Chief executive officer’s report – Graham O’Connor

King IV^TM disclosure and reference index for the 2019 SPAR integrated report

The table below provides a brief summary of SPAR’s application of the King IV™ principles, with references to where these are addressed in the integrated report.

Principle	Arrangements, achievements, measurements and future focus areas	Examples and references in the integrated report
1 The governing body should lead ethically and effectively	The board endeavours to meet the highest ethical standards of business practice and acknowledges that ethics are the foundation of, and reason for, corporate governance. The board is responsible for ensuring that management actively cultivates a culture of ethical conduct and establishes the values we must uphold. We value independent judgement and require that each board member prepare, participate and contribute at each meeting, in addition to informal discussions and interaction with the Chairman related to the SPAR business. The board meets formally four times year. To further improve non-executive directors’ understanding of the company’s operating divisions, a board meeting is held at least once a year at a distribution centre.	Our governance system Nomination Committee report
2 The governing body should govern the ethics of SPAR in a way that supports the establishment of an ethical culture	SPAR’s culture is informed by its values of passion, family values and entrepreneurship, in combination with the SPAR Code of Ethics. The board sets a leadership example through its adherence to the relevant guidelines, regulations and benchmarks for good corporate governance and ethics. This includes adherence to the Universal Declaration of Human Rights and the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work. The Social and Ethics Committee, which functions independently of the board, oversees SPAR’s actions and promotes a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public. The committee is responsible for monitoring and making recommendations in relation to the following: Social and economic development, including compliance with the United Nations Global Compact, the Organisation for Economic Co-operation and Development (OECD) recommendations on corruption, the Employment Equity Act and Broad-based Black Economic Empowerment Act. Good corporate citizenship, including the promotion of equality, prevention of unfair discrimination, reduction of corruption, contribution to community development, sponsorship, donations and charitable giving, environmental risks, health and public safety as well as reputational risks and other related risks. Consumer relationships, including advertising, public relations and compliance with Consumer Protection laws. Labour and employment, including employment relationships and contributions towards the educational development of employees. This also includes compliance with standards such as the International Labour Organisation Protocol on decent work and working conditions. Ethics management, including recognising the importance of all stakeholders while minimising the negative impacts and maximising the positive impacts of SPAR on the communities within which it operates. The committee exercises oversight by reviewing the programme to monitor compliance with the SPAR Code of Ethics annually. Employee recruitment, on-boarding and training interventions contain elements that relate to expected behaviours aligned to SPAR’s values and culture. An ethics survey was conducted by the Ethics Institute of South Africa (EthicsSA) during the 2015 financial year. Consequently, an action plan to address the shortcomings identified was discussed, and a relaunch of the Code of Ethics and Whistleblowing hotline took place in 2017. The independent whistleblowing hotline provides a mechanism for stakeholders to report any ethics breaches. These are reported to the Social and Ethics Committee and appropriate action is taken. SPAR has a customer care and complaints line with all complaints being reported to the Company Secretary, who directs these to the relevant distribution centres from where these are relayed to retailers. The distribution centres take ownership of complaints and are responsible for communication with the relevant manager of store in question to address any issues. The regional and national guild committees have the power to rescind retail membership if any ethics breaches take place. The board reviewed and approved the Group Fraud and Corruption Prevention Policy during 2016. This policy acts as a guide to ensure all instances of fraud or corruption are managed in a fair and uniform manner. The policy further assists us in creating a climate for the prevention and detection of fraud, theft, corruption or associated internal irregularity.	We are a family of entrepreneurs driven by passion Fact sheet: The SPAR Guilds Chairman’s report Our strategy and business model Our governance system Social and Ethics Committee report
