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

Right. Good afternoon, everyone. Welcome to our webcast of our interim results. Thank you for joining us. I'm Brett Botten, the CEO of the SPAR Group; our CFO, Mark Godfrey, is joining me today to present the results. It's been almost 3 months since I took up office as CEO on the 1st of March, and this is my first results presentation to the market. Thinking back over the past 12 months, what we've all been through really is quite extraordinary. There have been many disruptions to our business and many challenges to deal with; however, we've also been presented with opportunities and we've been able to capitalize on them. Considering the devastation on economies and people's lives globally, we remain privileged to be operating our businesses and serving our community. For our presentation today, I'll begin with a brief overview, Mark will then present our financial results for the period; thereafter, I'll provide an operational update as well as some insights to what we expect in the months ahead. Starting with an overview. In terms of a review for the period, Group has delivered a strong performance during disruptive and uncertain times. Across all regions, we have reached the anniversary of the initial lockdowns in March last year, which created a surge in demand with pantry loading ahead of these lockdowns. Our South African business has delivered a mixed result, and we believe that the COVID-19 market and consumer dynamics strongly influenced trading for the period. The strength and resilience of the SPAR model was evident, and retailer loyalty has remained strong during this time. Our liquor business has been severely impacted by the liquor bans as well as the trading restriction. During the period under review, we lost 72 retail trading days, significant percentage of the total trading days. Our Build it business has delivered an exceptional performance with consumers investing in their homes at this time. Our European markets have experienced strict regulations brought on by the third wave of infection during the peak winter months. BWG Foods has delivered a very strong result despite the impact to its hospitality and foodservice businesses. As of January this year, Britain is no longer part of the EU, and the impact of Brexit has been exceptionally well-managed by the Irish team. The Swiss team has delivered another exceptional result for the period. During the period, Store Service AG was acquired, enhancing our position as a partner in the petro convenience space through the addition of 60 stores. Lastly, and very importantly, Poland is making steady progress despite all of the setbacks that we have experienced. Turning to the key financial highlights. Group turnover was strong at 7.5% growth, increasing to ZAR 64.2 billion. Group operating profit is up 28.1% to ZAR 1.7 billion. Normalized diluted headline earnings reflect the underlying performance of the business, have increased by 34.4%. Following this, the Board has declared an interim dividend of 280 cents, an increase of 40% from the prior year dividend. We are very pleased with strong performance during disruptive times. Given the elevation of ESG within the past year, it would be remiss of me not to mention that this is a priority for us. Some of the standout items for me include solar plants across all of our DCs in South Africa, 6 in total, where we generated over 8,000 kilowatt hours of electricity. Once again, we have been certified as a top employer, certified by the Top Employers Institute, which is a global organization. Last year, we launched our ongoing end gender based violence campaign in South Africa to help raise much needed awareness by a source of support for victims. The SPAR Rural Hub Programme is a collaboration in small-scale farmers communities and retailers to improve food security, affordability and nutrition for rural communities in South Africa. During the period, SPAR was awarded the Absa Business Day Supplier Development Award. We have a great team driving environmental and social initiatives in South Africa, using [ strength ] in our culture across the regions. The Swiss, for example, are trialing electric and hydrogen trucks. And in Ireland, BWG Foods has Origin Green accreditation, which is Ireland's pioneering sustainability program. On the government side, we have had a recent addition to the Board, boosting the digital expertise around the table, as we embark on SAP implementation and overall digital transformation of the business, adapting to changing consumer needs. I'm proud of how the business has adapted through the challenging time. It speaks to the character and determination of our people and the resilience of our retailers. Community is at the heart of what we do. Because of that, our vision is a retail community-based one. Purpose to inspire people to do and be more underpins this, and our values guide us in our endeavors. Our people have a deep appreciation for our values, [indiscernible] family values and passion. This positions us well for what lies ahead. I'll now hand over to Mark Godfrey, who will take you through the financial performance of the [indiscernible].

