Relief rally after Spar opts to quit costly Polish venture

Spar’s share price rallied on Thursday after the group said it will pull the plug on its unprofitable investment in Poland.

The stock ended the trading session 11.25% higher at R113.03, its biggest one-day gain since November 2020.

But the share price is still down almost a fifth over the past 12 months as it grapples with governance, accounting and franchise issues that weigh on its reputation.

The mainly wholesale Polish business the fate of which has hung in the balance since chair Mike Bosman pledged to give investors an update by the end of September has 0.2% of the retail market in the Eastern European country.

All options were considered, including making further acquisitions to scale the business and funding a possible issuing of shares or partnering with private equity firms.

LOSSES

Spar, which hired a European consultancy to assess the prospects of the business, also looked at continuing as is, which would mean funding losses.

“The board has worked through this in quite a lot of detail and arrived at the decision to dispose of those assets,” said Bosman.

Spar will go on funding the business for the next six months as it explores ways to exit. “We’re not going to go crazy here and dispose of this in an urgent or uncontrollable fashion.”

CFO Mark Godfrey said that the business is unlikely to be sold at a profit once debt is taken into account. Spar has at least R1.3bn in debt linked to its Polish business that is guaranteed in SA.

If it can sell the Polish division rather than close it, possible buyers include private equity funds that it had already met with when exploring options to save the business.

Bosman said “an exceptionally valuable part of that business is our Spar licence”.

In 2019, under former chair Graeme O’Connor, Spar bought 80% of ailing Polish retailer and wholesaler Piotr i Pawel, which ran 77 delicatessens and supermarkets, for €1. The unprofitable business was restructured with stores rebranded as Spar stores.

In exchange for the nominal purchase figure, Spar had to invest €80m (R1.5bn) to stabilise

and run the Piotr i Pawel business, buy a distribution centre and pay creditors and landlords that were owed money.

It was initially expected to break even by 2021, but soon after the business was bought the pandemic hit, upsetting the plans and leaving managers trying to direct it from SA.

WRITEDOWN

Spar is the latest SA businesses to find the going tough abroad. Woolworths lost more than R14bn in clothing retailer David Jones in Australia, which it sold earlier in 2023. Brait bought 90% of UK fashion retailer New Look for R14.2bn in May 2015 and was forced to write down the full value of its investment.

Spar also said it lost R1.4bn in sales in the 11 months to endAugust due to its troubles with its

SAP software rollout that left stores in its biggest region, KwaZulu-Natal, unable to order food and liquor from it.

Spar said the SAP system is working now. Orders are not at levels they were with the prior system but were improving.

Spar’s chief IT officer, Mark Huxtable, quit earlier in September.

The group also issued a trading statement showing 5.9% sales growth in the 11 months to end-August. In SA, sales rose 8.1%, below its price inflation of 10.1%, showing it is selling slightly lower volumes of food.

In Ireland and southwest England, where it owns retail stores and a wholesale business and sells to the catering industry, its turnover rose a healthy 8.5% in euro currency terms.