 177.5 104.4
Year to September 2022 114.7 39.9
Year to September 2023 onwards 37.5
852.2 826.9
The schedule of borrowings represents the repayments that the retailer will make directly to the financial institution with whom the loans have been discounted.
* Refer to restatement note 9.
11. EVENTS AFTER THE REPORTING DATE
11.1 Acquisition of Roadfield Holdings Ltd
The BWG Group has purchased the entire shareholding of Roadfield Holdings Ltd (trading as Corrib Food Products) subject to the approval of the Competition and Consumer
Protection Commission (CCPC). Corrib Food Products is a wholesaler of predominantly chilled and frozen sectors in Ireland. The business operates from a major
distribution centre based near Athenry, Co. Galway, and other distribution depots in Dublin. Approval for the transaction was received from the CCPC on
31 October 2018.
11.2 The directors are not aware of any matters or circumstances, other than the above, arising since the end of the financial year which have or may significantly
affect the financial position of the group or the results of its operations.
COMMENTARY
SALIENT FEATURES
Change
Rmillion 2018 2017 (%)
Turnover 101 018.0 95 373.1* 5.9
Operating profit 2 779.3 2 576.1* 7.9
Earnings per share (cents) 948.9 945.5* 0.4
Headling earnings per share (cents) 965.7 952.8* 1.4
Normalised headline earnings per share (#) (cents) 1 063.2 976.0* 8.9
Diluted headline earnings per share (cents) 958.9 946.6* 1.3
Dividend per share (cents) 729.0 675.0 8.0
Net asset value per share (cents) 3 692.2 3 407.0* 8.4
* The prior year figures have been restated. Please refer to Note 9 of the notes to the summarised consolidated financial statements for further details.
# Headline earnings adjusted for fair value adjustments to, and foreign exchange losses on financial liabilities, and business acquisitions costs.
OVERVIEW OF TRADING RESULTS
The SPAR Group (the group) reported a pleasing performance for the year under review, with turnover increasing by 5.9% to R101.0 billion, despite continued challenging
trading conditions. The result has again been positively impacted by improving contributions from the European businesses and the group increased operating profit by
7.9% to R2.8 billion. Profit before taxation of R2.5 billion was adversely impacted by fair value adjustments to, and foreign exchange losses on financial liabilities,
together with increased interest expenditure resulting from cash outflows for acquisitions.
- SPAR Southern Africa contributed growth in wholesale turnover of 6.7%. This includes turnover reported by the pharmaceutical business, S Buys, acquired during the
year. Excluding S Buys, SPAR Southern Africa produced wholesale turnover growth of 5.3% and stable gross margins, in a tough market environment. The TOPS liquor
brand delivered an impressive result with wholesale sales growth of 13.0%. Despite a generally weak building materials sector, Build It increased sales by 7.5%
enabled by strategic marketing efforts and grew market share. The SPAR Southern Africa store network increased to 2 236 stores, with 145 new stores opened across
all brands. The group completed 276 store upgrades across all brands, compared to 259 upgrades in the prior year.
- The BWG Group (SPAR Ireland) has continued to deliver strong euro-denominated results. The BWG Foodservice business reported impressive double-digit turnover growth,
while all of the retail brands enjoyed positive sales growth. The Kilcarbery distribution centre saw warehouse turnover increase by 6.9% as more product was directed
through the facility. During May 2018, BWG completed the acquisition of 4 Aces Wholesale Limited which operates three cash-and-carry businesses in central Ireland.
This business has been successfully integrated into the BWG Group's wholesale operations. SPAR Ireland's store network increased by a net 41 stores to finish the
year at 1 371 stores.
- SPAR Switzerland has made significant progress in addressing the overall business performance, despite the difficult Swiss retail environment. While the reported
turnover growth has remained negative, this was largely due to the strategic closure and sale of corporate retail stores during the year. However, this had a marked
positive impact on the profitability of the overall business. The core wholesale business continued to record improvements in profitability. SPAR Switzerland's
store network grew by the addition of 46 new stores to a total of 315 stores.