3 The governing body should ensure that SPAR is and is seen to be a responsible corporate citizen	SPAR’s vision positions the group as a responsible corporate citizen: to be the first-choice brand in the communities we serve. A strong community focus is supported by the SPAR values of demonstrating passion, living our family values and encouraging entrepreneurship in our leadership as well as through our relationships. Where we are able to create authentic shared value, as per our sustainability pledge, we build our reputation as a good corporate citizen and strengthen the material relationships that enable value creation. Our supermarket strategy’s outcomes all consider our internal and external interactions with stakeholders and the environment to support our commitment to being a responsible corporate citizen. Our sustainability pledge aims to create authentic shared value through the following outcomes: Contribution to societal change Contribution to responsible living Opportunity creation Resources stewardship The report contains extensive context and commentary on SPAR’s material relationships, including interfaces with SPAR International and the guilds. SPAR’s voluntary trading model is furthermore based on relationships of trust and co-operation between SPAR and our retailers, to mutual benefit. For the voluntary trading model to operate effectively, all parties have to display responsible corporate citizenship. Corporate citizenship is one of the elements monitored by the Social and Ethics Committee and is based on SPAR’s stakeholder-inclusive approach. The committee approves and monitors corporate social development spend and impact, for example in the case of the emerging farmer programme. It also tracks progress with SPAR’s BBBEE rating.	Introducing SPAR We are a family of entrepreneurs driven by passion Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Our material relationships Our strategy and business model Focus on South Africa Focus on Ireland Focus on Switzerland Our governance system Social and Ethics Committee report
4 The governing body should appreciate that SPAR’s core purpose, risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process	The board recognises that SPAR creates value on a global scale through the voluntary trading model. It creates significant value for our independent retailers, who benefit from the economies of scale gained by our buying efficiencies, and the cost savings through operational efficiency and a wide scope of products offered and distributed through our distribution centres. Our material relationships provide input into our business activities and help us mitigate the risks, including waste and resource depletion, associated with a distribution and wholesale business. The board provides overall guidance and direction for the development and annual review of the strategy, which articulates the key imperatives and enablers required to deliver on the group’s outcomes. Progress with the implementation of the strategy is measured according to financial and non-financial indicators, combined with an enterprise risk management programme which considers SPAR’s entire value chain. The board formally considered the going concern assertion of SPAR and is of the opinion that it is appropriate for the forthcoming financial year.	Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Chairman’s report Our strategy and business model Our profile in South Africa Our governance system
5 The governing body should ensure that reports issued by SPAR enable stakeholders to make informed assessments of SPAR’s performance, and its short, medium and long-term prospects.	The board takes responsibility for SPAR’s financial and integrated reporting, supported by internal and external assurance mechanisms. SPAR’s integrated annual reports aim to provide our readers with a broad understanding of the group’s past performance in the context of the external environment, demonstrated through a wide range of activities, interactions and relationships. This should enable readers to gauge the prospects and future trajectory of SPAR’s value creation abilities. Our commitment to reporting according to the <IR> Framework means that we only report on what is material for SPAR to be able to create value over the short, medium and long term this is structured according to our material relationships. Our full reporting suite and archives are available on the SPAR website.	Our reporting approach
6 The governing body should serve as the focal point and custodian of corporate governance at SPAR	The board works according to an annual board plan which ensures a structured and formal approach to governance. There are at least four formal board meetings per annum and board members are provided with ample context, reports and indicators to be able to ensure that the group acts ethically, performs according to expectations, maintains the necessary controls and is being perceived as a responsible corporate citizen. Board meeting attendance is high and additional conversations between board members are encouraged for updates or when pertinent decisions require more deliberation. The board is satisfied that it has fulfilled its responsibilities according to its charter for the year. The board intends to improve the detail understanding of corporate governance structures per country where SPAR is invested and will ensure that more detail from these operations are available in the board packs.	Our governance system
