The SPAR Group Ltd (SPP) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the SPAR Group Limited interim results. [Operator Instructions] Please note that this call is being recorded. I would now like to turn the conference over to Graham O'Connor. Please go ahead.

Good afternoon, everyone. Welcome to webcast of our interim results for the 6 months ended 31st of March. Our CFO, Mark Godfrey, will also be joining me on the call to present the results. We find ourselves living during extremely challenging times at the moment. The global COVID-19 pandemic has changed the world as we know it. Our thoughts are with all of those who are suffering as a result of this. We feel privileged to be in business, serving our communities during these unprecedented times. Change slide. This is the outline for today's presentation. I'll start with a brief update on the pandemic, followed by an overview of the SPAR organization and our business. Mark will follow with an overview of the group's financial performance. I will then take you through the operational update across our markets for the period before closing with the outlook for the group. We'll have a Q&A session at the end, and you're welcome to submit questions via the webcast online or over the phone if you're using dial-in numbers. Change slide. Change slide again. The global COVID-19 pandemic has impacted all of our markets. As a business, we've taken the necessary proactive measures to safeguard our top priorities. The first priority has been the safety of our people, our retailers, our suppliers and our customers. We have invested to protect our colleagues and customers while working and shopping. We have worked closely with our suppliers to manage the supply chain, and our distribution centers have worked tirelessly to keep our retailers' shelves replenished so that the customers' needs are met. We'll continue to support charitable organizations and to immediately address the urgent needs of our communities. We thank all our people, our suppliers, our retailers and our customers who adapted with us to find new ways of operating during these challenging times. In particular, we thank all of those people who are working on the frontline and going about their daily tasks despite the risk they face. Change slide. There's nothing like a crisis to test the culture of the business. I've been overwhelmed by the resilience of our retailers and their staff and by the determination of our people at the DCs and head office. There's been a remarkable collective effort to make a change and adapt to the new normal despite how challenging it has been. Much more, our communities have continued to be the key area of focus with our initiatives in place at a corporate level and then the numerous heartwarming examples of how our retailers are going the extra mile to support their communities. Our values have truly come to the fore. We are a family of passive entrepreneurs, working through this process together, driven by our purpose to inspire people to do and be more. SPAR's brand essence, which represents the heart of our brand, is it's personal and we take everything personally. I believe this unique culture puts us in a good position to deal with the crisis. Change slide. Moving on to the business review. Change slide again. As a reminder, the global organization that we are part of, SPAR International. With the global pandemic in mind, now more than ever, we can recognize and appreciate the value of being part of a global organization. SPAR countries that were impacted by the virus well before we were have been open and honest with information and advice on how we can better prepare ourselves for what was coming. Change slide. Turning to our group, and especially for new listeners who are now new to the business, here's an overview of our markets, with Poland being the most recent addition. We've been facing many challenges along the way. While the losses incurred in the first half have been disappointing, we remain confident in the Polish opportunity, and we'll provide greater detail on Poland later in today's presentation. Change the slide. Looking at the performance for the first half. The group turnover was strong, increasing by 10.1% to ZAR 59.7 billion, with Poland contributing ZAR 1 billion. Group operating profit is down 3.4%. Diluted headline earnings per share is down 13.4%. However, if you strip out the impact of the Polish losses, normalized diluted headline earnings per share is up 8.5%. Given the uncertainty around COVID-19, the Board has declared a conservative interim dividend of ZAR 2. I'll now hand over to Mark, who will take you through the financial performance of the group.