GROUP FINANCIAL REVIEW
The SPAR
Rmillion Southern Africa Ireland Switzerland Group Ltd
Income statement
Turnover 68 753.4 22 495.5 9 769.1 101 018.0
Gross profit 6 190.7 2 823.6 1 778.7 10 793.0
Operating profit 2 080.3 574.4 124.6 2 779.3
Profit before taxation 1 841.6 537.9 84.6 2 464.1
Financial position
Total assets 16 436.1 9 777.5 5 041.9 31 255.5
Total liabilities 12 718.1 7 263.5 4 164.1 24 145.7
Turnover of the SPAR Group increased by 5.9% to R101.0 billion (2017: R95.4 billion), with 31.9% (2017: 32.5%) of total turnover generated in foreign currency. The
comparable Southern African business, with reported turnover growth of 5.3%, continued to be impacted by tough trading conditions. The turnover of the BWG Group
increased by 4.2% in euro-currency terms. The continued depreciation of the rand against the euro over this period contributed to the 9.6% overall increase in
reported turnover to R22.5 billion (2017: 20.5 billion). SPAR Switzerland contributed turnover of R9.8 billion (2017: R10.4 billion) with sales continuing to decline
in an extremely difficult retail environment.
Gross margin on a restated basis increased to 10.7% but remained stable year-on-year at 10.1% on a pre-restated basis. SPAR Southern Africa increased its comparable
gross margin slightly to 8.3%, despite the competitive market, as it continued to drive more product through its facilities - in particular, fresh and perishable
categories. The BWG Group and SPAR Switzerland, which both operate in the higher margin convenience sector, reported comparable gross margins of 12.2% (2017: 12.1%)
and 17.9% (2017: 18.0%) respectively.
Group operating expenses were well managed during the year, increasing by 5.6%, or 6.3% on a pre-restated basis, a noticeable improvement on the prior year. Excluding
the S Buys business (acquired effective 1 October 2017), the group expenses increased by 4.7%. The expense movement was positively impacted by the reduction in
costs in the Swiss business of 4.7% through management initiatives and the disposal, or closure, of corporate stores. In Southern Africa, comparable operating
expenses were up 7.8%. This was again attributable to increased marketing and promotional expenditures, higher transport and distribution costs (impacted by fuel
cost increases of 17.9%) and further investment in IT infrastructure. The BWG Group's expenses grew by a well-controlled 4.4% in euro terms and continued to be
impacted by increased depreciation charges and higher staff costs.
Profit before tax has remained flat year-on-year at R2.5 billion (2017: R2.5 billion), but was impacted by a net interest expense of R23.6 million, compared with net
interest income of R17.1 million in the prior year. The negative interest effect was further compounded by a significant foreign exchange loss of R43.5 million
recognised on the translation of the South African euro-denominated financial liability to purchase the Irish and Swiss minority interests. Based on an improved
Irish profit projection, this liability was also increased by a fair value revaluation of R139.5 million which also impacted profits.
Profit after tax improved 0.4% to R1 827.2 million (2017: R1 820.6 million), due to a slightly lower effective tax rate in Ireland.
Headline earnings per share increased by 1.4% to 965.7 cents (2017: 952.8 cents). The board approved a final dividend of 729 cents per share (2017: 675 cents per
share), an increase of 8.0% year-on-year.
Cash generated from operations totalled R4.0 billion (2017: R3.3 billion) and reflected a strong improvement over the prior year due to reduced working capital
levels. This was largely attributed to increased levels of trade payables due to payment cut-offs. The SPAR Group's cash flow from investing activities showed an
outflow of R1 453.3 million, including total net capital expenditure of R772.3 million (2017: R1 090.9 million). During this period the group concluded two major
acquisitions in South Africa: a controlling interest in the S Buys pharmaceutical wholesaler for R74.4 million and the Knowles Shopping Centre for R165.7 million.
The BWG Group finalised the acquisition of the 4 Aces Wholesale business for R90.9 million. Taking into account the impact of a net R252.0 million outflow to reduced
borrowings and a further R281.1 million for share repurchases, the group still closed the year in a net cash position of R1 598.2 million (2017: 1 472.0 million).
In Southern Africa, the group's capital expenditure during the period included operational investments of R256.1 million. This comprised primarily transport and
logistics requirements as well as additional investment in IT infrastructure upgrades and software development. The BWG Group's capital expenditure amounted to
R365.9 million, the majority of which was warehouse equipment, but did also include additional investments in retail property and IT technology. Capital expenditure
in the Swiss operations of R149.1 million was incurred, including further store refurbishments and ongoing technology upgrades to enhance the retail offering. The
group made further investments of R107.7 million to acquire ten corporate stores, defending strategically located retail locations in South Africa, the United
Kingdom and Ireland.