7 The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively	SPAR’s core governance structure includes the board and its committees; however, the wider governance ecosystem also encompasses the guild structures and external assurance providers, who all assist the board in discharging its governance role and responsibilities. The board member profiles in the integrated report summarise the demographics, qualifications, capacity, status and memberships of each board member and indicate their respective tenures. The nomination committee amended the company’s gender diversity policy to include a policy on race diversity and renamed it the board diversity policy. The voluntary targets in terms of this policy are a minimum of three black people and two females. An internally facilitated independence assessment is conducted annually by the Nomination Committee for each non-executive director who has served on the board beyond nine years. An externally facilitated, independent assessment is conducted every three years. The SPAR policy for board appointments is implemented by the Nominations Committee, who ensures that there is an appropriate balance of diversity, skills and experience within the board’s ranks to fulfil its mandate and covers both financial and sustainability roles and responsibilities.	Chairman’s report Leadership teams Our governance system Nomination Committee report
8 The governing body should ensure that its arrangements for delegation with its own structures promote independent judgment, and assist with balance of power and the effective discharge of its duties	The board delegates specific roles and responsibilities to the Chief Executive Officer (CEO) and the board committees. Each committee has terms of reference that is reviewed annually. In addition to the four committees, there are three Executive Committees according to the three main geographies, each with very specific functions and responsibilities. Diverse backgrounds and cross-membership between committees, including guild memberships, ensure that there is appropriate balance in judgement and influence. The committee reports contain details of membership, responsibilities, advisors, attendance and key areas of focus.	Our governance system Nomination Committee report
9 The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness	The board and its committees conduct an annual self-evaluation process to measure its respective performances and the chair of the board and committees present to the board the results of those self-assessments. Evaluation criteria include the effectiveness of the board’s composition, governance processes and procedures; the effectiveness of the board’s committees in discharging their respective mandates; the effectiveness of the executive directors; and the effectiveness and contributions of each of the directors.	Our governance system Nomination Committee report
10 The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities	The SPAR governance bodies are all governed by a delegation of authority framework, which is reviewed annually and sets out the matters reserved for determination by shareholders, the board, and those matters delegated to management and the Executive Committees. The board is satisfied that the delegation of authority framework contributes to role clarity and the effective exercise of authority and responsibilities. The CEO is accountable to the board for the daily management of the company and co-ordinates the implementation of board policy and strategy through the Executive Committees. The CEO’s responsibilities include, among other things, ensuring that the company conducts its affairs within the rule of law and abides by the company’s Code of Ethics, and keeping the board informed of all its major business proposals and developments by way of specific reports, within limits set by the board. The CEO’s notice period is three months and his performance is measured as per the remuneration policy. The board approved the appointment of SPAR’s CEO as the chairman of SPAR International. Succession planning is an ongoing focus area and will become important in medium-term as a number of senior management members will be reaching retirement age. SPAR’s Company Secretary is a suitably qualified and experienced employee who is able to provide the board with the requisite support for its efficient functioning and discharge of its duties. She contracts with the necessary service providers to provide specialist input or guidance on board matters, including, for example, PwC, EOH Legal Services, the Chartered Secretaries South Africa, Garlicke & Bousfield, The Ethics Institute the Institute of Directors Southern Africa, the Ethics Institute and the company’s JSE sponsors. We believe these arrangements are effective and appropriate for the efficient functioning of the board.	Our governance system Nomination Committee report
11 The governing body should govern risk in a way that supports SPAR in setting and achieving its strategic objectives	SPAR operates according to a voluntary trading model, which creates unique challenges for effective control as retailers have the freedom to operate independently under the SPAR brand. Our primary area of control extends to operations at the distribution centres, including delivery, with more limited control in the retail environment. SPAR’s retail operations team, in co-operation with the guilds, provides the necessary structures to facilitate the most appropriate risk mitigation, and financial and reputational controls for retail. In terms of distribution centres, subsidiaries and central office functions, the board relies on a range of internal and external assurance mechanisms in combination with formal policies and frameworks. External mechanisms include, for example, the auditors, sponsors and verification agencies, while internal audit and management reviews provide internal control. SPAR’s risk management ability is integral to the achievement of strategic objectives. The integrated report includes detail reporting on these risks – showing the risk ranking, mitigation actions and a link to the relevant strategic imperative. We also identify the most strategic risks per material relationship. Risk is governed and managed through the Risk Committee. The committee oversees the company’s risk management, IT and compliance processes to ensure that management identifies potential risks in these areas which may affect the company or its operations. It implements effective policies and plans to mitigate any risks, enhance the company’s ability to achieve its strategic objectives, and support the company in being ethical and a good corporate citizen.	Risk Committee report