Thank you, Graham. Good afternoon, ladies and gentlemen. Before I start my slides, if I may just make 2 comments. The first is an apology to you all for the lateness of these results. We were originally scheduled to release them a week ago. But unfortunately, the global lockdown got the better of us despite our best efforts. And then secondly, because the dominant theme coming through in this presentation is largely Polish, I think it's only appropriate that I agree to you all with a Dzien dobry, and I'm sure my team in Poland will correct my pronunciation at a future time. But if I can move into my slides, the summary of salient features for the 6 months ended 31st of March. As Graham has already alluded, our revenue increased by some 10.1% to ZAR 59.7 billion. Gross margin was up 19%, up 85 basis points as a percentage to 11.26% of the 10.41% in the previous period. And I just need to make the point that the margin was in no way affected by any form of price movement. It was fundamentally a mix change in South Africa as our liquor and building material Build it business slowed. And secondly, the acquisition of the Polish business that trades at much stronger margins. The third element was a strong recovery by our Swiss division after some disappointing margin performance in H1 of '19. That's allowed, as Graham has already alluded and fundamentally, because of the consolidation of the Polish business for the first time, operating margins declined 3.4%. That also had an impact on our operating margin return, which dropped some 30 basis points. Headline earnings were down by 22% as we guided in our SENS last week and as we'd like to unpack for you today. Normalized headline earnings down. Dividend, I think the issue here is not so much to the fact that the dividend was down, but the fact that there was a dividend declared, and I will discuss that later in my presentation. And then finally, the fact that the net asset value also declined by some 1.6% was ironically the application of IFRS 16 for the first time as the financial liability exceeded the right-of-use asset and the receivable, and there's no way reflective on the balance sheets of the companies. If we can turn the slide, please. We only felt it appropriate at this stage to deal immediately with the implication of the Polish consolidation, but I've also taken the liberty to address in this reconciliation the remeasurement of the financial liability for the payout of the minorities in both Switzerland, but more importantly, in Ireland. So starting with the headline earnings reported of ZAR 785 million. I've adjusted the fair value revaluation or measurement of the financial liabilities, and that's really just as a result of the profit projections that we have made on the Irish business. And included in that sum is also some business acquisition costs. That reduces the headline earnings decline from 22% to 13%. But as you can see from the next line, if we were to notionally adjust for the Polish reported headline earnings, or headline loss as the case was, of some ZAR 221 million, that would have normalized our headline earnings, excluding Poland, at just over ZAR 1 billion compared to the prior year, an increase of some 8.2%. Now not to be confused with Graham's earlier guidance of 8.5%. The 8.5% is the diluted headline earnings per share. 8.2% is the absolute sum. If we can turn the page again. And unfortunately, it's becoming quite a theme in these presentations that you have to deal with all the IFRS standards and to try and unpack them, so people can really see a comparable position for the business. And if I can just tongue-in-cheek make a remark. My presentations, as somebody said to me, are starting to sound like an onion, you've got to peel the layers to try and see what's really going on. So if I start on the left-hand side with the as-reported H1 figures, I'm not going to go through this on a line-by-line basis. But what we have done for your reference and so that you can work through it, those of you that are updating models, the IFRS 16 adjustment column is really the net effect of us adopting IFRS 16, the capitalization of leases for the first time in this period. And then the first of the gray columns, reading from left to right, is a pre-IFRS 16 or a deconstructed H1 result. Now this includes, obviously, the Polish business, but at least it gives you an indication of what the movements were and what the more comparable numbers would have looked like because, unfortunately, IFRS 16 does tend to cloud certain of your disclosable items, most particularly interest income and interest expense. But I think at least it gives you some indication of what the H1 '20 comparable H1 '19, excluding IFRS effect, is. If you would turn the slides once again. We also felt it was appropriate to kind of, I guess you can call it table our scorecard, because at the end of September last year, we tabled what we, at that stage, believed to be the early adoption IFRS 16 effect. So the extreme right-hand column of the slide is what we tabled you included in the results for 2019. And really, what we are just doing here is trying to give you a sense of how, not so much I guess how accurate or how correct we were, but just give you a sense of that early guidance versus how we've actually finished. Once again, we have to deconstruct or exclude Poland. We didn't include Poland in our September '19 results last year. And obviously, it didn't take any cognizance of that in our IFRS 16 guidance at that time. So the H1 '20 actual numbers as reported, again, I'm not going to work through this on a line-by-line basis, ladies and gentlemen, but you can see the impact that Poland has on, firstly, the balance sheet items, the right-of-use assets, the lease receivables and the lease liability. And then if we exclude that effect, we have an H1 actual reported