Transcripción procesada de la llamada de conferencia o presentación en el resultado de SPP.J del 21 de mayo a las 8:00 p.m. (GMT)

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30 de mayo de 2020 (Thomson StreetEvents) – Acta de la conferencia telefónica o presentación sobre el resultado de SPAR Group Ltd publicado el jueves 21 de mayo de 2020 a las 12:00 p.m. GMT

BofA Merrill Lynch, Departamento de Investigación – Jefe de Investigación Minorista General de EMEA y Director

Hola, damas y caballeros, y bienvenidos a los resultados provisionales de SPAR Group Limited. (Manual de instrucciones) Tenga en cuenta que esta llamada se grabará.

Ahora me gustaría entregar la conferencia a Graham O’Connor. Por favor continua.

Buenas tardes a todos. Bienvenido a la transmisión por Internet de nuestros resultados provisionales para los seis meses terminados el 31 de marzo. Nuestro director financiero, Mark Godfrey, también vendrá a mí para presentarme los resultados. Actualmente estamos viviendo en tiempos extremadamente desafiantes. La pandemia global de COVID-19 ha cambiado el mundo tal como lo conocemos. Nuestros pensamientos están con todos los que lo padecen. Nos sentimos privilegiados de estar en el negocio y servir a nuestras comunidades en estos tiempos sin precedentes. Cambiar diapositiva.

Este es el bosquejo de la presentación de hoy. Comienzo con una breve actualización de la pandemia, seguida de una descripción general de la organización SPAR y nuestro negocio. Mark seguirá con una descripción general del desempeño financiero del grupo. Luego lo guiaré a través de la actualización operativa en nuestros mercados para el período anterior a que termine con las perspectivas para el grupo. Al final tenemos una sesión de preguntas y respuestas, y puede hacer preguntas en línea o por teléfono si usa números de acceso telefónico. Cambiar diapositiva. Cambiar diapositiva de nuevo.

La pandemia mundial de COVID-19 ha afectado a todos nuestros mercados. Como empresa, hemos tomado las medidas proactivas necesarias para garantizar nuestras principales prioridades. La primera prioridad era la seguridad de nuestros empleados, nuestros minoristas, nuestros proveedores y nuestros clientes. Hemos invertido para proteger a nuestros colegas y clientes mientras trabajamos y hacemos compras. Hemos trabajado en estrecha colaboración con nuestros proveedores para gestionar la cadena de suministro y nuestros centros de distribución han trabajado incansablemente para reponer los estantes de nuestros minoristas para satisfacer las necesidades de los clientes. Continuaremos apoyando a las organizaciones sin fines de lucro e inmediatamente abordaremos las necesidades urgentes de nuestras comunidades.

Agradecemos a todos nuestros empleados, proveedores, minoristas y clientes que se han adaptado a nosotros para encontrar nuevas formas de trabajar en estos tiempos difíciles. En particular, nos gustaría agradecer a todas aquellas personas que trabajan en la línea del frente y que, a pesar del riesgo al que están expuestas, realizan sus tareas diarias. Cambiar diapositiva.

No hay nada mejor que una crisis para poner a prueba la cultura corporativa. Me sentí abrumado por la resistencia de nuestros minoristas y sus empleados, y por la determinación de nuestros empleados en los DC y en la sede. Ha habido un notable esfuerzo colectivo para hacer un cambio y adaptarse a la nueva normalidad, a pesar del desafío. Además, nuestras comunidades continuaron siendo el foco de nuestras iniciativas a nivel corporativo y los numerosos ejemplos conmovedores de cómo nuestros minoristas hacen un esfuerzo adicional para apoyar a sus comunidades. Nuestros valores realmente han salido a la luz. Somos una familia de empresarios pasivos que trabajan juntos en este proceso, impulsados ​​por nuestro objetivo de inspirar a las personas a hacer y ser más. La esencia de la marca SPAR, que es el corazón de nuestra marca, es personal y tomamos todo personalmente. Creo que esta cultura única nos coloca en una buena posición para enfrentar la crisis. Cambiar diapositiva.

Continuar con el informe anual. Cambiar diapositiva de nuevo. Recuerde, la organización global a la que pertenecemos, SPAR International. Con la pandemia global, podemos más que nunca reconocer y apreciar el valor de ser parte de una organización global. Los países SPAR que se vieron afectados por el virus mucho antes de nuestra llegada fueron abiertos y honestos con información y consejos sobre cómo podríamos prepararnos mejor para lo que está por venir. Cambiar diapositiva.

Con respecto a nuestro grupo y especialmente para los nuevos oyentes que son nuevos en el negocio, aquí hay una descripción general de nuestros mercados, siendo Polonia la última incorporación. Enfrentamos muchos desafíos en el camino. Aunque las pérdidas en la primera mitad del año fueron decepcionantes, seguimos confiando en la oportunidad polaca y trataremos a Polonia con más detalle más adelante en la presentación de hoy. Cambia la diapositiva.

Mirando el rendimiento para la primera mitad del año. Las ventas consolidadas fueron sólidas, aumentando en un 10,1% a ZAR 59.7 mil millones, con Polonia contribuyendo ZAR 1 mil millones. El beneficio operativo del Grupo disminuyó un 3,4%. Las ganancias diluidas por acción cayeron 13.4%. Sin embargo, si elimina el impacto de las pérdidas polacas, las ganancias diluidas normalizadas por acción aumentarán un 8,5%.

Dada la incertidumbre que rodea a COVID-19, el Consejo de Administración ha aprobado un dividendo provisional conservador de ZAR 2.

Voy a entregar a Mark para guiarlo a través del desempeño financiero del grupo.

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Mark Wayne Godfrey, SPAR Group Ltd – director financiero y director ejecutivo del grupo [3]

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Gracias Graham. Buen día, damas y caballeros. Antes de comenzar mis diapositivas si solo puedo hacer 2 comentarios. La primera es una disculpa para todos ustedes por la demora en obtener estos resultados. Originalmente planeamos lanzarlo hace una semana. Desafortunadamente, a pesar de nuestros mejores esfuerzos, el bloqueo global nos ha abrumado.

En segundo lugar, debido a que el tema dominante en esta presentación es en gran parte polaco, creo que es apropiado que esté de acuerdo con todos ustedes con un Dzien Dobry, y estoy seguro de que mi equipo en Polonia corregirá mi pronunciación más tarde. .

Sin embargo, si puedo cambiar a mis diapositivas, el resumen de las características clave para los seis meses finaliza el 31 de marzo. Como Graham ya ha indicado, nuestras ventas aumentaron alrededor de un 10.1% a ZAR 59.7 mil millones. El margen bruto aumentó 19% y 85 puntos básicos en porcentaje a 11.26% en comparación con 10.41% en el período anterior. Y solo tengo que señalar que el margen no fue influenciado de ninguna manera por ninguna forma de movimiento de precios. Básicamente fue una mezcla en Sudáfrica cuando nuestro negocio de licores y materiales de construcción se desaceleró. En segundo lugar, la adquisición del negocio polaco, que comercia con márgenes mucho más fuertes. El tercer elemento fue un fuerte repunte en nuestra división suiza después de un desempeño decepcionante en el margen en la primera mitad de 19. Esto es permisible, como lo ha indicado Graham, y debido a la consolidación por primera vez del negocio polaco, los márgenes operativos disminuyeron en un 3.4%. Esto también afectó nuestro rendimiento del margen operativo, que disminuyó en alrededor de 30 puntos básicos. Los ingresos principales disminuyeron un 22% ya que publicamos nuestro SENS la semana pasada y queremos desempacarlo hoy. Los ingresos generales normalizados disminuyeron. Dividendo, creo que el problema aquí no es tanto el hecho de que el dividendo ha bajado, sino el hecho de que se ha decidido un dividendo, y lo discutiré más adelante en mi presentación.

Y finalmente, el hecho de que el valor del activo neto también disminuyó alrededor de 1.6% fue irónicamente la primera vez que se aplicó la NIIF 16 porque el pasivo financiero excedió el derecho de uso y el reclamo y no hay forma de pensar en los balances de la compañía. Si podemos girar la diapositiva, por favor.

En este punto, solo pensamos que era apropiado tratar los efectos de la consolidación polaca de inmediato, pero también me tomé la libertad de tener en cuenta la revaluación de la responsabilidad financiera por el pago de minorías en Suiza en esta reconciliación, pero lo más importante En Irlanda.

Comenzando con la ganancia total reportada de ZAR 785 millones. He ajustado la revalorización del valor razonable o la valoración de los pasivos financieros y esto es realmente solo el resultado de las previsiones de beneficios que hicimos para el negocio irlandés. Esta suma también incluye algunos costos de adquisición de la compañía. Esto reduce la caída de las ganancias del 22% al 13%.