12 The governing body should govern technology and information in a way that supports SPAR in setting and achieving its strategic objectives	Technology and information at SPAR is governed through the Risk Committee mandate, which ensures that information technology (IT) is managed as an integral and strategic part of the business. The IT strategy supports and enables the business strategy and delivers value through cost and resource management, risk management and regulatory compliance. IT serves all aspects, components and processes of SPAR in South Africa, with limited integration with the international entities. The South African IT team creates synergies between the group operations where possible and provides the teams in Ireland and Switzerland with guidance and support to ensure acceptable governance measures are in place. IT is therefore leveraged to create opportunities and to gain a competitive advantage. The board is cognisant that, as much as IT is a strategic asset within the group, it also presents the organisation with significant risks. IT is represented on the SPAR Executive Committee. This generates continuous information management dialogue, aligned to the short, medium and long-term business requirements. Demands placed on IT resources are expected to exceed the capacity of these resources for the foreseeable future. It is therefore crucial that the limited resources available are put to optimal use. To this end proposed projects will be selected and ranked by the Executive Committee according to their value to SPAR. Application maintenance is limited to necessary fixes and selected change requests for which a convincing business case exists. All projects have an owner outside the IT department, responsible for the overall project management, acceptance by the business and implementation. IT work is divided in major projects, minor projects and maintenance. Each type is dealt with differently. Major projects take more than six months to deliver, and include, for example, the SAP implementation. Major projects follow the following steps: Initiation by a user, supported by the functional executive responsible for the relevant area of business. Investigation by initiator, functional executive, business analyst and systems manager. Development of a business case by functional executive, business analyst and systems manager. Presentation to Executive Committee for approval, ranking and budget. Delivery. Implementation pre- and post-reviews with all parties concerned. Minor projects typically take less than six months to deliver. These projects follow the same steps as major projects with the exception that approval and ranking take place by the IT management team together with the functional executive. IT risks were reviewed during the year with software quality emerging as the most significant risk. Cybercrime was rated fairly low due to the systems in place to mitigate this risk. South Africa is quickly following in the footsteps of first world countries by introducing legislation governing corporate behaviour. Some of the acts that have a direct effect on IT are: The Electronic Communications and Transactions Act The Promotion of Access to Information Act The Regulation of Interception of Communications and provision of communications related information Act Payment card industry data security standard Protection of personal information act Consumer Protection Act Non-compliance with this legislation exposes SPAR to unnecessary risk. It is the specific responsibility of the Group Systems Audit & Security manager to keep abreast of legislative developments by subscribing to a suitable legal service. Any significant IT investments form part of the budget process and are submitted to the board for final approval. The board subsequently oversees the return on investment from these projects. Annual internal and external IT audits are based on the COBIT IT governance framework. Based on these audits and feedback from the Audit and Risk Committees, the board is satisfied that the SPAR Group has adequate resilience arrangements in place for disaster recovery. IT effectiveness is monitored mainly through independent audits, user surveys, uptime and support statistics and user meetings with retailers. The SAP transition to the Enterprise Management generation software based on the HANA database architecture was completed with SPAR being the 6th installation worldwide to achieve this. The second phase of the SAP programme is well underway. This phase completes the finance area with the introduction of accounts payable and accounts receivable. Roll-out of this phase will start in 2019. Preparation for the third and last phase has started. This phase will cover merchandising, replenishment and logistics. Significant investment is also being made in advanced firewall technology to keep abreast with developments in the cybercrime area.	Risk Committee report