number versus what we guided at September last year. And as you can see, I think my team did ask me to put a scorecard down the right-hand side. I think we track somewhere between 97% and 98% accurate on what we forecast. I think it speaks well to the modeling that we were doing at the time. So at least the previous guidance we've given you on the balance sheet projections are very much in line. The income statement or statement of comprehensive income was obviously also affected, and the second half of the slide just really talks to that and gives guidance. Now I guess at the end of the day, it's not really appropriate to compare H1 with the full year expectations other than just to reference the very last row of that table, where we projected last year there would be a ZAR 0.04 positive effect. This year, we've got a minus ZAR 0.033 negative effect at the end of H1. I guess we've got to make up ZAR 0.07 somewhere between now and the end of the year, excluding Poland, to be able to score that perfectly. But again, at least just a sense of what we've originally projected versus how the numbers were actually accounted. If we could turn the slide. Right. If we move into the real meat of the presentation, and I guess for a lot of you, the indication of the segmental performance of the business, what you are looking at here is an income statement at a fairly high level but geographically broken down as we segmentally report our business: Southern Africa, Ireland and Switzerland. And then just for purposes of comparability, we put a subtotal in before we've included and consolidated the Polish business. The right-hand column highlighted in green is the reported group numbers. And that will allow you, I'm sure, just to draw a sense of the performance in the various geographies. South Africa with a gross margin of 9.3%, up from the 8.9%. The Irish business also improved their gross margin as a result of the acquisitions. The Swiss business came back exceptionally strongly after a disappointing first half in 2019, where some very aggressive marketing initiatives really failed to translate into volume activity. And it might look somewhat surprising that the Polish business trades at a gross margin of just under 24%. But just please bear in mind, they have a fairly large exposure to corporate retail, which does leverage that number upward. The group then moving, as I indicated on an earlier slide, to some 11.3%. Operating expenses, which we will talk to in more detail, of just over ZAR 6.5 billion. And then as I said, this is not intended to be a complete income statement, just to highlight some of the various areas of performance. The Polish number at a profit before tax, some minus ZAR 324 million after tax because of a deferred tax adjustment. And then attributable to ordinary shareholders, because in the Polish subsidiary, we do have minority shareholders, which we have not entered into any agreements to purchase them. They are intended to be long-term relationships. So we, for the first time in our business, do start reporting minority shareholders. Hence, that adjustment down to the reported ZAR 227.4 million. And on the right-hand side, that then will reconcile back to the ZAR 750 million. So I think this just gives you a sense of the performance of the various regions. The bottom 2 rows are really just a segmental contribution at an earnings and a headline earnings percent and really just for information, showing how the various regions contribute to our overall performance. If we could turn the slide and start moving into some of the components, I would wish to first deal with the group's turnover. In H1 2020, as Graham has already mentioned, our turnover grew by 10.1% to just under ZAR 56 billion, some ZAR 59.7 billion. Starting at the top, SPAR and TOPS, which is the wholesale business, grew by some 9 points -- 9% for the 6 months, an exceptionally strong finish to the half. Those of you that will recall our trading update in January, we were substantially lower than that number. So albeit that performance had started picking up in February, we finished the year exceptionally strongly. Included in the above number and not as a stand-alone, but included in SPAR and TOPS is the liquor sales. Liquor, unfortunately, grew by some 3.9%. That number might be disappointing to a lot of you that have been accustomed to our liquor performance in the low -- mid -- low to mid-double digits. And we've previously reported our low to get teen numbers, I guess. The impact has largely been underpinned in this period by a move of a range of products out of our warehouses, what is referred to as ready-to-drink lines. Diageo sold some of its business to SAB, and they discontinued the lines out of our business -- out of our warehouse. So we've lost the wholesale performance, but we've continued to retain the retail performance. So that is an explanation for a large portion of that compared to the retail performance. Secondly, in advance of the lockdown, a number of our liquor and TOPS retailers did not place replenishment orders because they've projected that their business is going into lockdown, didn't need to be restocked. So I guess, smart planning by our retailers. And then thirdly, we do concede to the fact that we, unfortunately, did lose some liquor loyalty over the first quarter of the year as a result of a very aggressive wholesale and retail pricing. That is the challenge for us, to claw back once our liquor stores are reopened. Build it, in an extremely tough market and I guess no surprise to anybody, really, and declining at some 2.4%. There was an impact in the latter half of this reporting period. As you know, we went into the state of lockdown in the last week of March. So there was no doubt some cutoff performance as the Build it retailers started seeing that, but not attributable to the full 2.4% at