Thank you, Brett. Good afternoon, ladies and gentlemen. And before I embark on digging into the financial numbers, I actually would ask your indulgence to allow me to single out our Swiss management team, who I hope I've joined this presentation today. The Swiss team have been under, let's just say, a lot of delivery pressure, since we bought the business. And I hope that by the end of today, you will join with me and acknowledge their strong contribution. So to Rob, Gary and all of the team in Switzerland, all I can say to you this afternoon is, Guten Tag. So the financial overview, as Brett has highlighted on some of the key aspects. The group turnover, ZAR 64.2 billion, increasing by some 7.5%, and the strong contribution coming from our European subsidiaries. Their contribution now over 35.5%. Gross margins improved by some 50 basis points. And as I will show you as well, it's largely the consequence of the acquisition that we referred to last year, the business called Encore, our previously Monteagle, who've really driven the South African gross margins. The Europeans, just across the board, experienced a slight decline in margins, which were fundamentally mixed. But I'll talk to gross profits as we get there. Operating profits increased some 28.1%, and at the margin level increase of approximately 50 basis points. And profit after tax from 61%, and yes, it does look extremely flattering. It is the consequence, fundamentally, of some of the accounting adjustments that we put through in the previous years to recognize the financial liabilities for the minority buyers in both our Irish and our Swiss business. So for those of you that have had a troubling time getting grips with those financial accounting entries to recognize those liabilities, all I can say to you, like our Board, they are no longer going to be a challenge. That is part of the reason why we've normalized it, we've tried to reconcile for you the impact of that accounting effect by stripping out some of those fair value and foreign exchange effects, and hence, our focus on normalized headline and normalized diluted headline earnings growing both some 34%. And as Brett already pointed out, probably a better reflection of the group's true earnings. Dividend per share of ZAR 2.80, and I will unpack the dividend on a slide and net asset value, just to give you a sense of the underpinning net asset value per share, some ZAR 0.03961, growing by just under 10%. Now I'm also very cautious about isolating the Polish business. We did this last year, just to give you a sense of the Polish business in its first year of acquisition. I'm repeating that slide just so that you can perhaps put the Polish business into perspective and its contribution to the overall performance. The normalized headline earnings, just above that first horizontal red bar, growing some 34.4%. And if we, in fact, adjust for the polish losses, the Group's, excluding Polish result, would have actually increased by some 19.2%. The point I'm actually just illustrating to you is that the decline in the loss, the improvement in the loss position in Poland, is actually enhancing the overall Group's performance. So to the Polish team that are under, let's just say, I think they take the mantle over from Switzerland when it comes to putting management teams under pressure, we are starting to deliver. Going to then move on to another topic that always has been a challenge and something that I'm hoping this will be the last time we need to really discuss. And what we've really presented for you on this slide is just stripped out the effect of the IFRS 16 lease entries or lease effect in this 6-month period. Starting on the right-hand side of your slide, that was the numbers that we would have reported in H1 '20. Adjacent to that under the black banner heading is as we reported in the current year, and all the team have done is provided you with the effective IFRS 16 journal so that for those of you that are still coming to grips with changing your models for IFRS, it will allow you to perhaps test your rationale to give you a pre-IFRS 16 effect. So the net effect of all of that is, we reversed some rental costs amounting to some ZAR 614 million, the depreciation on the right-of-use assets, some ZAR 514 million. So the net effect of that is that reversal that you see up in the top of the screen 125.5 and then the net financing costs were 110 now allocated below the line into the interest income and interest expense. For those of you that are just questioning why these both an income and an expense effect, I'll just remind you that within our business strategy, we have actually entered into a large number, in fact quite a significant across all of our geographies of matched head lease and sub lease arrangements to ensure we secure [ site ]. So, for us the impact of IFRS 16 is not just taking on a liability and the right of use asset but effect is taking on a liability and a match lease receivable. Then into -- after all of those entries were done is that we actually enhanced profit by ZAR 15 million and that is really attributable some lease modifications that we benefited from -- in our European geographies. But as I say we provided for guidance and now that we are on a normalized -- comparable basis going forward there will probably not really be the need to unpack the slide but for information we've given it to you. The next slide is really a deep dive into the regional metrics of the business. To give you a sense of the relative size and profitability of the 4 primary geographies that we operate. So starting from the left-hand side, South Africa, ZAR 41.5 billion worth of turnover, the margin of some 10.1%, increasing from last year's 9.8%, operating expenses of 3.3. And as you can see, the South African business contributing some ZAR 1.3 billion worth of profit to the group. The Irish business improved turnover significantly to ZAR 14.4 billion. The margin at 13.3, slightly down as a result of mix and operating expenses extremely well managed, contributing just under ZAR 300 million. The star performance from a growth perspective was our Swiss business, now over ZAR 7 billion worth of turnover contribution. And as you can see, almost ZAR 200 million worth of profit and a significant increase on its contribution over the same period of last year. I've given you for guidance, just the group excluding Poland, not because we really want to isolate our Polish team and for any of the Polish team that have joined us. We're really not trying to make you stand alone on this one, but because there's so much focus on a pre and post, we've just distinguished it like that. And as you can see, Poland, now just under ZAR 1.3 billion, and we expect that number to increase substantially as we move forward and the losses for the period are approximately ZAR 200 million. So if we now start looking into the components of the business in more detail, and we're starting with turnover, we've given you in this slide, the fairly normal breakdown from SPAR's perspective of the key segments that we measure our business against. So starting right up top at SPAR, the core grocery business, and that includes all groceries. So that is not excluding any component. It's all SPAR other than liquor and Build it. And that business just under 31 -- or just over ZAR 31.9 billion, growing by 0.8%, and I will unpack that and I realize that, that number has raised some eyebrows, so we'll give some clarity. I think the first point I want to make is really the point that appears in the gray narrative almost adjacent to that point and that is if you adjust that for tobacco, the South African core business grew by some 1.4%. Moving on to liquor. And as Brett has already alluded to, a sector of our business that has been substantially disrupted over the last 12 months as pandemic regulations have caused trade to be restricted or closed, that's declining by some 7.8%. And I will remind that as of January, that figure was -- as significant as negative, 17. So we have seen a tremendous improvement in recent weeks, but still for the full 6-month period just under negative 8%. The star performance in the South African context has been Build it, growing by some 26% over this period. And this continues to -- I suppose, it would be a bit embarrassing to say surprise management, but I'll be very honest with you, this is a number and a performance, which is really quite startling in the context of the economy, in the context of how weak we would expect the consumer to be, but there is no doubt there is still a very robust consumer in this space, and there is, still according to our Build it teams, a lot of opportunity to continue driving this performance. So the total of Southern African or South African business, some 2.8%. Our pharmaceutical wholesaler S Buys grew by some 4.1%. Now the sad thing about this business is that the specialty scripts were up strongly at just under 7, but as a consequence of so many of the hospitals and doctors cutting back on, obviously, medical procedures as the primary focus, was around health care relative to the pandemic, we did see a much lower performance in the overall wholesale business. The newly acquired SPAR Encore, I'll remind that is fundamentally the business that plays a large role in providing our private label into SPAR. The comparatives that you are seeing here are, obviously, are quite misleading. But this effectively is the ex intergroup sales. So these are simply the incidental sales that Encore do. Their primary suppliers into SPAR and really, this is just the third-party sales that Encore do. And the reason the numbers looks disparate at ZAR 258 million versus ZAR 3 million is that, that business was acquired effectively end of February 2020. So we do have a disconnect on a 6 versus 1 comparative. So the Southern African business growing by 3.1%. As I've really alluded to, the Irish business in ZAR terms, some 13.3%, a fine performance by our team. Retail brands -- across all of the retail brands that they trade in performing extremely strongly over this period as the consumer has largely been forced to shop in the neighborhood convenience stores as the lockdowns have restricted travel. The hospitality and food service sectors in Ireland continue to operate under extreme pressure as events are canceled as pubs and hotels are basically closed, and we have felt negative performances in that space. But the overall performance has been exceptionally well managed, and as you can see, up 13.3%. And in local currency terms, a solid performance at plus 3.3. Our Swiss business growing by some 21.6% in local currency, 11.1%. Again, a very similar European story, consumers supporting the local neighborhood convenience stores. But in this case, also boosted by the recent acquisition of Store Services AG, which is a petro-convenience business, owning some 60 petro forecourts. And then also our contract business with PAM and Edelweiss growing as we continue to service the west of Switzerland. Poland, again, as we've referred to a slightly disparate comparison because the business was effectively acquired in -- 1 October 2019, but the SPAR retail has only joined us from early February. And then effectively, we were restricted almost from the outset of dealing with them because of the lockdown. So the 32.2% possibly somewhat misleading. I think the more critical aspect is the fact that the growth performance of that business is tracking slightly behind where we expected it to be because of the pandemic. And as a result of that, we will fall short of our target and sales and profit performances over this period. Now the next slide, I thought I'd introduce, just to try and give some perhaps illustrative understanding of what is causing the South African SPAR business to decline as it has done over the last 8 weeks. And effectively, what you are looking at is, the SPAR business in South Africa, excluding liquor and building materials, and across the 3 graphs over a 4-month period from December to March, the base graph in 2019, that's the lowest graph in gray or black, above that is the 2020 financial period and the 2021 period is illustrated in red. And what we are illustrating for you is the sales for those 4 months relative to each other. So that's absolute sales simply plotted on those 4 months. And starting back in December, you will see that the current year actually performed poorer than what we did in 2020. And again, to get your insight into what was causing this, you kind of need to do a bit of a flashback 3 months as to what was going on in South Africa. Christmas trading was soft, there was a great deal of uncertainty around vacations. There was a lot of rumors. And in fact, most of them became reality that destinations were almost canceled by holidaymakers as access to beaches, access to the rivers were banned by protocols at the time. And then towards the end of December, quite literally, just before New Year, we actually had the alcohol ban reinstated in South Africa. So a lot of negativity around December trade and actually underperforming the previous year. Going into January, the lockdown measures actually impacted, and the neighborhood stores were suddenly supported by the communities. And you can actually see the strong performance between 2021 versus 2020. In fact, in the month, we actually grew 8% positive on January of 2020. Moving into February, the gap starts closing. I think what you will also see is the early buildup of the so-called pantry buying that was taking place in this country. So still a solid performance. We still were some 4.5% stronger than 2020. But then you can see how we so significantly underperform in the March month as a consequence of how strong the month of March was in 2020. Fundamentally, that extraordinary growth of sales as the consumers started filling up pantries, as they started stockpiling, and in fact, the March month was a growth of some 18% on 2019. And hence, the fact that we would significantly under-index 2020. In fact, the performance for the month was some 6.6% negative in comparison. And as a consequence of those 2 negatives, fundamentally, the negative in the month of March, we see a significant slowdown in the year-to-date performance from what we guided at the end of January, which was some 2.8% to finish up just under 1% for the period. Hopefully, that just starts illustrating how those lines are going to start potentially crossing over. And the challenge for us is that as we move into Q3, we had an exceptionally strong base, and we expect to under-index 2020 for a large portion of that quarter. Moving into just a sense of regional turnover contribution. So we've just set out the geographies. The percentages are the contribution in mix. So South Africa, some 64.5%, still 2/3 of the total group declining from the 67% of last year and that decline is obviously counted against the strong performance of both the Irish and the Swiss business as they gain comparative market or contribution share to the SPAR business. Poland now is actually over 2%, and we expect that number to increase substantially in the years going forward. And the piechart at the bottom, obviously, comparing the 2 years, you can see the slight reduction in the red section, which is by South Africa as the foreign geographies start increasing their contribution. Just to share with you some insights into how we see inflation, what we are seeing internally and just some outside -- some internal views on looking forward. So in Southern Africa, we expect that wholesale inflation will continue to increase. It will be moderate. But by the same token, we expect it to remain in that range of some 5% to 5.5%. There is a disconnect between this number in retail. Retail number will be more significantly impacted by promotional activity and also potentially mix, which is sometimes the reason that you will see our wholesale numbers looking on the higher side to what some of our peer retailers will be reporting. To the right of that, we've just given guidance on how we've actually tracked in 2021. That is our internally measured numbers for SPAR. The total SPAR basket just up at some 5.2%. So you can see the extent of almost 100 basis points increase over the last year. Liquor is actually rather soft compared to a year ago, and I think you can also understand that against the context of the whole liquor industry, there's literally been no pressure on pricing. And then Build it has shown an improvement as well, which has also been positive. We've seen price improvements in categories like cement, which has only been profit-enhancing for the retailers. But again, there is a great deal of competitiveness coming into the building space, and we're not expecting that number to really move much higher than that. And then on the extreme right-hand side, just to give you some insights into some of the key categories, we've just selected for you the performance of those 4 which are probably the more significant increases over the last 6 months: dry groceries at some 5.4%, sugar was quite significant at 5.9% and then meat and produce are always categories that can be extremely volatile in pricing, but over this period, they've actually been quite high at 7.6 and just over 6. The remaining 3 geographies are really for guidance. So Ireland, as much as the Irish inflation is generally flat in those key areas that we actually do perform in being alcohol and tobacco, there is some inflation in there, roughly 2%. Switzerland has been flat for some time. In fact, a decline from 0.6 to 0.5. And as you can see, almost all of the categories in Switzerland are almost flat to negative. And the Polish business that has seen some inflation a year ago, the Polish inflation was estimated to be some 3.6%. That has slowed all the way down to 2.5%. And in fact, a lot of the Polish inflation has slowed down to almost 0% in the outlook. So inflation across the various geographies, generally slowing in Europe, South Africa, we believe there is some pressure, it's moderate, and it will probably keep the inflation within the band of 5% to 5.5% looking forward. I said I'd just delve into some of the gross profits for you. So what we've illustrated here is gross profit by geography. Looking to the last column under the black heading being H1 2021. Southern Africa moving from 9.1% to 9.3%. And I can really just guide that, that is fundamentally a mix change. There's absolutely no upward gross margin being taken. That is just the offset of liquor declining, where we trade at a much lower margin and the substantial increase in Build it, where we fundamentally operate on a drop shipment or a central billing channel, and we're really earning commission on our Build it business, which then in the strong performance, would dilute that number. More significantly, however, has been the mix change of liquor, which has caused the overall performance to increase very slightly. S Buys, the pharmaceutical business showed a small increase. That's also got to do with the script [ price ] business, which albeit higher value is lower margin. And the Monteagle or Encore business, as it's now called, showed a slight decline, but that really spoke to the stock range that they were carrying at March last year when they were building up stock of particularly categories like general merchandise in advance of the lockdown. So the 14.5 is more indicative of the private label business' performance. And then across the other geographies, you can see that almost -- well, in fact, I'll come back to Poland, but Ireland and Switzerland, both declining slightly as their mix changes into lower margin categories, both of that is driven by categories like liquor and tobacco, and that is somewhat dilutionary to overall margins. The Polish performance, as we've indicated in the notice, is twofold. The first one is the disposal of the corporate retail stores, so albeit that they have a negative impact on gross margin, they have a far greater impact on overall profitability. So that has driven down the margin. And that margin now starts aligning more closer with the wholesale margin that we expect to achieve in Poland going forward. But on the counter side, we've also invested quite substantially in Polish wholesale pricing to improve the loyalty of the SPAR retailers, which is the challenge that we've guided at previously. Moving on to operating expenses. Really just some insight into how we are seeing it. The South African increase of some 7.5%, albeit concerning in the sense that it is slightly higher than what we've seen turnover growth in this country, there has been a very, very strong performance in our employment costs. We've maintained that number at under 5%. Bear in mind that union increases have been settled in 6s and 7s. So to hold it at under 5%, gives a very strong guidance to the productivity improvements and also the reduction in variable overtime and contract or casual labor as volumes has slowed. IT has been a significant spend for us. Firstly, the increased cost of remote working, the additional licenses and then also a great deal of the work that has been done around the SAP implementation and ratcheting up our entire IT spend. And then lastly, just to the extent that there might be some concern that we've cut back on marketing and selling costs, I can assure that hasn't been the case. Our selling and marketing costs over the 6-month period, up some 18.7% over the comparable period. But the bigger consequence of Southern Africa is fundamentally the inclusion of SPAR Encore for the first time. A year ago, it was only 1 month; and in this period, some 6, and that's really driven the 13.8% for the Southern African business. But individually, each of the geographies in Southern Africa still holding a constant or roughly there, too. Looking at Europe, the Irish had an exceptionally strong performance. One thing that the team have been renowned for is that in any adversity affecting the overall business, their ability to react on cost has been exceptional. There have been reductions in selling and marketing costs; and more significantly, a reduction in operational cost savings, and that has allowed the business to actually reduce its costs, quite a phenomenal achievement, but to reduce their costs by some 2.6% in local currency terms over the period. The Swiss business, up 11% in reported currency, but actually manages to plus 1.6 in local currency. Once again, a solid performance considering the incredible increase in volumes in that business, so some very tight cost control being maintained there. And then in our Polish business, we have seen cost decline, as I indicated already, substantially due to the [ upsell ] of retail stores and then also as well as some of the lower consultant fees as that business has now moved out of business rescue as we would understand it in South Africa or the sanitation proceedings, as they are described in Poland, and those have now all been wrapped up and effectively concluded. We just included an analysis of what is now described as finance income and cost significantly because of the inclusion of the IFRS 16 lease receivables and lease liabilities, but also just for the last time to deal with those financial liabilities, which are summarized at the bottom. But again, to give you some insight into the makeup of the some ZAR 284 million worth of finance income and the ZAR 447 million worth of finance cost. And as you can see on a line by line, not really much that stands out, very consistently managed, and there has been some very, very tight financial control around funding over the last 12 months by all of our geographies. We've always provided some insight into currency moves. And what we've done here is really just the exchange rate movement for the euro, the Swiss franc versus the rand. It's actually been albeit a fairly significant decline, perhaps the scale doesn't do a justice. The currency decline from where we were in the 1st of October, the euro 19.65 declining down to 17.35. And similarly, the Swiss franc declining from 18 down to 15.7, obviously, impacting both the exchange of translation income and expenditure, but also the closing balances on our reported balance sheets. And again, looking at the Polish zloty, we see a similar downward trend as the ZAR has performed over the last 6 months, declining from 4.30 down to some 3.17. We also felt it was relevant in light of the really difficult analysis, which I'm sure most of you are experiencing at the moment trying to understand quarter performance. So we've set out for you on this slide, the comparative trading performance of all 4 businesses over the last 3 reporting periods, so H1 '20, H2 '20 and H1 '21. This slide is in ZAR. So this is reported South African currency as translated. And as you can see, across all of the geographies an upward movement 2021 versus 2020. It's interesting that you would note in Ireland and Switzerland that the H2 periods were stronger. In fact, in H1, in fact, still stronger than H1 '21. And as much as that is pandemic-related, it also speaks to the fact that in those 2 geographies, the summer vacations are very strong trading periods. As they are now colloquially referred to in Ireland as staycations, you can see how strongly those grow turnover in the second 6 months as well. And then on the right-hand side, the contribution of the H1, H2 operating profit by each of those sectors gained the Irish performance very strong in the second 6. And similarly, the Swiss performance. Growth at the bottom by geography. And then just to change the slide, we've given you exactly the same detail but reset into local reported currency. And probably then negating any of the exchange consequences and very similar trends being highlighted H2, very strong in Ireland and Switzerland. The profit trends, again, are similarly strong, and you can see the improvement in the Polish performance over the last 2 halves. Moving on to the balance sheet. And again, by segment, just giving you some taste and insight into really the format to the balance sheet. Property, plant and equipment, ZAR 8 billion across the group, roughly ZAR 2 billion on the 3 major geographies, the Polish business, just under ZAR 300 million. I've separated or combined, rather, for you. I've separated out, but box them together the 2 IFRS 16 related assets, the right-of-use asset and then more significantly for us in South Africa, the lease receivable. And the sum total of those some ZAR 11.5 billion. Goodwill and intangibles, we only highlighted previously because of how significant it is in our European businesses, ZAR 6.6 billion there. The intangible asset is also increasing in South Africa as a result of some of the IT costs as we start our SAP build. Current assets and liabilities, we'll unpack that again on the cash flow, but largely matched, but we would expect current liabilities to exceed current assets, but largely to do with timing, those 2 numbers almost contra at this stage. And then the last number, which, again, I will unpack being the noncurrent liability, some ZAR 20.1 billion at the group level and then just identifying for you 2 of the more significant components of that number. The first 1 being long-term borrowings. And at the end of March, that figure was ZAR 7.2 billion. The significant portions in both the Irish and the Swiss business, ZAR 3.5 billion in Ireland and ZAR 2.6 billion in Switzerland, very little borrowing debt in South Africa, and the Polish business carrying just under ZAR 1 billion worth of long-term debt. And then also because of its significance in the total payables figure of liabilities is the finance lease payable, ZAR 11.3 billion. And again, a geographical split. And I would simply refer you to the corresponding finance lease receivable, which is approximately half of that number. And you can see that in South Africa, those 2 numbers almost contra. The polish the -- both the Swiss and the Irish business have right-of-use assets. So hence, the liability raised for those predominantly on their facilities and insight into how those fit together. And then just, again, probably the last time that you should expect to see this. We've just summarized the financial liabilities. Previously, we would have guided this to you in euro, Swiss franc and ZAR. We've summarized it into 1 slide, basically just to deal with the settlement of the minority buyouts in both of the Irish and Swiss businesses opening that the financial period at ZAR 2.1 billion. There was the accounting adjustments I've already alluded to. The settlement of those liabilities some EUR 55 million in Ireland, some EUR 56 million in Switzerland, just under ZAR 2 billion worth of cash outlay. And effectively, we are left with some ZAR 50 million, and that relates to the S Buys pharmaceutical business. Again, because we appreciate that there is a lot of interest in the group's net debt, we've summarized for you, in the top portion of this slide, the components of debt as is being measured or as is required to be measured by bankers. So overdraft total borrowings, financial liability, which was included under some previous covenants, but now effectively settled and then the cash balances of the SPAR Group, ZAR 9.7 billion worth of debt. You can see its declined from where that figure was a year ago as those financial liabilities have been settled out. And then below that, we've provided again because there's interest in where that debt is located. So that same ZAR 7.5 billion through the total borrowings, we've broken it down for you by geography. And in local currency, you can see South Africa has some ZAR 260 million worth of local currency debt, the Irish just over EUR 200 million of term debt, the Swiss CHF 170 million of term debt and the Poles, their debt is denominated in euros because it was loaned into the country, some EUR 55 million of debt. And again, just giving you a sense of both the geography and the currencies. And as we've explained before, the debt structuring that has been put in place has been fundamentally done on the basis that each of those geographies are capable and able to service that debt and there is no cross funding that is done out of South Africa or any of the other geographies. Moving on to the cash flow and really just setting out what has already been included in the results. Just to highlight starting roughly 1/3 of the way down, cash generated from operations, ZAR 1.5 billion for both comparable periods. The dividends some ZAR 1.3 billion compared to just under ZAR 1 billion in the previous period. And then towards the bottom, you will now see the principal element of lease receipts, offsetting the principal element of lease payments. We've used that expression principal element because that is really the capital component of the leases, the financing of your interest component is now being restated into the net interest paid line, in line with latest accounting thinking. So that is the restatement that was done to recognize that. And then really, probably the 2 big-ticket items or almost the closing items, the first 1 being the settlement of the financial liabilities. There was a payment in the comparative period. That was the first tranche settlement of the first 10% of the Irish exit, the second 10% and final settlement occurred in this period. So in total, the minorities being brought out over the last 2 periods or last 2 years, and then the quantum of debt and that is net debt that was raised predominantly to fund that. And looking at the same information in a more graphic sense and probably an easier-to-follow sense, you will see the big-ticket items down on the extreme right-hand side. The inflow of funds, the ZAR 1.38 billion in green and just preceding that, the ZAR 1.9 billion outflow as a consequence of those payments that I've already alluded to. Capital expenditure in the period. And I think, as you can see, no real significant moves in this space. Our expansion, our investment to expand business, roughly ZAR 400 million across all of the geographies. The maintenance CapEx approximately ZAR 250 million. So total capital spend just over ZAR 600 million in both of the geographies last year, just under ZAR 700 million. And then also on the same slide, albeit not pure capital in that sense, we've just given guidance on the acquisition of businesses or subsidiaries in the current period. The most significant of that was the Swiss acquisition of Store Services for some ZAR 41 million. In Ireland, the U.K. subsidiary spent just under ZAR 50 million on retail stores that they required. And then the rounding difference is the contingent consideration that was settled on the finalization of previous retail stores that had been acquired in the previous period. The total capital expenditure just over ZAR 0.75 billion in the current year. The previous year, there were some significant acquisitions made and hence, the ZAR 530 million in H1 of '20, that included into earlier, the Heaney Meats business in Ireland, the Encore business and then some retail stores both the U.K. and in South Africa. And really, just to wrap up the CapEx conversation, we've given the same analysis, the expansion and the replacement by geography to give you a sense of really what is underpinning that. In South Africa, our capital expenditure over the last 6 months is again being focused on our fleet. Our plant and equipment. And then as I've alluded to, a ratcheting up of software investment, there's still a far bigger-ticket item to come, but this is some of the initial work. In Ireland, again some internal transport for warehouse operations, and again, some retail store investment. Switzerland is about retail stores, again some technology coming through. And the Polish business, the setup of the third distribution center that has just been launched [indiscernible] down in the south. And again, some of the costs relating to that coming through. We previously just set out for you this normalized HEPS calculation. The number or the components were actually starting to thin now as the financial liabilities have largely been extricated out of the business. There's a small foreign exchange adjustment that was made in the period relating to a gain on the Swiss liability. So effectively, the difference between the so-called normalized headline and reported headline, no longer that significant but as you can see on the percentage change down the right-hand side does decline to a more realistic 34% because of quite significant changes that were made in the prior period. And again, we've given you both the weighted average, the diluted weighted average share totals just so that you can ensure that your numbers balance back. And then just to close on the reconciliation of dividend or to provide more insight into the dividend, the Board deliberated for some length about the policy of the dividend. There was never any doubt that a dividend would be declared. The only question was the extent of conservatism that the Board still felt should be adopted. It's fairly common cause that it is not normal business yet, there's still a great deal of uncertainty. So the dividend cover that has been adopted in arriving at the declared dividend of ZAR 2.80, as you can see from the second to last row of that slide. We've applied a dividend cover of ZAR 2.17. The historic dividend cover at this time of the year would have been ZAR 1.85. So it just gives you a sense that there has been a certain degree of conservatism adopted by the Board. They were very comfortable to declare that dividend. And all I will guide you at this stage is that the Board still remain committed on an annualized basis without any significant impacts over the remaining 6 months to ensure that the annual dividend is maintained at ZAR 1.45. So like we did in the 2020 financial year where the second half dividend was quite significantly up to ensure the year-to-date dividend achieved that target, I can, at this stage, guide, subject to any significant impacts, that the second half dividend will be [indiscernible] increased to compensate for that small difference in the current period. But still a positive increase of the dividend growing by some 40%. And just in closing, to really focus on the key features, Brett has touched on some of these already. Turnover for the group growing by 7.5. Gross profit increased by 50 basis points. As we guided previously, the Encore business being largely contributory to that, we always guided that was going to be the effect. Operating margin, 28% up, 2.7%, also increasing some 50 basis points normalized earnings adjusted for any of that accounting issue in previous or accounting adjustments in previous period, just over 34% and the dividend growing by 40%. Solid performance, difficult time, and obviously, at this point in time, the challenge to the business has been trying to adapt or continue to adapt operate in these uncertain circumstances. But before I hand back to Brett, if I just may take a minute to thank all of the admin teams around the group, we recognize all of our people, but I would specifically just like to spell out the finance and the admin staff, not just in the South African business, but in our Irish -- our Swiss and our Polish business, many of whom are working remotely, many of whom have not been into the office for months to all of you. My thanks and appreciation from the whole group for all of your efforts to keep, from an admin point of view, the business running. And to my own team in South Africa and our finance teams that have put in so much effort ensuring that we were able to consolidate these numbers as we are now doing remotely to each and every one of you, my thanks and appreciation. At this time, stay safe, and we'll talk to you again soon. Brett, back to you.