Pero como puede ver en la siguiente línea, nuestro beneficio general sin Polonia se habría normalizado si hubiéramos ajustado ficticiamente el beneficio general reportado en Polonia o la pérdida general de alrededor de ZAR 221 millones sobre ZAR mil millones en comparación con eso El año anterior, un aumento de alrededor del 8,2%. No debe confundirse con el pronóstico anterior de Graham de 8.5%. El 8,5% son las ganancias diluidas por acción. 8.2% es la suma absoluta. Si podemos pasar la página nuevamente.

Y, desafortunadamente, en estas presentaciones se convierte en un tema bastante importante tener que lidiar con todos los estándares IFRS y tratar de desempaquetarlos para que las personas realmente puedan ver una posición comparable para la compañía. Y si solo puedo guiñar un ojo. Mis presentaciones, como alguien me dijo, suenan como una cebolla. Tienes que pelar las capas para ver qué está pasando realmente.

Entonces, si comienzo con los números H1 de la izquierda, no los revisaré línea por línea. Pero lo que hemos hecho para su referencia y para que puedan resolverlo, aquellos de ustedes que están actualizando modelos, la columna para ajustar la NIIF 16 es realmente el efecto neto de adoptar la NIIF 16, la capitalización inicial de los arrendamientos en ese período. Y luego, la primera de las columnas grises que se lee de izquierda a derecha es un resultado anterior a la NIIF 16 o un resultado H1 deconstruido. Por supuesto, esto también incluye el negocio polaco, pero al menos le da una indicación de cómo fueron los movimientos y cómo se verían los números más comparables, ya que la NIIF 16 desafortunadamente tiende a empañar ciertas revelaciones, especialmente los ingresos por intereses y los gastos por intereses. Pero creo que al menos le da una indicación de cómo se ve el H1 ’20 comparable H1 ’19 sin efecto IFRS. Si volvieras a girar las diapositivas.

También lo consideramos apropiado, podemos llamarlo una tabla de nuestro cuadro de mandos, ya que presentamos el efecto de la aplicación temprana de la NIIF 16 que habíamos asumido en ese momento a fines de septiembre del año pasado. La columna más a la derecha de la diapositiva es lo que incluimos en los resultados de 2019. Y realmente, solo estamos tratando de darle una idea de cómo, no tanto, cómo exactamente o qué tan correcto, pero le damos una impresión de esta guía temprana en comparación con cómo hemos terminado. Tenemos que deconstruir o excluir a Polonia nuevamente. No incluimos a Polonia en nuestros resultados del 19 de septiembre del año pasado. Y, obviamente, esto no se consideró en nuestra guía sobre la NIIF 16 en este momento.

Por lo tanto, las cifras reales para el primer semestre del año, como se informó, no revisaré línea por línea, damas y caballeros, pero pueden ver los efectos que Polonia tiene en los elementos del balance, el derecho de uso, las cuentas por cobrar y la responsabilidad por el arrendamiento. . Y si excluimos este efecto, tenemos un número H1 realmente reportado en comparación con lo que informamos en septiembre pasado. Y como puede ver, mi equipo me pidió que pusiera una tarjeta de puntuación en el lado derecho. Creo que monitoreamos entre 97% y 98% exactamente lo que pronosticamos. Creo que habla bien por el modelado que hicimos en ese entonces. Al menos las pautas anteriores que le dimos en las previsiones del balance son en gran medida las mismas.

El estado de resultados o el estado de resultados integrales obviamente también se vio afectado, y la segunda mitad de la diapositiva solo habla realmente de ello y da pistas. En última instancia, probablemente no sea realmente apropiado comparar la primera mitad del año con las expectativas para todo el año, excepto para referirse solo a la última línea de esta tabla, en la que pronosticamos un efecto positivo de ZAR 0.04 el año pasado. Este año tuvimos un efecto negativo de menos ZAR 0.033 al final de la primera mitad del año. Creo que tenemos que ponernos al día entre ZAR 0.07 en algún lugar entre ahora y fin de año, con la excepción de Polonia, para poder hacerlo perfectamente. Pero aquí también, al menos, una idea de lo que proyectamos originalmente y cómo se tuvieron en cuenta los números. Si pudiéramos girar la diapositiva.

Ley. Si pasamos a la esencia misma de la presentación, y creo que para muchos de ustedes, la referencia al desempeño segmentario del negocio es una cuenta de pérdidas y ganancias de nivel relativamente alto, pero se desglosa geográficamente. Reportamos nuestro segmento de negocios por segmento: África del Sur, Irlanda y Suiza. Y solo en aras de la comparabilidad, ingresamos un subtotal antes de incluir y consolidar el negocio polaco. La columna verde resaltada en verde contiene los números de grupo informados. Estoy seguro de que esto le dará una impresión del rendimiento en las diferentes regiones. Sudáfrica con un margen bruto de 9.3% versus 8.9%. El negocio irlandés también mejoró su margen bruto como resultado de las adquisiciones. El negocio suizo volvió extraordinariamente fuerte después de una decepcionante primera mitad de 2019, en la que algunas iniciativas de marketing muy agresivas realmente no condujeron a actividades de volumen. Y puede parecer algo sorprendente que el negocio polaco esté operando con un margen bruto de poco menos del 24%. Pero tenga en cuenta que tienen un compromiso bastante grande con el comercio minorista corporativo, lo que eleva este número. El grupo luego se movió, como indiqué en una diapositiva anterior, a alrededor del 11.3%. Los costos operativos, que discutiremos con más detalle, ascienden a poco más de 6.500 millones de ZAR. Y luego, como dije, esto no pretende ser un estado de resultados completo, sino solo para resaltar algunas de las diferentes áreas de servicio.

La cifra polaca con ganancias antes de impuestos, algunas menos ZAR 324 millones después de impuestos debido a un ajuste de impuestos diferidos. Y luego atribuido a los accionistas ordinarios, porque en la filial polaca tenemos accionistas minoritarios, para cuya compra no tenemos acuerdos. Están destinados a ser relaciones a largo plazo. Es por eso que estamos informando accionistas minoritarios en nuestro negocio por primera vez. De ahí este ajuste a los 227,4 millones de ZAR reportados. Y en el lado derecho, eso se ajustará nuevamente a los 750 millones de ZAR.

Creo que esto solo te da una idea del rendimiento de las diferentes regiones. Las dos líneas inferiores son en realidad solo una contribución segmentaria a un resultado y un porcentaje del beneficio total, y solo como información para mostrar cómo las diferentes regiones contribuyen a nuestro desempeño general. Si pudiéramos girar la diapositiva y comenzar a entrar en algunos de los componentes, primero miraría las ventas del grupo.

Como ya ha mencionado Graham, nuestras ventas en el primer semestre de 2020 aumentaron un 10,1% a poco menos de 56 mil millones de ZAR, alrededor de 59.7 mil millones de ZAR.

Comenzando desde arriba, SPAR y TOPS, el negocio mayorista, creció 9 puntos – 9% en los 6 meses, un resultado excepcionalmente fuerte para la mitad. Aquellos de ustedes que recordarán nuestra actualización comercial de enero fueron mucho más bajos que ese número. Aunque esta actuación repuntó nuevamente en febrero, terminamos el año excepcionalmente bien. El número de alcohol se incluye en el número anterior y no por derecho propio, sino en SPAR y TOPS. El alcohol desafortunadamente creció alrededor de 3.9%. Este número podría ser decepcionante para muchos de ustedes que están acostumbrados a nuestro rendimiento de espíritu de doble dígito bajo-medio-bajo a medio. Y anteriormente informamos nuestros mínimos para obtener números de adolescentes, creo. Los efectos se basaron en gran medida en la reubicación de una serie de productos de nuestros almacenes, conocidos como líneas listas para beber. Diageo vendió parte de su negocio a SAB y descontinuó las líneas de nuestra tienda, de nuestro almacén. Así que perdimos el rendimiento mayorista pero mantuvimos el rendimiento minorista. Entonces, esa es una explicación para gran parte en comparación con el rendimiento minorista.

En segundo lugar, algunos de nuestros minoristas de licores y TOPS no hicieron pedidos de reabastecimiento antes del bloqueo porque predijeron que su negocio sería bloqueado y no era necesario reponerlo. Así que creo que es una buena planificación a través de nuestros minoristas.

Y en tercer lugar, admitimos que en el primer trimestre del año, debido a un precio mayorista y minorista muy agresivo, lamentablemente perdimos algo de lealtad al alcohol. Este es el desafío para nosotros para luchar después de la reapertura de nuestras licorerías.

Construir en un mercado extremadamente difícil y creo que realmente no sorprende a nadie y se hunde un 2,4%. Hubo un impacto en la segunda mitad de este período. Como saben, en la última semana de marzo estábamos en estado de bloqueo. Entonces, sin duda, hubo un cierto rendimiento de corte cuando los minoristas de Build it lo notaron, pero no se debió al 2.4% completo. Esto refleja más bien el mercado que Build it comercializa actualmente en Sudáfrica.