all. That is more reflective of the market that Build it is trading in South Africa at the moment. So the Southern African business, all-in, plus 7.4% (sic) [ 7.8% ]. I think a very strong performance compared to where we were at the end of January. If we then look at the smaller components in South Africa, our pharmaceutical business grew by some 10.3%. And as you can well expect, a strong upswing in the month of March going into the lockdown period. And then the new acquisition in South Africa, SPAR Encore or as a lot of you might remember, we announced the acquisition of a 50% stake in the business Monteagle Africa. The reason the number is only ZAR 3.3 million is not because of any other fundamental reasons then the fact that Monteagle or Encore is fundamentally a supplier exclusively into the SPAR Group. So what we've done is we have eliminated the intercompany business at the Encore level to leave the SPAR wholesale number comparable. And the ZAR 3.3 million that Encore report is merely the incremental sales. You will see the real effect of Encore coming through at the margin line. So Southern Africa, again, growing some 7.8%. In rand currency terms, the Irish business, a strong performance at 7.4%. Here, currency played a role, as did in Switzerland, an exceptional performance of 13.8%. I'll talk to that more specifically on the next slide. And then to Graham's point already, the consolidation of the Polish business for the first time, adding just under ZAR 1 billion worth of additional revenue to the group. If we can turn the slide, just to talk to some of the detail, and I'm not going to labor this other than to really highlight some of the significant features at a group level. The Polish business contributed some 1.8% to the total growth. So excluding Poland, top line would have been 8.3%. And then if I just remind you to cross-reference back to that normalized earnings number, excluding Poland, at 8.5%, you can get a sense the business continues to be well leveraged. While Southern Africa, as we've touched on, grew by 7.8%, was a challenging start to the year, there definitely was increased buying in advance of the lockdown. We can see that. It's a fact. But there was some very strong performance in the second quarter before we went into the lockdown period as well. SPAR Ireland, in euro currency terms is plus 3.2%. Again, an exceptionally strong performance in a market that is largely flat. The comparable business, so just to discount the fact that it was only new acquisitions, the comparable business did grow by some 2.6%. And we do note going forward, which is largely post the reporting period, that the pandemic has had an effect on the cash & carry and foodservice businesses starting in the month of March as the hospitality sector in Ireland really does lock down, or, I guess, locked down like everybody else has done. SPAR Switzerland, 4.4% in Swiss currency terms. And for those of you that have been modeling Switzerland at negative, anything between negative 1 and negative 2, I think it gives you a sense of the turnaround of the performance in this business quite literally in the last 2 weeks, if not months, of the financial period. They definitely did benefit from the closure of the Swiss borders. And I just need to make the point that we are not, for a second, retracting our position that the Swiss business should not be impacted by cross-border shopping. The fundamental issue here is that not only do they continue focusing on convenient shopping, but even the trolley shopper who has generally been shopping cross-border is now shopping the convenience stores as well. So they've enjoyed that benefit. And then in addition to that, their business has been boosted by the expansion into the west through the association with the PAM and Edelweiss group of stores. So we've always guided that we look for opportunities to expand this business into the west of Switzerland. That is now starting to roll out, and we're starting to see the benefits of that as well. And then as far as a short comment on SPAR Poland is concerned, we did finalize our discussions and negotiations and settlement with the rights of access to the license to SPAR in Poland. Unfortunately and very frustrating, the only early in 2020. But that has put us in a position to start onboarding the first 157 existing SPAR retailers, and that will -- well, that has started. It started towards the end of the reporting period. But we'll now start ramping up quite substantially as we've opened the third distribution center in Poland as well. If we can move on to the next slide. Just visually a sense of the contribution mix of the business. The left-hand banner, 67% of our business is now South African. So by deduction, more than 32% of our business is European. And just a breakdown by the various geographies and their contribution into the total. So Poland has now already moved up to 1.6% of the total business contribution. And our sense that, that little gray sliver in the H1 2020 pie graph is very quickly going to become quite significant. If we can move on to just a few comments on inflation, just to give you a sense of how our inflation has tracked in this period. The wholesale business reported inflation of some 4.1% for the period. We did see that move up slightly over the latter half. I think at the end of January, we'd reported that number at circa 4. So that definitely did move up ever so slightly. But against the previous year, you can see that number has more than doubled. Liquor inflation decreased on the previous year, but maintained at that roughly 4% level. And our building materials business has also held its inflation measure at between 3.4% and 4% compared to the 2 periods. Within South Africa, the current trends post the reporting period in the various distribution centers, a fairly wide range of between 