13 The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports SPAR being ethical and a good corporate citizen	One Capital is SPAR’s Sponsor and advises the board, through the Company Secretary on compliance with the JSE Listings Requirements. We subscribe to LexisNexis’s online legal library and engaged with LexisNexis to provide their Lexis Assure programme, which is a notification service that informs SPAR of any regulation changes and allows SPAR to view all the relevant Acts pertaining to its business, as well as the level of associated compliance risk for each Act. SPAR has had no regulatory penalties, sanctions or fines and had not had any inspections by environmental regulators. SPAR adheres to the Code of Commercial conduct of the Industry Association for Responsible Alcohol Use and is a co-signatory to industry and government bodies on issues relating to fishery improvements. We are aligning our seafood procurement to be within the parameters of the World Wide Fund for Nature (WWF) South African Sustainable Seafood Initiative (SASSI) guidelines on how seafood should be caught and sold. SPAR’s commitment to food safety and nutrition provides consumers with quality assurance and aims to promote healthy living. We deliver on our promise to provide consumers with high-quality, traceable product through strict adherence to product and packaging specifications. This includes providing information on sourcing and ingredients. To ensure our products meet the highest health and safety standards, we contract with an external laboratory that conducts random monthly testing across our entire product range. South African retailers rely on SPAR’s supplier management and audits to ensure food safety compliance for the products provided by the distribution centres. Where retailers elect to source their own products from smaller suppliers, they take responsibility for food safety. Since this poses a risk to SPAR and retailers alike, we work with retailers and hold them accountable to ensure that the appropriate controls are in place and documented. We also assist small suppliers to improve and align with programmes such as GFSI. An additional food safety control takes the form of quarterly inspections of all stores by a SPAR service provider. The operations in Ireland and Switzerland rely, to a larger extent, on government inspectors who enforce food safety regulations, enhanced by an internal SPAR audit programme. In terms of future reporting, SPAR is considering establishing a mechanism to alert the board of all fines. This would enable the board to monitor and track trends and potential impact.	Risk Committee report
14 The governing body should ensure that SPAR remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term	SPAR’s employees are pivotal in meeting our strategic objectives. The board is committed to paying fair, competitive and market-related remuneration to ensure that SPAR is able to attract, retain and motivate top-quality and talented employees. Shareholders voted in favour of the remuneration policy and implementation report at the AGM in February 2019. The remuneration report contains detail on SPAR’s approach to remuneration, policy and implementation.	Remuneration report
15 The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of SPAR’s external reports	The board relies on internal and external assurance providers for effective control. Financial information contained in the 2019 integrated report was independently audited by PwC and external assurance was sought on non-financial data. This includes the group’s 2019 BBBEE verification, which was evaluated independently by AQRate. The SPAR Group board applied its collective mind to the contents of the integrated report and is satisfied that it provides a fair account of the business’s performance, risks, opportunities and prospects. An integrated assurance framework is still in development.	Our reporting approach Audit Committee report
16 In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time	The board takes SPAR’s responsibility as a corporate citizen seriously, which means that we continuously evaluate the group’s impact on stakeholders and the environment. The Social and Ethics Committee is mandated to provide guidance on and oversight of SPAR’s activities regarding the environment, consumers, employees, communities and other stakeholders, and to monitor the company’s sustainability and governance performance in this regard. The committee also ensures that these activities take place in a compliant and ethical manner that contributes to the welfare of the business and our stakeholders. To further expand on the group’s legitimacy, the SPAR guilds also have Social and Ethics Committees. Our sustainability pledge is to create authentic shared value through the following outcomes: contribution to societal change; contribution to responsible living; opportunity creation; and resources stewardship. Our commitment to creating authentic shared value is inherently linked to our values.	Introducing SPAR Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Chairman’s report Our material relationships Our strategy and business model Focus on South Africa Focus on Ireland Focus on Switzerland Social and Ethics Committee report