Entonces, el negocio todo en Sudáfrica más el 7,4% (sic) [7.8%]. Creo que un rendimiento muy fuerte en comparación con finales de enero.

Si luego observamos los componentes más pequeños en Sudáfrica, nuestro negocio farmacéutico creció alrededor del 10.3%. Y como se puede esperar, un fuerte repunte entrará en la fase de bloqueo en marzo. Y luego, con la nueva adquisición en Sudáfrica, SPAR Encore o, como muchos de ustedes recordarán, anunciamos la adquisición de una participación del 50% en el negocio de Monteagle Africa. La razón por la cual el número es solo de ZAR 3.3 millones no se debe a otras razones fundamentales que el hecho de que Monteagle o Encore son básicamente un proveedor exclusivo del grupo SPAR. Así que eliminamos el negocio intercompañía en el nivel Encore para hacer que el número mayorista SPAR sea comparable. Y los 3,3 millones de ZAR que informa Encore son solo ventas adicionales. Verá el efecto real de Encore en la línea de borde. África meridional volvió a crecer un 7,8%.

En moneda periférica, el negocio irlandés tuvo un fuerte rendimiento del 7,4%. Como en Suiza, la moneda tuvo un desempeño excepcional del 13.8%. Voy a entrar en eso con más detalle en la próxima diapositiva. Y luego, hasta el punto de Graham, la consolidación por primera vez del negocio polaco, que agregó casi ZAR mil millones en ingresos adicionales al grupo.

Si podemos voltear la diapositiva solo para hablar con algunos detalles, y no me molestaré en ello, excepto resaltar algunas de las características clave a nivel de grupo.

El negocio polaco contribuyó alrededor del 1,8% al crecimiento general. Sin Polonia, el rendimiento de las ventas hubiera sido del 8,3%. Y si luego le recuerdo que recurra a este número normalizado de ganancias del 8,5% sin Polonia, puede tener la sensación de que el negocio todavía está bien aprovechado.

Si bien, como mencionamos anteriormente, el sur de África creció un 7,8%, este fue un comienzo de año desafiante, pero definitivamente hubo un aumento en las compras previas al cierre. Podemos ver eso. Es un hecho. Pero hubo un desempeño muy fuerte en el segundo trimestre antes de que también pasáramos a la fase de apagón.

SPAR Irlanda en euros aumentó en un 3,2%. Otro rendimiento excepcionalmente fuerte en un mercado en gran medida plano. El negocio comparable creció alrededor de 2.6%, solo para ignorar el hecho de que solo se trataba de nuevas adquisiciones. Y veremos en el futuro que la pandemia tendrá un impacto en el negocio de efectivo y transporte y servicio de alimentos desde marzo, ya que el sector de la hospitalidad irlandesa en realidad está bloqueando, o supongo que está encerrado como todos los demás.

SPAR Suiza, 4.4% en moneda suiza. Y para aquellos de ustedes que modelaron Suiza como negativo, entre negativo 1 y negativo 2, en mi opinión, hay una impresión del cambio en este negocio en las últimas 2 semanas, si no meses, del período financiero. Definitivamente se ha beneficiado del cierre de las fronteras suizas. Y solo tengo que señalar que no retiramos nuestra posición por un segundo, que los negocios suizos no deberían verse afectados por las compras transfronterizas. El problema básico con esto es que no solo continúan enfocándose en las compras convenientes, sino que el comprador del carrito, que generalmente ha comprado a través de las fronteras, ahora también está comprando en tiendas de conveniencia. Disfrutaste esta ventaja. Además, su negocio se fortaleció con la expansión hacia el oeste a través de la cooperación con el grupo de sucursales PAM y Edelweiss. Es por eso que siempre hemos señalado que estamos buscando formas de expandir este negocio al oeste de Suiza. Eso está comenzando a rodar ahora, y también vemos los beneficios de ello.

Y luego, para un comentario rápido sobre SPAR Polonia, hemos terminado nuestras discusiones, negociaciones y comparaciones con los derechos de acceso a la licencia de SPAR en Polonia. Desafortunadamente y muy frustrante, eso solo a principios de 2020. Pero eso nos permitió integrar los primeros 157 minoristas SPAR existentes, y eso, bueno, comenzó. Comenzó hacia el final del período del informe. Pero vamos a aumentar bastante ahora que hemos abierto el tercer centro de distribución en Polonia.

Si podemos pasar a la siguiente diapositiva. Un sentido visual de la combinación de contribuciones empresariales. La pancarta izquierda, el 67% de nuestro negocio ahora es sudafricano. Por lo tanto, menos del 32% de nuestro negocio es europeo.

Y solo un desglose por región y su contribución al total. Esto significa que Polonia ya ha aumentado al 1,6% de la contribución comercial total. Y creemos que esta pequeña banda gris en el gráfico circular se volverá rápidamente más importante para la primera mitad de 2020.

Si tan solo pudiéramos hacer algunos comentarios sobre la inflación para darle una idea de cómo se ha desarrollado nuestra inflación durante este período. El negocio mayorista registró una tasa de inflación de alrededor del 4,1% en el período analizado. Vimos que esto aumentó ligeramente en la segunda mitad. Creo que a fines de enero habíamos reportado ese número alrededor de 4. Entonces eso definitivamente aumentó ligeramente. Sin embargo, este número se ha más que duplicado en comparación con el año anterior. La inflación del alcohol disminuyó en comparación con el año anterior, pero se mantuvo en este nivel de alrededor del 4%. Nuestro negocio de materiales de construcción también mantuvo su tasa de inflación entre 3.4% y 4% en comparación con los dos períodos.

Dentro de Sudáfrica, las tendencias actuales en los diversos centros de distribución después del período del informe están en un rango relativamente amplio entre 3% y 5.8%. Esperamos una probabilidad muy alta de que la inflación aumente a mediano o corto o mediano plazo. Hay una serie de controladores que creemos que afectarán esto. Y desde la perspectiva de los materiales de construcción, creen que el número también se moverá hacia arriba. Y, como puede apreciar, obviamente estamos encantados de que nuestros minoristas Build it vuelvan a funcionar, y hemos visto algunas recuperaciones impresionantes en este negocio en las últimas tres semanas cuando se reabrió.

Una vez más, una amplia gama de medidas para los europeos. Para aquellos de ustedes que pueden no estar rastreando los mercados europeos de inflación en Irlanda, la inflación de alimentos es de alrededor del 1.5%, lo que probablemente sea más relevante cuando se observa el promedio de alcohol, tabaco y alimentos entre menos 6% y 2.7% .

Suiza, casi plana. Pero aquí, también, creo que la indicación es de aproximadamente 0.5%.

Y Polonia, vemos una inflación muy fuerte en Polonia en un mercado en crecimiento. Sus previsiones para el año 3.6%. Creo dónde estamos rastreando actualmente, probablemente nuevamente en el rango de 4 percentiles, solo para darle una idea de estos mercados.

Continuar con el beneficio bruto. Y realmente solo unas pocas comparaciones en la primera mitad de 2020.

África austral, 9.1%, ligeramente superior al 8.9% (sic) [8.7%] Informamos esto en 2019. La base también ha aumentado ligeramente. Y el negocio Encore, es decir, el negocio de la etiqueta privada, que agrega un margen del 16.2% y que también hizo una contribución significativa al sur de África, del 8.9% para 2019 en su conjunto, o 8.8% para un primero comparable La mitad del año al 9,2%.

Los negocios irlandeses, como ya he indicado, también se vieron presionados por las adquisiciones y tiendas minoristas, llegando al 13,5%.

Suiza se está recuperando del desempeño bastante decepcionante en la primera mitad del año.

Y ya he comentado sobre la actuación polaca.

Creo que el siguiente comentario es solo un resumen de lo que realmente abordé. Entonces, si podemos pasar a la siguiente diapositiva, los costos operativos.

Los costos operativos aumentaron significativamente incluso sin el negocio polaco, y los costos operativos totales aumentaron alrededor del 23,2%.

Pero creo que si mira hacia abajo en el lado derecho de la diapositiva, nuestros costos operativos fueron bajos de dos dígitos en la mayoría de nuestras regiones. OpEx fue sometido a una presión considerable durante este período. Y creo que probablemente sea más relevante si solo abordamos algunos de los controladores que realmente se presentan en las diapositivas a continuación.