Thanks. Thanks very much, Mark. As always, presented with style with some good insights with our participants today. So turning to operations across our regions and starting with Southern Africa. This slide provides a very useful snapshot comparing wholesale and independent retail trading performance for the first half across the SPAR food, liquor and Build it businesses. For the SPAR core food business, there are no significant differences between wholesale and retail performance, a good indication that retailer loyalty remains strong. For TOPS at SPAR, the large negative growth differential between wholesale and retail, can be explained by the fact that liquor returned to 7-day trade in the month of March and then the stocking up of the stores in advance of Easter, which fell in April this year. Build it is the outlier performer for the period, driven by home improvement. Retailer loyalty in this business remains very strong. Our priority at retail is to drive organic growth for our independent retailers. This is done by leveraging our progressive store upgrade and remodel program. During the 6 months to march of this year, we upgraded a total of 159 stores across all formats. This included 76 SPAR stores. We continue to roll out store innovation through in-store concepts, which have been embraced by our retailers, such as McCoy Pies, Chikka Chicken, our cafe concept Beantree as well as SPAR Natural. A major benefit for SPAR retailers is the ongoing promotional and marketing support they received. To mention just one of these initiatives during the period, SPAR together with Bata Shoes ran the following promotion, which was extremely well received. And I'd like to share some of that footage with you. This is an extract from a presentation I did at the international SPAR Virtual Congress last week. Natasha can you please play the Bata video. [Presentation]

