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

Good afternoon, everyone. Welcome to our results webcast, and thank you so much for joining us today. I am Brett Botten, the CEO of the SPAR Group; our CFO, Mark Godfrey, is joining me today to present our results to you. For our presentation today, I will begin with a brief overview. Mike will then present our financial results for the period, and then I'll come back and provide an operational and strategic update as well as some insights into what lies ahead of us. In terms of an overview for the period, the group has delivered a robust performance during disruptive and uncertain times. Our South African business has delivered a mixed result impacted again by COVID-19 market dynamics, including more liquor bans as well as the civil unrest, which took place in July. Our Build It business has delivered an excellent performance with consumers continuing to invest in their homes during this time. BWG Foods, our business in Ireland has delivered an impressive performance in Ireland with good growth across all retail brands helping to compensate for the lost business in the hospitality sector. Appleby Westward and South West England has performed well. Both of these businesses have come up against considerable trade and cost headwinds due to the shortage of truck drivers and other workforce in the supply chain in the U.K. and Ireland. Our Swiss business is holding its own in respect of new business gain during the COVID-19 lockdowns with consumers choosing neighborhood convenience. The 60 petro-convenience stores, the SSR Gear Group, which we acquired earlier in the year have been integrated into the business. Although our Polish business has unfortunately failed to deliver the financial improvement we were working towards. A great deal of progress has been made to lay the foundations for growth, and we have a plan of action in place to get this business to where we want it to be. So then looking at the financial highlights. Group turnover was up 2.9% at ZAR 127.9 billion. The mixed performance across our various regions delivered group operating profit of ZAR 3.4 billion for the year. Diluted headline earnings per share up 5.5%, and we are pleased to report a dividend of ZAR 816 per share for the year. During our fourth quarter in South Africa, we witnessed a devastating time for our country. diluting and destruction, which happened in the provinces of KwaZulu-Natal and [indiscernible] has left severe consequences for retailers, suppliers and consumers. We were quick to take action to ensure the safety of our people and protect our assets, including our distribution centers and central office. Our [indiscernible] DC, we were forced to close that for a week, and our south [indiscernible] DC was closed for 1 day. We have continued to support our retailers by way of frozen trade accounts and assistance with insurance claims and the like. Although we originally had 184 stores impacted, 131 of these were reopened within the reporting period, well, that's just over 70% of those impacted. And we are working very closely with the other retailers to get the remaining stores opened as soon as possible. Despite the devastation cause, the rebuilding and reuniting of communities around our affected retailers has been truly inspiring and heartwarming. In the true spirit of SPAR, we have witnessed our values of entrepreneurship, passion and family values coming together through the willingness of our people to stand up and start again. I really would like to express our gratitude to the people of our communities that helped us during this tough time. He has a thank you, video, which we put together. So Chase, can you please play the video for us. [Presentation]

Definitely a sad time for us and one which I really hope we don't see again in the near future. Our sustainability tagline, 'My SPAR, Our Tomorrow' is a public commitment to the future of our brand as well as our planet. This area is a priority for our business. We have a dedicated executive and team who are starting to collaborate with our other regions who are involved in many worthy initiatives such as the reduction of food wastage and trialing environmentally friendly logistics options. We are placing even greater focus on preserving natural resources, and we are working with suppliers to reduce our impact and providing greater awareness, guidance and support at retail. Obviously, there's a lot of work to be done in this space, but we really are making solid progress under Kevin O'Brien, our sustainability executive leadership. I'll now hand over to Mark for the financial review.