The budgeted capital expenditure for the year ahead in Southern Africa, amounting to R383.4 million (2017: R666.0 million) is expected to reduce to more normal
operating levels, as no further property acquisitions are planned and construction plans for the previously announced distribution facilities have been placed on
hold. In Ireland, budgeted capital spends of EUR32.0 million will continue to address a wide range of retail development commitments, while Spar Switzerland has
CHF 25.0 million budgeted for further retail investments and additional improvements to own facilities and infrastructure. It is again anticipated that the foreign
subsidiaries will fund all capital expenditure from their own cash flows.
GEOGRAPHICAL REVIEW
SPAR Southern Africa
The turnover of SPAR Southern Africa increased 6.7% to R68.8 billion (2017: R64.4 billion restated), but was positively influenced by the inclusion of the S Buys
pharmaceutical business acquired on 1 October 2017. Excluding S Buys, the comparable business increased turnover by 5.3% (2017: 4.5%), reflecting the continued tough
retail market which remains underpinned by weak consumer spend. This result was positively boosted by strong liquor turnover growth of 13.0% and a very pleasing
increase in the building materials business of 7.5%. The latter remains contrary to a weak building sector performance and reflected increased retailer loyalty and
the results of strong marketing investments. Combined food and liquor wholesale turnover growth was recorded at 5.0% and needs to be viewed against internally
calculated food inflation of 1.4% This inflation measure has continued to decline from the 1.9% measured at half year and the 6.0% reported in 2017.
Case volumes handled through the seven distribution centres continued to reflect the constrained market and increased 3.2% to 231.7 million cases
(2017: 224.5 million cases). This positive volume growth reversed the decline in cases delivered recorded in the comparative year.
The retail turnover of SPAR stores increased 4.2% to R79.7 billion (2017: R76.5 billion) and recorded like-for-like retail growth of 2.3%. The combined food and
liquor retail sales, which allow for a better industry comparison, increased by 5.1% and should be viewed against the significant decrease in food price inflation
over the year. Wholesale turnover grew 4.1% to R53.7 billion, continuing to reflect the independent retailers' support of the group's voluntary trading model.
Impacted by the material deflation recorded in certain commodity categories, total house brand turnover increased by 4.3% to R10.7 billion. Demand for SPAR-branded
products was stronger at 5.8% for the year, with sales reaching R8.5 billion. The SPAR-branded private-label products continued to offer real consumer value and
quality and remain a shopping differentiator for our retailers.
The group maintained the strong organic growth focus of existing retailers to drive profitability. Total retail space recorded strong growth of 3.8% (2017: 1.7%) and
was attributed to a number of large new stores. In addition, 170 SPAR stores were refurbished during the period to ensure they continued to provide retail offerings
to exceed consumer demands. A net 34 stores were opened, bringing the total SPAR store numbers to 937 by 30 September 2018.
The retail turnover of TOPS at SPAR increased by an impressive 11.3% to R11.2 billion (2017: R10.0 billion), as strong marketing initiatives and a refresh of the
brand image attracted consumer spend. Like-for-like turnover growth amounted to 7.5% for the period. Wholesale turnover closely tracked the retail performance and
grew by 13.0% to R6.5 billion (2017: R5.8billion). During the period, the TOPS at SPAR store network increased by 41 stores on a net basis to 774 stores while 53
stores were revamped. The total retail liquor space increased 6.7% during the year.
Build it's retail turnover growth increased by 9.7% for the year, significantly higher than the building sector's calculated inflation of 3.8%, and against the
backdrop of a challenging trading environment. This performance was underpinned by strong product and brand marketing and an added focus on retail execution to
differentiate the brand. Like-for-like store growth was 7.4%. The group's buying teams drove increased retailer loyalty through improved product pricing. The
influence of cement, which is a significant component of Build it's overall sales, continued to impact the turnover, as the continued oversupply has resulted in low
category inflation of 0.5% over the year. Retail activity in the neighbouring countries continued to report strong growth totalling 11.9% for the year, which was
positively influenced by improvements in both the Namibian and Mozambican stores. At wholesale level, turnover increased 7.5% to R7.6 billion (2017: R7.1 billion),
reflecting still further opportunities to grow retailer loyalty. Build it's house brand and imports showed solid growth of 11.0% for the year. At the year-end,
Build it's store network totalled 376 stores, having opened a net eight stores during the year.