Turnover +8.4%		Operating profit +7.2%		Cases dispatched +5.3%
TOPS at SPAR wholesale sales growth +17.6%		Earnings per share +18.5%		Dividend per share 9.7%

SALIENT FEATURES

SPAR delivered a excellent financial performance shaped by the following drivers:

Improved retailer loyalty
Our focus on the fresh offering
Enhancing customer service and implementing the GUEST retail service programme
New stores and upgrades
Living our purpose and values of entrepreneurship, family values and passion

A South African challenge within a global context

SPAR International is now in 48 countries, with South Africa as the second biggest and second most influential country after Austria in the global group. In the past five years we received more than 20 “look and learn” visits from other SPAR countries’ retailers, or groups from countries such as China exploring the retail offering for their market. South Africa is seen as the best example of an emerging market with a well-established store and distribution network. We also send our own people on similar visits arranged by SPAR International, where they are exposed to cutting edge developments in retail and logistics. They return with new perspectives, which helps us avoid what we call “country blindness”.

We remain concerned about conditions in and prospects for South Africa. I am personally involved in the CEO forum where we play our part in supporting government to avoid further rating downgrades, and instigate growth. As SPAR we contribute in many ways and encourage retailers to do the same by getting involved on a municipal and provincial level. We had the SPAR International board meeting in Durban in October, spreading the message about our country’s potential.

We further contribute to South Africa through many social projects. The Millhouse Porridge initiative is one example of this: we know that seven million of our country’s children regularly go hungry. This affects their ability to thrive or even to survive. At SPAR we are committed to providing nutritious and affordable food, and we have the national logistics infrastructure and systems to tackle this kind of problem. Therefore, we started distributing fortified porridge through our distribution centres and stores to feeding schemes and orphanages around the country. We also provide educators with material and support to improve their awareness around the value of nutrition.

SPAR’s sustainability is linked to South Africa’s success as a country.

Read more about our social and environmental efforts and contribution in the operational reports.

AN EXCELLENT PERFORMANCE WITH STRONG FUTURE PROSPECTS

SPAR did well in a tough South African environment. Turnover increased by a solid 8.0% and case volumes stand at 243.9 million in total – the highest number ever dispatched by our distribution centres. Our inland distribution consolidation centre in South Africa is complete. We see continued strong investment by retailers opening new stores and doing refurbishments. Leadership transitions, change has progressed smoothly.

Factors that ensured higher than expected growth and earnings included:

We are transforming people’s perspective on life through our new purpose statement: to inspire people to do and be more. It has inspired our stakeholders: they want to be part of what we are doing and make a difference in their communities. For us it does not only mean making SPAR better, but making a better country for our children to live in. We also made our purpose and values a prominent part of the annual retail conference.
Strong retail growth and improved retailer loyalty contributed to strong turnover.
Our TOPS at SPAR stores continued their exceptional double-digit growth trajectory. The guild decision to lessen the restrictions around licensing spurred the opening of new stores, which will gain further momentum in the next year.
Ireland delivered an 19.4% increase in operating profit on the back of well-executed acquisitions. Both Londis and Corrib Foods are performing beyond expectation and 4 Aces has been well integrated. The BWG Group management team has a conservative and astute approach to acquisitions. In the case of Londis, for example, they decided against converting these stores to the SPAR brand, which turned out to be the right approach. The multibrand strategy has proven to be one of our strengths in Ireland, where SPAR continues to lead the convenience store market.
We are maximising opportunities in our fresh offering.
Continuous improvement of the customer experience and focus on service, supported by strong marketing initiatives continued to attract cash-strapped consumers.

Some areas of the business disappointed, and required specific interventions:

We are delighted about the turnaround at SPAR Switzerland after a poor first six months due to an aggressive promotional campaign not delivering the desired results. Wholesale turnover for the year showed growth and the business experienced fewer losses from corporate stores. Retailers’ morale and profitability continues improving and we are experiencing increasing interest from opposition retailers wanting to join the group. We expect operating profit to increase considerable in the 2020 financial year.
Profitability at recently acquired S Buys was under pressure and the conversion to Pharmacy at SPAR slower than anticipated. The concept remains sound but the complexities of the pharmaceutical industry dampened retailer appetite. Our focus is on margins and managing costs, while driving volumes.

Store at a glance

	New stores	Closed stores	Refurbished stores	Total stores
South Africa	169	56	298	2 349
Ireland and UK	60	71	–	1 360
Switzerland	26	19	23	322

Expanding our reach into Poland

The SPAR Group’s entry into Poland has two aspects:

Obtaining and using the SPAR Poland licence.
The acquisition of the Piotr i Paweł (PiP) distribution centres and 66 PiP stores

Poland became a member of SPAR International in 1995 and the first SPAR store opened in 1996. The ownership of the licence changed a few times, and was granted to The SPAR Group this year. Poland has 250 SPAR branded stores but no distribution centre – the model relies on a network of wholesalers.