Thank you, Brett. Good afternoon, ladies and gentlemen, and thank you for joining us this afternoon. Normally, at this time, I'll take time now to recognize some of our finance teams around the country. And if you just like -- just give me the opportunity to our friends in Switzerland, [indiscernible] to our colleagues in Poland, [indiscernible] and to all of you in Ireland and South Africa. Good afternoon. So as Brett gave a very, very bleak reference to the salient features. Let me just unpack some of those for you in more detail. And Chase, I'm not sure which slide you're on, but if we can get to the slide, Salient features the second of my pack. So turnover from the sale of merchandise, ZAR 127.9 billion, growing, as Brett already alluded to by some 2.9%. And it really was a year of 2 halves. At H1, we reported sales growth of 7.5% and clearly slowed in H2, but that wasn't just a business slowing. It was the business coming up against an exceptionally strong base in the prior year. And ironically, we actually ran into an FX impact as the rand strengthened dramatically over the last 6 months of the '21 financial year. And I'll show that to you in a graphic in a couple of slides to come. Gross profits despite some -- well, let's just say, substantial moving parts, not just in our South African business as the various categories of turnover changed, but also in our international businesses as their food service or cash and carry or even corporate retail dynamics changed. But despite all of those, we still managed to deliver a gross margin of some 12% growing by -- looks to be 10 basis points, but in fact, 11, if you want to go to the decimal. Operating profit might surprise, but the reality, ladies and gentlemen, is that despite some very tight cost control and across all of the groups, we managed to hold our expense growth to just over 5%. The fundamental is that if you're growing costs even at that low level, but margins are growing by 4% or 3.9%. You do unfortunately end up with negative leverage. And in this case, our operating profit declined some ZAR 50 million less than what we'd achieved in the prior year. So consequently, our operating margin declined from 2.77% to 2.65 12 basis points, a disappointment and an area of focus, particularly around our cost management in the year going forward. That said, costs were tightly controlled across the group. And I don't believe that is a fundamental issue of poor cost control in this case. Profit after tax grew by 12.9% and another indication of moving parts. In the prior financial year, a lot of you will remember the financial liability adjustments. I know they've confounded and confused even our Board were frustrated around the adjustments that we were putting through to recognize the financial liability for the buyout of the minority interest in both our Swiss and our Irish business. Now on this slide in front of you, you will no longer see what we used to refer to as normalized earnings or normalized diluted earnings. And fundamentally, that is now a thing of the past as all of those liabilities have been extinguished. But we do still have the overhang of the legacy in the prior financial year. And it was that circa ZAR 200-odd million worth of charges in the prior year, which in comparison to this does tend to inflate the profit after tax to some 12.9%. Headline earnings and taking into account the abnormal adjustments impacting the headline growing by 5.4%. Diluted headline earnings and really just the impact of the shares in play a growing to 5.5%. The dividend per share of ZAR 816 for the year, albeit appears to be a decline on the previous year is fundamentally at the same dividend cover of 1.45x. So we have not changed the dividend cover. But the reality is that in the previous year using the normalized earnings is the basis for the declaration of dividend. Shareholders benefited because we adjusted that positively, and there has been no adjustment to make in the current year. Net asset value grew by 6.1% to just over ZAR 4.3 million -- 1 million -- sorry, ZAR 4,350 per share and a positive improvement there as well. Chase, if you would turn the slide for me. Just to share with you at a very, very granular level, the key regional metrices or the income statements per geography. For those of you that are particularly looking at any of the specific geographies. And I'm not going to labor through all of them other than to very, very quickly talk to Southern Africa. Gross margin actually increased over the second half of the year and again, increased over the previous year. And fundamentally, in Southern Africa, we are seeing the benefit of the Encore business coming through. That is the sales and merchandising acquisition we made in February last year. Operating expenses of some ZAR 6.7 billion and a profit before tax of ZAR 2.3 billion. The Irish business had a very strong year once again managing to hold their profit almost flat at 13.5%. And I say that without any insults implied because it has been an exceptional year for the Irish team considering the moving parts in their business at foodservice and hospitality came and remained under pressure, and the retail business continued to drive forward and a very strong profit before tax reported in Ireland. Our Swiss business had another good year. You will recall that last year, they posted record earnings since we acquired the business in 2016 and another very good year by the item, ZAR 13.9 billion of the sales. The margin, in fact, increased from H1 of 17.9% to finish at 18.8%. And that also reflected acquisitional activity in Switzerland as a result of the investment in some 60 Petro for court stores under the brand, SSAG, which we announced at H1 that margin coming through as well. The Polish business on the second to right column, Yes, as Brett alluded to, disappointing that we did not achieve the turnover that we had forecast that we have budgeted for this year despite great effort that has been made by that team, we did for short on fundamentally the turnover line. And although we are building for the future without that turnover coming through, we once again post a disappointing performance compared to our expectations for the year. Margins have declined on the previous year, but that is a consequence of the disposal of retail assets into the hands of independence, always part of the strategy for that business. But we did improve the gross margin performance over H2 from the 15.1% reported at March of this year to 15.9% for the full year. Unfortunately, the profit, which didn't materialize. We were