We are, obviously, well aware of the importance and impact of our marketing initiatives at retail. To this end, towards the end of the period, we made a structural change, whereby we split the merchandising role at executive level into 2 merchandising on the one hand and marketing on the other. We believe that through this improved focus, we will be in a better position to leverage opportunities for growth and innovation. Lastly, our private label team continues to drive innovation in product development and execution, working very closely with suppliers, [ Build it ] with SPAR Encore, business we acquired in March last year. This business assists us with driving overall house brand growth, our managing procurement, packaging, distribution of products, independent manufacturers to our distribution centers, to our stores. Our house brand sales now represent 24.2% of core wholesale turnover, growing at 3.4% during the period. Within our Build it business, there has been greater collaboration in wholesale and retail after the 5-week closure last year. Performance of this business, underpinned by the strength of our supply chain and a focus on retail execution, which is what differentiates our brand from the rest. It's the agility of the retailers and their ability to react quickly to customer needs that really drives this. Our Build it retailers have seen a pleasing uplift in sales through refurbishments of their stores and upgrades in aligning with the new signage, an image, which has helped deliver strong like-for-like growth, 18.7%. We will be launching a national campaign in the coming months, which speaks to our brand essence of yes, we can. Here's a taste, what to expect. Natasha, can you please play the Build it advert? [Presentation]