3% and 5.8%. We do expect in the medium term or the short-to-medium term, that there is a very strong probability that inflation will increase. There are a number of drivers that we believe are going to start impacting on that. And from a building materials perspective, they believe that number will also move upward. And obviously, as you can appreciate, we are very excited about the fact that our Build it retailers are operating again, and we are seeing some quite impressive recoveries in that business in the last 3 weeks as they reopened. Just again a wide range of measures for the Europeans. For those of you that perhaps do not track the European inflation markets, Ireland, food inflation at roughly 1.5%, probably more relevant to look to the alcohol, tobacco and food averages of between minus 6% and 2.7%. Switzerland, almost flat. But again, I think the indication is roughly 0.5%. And Poland, we are seeing very strong inflation in Poland in a growing market. Their projections for the year, 3.6%. I think where we are tracking at the moment, probably in the 4 percentile range, again, just to give you a sense of those markets. Moving on to the gross profits. And really just some comparisons over the period, the first half of 2020. Southern Africa, 9.1%, up slightly on the 8.9% (sic) [ 8.7% ] that we reported at 2019. Its base also moved up slightly. And the Encore business, that is the private label business, adding some 16.2% margin, and that has been also a significant contributing driver to Southern Africa moving from the 8.9% for the full year 2019 or the 8.8% at a comparable H1, moving that to 9.2%. The Irish business, I've indicated earlier, also upwardly pressured by the acquisitions and the retail stores, moving to 13.5%. Switzerland, recovering from the rather disappointing H1 performance. And I've already commented on the Polish performance. The commentary below, I think, is just really a summary of what I've really touched on. So if we can then move on to the next slide, operating expenses. There have been some fairly significant increases in operating expenses, even excluding the Polish business, overall operating expenses growing by some 23.2%. But I think if you look down the right-hand side of the slide, across most of our regions, our operating expenses have been low double digits. There has been significant pressure on OpEx during this period. And I think it's probably most relevant if we just touch on some of the drivers, which really feature on the following slides. So if we can move forward a slide. In Southern Africa, the increase of some 11.7%. The significant contribution to this number was the recently acquired corporate stores. Towards the end of FY '19, we bought a fairly large group of stores in the Eastern Cape and KZN region. The plans are still underway to dispose of the majority of those stores. But while we hold them, they are trading exceptionally profitably, but their cost structures obviously do add to ours. And then some of the more significant wholesale costs that we've seen over this period. Our IT costs have increased 15%. Our fuel cost is up 9.5%. Now obviously, in the current situation, with declining fuel prices, we look to see some benefit of that going forward, although there's obviously uncertainty the further you look out into H2. And marketing and selling costs continue to be strongly driven at some 12%. SPAR Ireland saw their costs increased 9% in euro terms, but there were some fairly significant impacts on that. The acquisition of Heaney Meats and a group of corporate retail stores that they have expanded into in the United Kingdom contributed 3.1% of that. Now for the first time, I'm introducing an IFRS comment. The Irish did make a forward-looking provision against IFRS 9, considering their concerns around the remainder of the year, and they have provided or made a provision of some EUR 2.6 million. That contributed 2.8% to the increase. And then fundamentally, that business is under some payroll pressure as a result of increased wage rates that are in effect, and that -- the payroll cost increase contributed 1.6%. So if you recognize those 3, let's call them abnormal contributors, the remaining Irish costs continue to be extremely well controlled and managed by the team and very much in line with overall performance. SPAR Switzerland increased their costs in Swiss terms by 2.3%, and that is fundamentally being driven by the higher distribution costs as that business's top line grows, as we've reported, in double digits. There were some early identified operational expenses most specifically related to COVID-19. Across our group, our business is attempting to identify for purposes not only of budgeting, but just to get a sense of the pandemic's impact on our expense structures. The Swiss, in particular, have identified some early costs, and I'm sure that by the time we report full year results, the quantification of the pandemic on our cost structures will not only be topical, but will be able to be shared. And then Poland. Yes, the Polish business is loss-making. The Polish business is not fundamentally, and I'm sure Graham will touch on it in a further comment on Poland. But it's not fundamentally about cutting costs. It's about onboarding the existing retailers, and it's about having a cost structure at the moment that is ready to cope with the increased volume turnover that we are expecting as we successfully roll out those SPAR relationships going forward. However, included in the existing costs were, what I would like to just point out, possibly 3 broad categories of abnormal costs. I guess when I studied accounting, we still spoke about abnormal costs and extraordinary costs, but there were at least some abnormal costs. The first 2 are actually of the same making, and that's foreign exchange losses. The first one on the translation of