expecting to break even towards the early part of the calendar year or the -- sorry, the latter part of the calendar year, we expected this loss to be substantially less in our budget and our planning. The guidance that we provided some weeks ago forecast the disposal of a substantial asset in this business, that sale did not materialize. And in fact, having visited Switzerland, Poland, we've elected to remain invested in that asset and, in fact, grow that going forward. And hence, the guidance that some of you might have been working on with an improvement over the previous year and the disappointment that might have created is not that the business failed to deliver, but there was a strategic change of plan with regard to that disposal. So the group number, ZAR 127.9 million and a profit after tax of some ZAR 2.208 billion. Just to note, -- as far as the IFRS 16 impact, this continues to have obviously a significant impact on the finance income and expenses and effectively the below-the-line effect. But there has been a negligible swing between 2020 and 2021. For the full year this year, the impact was actually minus ZAR 20.7 million and at H1 plus 15%. So a reversal in the second half. But these numbers, obviously, all IFRS compliant and the IFRS adjustments having gone through. Chase, if you would turn the slide, if we can just focus on the turnover. And yes, it is a very busy slide. I'm going to find -- unpack some of the geographies. I know this is fundamentally where a lot of you are focusing on. And the very first line is obviously a key issue for us in South Africa, our core SPAR business ZAR 62.6 billion worth of sales over the last year, that business is, in fact, slowed on 2020. And in fact, we reported change of negative 0.4%. Now at H1, that number was 0.8%. So as you would obviously establish, we definitely did slow over the second half as we lapped again, a very, very strong quarter 3 of 2020, that number slowly unwound. But it does still reflect a weakened consumer. It does reflect, to some extent, the disruptions in the liquor trade, where our stores are no longer enjoying the benefit of people visiting the neighbor the adjacent liquor store over weekends. And there's no doubt that, that number in South Africa, particularly in Kwazulu-Natal and certain of the Halting provinces were affected by the sole unrest that Brett alluded to that took place in July of this year. But our liquor business has been strong. It bounced back from a negative performance at half year to report a growth of 11.2% over the full financial year. But to put that into perspective, that liquor business, in fact, is still some ZAR 500 million behind where it was in 2019. So in fact, a very, very frustrating business for us in the sense that the restrictions that are in place are still not allowing us to achieve the business in the sale of alcohol that we, in fact, were doing in 2019. The combined TOPS and SPAR business, and this is our wholesale number. I just need to point out, growing by some 0.7%, in fact, showing an improvement on where we were at H1, where that number was negative. Our Build It, business continues to really perform strongly. It built up ahead of steam towards the latter half of 2020 and finished the year at some 23.5%, again, reflecting the impressive investment that has been made by South Africans, both in their homes in home improvement and structural change to their homes over the last circa 18 months. At half year, that number was 26% growth. Yes, it has slowed slightly as we obviously start lapping that very strong performance in the latter half of 2020. So the Southern or the South African business grew by some 3%, at H1 that was 2.4. So it did actually increase as a result of the improvement of liquor and Build it over the second half. Our Pharmaceutical business, as base, had a very strong performance, growing by 9.5%, particularly in the Scriptwise category, which is specialized medical supply specialized medicines. And that has been a really strong growth driving that up. And then our Encore business, the acquisition that we made in partnership with the Encore team effectively in February last year. Now the number that you see is actually only the incremental Encore business because Encore's predominant supply is into SPAR as a key supplier of both private label and product to SPAR. Their business at the turnover level is just short of ZAR 4 billion and the ZAR 484 million you see is actually just third-party sales, a very small percentage. The 73% is rather misleading. As I say, the comparison is at 12 versus 7 months and somewhat irrelevant to the real analysis. I just need to also point out that Encore was also severely affected as a result of that unrest that took place in July and 5 of their major suppliers, in fact, 5 major private label suppliers into the SPAR Group were impacted by that unrest 3 of which were still closed at the 30 of September and are slowly coming back on stream. So the Southern African business grew by some 3.4%. If we then move across to Ireland. In ZAR terms, the Irish business grew by 1.5%. But in fact, in local currency terms by some 3.5%, a very, very strong performance considering the challenges that have been experienced in Europe. All of the retail brands were strong -- and despite the fact that food service and their cash and carry business have been under great pressure as a result of hospitality lockdowns. They still in that area, remain leaders against the market and the overall performance in both foodservice and hospitality is, I would suggest market-leading compared to where those sectors have performed over the last year. In Switzerland, the business grew from ZAR 13.6 billion to just under ZAR 14 billion in South African currency reporting currency 2.5%, but a far stronger performance in local currency growing by 5.6%. Now again, the impact of the exchange rate came into play because at H1, the Swiss business was actually growing in ZAR terms by 21%. And that is also a part of the reason that the business over the second half slowed, not because the Swiss business slowed, but in fact, because of the FX effect, which worked against us in this period. Very strong performance from the acquisitions I referred to earlier, the 60 Petro court stores that were acquired and that continues to drive that business forward and set its platform for the new year. And then Poland, as I've indicated already, we failed to achieve the turnover that we projected to achieve. We came up short against that number. but we are slowly growing the loyalty and particularly the old