Before I cover the European regions, I'd like to provide an update on digital transformation for the group as a whole. We will be driving modernization and greater systems efficiencies in the coming months and years to a group-wide SAP implementation project. It will represent a significant investment in future-proofing the company's development and growth in the years ahead. With regards to e-commerce, although many of our retailers have been quick to respond to customers' needs for online shopping, we recognize a need for a sophisticated offering tailored for our business model. Our business model is underpinned by a shared value ecosystem between wholesaler and retailer. This presents complexities and requires greater collaboration between the 2, and we have put a team in place addressing this with a focus. We believe that the SPAR business model requires an online shopping solution that serves our SPAR customers also adds value to our independent retail partners, communities in which they operate. So turning to our European markets. BWG Foods in Ireland has continued to deliver strong results by the severe COVID-19 impact. Aside from COVID-19 also faced with the impact of Brexit during the period. The team has been well prepared for the challenges of Brexit and [ play ] into action and scenario planning. As a result of this, retailers have been largely protected from any Brexit impact and have had almost no business disruption, service levels to retail customers and TAM to date. During the period, Ireland dealt with its most severe wave of COVID-19 infection. Our neighborhood retail stores and EUROSPARs continue to build consumer confidence during uncertain times and have benefited from being ideally located, while possessing credible ranges [ put value ]. The strength of the retail brands has lessened the impact by the parts of the business post to a hospitality industry that has been devastated by the pandemic. Fortunately, the exposed parts of the business remain well positioned for when the hospitality industry opens up again. As mentioned, much of Europe experienced third wave COVID-19 infections during the period, which has meant strict lockdown regulations of business throughout. Our Swiss business continues to deliver an exceptional performance. TopCC cash-and-carry business suffered due to the impact on our hospitality industry. However, this gained new ground during the lockdown and remains well positioned for when hospitality opens up again. Consumers opted for -- or continue to opt trusted community-based stores and convenience of a large supermarkets. The integration of PAM and Edelweiss stores is progressing well. We have benefited from the growth in supply of additional categories to this. During the period, we acquired Store Service AG, which owns 60 petro-convenience stores. This acquisition is a great step towards further establishing SPAR's brand as a key partner in retail and convenience. I would like to show you a video of the first store we launched at the back of this acquisition. Please play the Swiss video, Natasha. [Presentation]

