Spar is expecting a big drop in profit amidst major tech issues in KwaZulu-Natal.
The group said that it expects to report an operating profit of between R1.6 billion and R2.0 billion (2022: R3.4 billion) for the year ended 30 September 2023 and lower earnings per share.
The group’s earnings per share are expected to drop from -27% to -86% to 288.4 cents to 156.5 cents (FY22: 1,118.2).
Headline earnings per share are also expected to drop between -43% and -53% to 154.5 to 268.4 cents (FY22: 1,118.2)
The group previously noted that the issues impacting profitability in the first of the 2023 financial year continued into the second half.
Amidst the challenges, the group also said that it is in the process of selling its interests in Poland.
Major issues impacted earnings for the year ended 30 September 2023, a large portion of which, roughly R1.4 billion, hurt operating profit and is considered non-recurring.
The failed launch of Spar’s new ERP IT system (SAP) at the KZN distribution centre severely hurt the KZN trading performance, causing an estimated loss of R1,6 billion in group turnover – increasing the R1.42 billion estimated turnover loss that the group warned of in September.
The estimated loss of profits in KZN totalled R720 million for the period due to the SAP implementation issues.
“As a result of the change in approach towards the SAP implementation roll out for the foreign regions, a write-off of R94 million in respect of the SAP ‘asset under construction’ has been recognised,” Spar said.
“The group also made further impairments of business assets amounting to R120 million as a result of the change in operational strategy towards onsite meat processing in the Irish business.”
“The evaluation of SPAR Poland, following the Board’s decision to engage in a process to sell the group’s interests, gave rise to impairments of associated goodwill and assets amounting to R440 million.”
In addition, the lower-than-expected turnover growth was exacerbated by significant inflationary cost increases across all the group regions.
There was also a massive increase of R433 million in net finance costs over the period due to the far higher interest rates across the markets.