PiP, on the other hand, has three logistics and distribution centres servicing its chain of 66 supermarket stores. The final agreement to acquire PiP was effective on 1 October after the Polish competition authorities agreed to the takeover in July. Over the next few months the PiP stores are to be rebranded as SPAR, and EUROSPAR

Both PiP and SPAR Poland have small market shares in a country with more than 38 million people and one of the fastest-growing economies in the European Union. The opportunity for us is to consolidate these two businesses and establish an efficient supply chain that can be scaled up in the short to medium term. There are currently an estimated 13 500 independent retailers operating in Poland.

We expect the combined business to break even in the next 18 months based on a rapid increase in market share. We have more than 200 people employed in the business, which will be overseen by Rob Philipson, the managing director of SPAR Switzerland. In Switzerland we deployed Gary Alberts as chief operating officer to support Rob in his expanding role.

Read more about the transaction process, costs and funding in the financial review.

Protecting the SPAR brand and reputation

The SPAR brand is our most valuable asset: it lives in people’s hearts and minds. The SPAR trading model puts our brand in the hands of independent retailers, who become the stewards of the brand when they operate stores under SPAR formats. This means that if one retailer harms the brand, all retailers are potentially affected, and The SPAR Group most of all.

The SPAR Guild acted decisively this year when one of the retailers owning stores brought the brand into disrepute, mainly due to labour practices and food safety issues. The guild terminated their membership and we offered to buy all stores and properties related to the family. This was a significant step as this retailer group is SPAR’s biggest customer.

Leadership changes bring new energy and focus

The value of a strong talent succession pipeline was evident this year as we managed a smooth transition for several senior members of management. We were able to replace individuals with a wealth of experience with internal candidates who have all been groomed for leadership positions, and promoted transformation at the same time.

Three distribution centres have new managing directors. External expertise was only recruited for two positions: that of our chief information officer and our SPAR brand executive. These changes have been in development for more than a year, and in all cases, we provided certainty as early as possible. This assisted in proactively recruiting for the positions, and limited disruption to the business.

I want to thank all our executives for their amazing service to our business, especially Wayne Hook and Roelf Venter who have been great leaders for more than 35 years each in the group.

BWG Group minority shareholders exit

In Ireland, we are also preparing for leadership changes. According to the acquisition agreement with BWG Group in 2014, SPAR would acquire the remaining 20% shares under a pre-packaged pricing formula that depended on future profits. John Clohisey retires in December 2019, John O’Donnell in 2020 and Leo Crawford in 2022.

The ownership exit in Switzerland is scheduled for between December 2020 and February 2021.

Standing with our stakeholders

Our material relationships remain at the heart of our business. These include our employees, suppliers, consumers, retailers and communities.

When our stakeholders face challenges, we engage and support them where we can. This year, we took a strong stance against gender-based violence and added our voice on behalf of SPAR. We recognised the need to be courageous in living our SPAR values as they relate to this issue. We offered our sincere support for the victims of gender-based violence and to their respective loved ones and committed to be part of working towards a practical solution. We also urged all leaders in government, business and in civil society to join us to free our society from all gender-based violence.

We have seen a year of intense labour negotiations as we concluded three-year wage agreements at our KwaZulu-Natal, North Rand and South Rand distribution centres.

Our priorities for the next financial year

South Africa remains our home, our biggest market and most important focus area. We don’t expect the trading environment in South Africa to improve significantly in the medium term. We believe that SPAR’s independent retailers remain suitably positioned to address our country’ challenges, supported by an extensive distribution capability and market-leading brands.

We are fortunate to have a solid, decentralised management structure with a strong team of divisional managing directors. In the next year we plan to fully bed down the inland consolidation centre and continue the rollout of SAP. We continue driving all aspects of our fresh offering and customer service.

The focus in Ireland will remain on driving the business and managing the minority shareholder exit transparently.

In Switzerland, profitability remains a priority while driving topline growth and enhancing margins.

Poland will be a major focus area as we re-establish the SPAR brand, re-energise the delivery network for SPAR and PiP retailers and rebrand the PiP stores.

Sri Lanka now has three stores which we are planning to increase to eight next year.

We remain excited about the opportunities for SPAR wherever we are.

Graham O’Connor
Chief executive officer

King IVTM disclosure and reference index for the 2019 SPAR integrated report