Entonces, si podemos mover una diapositiva hacia adelante. En el sur de África, el aumento fue de alrededor del 11,7%. La principal contribución a esta cifra fueron las tiendas corporativas recientemente adquiridas. Hacia el final del año fiscal 19, compramos un grupo bastante grande de tiendas en las regiones de Eastern Cape y KZN. Los planes para vender la mayoría de estos negocios aún están en curso. Pero mientras los tenemos, actúan de manera excepcionalmente rentable, pero sus estructuras de costos obviamente se suman a las nuestras. Y luego, algunos de los costos mayoristas más importantes que hemos visto durante ese período. Nuestros costos de TI han aumentado en un 15%. Nuestros costos de combustible aumentaron en un 9.5%. En la situación actual con la caída de los precios del combustible, naturalmente vemos algún beneficio de esto, aunque obviamente hay incertidumbres cuanto más se analiza el H2. Los costos de marketing y ventas continuaron aumentando fuertemente en torno al 12%.

En SPAR Irlanda, el costo en euros aumentó un 9%, pero hubo algunas implicaciones bastante significativas para ello. La adquisición de Heaney Meats y un grupo de tiendas minoristas en las que se expandieron en el Reino Unido contribuyó con 3.1%.

Ahora presento un comentario de las NIIF por primera vez. En vista de sus preocupaciones, los irlandeses han establecido una disposición prospectiva contra la NIIF 9 para el resto del año, proporcionando o formando alrededor de 2,6 millones de euros. Esto contribuyó 2.8% al aumento. Y luego, esta compañía está básicamente bajo una cierta presión salarial debido a las tasas salariales más altas en efecto, y eso: el aumento en los costos salariales contribuyó con 1.6%.

Entonces, cuando reconoce estos 3, los llamamos contribuyentes anormales, los costos irlandeses restantes aún están muy bien controlados y administrados por el equipo y coinciden en gran medida con el rendimiento general.

SPAR Suiza aumentó sus costos en cifras suizas en un 2,3%. Esto se debe principalmente a los mayores costos de ventas, ya que, como ya informamos, las ventas de la compañía están creciendo en dos dígitos. Hubo algunos costos operativos iniciales que fueron específicos para COVID-19. En todo nuestro grupo, nuestra empresa intenta no solo determinar con fines presupuestarios, sino también tener una idea del impacto de la pandemia en nuestras estructuras de costos. Los suizos, en particular, han identificado algunos costos iniciales y estoy seguro de que la cuantificación de la pandemia en términos de nuestras estructuras de costos al momento de la publicación de los resultados del año completo no solo estará actualizada sino que también se podrá compartir.

Y luego Polonia. Sí, el negocio polaco está haciendo pérdidas. El negocio polaco no es fundamental, y estoy seguro de que Graham lo abordará en otro comentario sobre Polonia. Básicamente, no se trata de reducir costos. Es geht darum, die bestehenden Einzelhändler einzubeziehen und im Moment eine Kostenstruktur zu haben, die bereit ist, den erwarteten Umsatzanstieg zu bewältigen, den wir erwarten, wenn wir diese SPAR-Beziehungen in Zukunft erfolgreich ausbauen.

In den bestehenden Kosten waren jedoch, wie ich nur hervorheben möchte, möglicherweise drei große Kategorien anormaler Kosten enthalten. Ich denke, als ich Buchhaltung studierte, sprachen wir immer noch über abnormale Kosten und außergewöhnliche Kosten, aber es gab zumindest einige abnormale Kosten. Die ersten beiden sind eigentlich gleich, und das sind Devisenverluste. Als erstes Unternehmen zur Übersetzung von Krediten verfügt dieses Unternehmen über auf Euro lautende Kredite. Es wird jedoch zloty berichtet. Sie waren daher gezwungen, Verluste in Höhe von 34 Mio. ZAR für die auf Euro lautenden Kredite zu erfassen. Und ähnlich, und es gibt viele Kontroversen darüber, weil sie Finanzleasing nach IFRS 16 erfasst haben und dann einen Währungsverlust von 30 Mio. ZAR auf nach IFRS 16 erfasste Leasingverhältnisse hinnehmen mussten. Sie können sich also die Angst vorstellen, die dazu geführt hat, dass sie nicht nur nicht operativ ist, sondern im Großen und Ganzen eine IFRS-Konsequenz ist. Und leider ziehe ich das besser zurück, bevor ich in heißem Wasser lande und negative sentimentale Bemerkungen zu IFRS mache.

Rechts- und Berufskosten in Höhe von rund 33 Mio. ZAR, die sich größtenteils auf sanitäre Einrichtungen und Umstrukturierungen beziehen. Daher würde ich Ihnen vorschlagen, dass ein großer Teil davon in Zukunft nicht wiederholt wird.

Und dann haben sie im Berichtszeitraum auch eine IFRS-Rückstellung in Höhe von rund 16 Mio. ZAR gebildet. Ihre gesamte Rückstellung für uneinbringliche Forderungen belief sich in diesem Zeitraum auf rund 31 Mio. ZAR. Und nur zur Orientierung: Wir gehen nicht davon aus, dass die allgemeine Bereitstellung von 15 Mio. ZAR ein Hinweis darauf ist, was Sie in diesem Geschäft für die Zukunft erwarten. Ich denke, ich würde wohler sagen, dass wir uns mit vielen Problemen befasst haben, die wir mit den bestehenden Piotr i Pawel-Franchisenehmern haben. Wir glauben, dass das, was wir vorgesehen haben, jetzt angemessen ist. Ich glaube also nicht, dass dies auch in Zukunft ein Wiederholungspunkt sein muss.

Wenn wir zur nächsten Folie übergehen können, ist dies eigentlich nur die Zusammenfassung des Cashflows der Gruppe für den Zeitraum. Dies wurde bereits in unseren Ergebnissen dargelegt. Was ich hier nur wirklich erwähnen möchte, ist, dass es zwischen H1 und H2 wirklich sehr wenig Bewegung gab. Auf der Ebene des Betriebskapitals stimmten diese Zahlen weitgehend überein. Ich denke, die größte Bewegung war bei den Verbindlichkeiten aus Lieferungen und Leistungen zu verzeichnen, wo wir nicht nur einen Anstieg der Forderungen aus Lieferungen und Leistungen verzeichneten, sondern auch einen entsprechenden Anstieg der Verbindlichkeiten aus Lieferungen und Leistungen. That was not at the end of March at the reporting date, simply the massive extension of overdue or a rare debtor funding that might be construed to have taken place possibly because of the lockdowns. We have provided funding assistance and trading terms of extended nature to a lot of our retailers, not just in South Africa, but in all our geographies. But I can assure you, it was not to that extent. This merely has to do with cutoffs of when debtor payments are made into the business. The cutoff period in this financial reporting period was a Tuesday. A lot of those debtors would have paid accounts between Tuesday and Friday. Whereas in the previous period, they would have paid because the cutoff date was the Sunday, so large impact of that.

Running through the rest of that cash flow. Just to highlight, capital expenditure, up by some ZAR 200 million, and that is largely the Polish business. I will talk to that in a slide to come.

The acquisition of business, and we’ll talk to that under the business or business combinations. But as you can see, we did spend some ZAR 300 million more on acquiring businesses. Fundamentally, that was the foodservice business, Heaney Meats, in Ireland.

Then the new cash flow item, and I guess all that we are doing here is just repositioning it, because the inflow and outflow from finance lease receivables, in layman’s terms, I guess, you would say that was the net rent that you paid and the net ZAR 562 million being the net of those 2 numbers would have been adjusted right up on the very first row, being the cash flow from operations. So I’m just doing a very quick and dirty unbundling of IFRS 16, if you don’t mind. So that ZAR 560 million, if you adjust the opening of ZAR 2.3 billion, you see ironically, it almost aligns with the previous year again.

And then down near the bottom, the very last 2 items, I just want to touch on. The first one is the ZAR 884 million, that was the first tranche installment buyout of our minority partners in Ireland. And the line below that was, by and large, the funding that was raised, the net funding that was raised to service that debt. We did actually borrow to the full extent, but there was a paydown of some other borrowings in Switzerland. Hence, the net borrowings raised is only some ZAR 680 million as opposed to roughly matching the repurchased amount.

If we can turn the slide. What we’ve set out for you just from a graphic perspective is a waterfall graph. And really what this does is it reconciles the opening bank balance to the closing and recognizes some of the component parts that I’ve already spoken to. There are some featured notes on the right-hand side. I’ve spoken to the finance leases. The dividend paid of ZAR 993 million during the course of this period, just short of ZAR 1 billion. Business acquisitions at ZAR 528 million. CapEx at just under ZAR 700 million. And I’ve touched on our minority purchases.

If we can move over the slide to — in fact, the next 2 slides, let’s deal with the first one. The first one really is the ZAR-euro exchange rate. And I’m sure that a lot of you analysts are studying this on your computers literally by day. So for purposes of illustration, really the point I’m just wishing to use the slide to illustrate is that, if you look at how the ZAR-euro tracked from October, all the way through to early February, it was almost flatlining. And then suddenly in February, as not only our junk status, in colloquial terms, was announced, but also the realization of what this pandemic was going to do to the world, you can see how our currency started weakening substantially to finish up at a closing spot on the 31st of March of roughly ZAR 19.72.