SPAR retailers. There are challenges in that area. There are ongoing talks that are taking place with those retailers. And the year ahead has some very, very positive actions, which need to and will be put in place. So the total group growing by 2.9%. I just need to point out and again, not to talk about notional adjustments. But if you do want to give us some credit, 2020 was a leap year, so there was an extra day in the base, and I'll let you work out what one day on 2.9% would look like. Chase, if you turn the page, just from a regional turnover contribution, just to graphically illustrate where each of the geographies contribute to the total South African reported business. South Africa remains the biggest component, obviously, 63.5% of the business, at least from a turnover perspective generated in South Africa, Ireland, a 23.7% and Switzerland at 10.9%. And that doesn't suggest that their contribution declined, but unfortunately, it actually reflects to the FX effect and how that came through. But both of those businesses contributing substantially and significantly to the overall performance. And the Polish business, clearly an area for great upside opportunity looking forward. It did fail to pick up to the extent that we were predicting it to, but all I can say to you is watch that space. We still have great ambitions for what that business can achieve into the future. So the graphic at the bottom just showing you how the various geographies are contributing to the total turnover performance. Chase, if you would turn the page, let's move on to the gross margins of the business. And as I intimated in my opening remarks, it has been a very impressive management performance over the last year by our marketing teams. A lot of moving parts in a lot of geographies, categories of businesses being restricted. Other categories being impacted by protocols and government interventions. So I think it was an overall fine performance if we assess where the various countries and the various business is actually finished. In our South African business, we actually declined margin by 8 basis points. to 9.41%, and that is really just the fundamental effect of the growth of liquor and Build it. Both of those 2 sales channels trade at far lower margins than, in fact, the core wholesale business, and that was purely a dilutionary effect as a result of the sales changes. As far as the base business goes, yes, a slight decline despite the strong sales performance, and that is really just the Scriptwise impact of that business, the specialized drugging business where it's a higher-value business at a lower margin, again, a mix impact. And then as I've intimated, the Encore business, a primary supplier of both private label and product into SPAR and we spoke previously about the impact that Encore would in fact have on our reported margins. And we previously guided that it could be as much as a 0.8% to a full 1 percentage point effect. And in fact, if you look at the 24 basis point increase of 2020 versus 2021, and you consider that Encore was only recognized for 7 months in the prior year. We, in fact, are very close to achieving what we expected that the encore consolidation into the group would leverage, and that allows the South African business to report a margin of now over 10.1%, a very strong contribution. Our Irish business, despite the fact that the BWG Foods business like-for-like was fundamentally flat -- the impact of the expansion into corporate stores, particularly in the Southwest of England through the Gillis and Wessex Group and also the strong performance by Newell has managed to contribute an increase of the margins of that business. And before it's taken as a slide that the BWG Foods business was flat. I think you just need to again recognize the moving parts, the hospitality and foodservice business, which is a substantial contribution and turnover element of that business coming under great pressure as the pub industry, the restauranting industry of Dublin and Ireland was locked down for a long part of this year. And to be able to, at least at the end of all of that, still report what sometimes sounds to be almost a negative remark, that it was flat, I think, is a fine contribution by that team. Our Swiss business also showed an increase in margin and again, fundamentally contributed by the acquisition of those corporate stores. And in Poland, the negative is more the fact that we actually sold corporate stores. But secondly, there has been some investment in price. And we previously guided that the Polish margin would move towards a more conventional wholesale margin. So at the moment, the 15.9% is slowly eroding down towards the circa 10% to 12% that we would probably expect that business as it's more wholesale focused business kicks in and the model then more aligns with what we are achieving in South Africa. Chase, if you would turn, let's move on to our operating expenses. And as I've indicated earlier, yes, these grew at rates faster than our top line turnover. But just looking at by geography, the core SPAR business in South Africa increased by 7.6%, and that was somewhat of a challenge to us. Bear in mind that our labor cost had been contracted, particularly with our unions to increase between 6% and 7%. But our overall employment costs in South Africa over the 12 months were actually extremely well managed and only grew by 3.1% despite those union agreed increases that were already factored in. The second big driver of that has been our IT costs as we expand into not just our SAP model, but also the remote working, so the investment in -- or required investment into licenses and also a great deal of work done around both SAP and e-commerce driving our IT costs. Marketing and selling costs, particularly with increased promotions across all our brands, so investment in this expense increased by some 21%. And then the other 2 ticket items that I think are just relevant to understand that increase is that there was a foreign exchange loss incurred on some intergroup charges. It was quite a material number going forward. That shouldn't materialize. Those charges have been realized. And then I guess, as you would expect, with the top line South African turnover performance in South Africa at the level that it is, we did have and we did incur some credit loss impairments and some bad debt write-offs in the current year. I'm comfortable to say that we are well provided for. Unfortunately, as a consequence of 2 years of COVID and the last impact of the unrest did force us to look very carefully at some of some