The S Buys pharmaceutical wholesale business was acquired with effect from 1 October 2017 and the revenue and profit were consolidated for the first time in this
year. This strategic investment provides a full pharmaceutical wholesale service for the Pharmacy at SPAR retailers and management are actively working to convert
their purchases to this wholesaler. The S Buys Group reported turnover of R929.0 million for the period, which amounted to a pleasing growth of 13.4%. This
performance was driven by impressive increases of 17.1% in the Scriptwise business - catering for high-value speciality scripts - and 11.7% in wholesale sales, which
were largely attributed to increased procurement by SPAR pharmacies. The profitability of the business was, however, impacted by a lower than expected government
regulated price increase of 1.3% compared to the 7.0% in 2017.
The Pharmacy at SPAR business continued its growth trajectory adding 26 new stores and reporting an increase in retail turnover of 44.3% to R961 million. The
retail organic growth was a healthy 17.2% and reflects the marketing and innovation benefits being enjoyed by these retailers. At the end of the period there were
101 Pharmacy at SPAR stores.
SPAR Ireland
The BWG Group continued to deliver strong results for the year and reported euro-denominated turnover growth of 4.2% to EUR1.5 billion. This number was boosted by
the inclusion of the 4 Aces business from May - if adjusted, the comparable group grew by 2.8%. Exchange rate weakness over the latter half of the year saw reported
turnover grow 9.6% to R22.5 billion (2017: R20.5 billion). Price measures over the financial year indicate that the grocery food and non-alcoholic drinks category
declined 2.2%, while alcohol and tobacco increased by 3.2%. (Source: Irish Central Statistics). Both the extreme weather conditions experienced in March and the
above average warm summer brought significant sales benefits to the convenience sector as consumers bought larger quantities of food and beverages.
The hospitality sector remained strong and again boosted the sales of the BWG Foodservice and BWG Wines & Spirits divisions, which reported turnover growths of
14.7% and 5.5% respectively. Compared with last year, all retail brands recorded positive growth, with the Londis brand increasing turnover to 4.9%, MACE growing
by 4.4% and XL reporting growth of 4.5%. It was just as pleasing to report that all retail brands reported positive like-for-like growth.
The group's distribution volumes continued to show strong increases and record case movements continued to be handled in the Kilcarbery distribution centre which
reported a sales increase of 6.9%. A real highlight for this business during the year was the recognition received through a number of prestigious logistics and
transport awards, including the Irish Logistics Company of the Year award.
In South West England, BWG Group's Appleby Westward business reported an increase of 2.7% in sterling-denominated turnover. The slight improvement of the sterling
decreased in the turnover result in reported euro terms to 1.2%. This business represents approximately 12.2% of the consolidated BWG Group.
BWG Group's euro-denominated margin remained stable at 12.2% in highly competitive market conditions. Operating profit grew 13.0% to R574.4 million
(2017: R508.2 million) while profit before tax increased 15.5% to R537.9 million (2017: R465.8 million).
The total number of stores across BWG Group's store formats at 30 September 2018 was 1 371 with 105 new stores added during the year.
Subsequent to the reporting period, the BWG Group announced the completion of the acquisition of Corrib Food Products, a leading independent wholesaler with a
significant presence in the chilled and frozen food sector in Ireland, along with being one of Ireland's leading suppliers of poultry products. The acquisition
complements BWG's market-leading position in food distribution. It is also consistent with the group's strategy for growth and follows the successful acquisition
of 4 Aces Wholesale earlier in the year.
SPAR Switzerland
The region reported turnover of R9.8 billion for the year (2017: R10.4 billion). Operating profit increased 80.6% to R124.6 million (2017: R69.0 million), while
profit after tax increased by 17.5% to R67.1 million from a previous year profit of R57.1 million. This result was adversely impacted by finance costs, including
foreign exchange impacts, relating to the valuation of the financial liability for the minority purchase obligation of R17.2 million (2017: a net gain of
R23.4 million).
The turnover performance of SPAR Switzerland continued to be negatively impacted by low economic growth in the retail market. While minor inflationary trends have
been noted, with prices of food and non-alcoholic beverage prices increasing by 1.5%, alcoholic beverages being 0.7% higher, and a slight appreciation of the Swiss
franc against the euro, these have been insufficient to slow the attraction of cross border shopping that exists in Switzerland. SPAR Switzerland reported a
decline in local currency measured turnover of -5.1%. However, this result continued to be negatively influenced by the strategic decision to exit from unprofitable
corporate retail stores. If the effect of these corporate stores was adjusted for, the local currency turnover decline would have been -0.8%. SPAR Switzerland
launched 46 new stores during the year, including a large group of 41 stores in the west of the country that are now being serviced. At the end of the year there
were 315 corporate and independent retailers serviced.