Along the bottom illustrated table, ironically, the average exchange rate is only up some ZAR 0.60. So you’re not really seeing the effect of the exchange on the income statement, but obviously on the balance sheet, it has a very material impact, because you’ve seen the currency devalue by almost ZAR 3.70 compared to where we opened on the 1st of October.

If we can turn the slide again. And the second one, just again to illustrate a similar point, and this is the ZAR/Polish zloty rate. In fact in Poland, the exchange rate between the euro and the zloty is fairly static at roughly PLN 4.30. In fact, most of the work that you see just assumes a standard PLN 4.30. But again, you see a very similar blowout of currency even between South Africa and the Polish currency over that period, tracking roughly at ZAR 3.80 to ZAR 3.90. And then beginning in early March, that number blew out substantially from ZAR 3.90 to finish all the way up at ZAR 4.32. And in fact, it was that 0.40 blowout that caused a lot of the foreign exchange issues that the Polish report, some circa 60 million that impacted their results in this period. And ironically, they feel very confident that they would expect their currency to reverse back down to similar levels in the foreseeable future, and possibly a reversal on those exchange losses incurred.

If we can turn the slide. Just a very quick summation of the earnings and headline earnings, just really giving you the detail. I don’t intend to discuss in much detail other than to illustrate the fact that at the headline earnings level, because of some of the adjustment items, the profit decline of minus 21%.

But this is really not a featured slide, so if we can turn again and talk to normalized headline earnings. And as Graham alluded, if we do adjust for the financial measurements, that minus 21% decreases to a comparable normalized headline earnings to minus 13.7%. At this slide, we have not adjusted for Poland. We are just giving you the normalized headline earnings comparison. And fundamentally, we’re doing that because this is the base that we have historically always used in determination of a dividend.

And at that point, if I can ask you to turn your slides again. What I’ve set out for you is a reconciliation or probably more aptly described as an illustration of the dividend declaration. The calculation that has been set out on this slide is exactly as we have done it historically. We’ve adjusted for the fair value items, which we’ve always given shareholders credit for. We’ve taken into account the shares ranking for dividend, and we’ve determined an adjusted headline earnings in cents. And we have maintained a consistent cover of 1.85x at our interim level, which would have suggested a consistently calculated dividend based on the covers that we’ve used historically of some ZAR 2.43.

The Board, on much deliberation and taking into account what other issuers have done more recently, taking into account the uncertainties facing this business, feel that it was only appropriate to declare a dividend to shareholders. We have adjusted that historically calculated number by some 20% roughly. And as Graham alluded to and as we announced in our SENS this morning and in the commentary that accompanied it, based on their view and taking what we believe is a very prudent and conservative view, we have declared an interim dividend of some ZAR 2.

If we can turn the slide and to start wrapping up this presentation to feature on the balance sheet components, really just giving you a sense of the assets, the liabilities of this business around the 4 geographies.

The second line, for those of you that are unfortunately trying to unravel the IFRS 16 components, you can see we have now brought on to the balance sheet some ZAR 10.9 billion worth of right-of-use assets and lease receivables. The lease receivables are recognized in those instances where we have a head lease and sublease scenario, which is very common in our business relationships with our retailers. So we recognize that not as the right-of-use asset, but rather as a lease receivable. For purposes of the illustration, we have grouped them into this — into the slide, just to give you a sense of the total quantum, some ZAR 10.9 billion.

As you can see, we have still some ZAR 6.8 billion worth of goodwill and intangibles. They were not measured or tested at this period, but we have no reason to believe that any of those assets should be further impaired.

Current assets and current liabilities, still strongly managed and long-term liabilities of some ZAR 19.4 billion. I just want to strip out of that ZAR 19.4 billion some ZAR 10.7 billion, which relates to the right-of-use assets under IFRS 16. So before anybody draws any kind of negative assumptions that we have got a massive increase in long-term liabilities on our balance sheet, please just recognize the contra between the right-of-use assets and the IFRS 16 liabilities.

And at that point, let me just move on to just covering very briefly some of our capital expenditure, the slide that follows. Just setting out in this period, we spent investing in operations some ZAR 474 million; to maintain our operations, some ZAR 217 million. Obviously, that was incurred at the time pre the pandemic. In the second half of the year, I strongly suspect we’ll be quite reined in or quite reduced against those numbers. The maintenance cost, we would obviously continue to incur. But the expansion, we will take a very cautious and obviously very prudent view on as to what we do in expansion of operations.

This slide refers to its distribution capability. But in fact, as you can see, we’ve also included the acquisition of subsidiaries. And included in that ZAR 528 million set out below, you can see the 3 major acquisitions we have made in the period. Other than Poland, which as we reported previously, really didn’t cost us much on initial acquisition: Heaney Meats, Monteagle, Encore, SPAR Encore and the retail stores in South Africa. The bulk of those retail stores were, in fact, through the Irish business in the United Kingdom.

If you would turn the slide once again, just a sense of that expansion by region. And just running down the right-hand side, just to give you a sense of how those numbers compared to what we previously guided as the budget for 2020. In South Africa, ZAR 180 million, our budget was ZAR 430 million, and I will guide that we will be substantially short of the ZAR 430 million. I don’t believe we will achieve anywhere near that kind of number, as I see CapEx being pulled back in the second half.

Ireland at ZAR 178 million against ZAR 500 million, and I strongly suspect a very similar pattern there.

Switzerland is very much sort of halfway to what they budgeted. But again, I would guide that, that number will be reduced.

And obviously, the newly acquired Polish business. Fundamentally, the Polish business are included in that ZAR 178 million. The largest component of that at this stage is a capital outlay that we made to secure the SPAR license rights in Poland by way of an arrangement settlement with the previous owners of SPAR, and that has been capitalized as an intangible asset and included under the schedule for purposes of reference.

So just by way of guidance, ZAR 707 million incurred in the first period. Our budget for the full year of some ZAR 1.3 billion, and I strongly suspect that we will undershoot that budget by at least ZAR 200 million to ZAR 300 million at this stage.

And at this stage, ladies and gentlemen, if we could turn really to the final slide of my presentation, which is really a repeat of the introductory slide. So the summary of salient features.

Just to recap, the business reported revenue of just under ZAR 60 billion. Gross margin increased to 11.26%. We will report an operating profit which decreases by 3.4% as a result of the consolidation of the Polish business. I think in the preceding slides, we’ve shown that the Polish business yet, obviously, and was expected to have a negative impact during this period. But if you do strip out the Polish business and you do consider the remaining 3 geographies, I think you would draw the conclusion that all 3 of them posted exceptionally strong performances over the period and, obviously, against the backdrop of very challenging circumstances. The next 6 months is full of uncertainty, so I’m not going to make any forward-looking statements at this stage. I’m sure Graham is going to leave us with his thoughts on that.

But before I hand back to Graham, if I can just make a very short final comment, which actually doesn’t relate to these numbers. But I would just like to acknowledge specifically the finance teams of our group who are very much part of this organization and key to us being defined as an essential service. My thanks and appreciation to you all. And may I specifically acknowledge the reporting teams in Ireland, Switzerland and in Poznan in Poland. And lastly, to my team at central office, who have managed to compile these results while practicing their very own unique version of social distancing, my thanks to you all. And at this point, I’d like to hand back to Graham.

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [4]

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Thanks, Mark. I’ll now take you through the operational review, starting with our business in Southern Africa. In South Africa, we had a — please change the slide.

In South Africa, we have had a solid first half. The volumes for our DCs were boosted by the increased buying, with section after the President declared national state of emergency on the 15th of March and then again, ahead of the lockdown on the 26th of March. Case volumes increased by 3.8%. Our business development team has been very busy with new store developments. Our priority has been to work closely with our retailers in launching stores that are relevant to the communities they serve and to drive organic growth through strategic refurbishments.

A total of 163 stores were refurbished, including 83 SPAR stores. 53 new stores were opened during the first half, including 19 new SPAR stores.

We’ve also seen good growth in both Pharmacy at SPAR and SPAR Express, that now have 124 and 57 stores, respectively.

We pride ourselves in providing leadership and guidance for our retailers in these tough times.

Turning to our retail performance. The chart on the left compares wholesale and retail turnover performance for the core food business. Wholesale turnover was up 9.7% against wholesale internally calculated food inflation of 4.1%, as mentioned by Mark.

Retail turnover was up 9.6%, displaying retailers’ continuous support of the group’s voluntary trading model.

The chart on the right breaks down the retail turnover growth between our core food business, TOPS liquor and Build it businesses as well as the retail like-for-like growth during the period.

I have separate slides for TOPS and Build it, as our food retail like-for-like sales saw growth of 7.9% in the first half. On a combined basis, SPAR and liquor retail saw growth of 9.7% and like-for-like growth of 7.8%. Change slide.