of our data assets -- and unfortunately, some of those retailers were not able to literally survive the 2 years of COVID. So we have lost some stores this year, and we've also increased our credit loss impairment provisions. However, at H1, that number was some 7.5%. So yes, it did increase slightly over the second half of the year. And the focus for the business going forward is, particularly with the uncertainty of what the future holds with regard to the pandemic is to keep the focus and the pressure on that number. The airspace business increased their costs by some 3.3%, a very strong performance and a lot of focus that has been applied in that business, particularly around their distribution and logistics area. And our Encore business, yes, it looks an almost extraordinary number. And to be fair to that team, it is not a fair comparison because it is a 12 versus 7 month comparison. But secondly, Encore also suffered as did the core SPAR business with the pandemic and the lockdowns and also with the unrest about -- in the areas of getting staff into the stores, getting staff into the field and obviously costs incurred around that. So the Southern African business grew or increased cost by 9.9%. And yes, there is going to be a great deal of ongoing focus into that space in the year ahead. The Irish business, an increase in ZAR terms of 2.8% in euro terms, 1.6% and considered against the sales increase of 3.5% in euros, once again, an exceptionally well-managed line on their income statement and great compliments to that management team. And we just flagged particularly the challenges that the Irish business and not just Ireland, but also the U.K. subsidiary and probably at some point in time, the greater Europe is going to experience around labor shortages in the wholesale and the logistics space. There is a real shortage of drivers in Ireland and the United Kingdom. And as a result of that, there's a lot of wage pressure on being able to ensure that we have the necessary resources . In Switzerland, the increase in ZAR terms of 4.5%, driven by not just the higher volumes of that business as they continue to increase top line performance but also the acquisition of those corporate stores and considered against the sales increase of 5.6%, not entirely out of line. It has been flagged as a focus going forward. But I think it's fair to say that the Swiss team have really been well focused on this line item, and it has been exceptionally well managed. And in Poland, yes, we have reduced that number. So there is some positive news from Poland. It's not all doom and gloom. We have improved that number and that was expected as we unsold some of those corporate stores. Chase, if you would turn the page, just really to give you some detail on the finance income and costs, just to unpack them in a little more detail. So from a finance income point of view, just highlighting what is rolled up into that number for those of you that are focused on the components. The big ticket item is obviously the lease receivable expense under IFRS 16. And then under the finance costs, just 2 aspects to point out. The first one being the finance cost on the lease liability. And as we've already pointed out in our organization, we have both receivable and payable leases in the sense that we have got hedge leases and subleases. So you've got the finance cost going both as an income and a cost. And then Box down at the bottom is really just the remnants of the last of the financial liability accounting. And really just to highlight the comparison. In 2020, we had quite significant adjustments that we made against the financial liability, fair value and the amortization -- there is other amounts relating to this effectively below the line, but that is slowly disappearing out of the business as all of the minorities have now exited and have been bought out. We have one small minority purchase to make by September of this year and then all of the businesses, with the exception of Encore will be owned 100% by the SPAR Group. Chase, if would turn the page. Just a reconciliation of the effective tax rates. For those of you just trying to reconcile, obviously, the South African corporate rate of 28% is the baseline. Our effective group tax rate of 26.8%. And despite the fact that there are the normal moving culprits around exempt, nondeductible items. The big-ticket item really sits in the tax differential. So the second row from the bottom, which is boxed for you, -- so because of our exposure into the European geographies where some 37% of our total revenue is derived from those geographies have got tax rates all significantly lower than the 28% and that effectively should reduce our overall group tax down to -- in the region of, as you see, the 26.8%. I think it would be fair to say that normalized guidance, assuming that once those -- there's 1 or 2 items, which won't repeat, we would probably be circa in the 26 percentile range for those of you that are modeling effective group tax rates. Chase, if you would turn the slide and really just to illustrate what I've referred to as far as the currency moves, -- the first slide is really just the euro and the frank versus the South African rand over the last 12 months from October '20 to September '21. And you can just clearly see the trend starting in October last year when the euro was at circa 1965, finishing the year at 1,747 as the South African rand strengthened quite substantially. Down at the bottom for your own modeling and reference is just the various spots and close and average rates. And again, you can very, very easily see how over the last year, the average exchange rates have actually, to some extent, worked against us, and I've got to be cautious as how that comes across because it might sound a little unpatriotic -- but effectively, from an accounting perspective, we've actually had a somewhat detrimental effect of the strengthening rand. Chase, if you turn the page very quickly for us. The next slide is just the South African rand versus the Polish Zloty and again, a very similar trend starting at ZAR 434 and even against the Zloty the South African rand strengthened to 379. Chase, if you could turn once again for me now. The next slide is not trying to confuse what we've really just illustrated on this is we've overlaid the euro versus the rand exchange rate for the last 2 years. So the green bar represents the movement in the euro versus the rand for the 2020 financial year. And the red line is effectively just a repeat of what you've seen on the preceding slide is how the ZAR