SPAR Poland is making steady progress. Alongside bedding down our wholesale and logistics capabilities, we are driving a SPAR culture within the business, having been severely delayed by court closures due to the pandemic, business rescue, sanitation proceeding now been finalized. This is obviously a significant step in stabilizing this business. We've always maintained that retailer loyalty growth key to the success in Poland, and our focus remains firmly on this. Loyalty is slowly improving and was around the 25% mark at the end of March. Another important focus area for us was the conversion of the petro and [indiscernible] stores to SPAR and EUROSPAR branded stores. We have made good progress in this space, and we've converted around 13 additional petro and [indiscernible] stores with just 8 stores now remaining. From a profitability perspective, we've -- sadly, we are behind on our breakeven targets due to the prolonged COVID-19 lockdown regulation, but we are encouraged and motivated by what we have achieved so far. We've accomplished really a great deal under the circumstances, and we've established a solid foundation. We now have 2 senior South African executives based in Poland, and we remain well positioned starting [ of it ]. Now turning to our outlook. Market dynamics are such at present with many moving parts that our outlook is obviously complex. To give you a sense, this slide summarizes the dynamics within each market for April 2020, April 2021. In South Africa, for the month of April last year, liquor was banned and Build it was closed. Cigarettes and HMR were not for sale. This year, liquor and Build it are trading again, recovery in the HMR category was slow initially, but it's gaining momentum now, whilst recovery for cigarettes remains slow. Ireland and Switzerland remained broadly the same in respect to lockdown regulation. Poland is still impacted by the more closures, but we are starting to see the easing of restriction most encouraging. So taking all of those factors into consideration, here's a sense of trading for the month of April. The right-hand column agrees to what we provided in our presentation this time last year. The left-hand column provides an indication of trading across the different geographies for April 2021. For South Africa, liquor and Build it are playing a big role in the month of April. Ireland looks strong. Switzerland has contracted as expected. However, it's performing well when you consider the effect of the base in April 2020. Finally, Poland is positive. We expect to see this increasing during the summer months as retailer loyalty grows. In closing, although a great deal of uncertainty remain, group benefits significantly from its diversity demonstrating its robustness against adverse cycles brought on by the pandemic and remains resilient during these disruptive times. We remain suitably positioned to deliver exceptional value to consumers through our community and our neighborhood stores. Thank you. We're now happy to take your questions.

We have 3 questions from Paul of Bank of America Merrill Lynch. Please, can you give CapEx guidance for the group by geography for FY '21 and FY '22? And what will it be spent on?

Silence in the room, the CEO and CFO, looking at each other, right? Good afternoon, Paul. So, the CapEx guidance that we provided previously is largely still in play. We don't believe it's going to change materially. I think the biggest challenge that we face at the moment is actually being able to roll this out. So the guidance for the '21 financial year was roughly ZAR 950 million in SA, which included ZAR 550 million of the SAP project, so approximately ZAR 400 million of base CapEx in SA, but that did also include some corporate store business. I think the, let's call it, core business would have been roughly ZAR 350 million. Ireland was roughly ZAR 300 million. The Swiss business was roughly ZAR 300 million. And the Polish business was approximately ZAR 50 million to ZAR 100 million, depending on the corporate store adjustment. So over the total [indiscernible] ZAR 1,500 plus, roughly ZAR 1.7 billion was the 2021 outlook.

Can you talk to your market share trends in South African supermarkets? What is your outlook for volume growth and market share in the second half [indiscernible]?

Thanks, Kerry. Is that from Paul, Kerry?

Yes, from Paul.

So Paul, I'll try and talk to that. Yes, I think if we look at our -- where we currently sit and looking forward now, as Mark and I both alluded to, is obviously uncertain. In South Africa, we -- last year, this time, we had -- we were really were experiencing some really significant growth in our stores because of the initial lockdown, obviously, in the pantry build up in March and then strong performance in April, May, June. So Q3 for us this year is going to be challenging. That will ease off into Q4. As the lockdown last year, lockdown was eased and people ventured out back to shopping malls and restaurants and the like. So if we look forward now, I think for us, our focus will remain on driving our top line growth at retail. As I said earlier, it's a key measurement for us at retail is our organic growth. We have a strong pipeline of new stores to open in the second half of the year. We opened 43 new stores across all of our banners in the first 6 months. We will end up at 100-plus stores by the end of September. So that will obviously be -- add to our top line growth. We've spoken about the innovative or progressive remodel store upgrade program. We had 159 revamps in the first 6 months of the year. We got about 170-odd planned for the second 6 months. So really strong activity in that space. And for me, talking to the faith and the trust and confidence that our retailers have in the retail model at present. On top of that, we've got, obviously, our private label, and we understand consumers to be under pressure and cash-strapped, I think we're all little bit concerned about financial health, and wealth or well-being of consumers. But private label has a big role to play in that space because of the value offering it presents. We have a very strong private label basket. And obviously, we'll continue to drive that through the assistance of our colleagues in the SPAR Encore team. And I think the split that we made in our merchandise and marketing executive roles will assist us in that regard. On the promotion side for the second 6 months, we will continue with our normal SPAR promotions, but we have 1 or 2 additional initiatives lined up or events lined up, which will add to the top line growth. So for us to predict the market share growth, difficult, very many -- a lot of moving parts, but for sure, the focus will remain on top line in retail.