Performance has been boosted by our house brands offering. Over the years, we have worked hard to develop our supplier base in this area. And during the first half, we helped secure our supply chain by purchasing a stake in Monteagle Africa, now called Encore, giving us control of this business. The business has been rebranded Encore and was acquired for ZAR 156.2 million. The acquisition was approved, as Mark mentioned, by the Competition Commission on the 6th of March.

We are pleased to report that house brands continue to show strong growth. Turnover from total house brands increased 9.9% to ZAR 7.5 billion, representing 23.6% of core SPAR turnover, quite an achievement.

House brands include our internally generated brands, such as our home meal replacement, wholesale ingredients for in-store dailies, such as Chikka Chicken and [Smart Chip].

House brands also include small private label products, which we have resolved separately as these are the products that really compete with the proprietary brands on the shelf.

SPAR private label grew by 11.8% to ZAR 5 billion, representing 15.9% of core turnover. Turn the slide.

Turning to our liquor business. We saw a very aggressive competitive marketing activity at wholesale and retail levels in the first quarter. Look at the chart bottom left. TOPS wholesale saw a turnover growth of 3.9%, while retail turnover grew 10.6%, and Mark explained the difference earlier.

Our liquor business continues to complement our food store offering well. And our TOPS marketing team continue to delight the market with innovative, disruptive and fun advertisements, helping to establish the brand as South Africa’s responsible fun brand.

We increased our number of stores by 22 during the period, taking our total liquor stores up to 844, the largest number of branded stores across liquor retail in South Africa. Please turn the slide.

Turning to our Build it business. Rob has stepped up to take over from Wayne Hook as Managing Director of Build it in October 2019, and he’s doing a great job. The industry has been tough. However, this business continues to outperform the market. We believe the success of these stores has a lot to do with the agility of our retailers and their ability to act quickly to customer needs.

Now for quality, competitively priced material, quoted price, quick to deliver and more flexible on credits. The retailers have a yes we can approach, which speaks to the essence of our new Build it branding. The stores have been vastly improved, and the customer experience remains our key area of focus through our GUEST program. Our strategic initiatives are to drive growth at retail, improve working capital and develop the skills within these stores. Please change the slide.

Turning to our foreign business, and starting with Ireland. We continue to lead the market in the convenience space. The Irish business delivered solid euro-denominated growth of 3.2%, as mentioned by Mark, and were positively impacted by the foodservice meat specialists, Heaney Meats.

Towards the end of the opening period, COVID-19 lockdown measures put pressure on the sales performance by Dublin city-based stores, our footfall stores, our value centers and our foodservice business. The BWG Group have responded extremely well to the crisis. They’ve gone above and beyond to meet the needs of their retailers. The feedback from retailers has been very positive, and we believe this will put the business in a good stead of what lies ahead. Please change the slide.

Having led an aggressive marketing campaign which impacted the results poorly in the first half of last year, our Swiss business has delivered a strong result in the summer. Our wholesale business delivered sales growth of 1.6% (sic) [1.5%] in local currency, and we started delivering to the PAM stores in January. Mark mentioned that earlier.

While COVID has created challenges across all our markets, it has opened the door to some temporary new business in our Swiss market. The closure of borders has stopped consumers from shopping in neighboring countries, instead they are being forced to shop locally. Consumers are opting for convenience and local stores over large supermarkets, resulting in heightened footfall through our retail stores during March. Our TopCC cash & carry business, which has been struggling due to weak hospitality industry, had seen a benefit from the closure of the borders since lockdown measures were introduced during March. Change the slide.

Coming on to our Polish business. We are hoping today’s presentation will provide clarity about the very real opportunity that we see within this market. So why Poland? Obviously, our due diligence was done well before COVID-19. However, this economy is better placed than most to take — to make a comeback in the post-COVID-19 world. The Polish economy is one of the most sustainable economies within the EU and has a positive midterm outlook pre-COVID. With a population of 38 million and a grocery market value of around EUR 65 billion, it saw a GDP growth of plus 3.9% for 2019. The macroeconomic picture is positive with ongoing government fiscal stimulus, low unemployment rate and a positive consumption environment.

While it’s an extremely competitive market, we do believe there’s an opportunity for specialists and fresh convenience stores and convenience supermarkets. There’s a big penetration of private label, where we have a lot of expertise. And we have identified small independent retail chains that are looking for a home. That said, our priority is to stabilize the supply chain to the Piotr i Pawel and SPAR stores before taking on new business. Change the slide.

With that overview in mind, while that has been a challenging process, we are now making progress. Having purchased the Piotr i Pawel business on the 1st of October 2019, we have made excellent progress in the first half. We have a strong team in place with a lot of local expertise, and the leadership of Tomasz Syller and the supervision of Rob Philipson, our CEO of SPAR Switzerland.

The SPAR license was effectively transferred to the group early February 2020, allowing us to at last push ahead with our plans. Having gained access to distribution facilities of the Piotr i Pawel acquisition, we have also secured a third DC in Czeladz, near Kraków, creating an effective distribution triangulate for the onboarding of the existing Piotr i Pawel and SPAR retailers and providing a good way of distribution capability as we grow the business. We have converted 9 Piotr i Pawel stores to SPAR and EUROSPAR stores. The EUROSPAR conversion at the Blue City Mall in Warsaw was a deliberate brand statement done apart, which has done well to help revitalize the SPAR brand in Poland, from both an image and pricing point of view. The finalization of the Piotr i Pawel business rescue status has been met with an unfortunate setback due to the temporary closure of the ports in Poland due to COVID-19. The process is almost complete. However, we are waiting for court approval. Change the slide.

This slide provides a useful snapshot, a reminder of what we have purchased in Piotr i Pawel and what we have gained access to by securing the SPAR brand in Poland. As a reminder, we paid EUR 1 for the Piotr i Pawel business, agreed to settle the debt and provide the necessary working capital for the business going forward. The remaining 20% will be acquired for EUR 4 million at a future date minority — by a minority partner based in Poland. We have 3 DCs and our SPAR head office in Poznan. We have 166 SPARs and EUROSPAR retail stores that we’ve been onboarding during April. We have 53 Piotr i Pawel stores which we plan to convert to SPAR stores in due course.

The initial term loan of EUR 40 million has settled overdue head leases, overdue creditors and provide the necessary CapEx to enhance distribution facilities and the retail outlets and for bringing stock into the DCs. We estimate a second term loan, EUR 40 million, will be required to grow the business.

Change the slide.

Where do we see ourselves fitting in? As mentioned, it’s a competitive market, it’s moving quickly. The market is really well penetrated by discounters. Some large supermarkets are undergoing massive restructuring to reduce their footprint and size of stores. Where we see an opportunity for SPAR is within the supermarkets, proximity supermarkets and convenience space. By proximity supermarkets, I mean those that are typically located close to residential areas in small to large cities. In the convenience space, we see an opportunity for food-to-go, and we believe is underpenetrated.

The real emphasis is to be part of the local community, supporting those communities, and in turn being supported. There are around 13,500 independents, and herein lies the opportunity as many of them do not have a home. Change the slide.

And looking ahead, I must stress that this is roughly indicative of where we think we’re headed for this business. We expect turnover for the current year to be EUR 160 million. We’re expected to break even within 18 months, that is by the first half of 2021. However, due to the delays caused by the transfer of the license as well as challenges brought on by COVID, we now expect breakeven within 24 months, taking us to the end of 2021. Once the business has been stabilized, we expect EBIT margin of around 2% to 3% to give you some perspective. Change the slide.

And now for the outlook. Some of the impact of lockdown regulation in our various regions. In South Africa, the lockdown measures have impacted turnover in the second half, especially relating to sales of liquor, building materials, cigarettes and home meal replacement offerings. For the month of April, total sales were down 12% to 14%, bearing in mind that we lost some 25% of our business.

In Ireland, our value center Dublin-based city stores, footfall stores and foodservice business has been impacted really greatly as our rural and neighborhood stores, including EUROSPAR, have been trading strongly. For the month of April, sales were down 1% to 2% in euro terms.

As already mentioned, Switzerland’s TopCC business is benefiting from some new temporary business where the border is closed, and consumers are favoring convenience stores over supermarkets at this time. For the month of April, sales were 22% to 24% up in Swiss franc terms.

Lastly in Poland, the delay of getting the SPAR license caused a setback to the onboarding of our SPAR retailers, which should have happened in March before the COVID-19 measures were implemented. We have 14 mall-based Piotr i Pawel stores, which are seeing low levels of footfall, and the closure of courts has delayed the completion of the business rescue proceedings. For the month of April, sales were down 5% to 8% against the original forecast for the month. We will continue to monitor the situation in all our regions closely. Change slide.