actually strengthened or performed over the last 12 months. And what is actually quite incredible about this, and I'm actually trying to think conspiracy theory because it's almost exactly halfway through the financial year that the tipping point occurred. And as you can see in H2 of 2020, the rand weakened extensively against the euro. And yes, it did benefit our reporting. Obviously, the foreign businesses came through on the consolidation exceptionally strongly. -- but we had an exact reversal of fortune in the second half of this year. So as the rand strengthened so that average currency and the differential between the 2 is quite significant when it comes to the translation effect. But really, just to illustrate a significant year of 2 halves when it came to foreign exchange and its impact on our reporting. Chase if you turn -- and again, just for information, and I'm not going to spend a great deal of time unpacking this. But just the comparative trading between the 4 business units over the last 12 months, separated effectively H1 and H2, and this is in ZAR terms. So as you would see, let's just focus on South Africa. Yes, our turnover did decline in the second half and fundamentally driven by the business performance, and particularly the SPAR performance. In Ireland, we see the improvement in the second half in Switzerland, relatively flat and operating profit on the right-hand side, again, for information, H1/H2, -- and then at the bottom, we are simply showing the annualized or year-on-year turnover and profit performance. Now as I already alluded to, the FX, there's a major impact on that. And Chase, if I could ask you to turn the slide again for us, -- the next slide, in local currency, particularly with regard to the foreigns, might be slightly more flattering. And particularly, if we look at the Irish business, which in the second half saw a substantial improvement in local currency. And again, the summer vacation reflecting very strongly there and even the Swiss business, reflecting the summary effect at the turnover level and both of those impacting strongly on their profitability. Unfortunately, the Polish business in the second half, particularly from an operating profit shows what appears to be an increased negative performance, but I just need to highlight that in the previous year, there was, in fact, profit recognized in H2 as a result of the on-sale of a large tranche of corporate stores. Chase, if you would once again turn the page, just to move into the balance sheet. And again, we presented for you a regional balance sheet or at least focused on some of the key expense of key assets and liability items. The first line property, plant and equipment, some ZAR 8.2 billion worth of assets. And at face value, almost split equally across the 3 primary regions with Poland, smaller in that space. We've identified the right of use assets in the finance lease receivables. So those are your IFRS 16 assets. And then in the red box at the bottom of the line item being the IFRS 16 lease payable amount. Goodwill and intangibles, a substantial investment item on our group balance sheet to ZAR 6.8 billion, the Significant portion of that has historically always been in the Irish business, and we have spoken to this before, and speaks to the Irish history of expansion through acquisition and a number of very well and well thought out and very profitable investments that business has made over the years. All of the intangibles and goodwill was thoroughly tested at year-end from for potential impairment and obviously, very positive to report that all very, very well valued and no impairments were required. Current assets and liabilities, again, just for illustration, largely matching and in fact, at year-end, slightly out of thinking that we generally match our assets well with the liabilities and really had to do with the timing of the year-end creditor payments. And secondly, in the SA business, we are carrying a somewhat increased debtor amount, as Brett alluded to, the support we've provided to those retailers impacted by the looting -- at the end of September, there were some circa ZAR 340 million worth of extended account sitting in the South African current asset as a result. That has improved dramatically in the subsequent months as insurance payouts have been received. Chase, if you return once again, we, on the next slide, just provided you with a breakdown of the group debt, something that I know a lot of you do focus on. So fundamentally, the total borrowings or total debt in the top section of that analysis, of ZAR 7.6 billion. Yes, it increased from the previous year. There were some increased debt -- increased borrowings incurred fundamentally in Poland and also in both Ireland and Switzerland to fund the minority buyouts -- and the bank balances, the cash balance is quite strong once again. And then the second half of the table actually just gives you that breakdown of the ZAR 7.6 billion this valued debt. We break it down for you by geography and also the exposure that we have in those geographies as at the 30 September. Chase once again, if you could turn this just have an overview of the group's cash flow. So cash generated by operations, some ZAR 5.6 billion Yes, the working capital is quite a significant swing. And as you would obviously not quite quickly, all appears in the trade payables line, there was a timing effect in the current year, somewhat disappointing if we look at it at face value. We clearly didn't put enough pressure on our trade payables in that last week of September. And I've already alluded to the fact that our increase in trade receivables has actually improved quite dramatically as our receivable health, particularly in the European businesses have improved over the last year. In fact, we probably have got some of the best positioned trade receivables from an aging perspective in the Swiss business and in the Irish business at this stage. As far as the other items on the cash flow, net interest paid of some ZAR 330 million. The tax paid of just over ZAR 900 million. And then obviously, to you, the shareholders, the significant line out and dividends paid of some ZAR 1.8 billion. The capital expenditure, I'll unpack for you, but roughly just under ZAR 1.4 billion. There were some businesses acquired of ZAR 200 million, and those really were fundamentally retail stores. Again, we'll share some detail on the slide to follow. And then we grouped together the principal element of the lease receipts and payments. Now we refer to it as principal because the finance cost of