Okay. Last question from Paul, can you please give updated targets for Polish sales and losses going forward in F '21 and margin outlook for the next 2 to 3 years?

Okay. Paul, the guidance for 2021 was circa EUR 200 million turnover. The latest forecasts, and again, the moving parts around the pandemic in Poland is nowhere near normalized, we expect that we should get roughly to about EUR 650 million. So effectively on that mathematic, between 75% and 80% of that original target top line. From a margin perspective, I think, to be honest with you, the most important priority right now for the Swiss is to stop being negative. So before we get really too concerned around margin, I think the breakeven is the critical point. The original guidance was breakeven in the calendar year 2021. We've since guided that we expect the business will breakeven for the first time in a month in probably Q1 towards the latter half of Q1 calendar year 2022. And then the priority is going to get that business into a breakeven perspective over the remainder of 2022. The ultimate view is that, that business should largely mirror what we are achieving in both Ireland and Switzerland. So the first target, as I say, is to stop the negative and then move slowly towards 0.5%, 1%. And then I think the ultimate objective, subject to scale in 5 years, would be to mirror what we are achieving largely in Ireland, somewhere in the 2.5 percentile range. As I said, that would be a 3- to 5-year outlook. Most important priority right now, turn the red into black.

Next question is from Sa'ad of Nedbank. Would it be fair to extrapolate the polish GP margin of circa [indiscernible] to medium term? Or do you expect to recover to around the circa [23%]?

I'll take that one as well. As we guided, the circa 23% was fundamentally the corporate retail stores enhancing that number. Those stores have since been sold out. So the 15% that we are tracking at the moment is probably the guidance that I would be providing. As you see, the wholesale performance in the other 2 geographies are not that dissimilar. I think the original guidance was that we would probably expect to be 1% or 2% lower, if we just looked at core wholesale operations. So at this stage, I will be guiding 14% to 15% for your next, let's say, 12-month outlook.

Question is from Shaun at HSBC. Across your food inflation basket, what would be the weighting between dry grocery, sugar, meat and produce?

Shaun, I'll take this 1 as well. The grocery number at 5.4. Groceries as a percentage of our wholesale business between 36% and 40%. It depends on which distribution center, but circa 36% to 40%. Sugar, the guidance that we gave of roughly 5.9 is about 2% of our warehouse business. In those 2 perishable categories, produce, the 6.3% is 5% to 6%. And meat the 7.6%, again, very similar to produce, 5% to 6%.

Next question is from [indiscernible] Benguela Global Fund Managers. Mark, please explain the growing bank overdraft balances over the last few years? In historic halves, this would unwind by year 2? That's the first question.

Without trying to sound too simplistic in my answer, the reality simply lies in the day of the month that the 31st or the day of the week that the 31st falls. And I'm sorry if I'm sounding very simplistic. But fundamentally, we report until the 31st of March. We collect from our retailers on a Monday and a Wednesday, we pay our suppliers on the 31st of March. And depending on where that 31st falls largely dictates the extent of the overdraft. So in the current year, the 31st of March was a Wednesday, that aligned roughly with some of the collections that we made, but not fully. So to be honest with you, that's the extent of the explanation that I can really provide you and that fundamentally hinges on the calendar month.

And then a question from Brian Thomas at Laurium Capital. Much has been made of the loyalty programs and [indiscernible] competitors. Is this something that you plan to introduce? Or do you believe that it is tactical?

Brian, so right now, we have our SPAR rewards starting in circulation. We have about 8.5 million people who have adopted that card. We've always stayed away from the typical loyalty card because of the cost to retail. So obviously, with some of our competitors, they have an accumulation of points, which costs the retailer money. So we have tried to stay away from that. We're in the process now of looking as part of this digital transformation strategy that I referred to earlier, we're in the process of looking at us SPAR Rewards card with a view to enhancing the offering for consumers and building in some other value-added services in that space. So I can't see us moving towards a point accumulation likes of or pick and pay smart shopper, but certainly looking at enhancing our current SPAR Rewards card, which is the circulation.

The next question is from Brian Thomas. Again, a question for Mark. The offshore debt looks [indiscernible] relative to EBITDA generated [indiscernible] our covenants construct [Technical Difficulty].

Well, as I indicated, all of the debt has been structured in both -- or in all 3 local geographies based on existing EBITDA flows and/or projected EBITDA flows. The fundamental covenant is a debt to earnings cover of 2.75, and we are -- I won't say substantially, but let's say, we have sufficient headroom under that cover, and there is no real cause for concern around that. Bear in mind that some of those debt numbers that I've alluded to do not have straight-line amorts, they've actually got significant bullet payments. And in the context, the European market bankers are very, very comfortable simply to roll those over. So the actual paydown against those debt is not such a significant factor. From the South African management perspective, where we've had a somewhat negative view on debt for many, many years, we would like to accelerate that payment. But in truth, that's actually served us well in funding the growth of both of those geographies to allow them to have the capacity to make acquisitions so as I've indicated, the covenant construction is largely earnings to debt and the ratio is generally circa 2.75, and we have [ filled ] that headroom quite comfortably.

Next question is from Shaun and HSBC. What is the targeted loyalty ratio in Poland? How long do you think [indiscernible] that target?

Sean. So when we went into Poland, the royalty that we're quoting at this current stage at about 25% is the loyalty relative to the SPAR retailers in the south of the country. 150, 160 that we onboarded. So our target there is to get that to around the 40% mark. The retailers in the north, the petro and [indiscernible] stores, which have been rebranded EUROSPAR and SPAR most of them. Their loyalty is a lot higher, it's a different range of products, different markets that we serve. The 40% markets where we're aiming, 35% to 40%. And as Mark talked about from a breakeven perspective, we need to be there to get to the breakeven point. So we're targeting that now with our people on the ground. And as things open up, we're targeting to get there early next year.

Next question is from Warren Riley at Bateleur Capital. Brett, past few years have seen SPAR growing its international footprint with acquisitions in Ireland, Switzerland and Poland, what can we expect from you as new CEO over the short- to medium-term [indiscernible] allocation priorities [indiscernible].