Looking ahead, high levels of uncertainty are expected to remain across all our markets and trading conditions will remain challenging. Given the important role we play in food, wholesale and retail, contingency plans are essential to ensure the robustness of our supply chain, and our management are actively focused on this. There’s no doubt that the world is changing. Against the backdrop of this pandemic, our businesses will continue to adapt to changing consumer behavior.

Amidst all this uncertainty, it is not possible to estimate the full economical business impact of the pandemic. However, what we are certain of is that we will continue to be a retail destination in the community we serve, and we will secure the future of our business by supporting our retailers through these challenging times.

Thank you for listening. And now we’re happy to take questions. Kerry, over to you.

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Questions and Answers

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Kerry Becker, The SPAR Group Ltd – IR Consultant [1]

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Thank you, Graham. First question is from [Pete Mirva]. Gentlemen, I see you are piloting home shopping with SPAR CALL US!. How is the pilot going? And will you be doing the same for your Build it stores?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [2]

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We are — we’ve now got 60 stores in SPAR CALL US!. It’s 1 of 3 options we’re looking at this point in time. We have 60 stores on the SPAR CALL US! and that’s operating really well. So looking at an opportunity of online shopping, it may or may not be SPAR CALL US! on that basis.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [3]

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Second question from [Pete Mirva]. Will you introduce click-and-collect at your SPAR stores and Build it stores in the near future?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [4]

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We have already had introduced click-and-collect in a number of stores during this COVID period, and that worked really well. And likewise, on the Build it side, we’ll check out what we’re doing on that front.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [5]

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Next question from Rishay Dhanraj of Eskom Pension and Provident Fund. How does your liquor gross margin compare with your traditional gross margin?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [6]

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I think the liquor margin is slightly less than the rest of our business, but somewhere we’re 2 percentage points below the rest of our business.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [7]

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Next question from Rishay. What is the status of the lawsuits between the Giannacopoulos group and the SPAR Group?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [8]

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As we speak, they’re in court on a virtual basis. So we’re pressing ahead with the case, will be heard today and tomorrow.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [9]

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Next, another question from Rishay. Could you explain how trading took place during the various phases of trade pre-lockdown, the level 5 and level 4? And what insights you have gleamed about the consumer during this period?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [10]

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We already covered it, but just to repeat this. For the first 3 months of the year, we’re pretty flat. We picked up thereafter. Picked up nicely in February and March prior to COVID, and then we had a bumper last couple of weeks of COVID. And then as explained later, April has been good for many of our stores.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [11]

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Next question is from Daniel Isaacs at 36ONE. Can you please give some indication of what March added to SPAR Southern Africa sales ex TOPS?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [12]

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Probably something like 2%, Daniel.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [13]

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We have another question from Rishay at Eskom Pension and Provident Fund. What is the long-term profitability target for Switzerland in relation to the South African business?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [14]

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We’ve always guided — sorry, we’re laughing here because my financial director saying we should be. And he and I are having a disagreement about that. It should be going from 2% to 3%, somewhere in that region. We’d like to get to 2% first, and he’s right in that regard. We haven’t quite got there yet, but we’re approaching it quite quickly. And then I think we should be going towards 3%. There’s no reason why we shouldn’t get there.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [15]

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OKAY. The next question is from Richard Middleton at Excelsia Capital. Do you foresee any permanent changes in the food retail industry as a result of COVID-19 that this lockdown period might have exposed?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [16]

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Si. I think that online shopping will definitely come at us faster than anyone anticipated, because people certainly use that and will continue using that going forward. And most definitely, the issue of sanitation, hygiene and cleanliness will be escalated even further. I mean the share has helped focus people on the hygiene element, but COVID-19 has made a massive impact at the retail stores in terms of hygiene, cleanliness and protocols, and that most certainly will continue going forward.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [17]

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The next question is from [Matthew Mada at ASA]. Are you hedged in your foreign business as the currency changes in those businesses?

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [18]

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Kerry, I’m going to answer this one. No, we don’t. But South Africa has no financial commitments or liabilities into those foreign businesses. All of our foreign businesses are funded in local currency. So we have no intergroup debt arrangements in place between any of them. So there’s technically — before the point that’s just been highlighted in Poland, there’s been no need to hedge that debt.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [19]

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Then we have a few questions from Warren Riley at Bateleur Capital. A couple of questions. What are franchise loyalty rates doing since the end of March?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [20]

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They are increasing slightly.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [21]

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What contribution does value centers and foodservices make to Ireland turnover historically?

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [22]

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Between 20% and 25%.

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [23]

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Somewhere between 20% and 25% of their turnover.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [24]

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Are the Swiss seeing this environment as an opportunity to win customers longer term?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [25]

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Without question. I mean that’s the #1 priority. They come in our stores. We battled for years to get them, and now they’re coming in, we better impress them. And most certainly, we’re trying to do our best to do that.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [26]

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Have you seen a drop-off in sales since Swiss lockdown softened?

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [27]

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The last couple of days?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [28]

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Si. Nicht wirklich. It’s been very sporadic. I mean what’s happened since the lockdown started 8 weeks ago is that our customer counts were well down, but our purchases were well up. And because of our stores where they were located, on a median basis, in strip malls and the like, there’s no doubt attracted customers we hadn’t seen before.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [29]

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On Slide 48, Southern Africa disclosure, am I interpreting correctly that since 23% of sales off-line during April and you reported minus 13%, that core grocery business grew double digits year-on-year for the month of April?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [30]

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Si. That’s exactly right.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [31]

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Next question is from Stephen Carrott. Please, can we have some updated guidance for SPAR Ireland operating losses for FY ’20 full year?

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [32]

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That’s what the exchange rate is going to be.

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [33]

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Just — I mean it will certainly be a level lot less than double the half year, okay? April results much better, and we have now got a hand. Hopefully, we can for small retailers [push content] to the business. The — unfortunately, the perennial element for us is the retail leg. That was the leg that hurt us most in our own retail stores in Piotr i Pawel. On the wholesale side, we’re actually ahead of target in terms of the volumes.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [34]

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Next question is from Lulama at Mergence Investment Managers. How are the liquor franchisees surviving the looting in South Africa? How does that impact their ability to get back online when alcohol can be sold again?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [35]

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Well, the looting is a major concern we shared in a call with the minister yesterday, and we’re trying to get liquor opened hopefully next week. But obviously, the bigger concern is getting the supply chain going because that could hammer price lockdown, so we need to get that all done. So hopefully, they will allow us to open earlier.

As far as the looting goes, that’s a massive concern. We’ve had a number of our liquor stores looted during this period. Remains a big concern. And that’s my biggest concern about the opening is how we do it.

And on a call earlier on radio, Minister Maite comment that as opposed to what they want to do Monday, Tuesday and Wednesday in alphabetical basis, that will just be chaos. What they need to do is open for longer hours and make sure that the social distancing takes place. So we’ll see what transpires. We’ve made that comment to government as well.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [36]

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Next question is from Paul Bosman from Granate Asset Management. To what extent do you see the liquor and do-it-yourself markets becoming more competitive in South Africa and placing pressure on growth and profit prospects?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [37]

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Ich weiß es nicht. I think it’s remains — it’s been competitive and certainly, we don’t see any change going forward.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [38]

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Next question is from David Smith at Investec. Please, can you expand on your thoughts around gearing levels going forward? What level do you feel comfortable with? And how long will it take to get there?

——————————————————————————–

Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [39]

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Kerry, at this stage, I mean, obviously, as Graham has highlighted, there is certain additional funding that we need to put in place into the Polish business. We have further debt arrangements already made for the payment of the second Irish exit.

And secondly, we’ve also recognized the liability for the Swiss [business]. So with the exception of the additional circa EUR 40 million of debt that we look to inject into the Polish business, we don’t necessarily envisage much more additional debt on the balance sheet at all. Obviously, as the uncertainty starts lifting and we start getting a better look and feel of what the business comes out of this pandemic at, there might well be need for restructuring of the balance sheet.

The Board had, 6 months ago, already started discussing the possibility of some additional equity announcements or some equity decisions, but those have all been put on hold — were put on hold until we finalize the Polish transaction. So David, I don’t at this stage, envisage that the balance sheet is necessarily going to change materially. What you might have is some descriptional changes, where amounts that we previously referred to as financial liabilities now just become term borrowings. But I think from a quantum perspective, with the extent of the additional funding required for Poland, I don’t see the balance sheet structure changing much at all.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [40]

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Next question is from [Stephen Herbert of 361 Asset Management]. What has happened with the problematic South African franchisee who was not paying staff correctly?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [41]

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I answered the question earlier. The court case is actually happening as we speak. They’re in court today and tomorrow, have to get some finality of where we are. So — because we need to deal with it and move on.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [42]

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Next question from Shamil Ismail of Primaresearch. What will the impact be of the Monteagle acquisition on SPAR’s GP percentage, i.e., what is the impact of the 50% acquisition of the vertical integration? What the spend percentage of SPAR private label do they supply?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [43]

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So it will have an impact, the quantum of which I haven’t worked through at this point in time. The — and they supply probably some 60% of our private label element. Mark is just working through it. And so we’ll come back to you in terms of those.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [44]

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We have no more questions on the webcast. Are there any questions on the conference call?