that is actually allocated into the interest line. So that is the -- I would refer to it as the capital component, but let's call it the principal element of those 2 numbers. And then down at the bottom, you effectively see the settlement of the financial liabilities. That is the buyout valuation of the minorities in both Ireland and Switzerland with the corresponding, albeit not exact, but the borrowings that were raised by and large, in part, to fund those and the net cash outflow, which is fundamentally the movement in the working capital at the end of the year. Chase, if you would turn the slide, really, I'm not going to unpack this cash flow a second time. But again, just to illustrate for you in a graphic sense, what we've just spoken through the narrative down the right-hand side is largely what I've alluded to. The borrowings that were raised, you'll see on the extreme right-hand side, the ZAR 1.3 billion and the ZAR 1.7 million payout. And as we indicated, we finished the year with a net overdraft of some ZAR 770 million. Chase, once again, if you could turn a page for me. The capital expenditure, and we've just provided a comparative analysis of 2021 versus '20. By and large, this is operational CapEx expansion and the maintenance of operations is largely what we require to run our business. It will be trucking, it will be our warehouse and logistics requirements. And also in our both local and foreign businesses, the requirements of corporate retail. The acquisition of business, the ZAR 208 million and the detail below that corporate stores in South Africa, ZAR 44 million in the southwest of England. In the current year, ZAR 61.8 million in ZAR terms, and there was a contingent consideration relating to stores bought last year of ZAR 52 million. And then the Swiss acquisition of ZAR 34 million, and there was a further contingent consideration, the balance of that business paid for in the first month of the new financial year. So total capital expenditure, including acquisitions and disposals of businesses, some ZAR 1.4 billion. Chase, if you would once again turn we provide the same analysis, really just grouped under expansion and replacement. The expansion CapEx, obviously, extremely positive. And as we just referred to, there is already investment in IT taking place. We are already carrying some ZAR 300-odd million in work in progress relating to the build of our SAP platform going forward. And then just for noting, in Ireland, further retail store investments in Switzerland, store refurbishments and acquisitions and in Poland, a significant spend – not significant, but in the context of Poland, in investment in warehousing and logistics as we put that infrastructure in place for the future. Chase, once again, if you could turn for me, just the reconciliation of the dividend. And at the outset, let me just make the point once again, the Board did not cut the dividend this year. We've maintained the dividend cover of 1.45. The fundamental comes through in simply the adjustment that was made this year versus the prior years for the impact of that financial liability that was being measured. So in the current year, there's almost no further adjustment. In fact, it's a slight decrease on that line item. But in the 2020 year, there was a significant positive add back or increase to the headline earnings to arrive at that increased normalized headline earnings would then with shares that were ranking largely being unchanged and the dividend cover being maintained, it does appear as if the dividend has, in fact, been cut. But as you can see from this calculation, the Board have once again maintained the dividend cover at 1.45x, and that resulted in a total dividend for the year of ZAR 816 and a final dividend of ZAR 536. Chase, if you would turn once again for me, please. This is really just a 7-year view of 2 key items for this business. The first one being the net asset value, and you can see consistent and sustained increase in this particularly focused area of our business, moving to ZAR 4,350 a share. The increase back from 2015 when the impact of the Irish acquisition and in 2016, the Swiss acquisition really kicked in, and you can see how that continues to positively grow. And in the right-hand side, there is a general upward trend in that line, albeit in 2021, we appear to slide somewhat backwards on the headline earning line. In fact, it's probably a slight increase in '21, '20 and '19 were probably flatter. But there is a positive move in our earnings contribution as well. And Chase, if you would just turn to what will then be my last slide in closing. And just to recap on the salient features, turnover growing by 2.9% to ZAR 127.9 billion, gross profit being exceptionally managed across all of our businesses to 12%. Operating profit, ZAR 3.3 billion strong performance, all things considered. And obviously, a solid focus for the business going forward. Headline earnings per share growing by 5.4%. The dividend at ZAR 816 cents declared for the year and net asset value per share showing a positive improvement. Before I hand back to Brett, I just would like to, once again, if I may make 2 comments. The first one, specifically to a very dear friend and colleague in Ireland, John O'Donnell, who is effectively retiring out of the business. John has been a store-walk that business for many, many years. One of the original promoters, our long-standing CFO, who stayed on for a year to assist us with the transition I've thoroughly enjoyed working with John, and he's been a pillar of strength in that business's team and its finance function. And John, as you go up on retirement, we wish you every happiness to Aden Keen, who comes in as our CFO in Ireland, Aden. Again, we look forward to building on that relationship and many years of long close working relationships with you. And then to all of our teams around all of our geographies who work exceptionally hard under extremely difficult circumstances over not just the last month, but the last year as we continue to try and manage the pandemic, manage business working remotely and once again, still managed to deliver a consolidated, albeit reviewed, we'll have an audit opinion by Friday, but an exceptionally well structured and well-controlled finance function. And I'd just like to particularly call out not just the teams in all of our geographies, but specifically my team in South Africa to Max and the team, well done guys, we really do appreciate all the hard work and all the effort of the many late nights. Thank you very much. Brett, I'll hand it back to you.