The cash-and-carry business, trading as TopCC, reported a disappointing decline in turnover for the year which was largely attributed to business closures in the
Swiss restaurant and hospitality sectors. The group is investigating upgrade opportunities in the fresh offerings of these stores as this area is offering growth
and this can be further maximised.
Warehouse turnover increased by a pleasing 1.5% for the year, reversing the declines previously reported, as SPAR retail activity was positively influenced by
innovative marketing campaigns, including the launch of a consumer loyalty card. Store delivery frequency, fleet optimisation as well as store ordering initiatives
were implemented during the year which have resulted in significant improvements in logistics efficiencies, productivity and overall costs.
Despite the decline in overall turnover, the business succeeded in improving margins and reducing costs.
PROSPECTS
Against the backdrop of subdued consumer and business confidence in Southern Africa, the trading environment is expected to remain largely unchanged in the medium
term. While food price inflation has recently dropped to extremely low levels, there are discernible signs that the cycle will start to turn. Recent record
movements in fuel prices and continued foreign currency weakness also indicate that consumers will remain under pressure, with a constrained spending outlook. In
response, SPAR's extensive distribution capability and market-leading brands are well positioned to deliver exceptional value to consumers and to also ensure that
its independent retailers remain suitably positioned to meet these economic challenges.
The Irish business outlook, still influenced by Brexit uncertainties, remains positively cautious in both territories where they operate. Management's proactive
response to market changes should ensure that SPAR Ireland will deliver a result in line with expectations. The acquisition of the Corrib Food Products wholesale
business subsequent to the reporting date will further strengthen the Irish group's growth objectives.
The Swiss business will maintain its focus on driving the identified strategic initiatives to improve the turnover performance. The group continues to recognise
that these objectives will take time to realise, but positive changes are being recorded.
The group remains well positioned to continue to create value for shareholders through its growing, diversified business and well-established retail brands.
Mike Hankinson Graham O'Connor
Chairman Chief Executive Officer
13 November 2018
DECLARATION OF ORDINARY DIVIDEND
Notice is hereby given that a gross final cash dividend of 459 cents per share has been declared by the board in respect of the year ended 30 September 2018. The
dividend has been declared out of income reserves. This brings the total gross dividend for the year to 729 cents (2017: 675 cents) per ordinary share.
The salient dates for the payment of the final dividend are detailed below:
Last day to trade cum-dividend Tuesday, 4 December 2018
Shares to commence trading ex-dividend Wednesday, 5 December 2018
Record date Friday, 7 December 2018
Payment of dividend Monday, 10 December 2018
Shareholders will not be permitted to dematerialise or rematerialise their shares between Wednesday, 5 December 2018 and Friday, 7 December 2018, both days inclusive.
In terms of South African taxation legislation effective from 1 April 2012 and the JSE Listing Requirements, the following additional information is disclosed:
- The South African local dividend tax rate is 20% (2017: 20%);
- The net local dividend amount is 367.2 cents per share for shareholders liable to pay tax on dividends and 459 cents per share for shareholders exempt from such
dividend tax;
- The issued share capital of The SPAR Group Ltd is 192 602 355 ordinary shares; and
- The SPAR Group Ltd's tax reference number is 9285/168/20/0.
By order of the board
MJ Hogan
Company Secretary
Pinetown
13 November 2018
DIRECTORATE AND ADMINISTRATION
DIRECTORS: MJ Hankinson* (Chairman), GO O'Connor (Chief Executive Officer), MW Godfrey, WA Hook, MP Madi*, M Mashologu*, HK Mehta*, P Mnganga*, R Venter, AG Waller*,
CF Wells*
* Non-executive
Company Secretary: MJ Hogan
Registered office
22 Chancery Lane
PO Box 1589
Pinetown
3600
Transfer secretaries
Link Market Services South Africa (Pty) Ltd
PO Box 4844
Johannesburg
2000
Auditors
PricewaterhouseCoopers Inc.
PO Box 1274
Umhlanga Rocks
4320
Sponsor
One Capital
PO Box 784573
Sandton
2146
Bankers
Rand Merchant Bank, a division of FirstRand Bank Ltd
PO Box 4130
The Square
Umhlanga Rocks
4021
Attorneys
Garlicke & Bousfield
PO Box 1219
Umhlanga Rocks
4320
Website
www.spar.co.za
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