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Operator [45]

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(Operator Instructions) We have a question from Paul Steegers of Bank of America.

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Paul Henri Antoine Steegers, BofA Merrill Lynch, Research Division – Head of the EMEA General Retail Research and Director [46]

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Just a question maybe for Mark on working capital. You talked about your trade payables and receivables. And then 2 obviously went up quite a lot, offsetting each other, but obviously some big numbers. What’s your outlook there for the full year, especially for those trade receivables, which have obviously gone up quite a bit in the first half as well? Just trying to get a sense of what you expect for working capital.

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [47]

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Paul, as I pointed out, the increase in trade receivables wasn’t necessarily an arrear situation or an overdue situation. It was a timing situation. Obviously, at this stage, we have provided assistance to our Build it retailers and also to our liquor TOPS retailers. The arrangements with the Build it retailers are already unwinding as they’ve reopened their businesses, and we don’t expect that to drag on all the way through September. The liquor retailers, as you can appreciate, is a little bit of an uncertainty because we can’t expect them to start repaying any accounts until such time as they at least are reopened to a point. Bear in mind that a lot of the same liquor retailers are also SPAR retailers. We have taken the view that we do expect them to at least keep servicing their liquor accounts because their cash flow has been relatively strong in the SPAR side of the business. So as much as we’ve given some assistance to the Build it retailers, we’ve also received some support from our Build it suppliers who were prepared to extend and delay their corresponding payment arrangements. I guess the long answer to a short question is that, if by the end of September we are at level 1 and trading normally, they well, I don’t doubt be certain of our retailers that have struggled through this, some of them being more significantly impacted by others. At this stage, I’m not able to quantify what percentage and what that will translate to in working capital. As you can well imagine, we are managing our cash flows on literally a day-to-day basis at the moment, very closely, tracking it against our own projections. I suspect you could probably model a slight worsening of receivables from a day’s perspective as we have to support some of those retailers a little longer than the normal terms. And I don’t doubt you will see a similar situation playing out in the European business as well. By the same token, I’m sure that we will also be talking to suppliers, but I’m not just expecting them to fund all of that extension because no doubt they are going to be under their own unique cash flow crisis as well.

And then from a stock perspective, at the moment, we have seen an increase in some of the strategic stock lines as we bought in against certain commodities that are critical to us. I’m sure that will also start reversing over time as we also start bringing back into our warehouses, those stocks of categories that have been closed out. So I think the stock level is something that at the moment is going through quite a lot of volatility from an investment perspective, a total content perspective. It’s going to take some months to normalize that. And I think it’s going to take probably the next 6 to 8 months to normalize the working capital of the group, assuming that we move out of these various states of lockdown.

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Paul Henri Antoine Steegers, BofA Merrill Lynch, Research Division – Head of the EMEA General Retail Research and Director [48]

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That’s helpful. And maybe I can just follow up on the dividend. Obviously, a lot of uncertainty out there, but you guys did pay an interim dividend, which I credit even though you took a haircut under your old payout formulas. But as you look forward now, second half is tough, obviously lots of uncertainty. You’ve obviously got your internal budgets. But I mean, do you think then, given what you know now, if that sort of continues to get a bit better, would you still be looking to pay a final dividend as well? Or just trying to get a sense of how you’re thinking about the dividend for the full year.

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [49]

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Si. Most certainly. I mean there’s no doubt that it continues along this basis. We’ve been really fortunate, as I said in my introduction, that we’ve been open this period for the bulk of our business. So that’s helped, and that — although we were conservative with the dividend, that’s why we paid us. And we think going forward, hopefully, we’ll be in the same position to do the same at the end of the year.

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Operator [50]

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Our next question is from Nick Webster of HSBC.

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Nick Webster, HSBC, Research Division – Head of Equity Research, SA and Analyst [51]

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Two questions, if I may. Firstly, on the growth expectations from a revenue perspective in Poland are quite aggressive even as we move out into 2022, ’23, sort of well into double digits. I’m just trying to get a sense of what will be driving that. Is that just sort of purely volume market share? You alluded to sort of bunch of independents out there. Does that include any thoughts around acquisitions? So just some thoughts around that level of growth in Poland.

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [52]

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No. It’s more the element of driving the SPAR brand, which has been really decimated in the last few years by the previous owner of the license. So those retailers are hungry for growth. The conversion of Piotr i Pawel onto the SPAR platform will help matters. And then most certainly, as I’ve said, we’ve had approaches by various independents and chains wanting to join us, and we’re saying, «Look, hold on a second, let us get ourselves bedded down and we’ll move from there.»

And just the second question. On the South Africa sort of core GP margin, you talked about sort of benefits, I guess, from mix in the lower liquor and Build it and also the inclusion of Encore. Outside of those mix impacts, was there any improvement? Or what are the underlying SA GP margin look like?

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [53]

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No. To that extent, the underlying SA GP margins, the dry grocery margin has been under pressure for some time because of the literal competition of the market. And in fact, we saw a sideways move in dry margins. The perishable margins in South Africa have maintained a fairly constant level. So the bottom line is the South African category and overall margins have been fairly stable, albeit slightly downward, and it’s not for any need of trying to push those up. So if anything, it’s structural as opposed to strategic.

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Operator [54]

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We have no further questions on the conference call.

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [55]

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Sorry. At this stage, can I make a statement? Hello?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [56]

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Si.

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [57]

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Sorry. Can I? Graham alluded that I was just having a calculated look at the question that was asked by Ismail relating to the impact on the gross margins that the Encore Monteagle business could have on South Africa. Ismail, what I can tell you at a very, very high level, based on the first 6 months, if we had owned Monteagle from the 1st of October, which was the original intention but it was frustrated by us having to wait for approval for the transaction, but had we owned it for the full 6 months, I estimate that the South African gross margin could have actually been affected by as much as 100 basis points.

So if I can — 1%. Si. So if that answers your question, thank you.

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Operator [58]

——————————————————————————–

Kerry, do we have any other questions from the webcast?

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Kerry Becker, The SPAR Group Ltd – IR Consultant [59]

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Irene, yes, we do have a few more questions. So we have a question from Ulyana Lenvalskaya from UBS. How should we think about expansion plans beyond FY ’20, i.e., some normalized CapEx for the next 5 years? Given we are in end May now, would it be fair to say that April was a real trough in terms of sales?

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [60]

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As far as CapEx for the next 5 years, I’m struggling to get my head around the next 5 months are out of beat, but I would largely guide that our CapEx has always been very tightly controlled at a group level, excluding Poland, of some circa ZAR 1 billion to ZAR 1.2 billion. I don’t see that changing in the future. That said, we’re not too sure what the business is going to look like in the future. I mean I think that there’s going to be a number of changes in the business, and there’s going to be a number of structural changes in the way we operate. So I would caution about trying to make projections that far into the future about CapEx.

The second part of that question, if you could just repeat, Kerry, related to April performance?

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Kerry Becker, The SPAR Group Ltd – IR Consultant [61]

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Or was a real trough in terms of sales given where we are now.

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [62]

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Si. Look, I think that the April figures that Graham highlighted were literally the extent of how we are trading at the moment. And I suspect that, that is going to be the kind of trend that we see over the next couple of weeks and months until such time as globally we move to level 1.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [63]

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And then the last question is from [Pineland Pale at Absa]. Just confirming, did you say liquor margins are 2 points lower than SPAR store margins? So just some clarity on the liquor margins, please.

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [64]

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Si. SPAR store. Sorry, the 2% relates to the wholesale margin of liquor. The original question was what was the liquor margin at wholesale, and the liquor at wholesale trades at 2% to the SPAR reported wholesale margin. At a retail level, Graham is quite happy to answer that leg of the question.

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [65]

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Si. That likewise, that’s 2% less at a retail level. The margin sitting in top is the margin sitting at SPAR.

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Kerry Becker, The SPAR Group Ltd – IR Consultant [66]

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We have no further questions on the webcast.

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Operator [67]

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We also have no further questions from the conference call. Would you like to make any closing comments?

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Graham Owen O’Connor, The SPAR Group Ltd – Group CEO & Executive Director [68]

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Just to everybody, thank you very much for joining us on the webcast. We appreciate the questions that you asked and the interest in our results. Just a message to all of you, please stay safe. And thank you very much from my side to all our people. They’ve been epically remarkable through these really tough times. And we’ll get through it, and let’s make sure we move through that positively. Thank you very much.

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Mark Wayne Godfrey, The SPAR Group Ltd – Group Financial Director & Executive Director [69]

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Thank you, ladies and gentlemen.

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Operator [70]

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Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

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