So Warren, unfortunately, at this stage, I haven't been to visit the overseas geographies, obviously, because we haven't been able to travel. So we add myself and Graham, our Chairman, who actually speaking yesterday to how we can get there as soon as possible because it's very difficult for me, especially Poland, I've got no idea what that business looks like. Right now, we are -- we need to bed down Poland, as Mark has said. We still believe strongly in the opportunity that exists there. So we're going to be spending a lot of time and effort in that space. We also have our SAP implementation project, which is going to cost us about ZAR 1.5 billion in the next couple of years. So a significant amount of money to be channeled towards our ERP program. So right now for us, there's nothing on the horizon in terms of new acquisition, not to say that we won't consider something if it comes our way, but it's certainly not on our short-term horizon.

Thank you, Brett. There's another question from Benguela Global Fund Managers. Mark, please explain the price to be paid for the Swiss SSAG acquisition, where goodwill made up over [indiscernible] to the negative NAV?

The acquisition price of SSAG was CHF 10.6 million as was alluded to. It constitutes roughly 60 petro convenience stores, which over time will be rebranded as SPAR. The nature of the assets of those stores, as you point out, are not significant. There's only some ZAR 23.5 million of value. So hence, the goodwill number does look then quite significant at ZAR 200 million. But not only is the goodwill attributed to the underlying assets. There is a significant value attached to the 10-year supply contract that we will have into those stores. So for us, the goodwill is really meaningful against the context of wholesale business growth into those stores as well as the retail opportunity that those stores provide us in the sense that we will, in all probability [ un-sell ] those stores into the hands of independents. So yes, compared to the underlying asset value, the number does look significant compared to the supply chain value, which is roughly CHF 100 million of additional wholesale business per annum, the number in our mind was meaningful.

The next question is from Chris Gilmour with MOUR Media. Build it that must surely be benefiting for 2 reasons. Firstly, a favorable base effect compared with 2020 when stores were closed, and secondly, the ongoing home-body economy that results in people beautifying their homes during lockdown?

Yes. I think -- so we've been obviously tracking the Build it growth for a while now. So initially, last year when Build it -- when the initial lockdown, our Build it stores were closed for 5 weeks was April -- last year, April, early part of May. Once we emerged from the lockdown, the growth started to come through, but it surged in the sort of second half of last year. And we -- it's continued right through December into the current period. So certainly, very, very positive for us. We don't think that that growth rate of 25% to 30% is sustainable. We think it has to taper off at some stage. But we believe strongly that our stores are in good condition. I said earlier, we've been [ backed ] on the remodel and store image program, which has been well received by retailers and consumers. So our retailers have experienced good growth in top line, good profitability levels and in a good space, and we think we are well positioned to continue our growth trajectory, albeit not at the 25% to 30% mark.

The next question is from [indiscernible]. Does SPAR have any appetite for acquisitions? If so, what assets and markets?

I think I want to go back to what I said earlier around that point. Right now, we're not actively hunting any new acquisitions. We've got work to do in Poland. Our joint venture in Sri Lanka. Also, we've got work to do there. We've got 8 stores that are operating there. Obviously, some very harsh lockdowns in -- on the island now which are going to our efforts there, but we've got work to do in getting that business up and running. So I think we've got enough on our plates with the SAP implementation as well for now. But I'm going to say, if another opportunity comes our way, we'll certainly consider it.

Next question is from [indiscernible]. Any indication from the 18% to 19% growth in April 2021? What caused SPAR grocery sales [indiscernible]

SPAR core grocery performance in that period is actually negative. The fundamental growth is actually coming through from liquor and from building materials. The grocery performance currently is in the circa 2% to 4% range.

The next question is from [indiscernible]. How significant is your JV in Sri Lanka? And when do you expect this to contribute to revenue?

It's a 50-50 JV with a company called Ceylon Biscuits Limited. We broke-even in the month of April, in fact, for the very first time there and unfortunately, have now gone into really, really harsh lockdown. So we will breakeven, our original estimate was to breakeven by the next year, early next year. And then to grow from there. Obviously, there's opportunity for us to grow independent retail in Sri Lanka, which we are pursuing. But as I said, we're going to be hold back a bit now with the latest lockdown restrictions, but we still believe strongly in the opportunity.

Next question is from Nick Webster, HSBC. It feels like you've lost grocery sales as well as trading bands have come in with a looming third wave and possible restrictions given the government's playbook to date, is there anything you have looked at to mitigate the impact this time round?

Nick, yes, look, I think one of the things that we -- as we came into this results presentation and this period we're in now was concerns around possible liquor lockdown again, third wave. I think our stores, again, our SPAR stores are well positioned in the communities. We believe that we are -- we'll be able to take advantage of that. Liquor itself, unfortunately, we have to comply with and we will comply with the legislation with new lockdowns that come our way. There's not much we can do about that. It would be sad. Because, unfortunately, not all -- I mean, it's a big chunk of our business, but at the end of the day, there's not much we can do about that.

Next question is from [Yesh Patel ], again. Is there any indication of how Build it is growing relative to the [indiscernible]?

What we've seen on the Build it side is, in fact, our competitors, someone like [indiscernible] is also really having a good run. So it's actually a very interesting phenomenon because often in our Build it market, where those stores are located, same consumer that we believe is really cash strapped from a point of view of groceries and purchasing in some of the retail offerings. So talks to a -- call it the structural change in terms of the investments. So it's not only us. There's definitely -- some of our competitors are also enjoying some really good growth at the moment.

We have another question from Paul Steegers of America. Margins in Ireland and Switzerland were high in the second half of last year, can you sustain these margins in these geographies for H2 this [indiscernible]?

Well, I think that the H2 margins last year were largely the impact of the summer holidays. So I think that you had a consumer that firstly wasn't in locked down and as a result of that, you saw a wider basket range and therefore, margin increased. The H1 number, as I intimated earlier, was impacted by the stay home. And in the Irish context, at least a larger increase or an increase in alcohol and tobacco purchases out of the stores. I would guide you that if the lockdown was eased as we understand, it was about to be. And the consumer started looking at a more normalized basket, it should move back towards what we saw in H2, yes.

Mark, we have another question from Sa'ad Chothia, at Nedbank. What needs to be done to achieve 40% royalty in Poland? For example, pricing, store refurbs, et cetera. How is the SPAR offering going to compete Eurocash by most of the independents?

So it's -- part of it, obviously, would be pricing, which we've addressed, and Mark spoke to that a bit earlier with regard to our gross profit reduction. Secondly, in our DC down in the south in Chile, we've added another 5,400 SKUs, which are particular to the stores that are down in the south. We used -- we did carry about 1,600, we've added another 5,400. So we took 7,000 SKUs in the DC down south to primarily service those stores. Those 2 factors, together with the relationship, which is, as you know, is part of what we do, the way we work with our retailers and with the teams on the ground, we're confident that we'll be able to leverage that loyalty.

Thank you, everyone. There are no further questions.

So thanks, Mark. Thank you very much, Kerry. Thank you. Thank you all for joining us today. We really do appreciate your time. Look off yourselves. Bye-bye, everyone.