loans, this business has euro-denominated loans. It does, however, report in zloty terms. So they were forced to recognize some ZAR 34 million losses on the euro-denominated loans. And similar to that, and there is a great deal of controversy about this, because they've recognized IFRS 16 financial leases and then had to take a ZAR 30 million foreign exchange loss on IFRS 16 recognized leases. So you can just imagine the angst that, that caused, where not only is it nonoperational, but it's an IFRS consequence by and large. And unfortunately, I better retract that before I end up in hot water making negative sentimental remarks about IFRS. Legal and professional fees, some ZAR 33 million, and these largely related to the sanitation and restructuring. So I would suggest to you that a large portion of that will not be repeated going forward. And then during the period, they've also made an IFRS provision of some ZAR 16 million. Their total bad debt provision in this period was some ZAR 31 million. And just by way of guidance, it is not our expectation that the general provision of ZAR 15 million is indicative of what you expect going forward in that business. I think I would be more comfortable to say that we've dealt with a lot of the issues that we've got with the existing Piotr i Pawel franchisees. What we have provided for, we believe, is now adequate. So I don't believe that, that is necessarily a repeat item going forward as well. If we can move on to the next slide, which is really just the summary of the group's cash flow for the period. That's already been set out in our results. What I just really want to feature on this is there was really very little movement between H1 and H2. At a working capital level, those numbers were largely in line. I guess the biggest movement was at the trade payables line, where not only did we see an increase in trade receivables, but we saw a matched increase in trade payables. 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.

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.

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?

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.

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

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.

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

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.

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

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.

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?

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.

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?

Probably something like 2%, Daniel.

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?

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.

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?

Yes. 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.

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

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.

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?

They are increasing slightly.

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

Between 20% and 25%.

Somewhere between 20% and 25% of their turnover.

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

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.

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

The last couple of days?

Yes. Not really. 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.

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?

Yes. That's exactly right.

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

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

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.

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?

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.

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?

I don't know. I think it's remains -- it's been competitive and certainly, we don't see any change going forward.

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?

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.

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?

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.

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?

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.

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

[Operator Instructions] We have a question from Paul Steegers of Bank of America.

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.

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.

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.

Yes. 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.

Our next question is from Nick Webster of HSBC.

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.

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?

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.

We have no further questions on the conference call.

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

Yes.

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%. Yes. So if that answers your question, thank you.

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

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?

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?

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

Yes. 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.

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.

Yes. 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.

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

We have no further questions on the webcast.

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

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.

Thank you, ladies and gentlemen.

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