South Africa’s SPAR withholds dividend to preserve cash after IT hit

By Nqobile Dludla

JOHANNESBURG (Reuters) -South African grocery retailer and wholesaler SPAR said on Thursday it would withhold a final dividend to save cash after a costly IT system failure, impairments, inflationary cost rises, lower-than-expected turnover growth and losses in Poland.

SPAR blamed its failure to successfully implement a resource planning system at its KwaZulu-Natal (KZN) distribution centre for a 47% drop in annual operating profit. This had led to 1.6 billion rand ($84.7 million) in lost turnover and 720 million rand in lost profit, it said.

The group said that while the worst of the impact of the IT problems were over, it would not yet roll the system out to other parts of South Africa.

The new system went live at the centre in February, but the transition resulted in various “go-live and integration issues”, impacting distribution operations in the province, SPAR said.

The distribution centre resumed servicing all stores in the region as of August and retailer loyalty has bounced back to previous levels, SPAR’s new CEO Angelo Swartz told investors.

While the system “is stable and performing consistently” at the KZN centre, its roll-out has been delayed in other Southern African regions “until management is satisfied with the optimisation of the system”, SPAR said.

The IT problems were part of the main reasons why operating profit for the year ended Sept.30 fell to 1.8 billion rand from 3.4 billion rand in 2022.

Swartz told Reuters that under plans to improve performance, SPAR was targeting an earnings before interest and tax (EBIT) margin of 3% by its 2025 financial year for the South Africa business, aided by cost cutting and as KZN bounces back.

Operating margin for the Southern Africa business for the period was 1.3% as the unit grappled with persistent high inflationary price increases, high commodity input prices and supply chain challenges.

($1 = 18.8899 rand)

(Reporting by Nqobile Dludla; Editing by Kim Coghill, Rashmi Aich and Alexander Smith)