Thank you very much, Mark. As always, presented, very professionally great detail provided and even a bit of a human touch there at the end. So thank you very much for that, Mark. I'll now provide an update on each of our markets, if I may. Starting with South Africa. This slide obviously is a snapshot of wholesale and retail performance. It has been a tough year for the business. The decline in our core business has been driven by some complexity surrounding the pandemic, including the high base effect, which Mark actually referred to in the prior year. The continued impact of the illicit trade on the cigarette market, not unique to us, but certainly an issue for us and as well as the impact of liquor bans on liquor sales as well as that impact on these liquor bands on our grocery trading as reported by many of our independent retailers. Build it under the leadership of Rob Lister is the outlier performer once again and has had quite an extraordinary year with 23.5% turnover growth at wholesale. Retail performance has been excellent, too, with like-for-like growth of 17.2%, a really fantastic performance. We opened 42 new SPAR stores this year. However, store growth has been severely hampered by the unrest. Of the affected stores, as Mark said, 53 remain closed at year-end, 20 of those 53 are SPAR stores. Our store upgrade program has been aggressive, and it demonstrates retailer willingness to reinvest in their stores. A total of 219 SPAR stores were upgraded during the course of the year, that's 22% of the existing store base and 38 more stores than what we achieved in 2019 before the disruption of the pandemic. Our house brands continue to grow ahead of the business growing by 1.2% to ZAR 15.2 billion. That number represents 24.3% of our core turnover. Included in house brands, our SPAR private label turnover declined by 0.4% to ZAR 10.5 billion. Performance of our private label has been impacted by the unrest covered by Mark of our private label manufacturers were severely impacted of those 5 affected factories, 2 factories room production in the month of September, and we're able to meet approximately 90% of SPAR’s volume requirements. The remaining factories were still closed at period end. However, we have managed to make some contingency plans in the interim. Although the KPS be making a recovery at 11.2% wholesale turnover growth, this is down 6.4% against 2019, which really just demonstrates how severe the liquor restrictions have been again this year. Within our build it, business, there has been greater collaboration between wholesale and retail following that 5-week closure of our billed retail stores last year. The performance of this business is underpinned by the strength of our supply chain and a focus on retail execution, which is definitely for me, what differentiates the build it brand from its competition. Our buildup retailers, very passionate retailers. They've seen a pleasing uplift in sales through refurbishments, and this has helped deliver the strong like-for-like growth of 17.2% in retail sales, as mentioned previously. On top of that during the second half of the year, Build It launched its national Yes, we can campaign, which speaks to the new build of brand essence of yes, we can. Just to touch on some of our other businesses. We've appointed new leadership to Pharmacy at SPAR to drive this opportunity as a real home for the independent pharmacy, the growing trend of self-care and personal health presents opportunity for us. The increased travel during the year has boosted the SPAR’s performance, where our coffee and food to go daily-to-go offerings are being supported. We launched 14 new SPAR express stores during the period. And then e-space, which is our pharmaceutical wholesaler has turned its performance around this year backed by -- mainly by the Scriptwise business and obviously, loyalty from pharmacy at SPAR. So turning now to strategic initiatives that we are honestly working on. As a purpose-led organization, our strategic outcomes are -- there are 3 of them: the sustainable stakeholder value, loved and respected as a brand and then the third one, affordable and nutritious food. Under those strategic outcomes, we have 6 major focus areas and are refining action plans for each of them. Today, I really want to focus and share our action plan for digitalization, which especially straddles the 3 highlighted focus areas: building our brands in hots and mines, driving our future on trading model and putting consumers at our heart. It's all about the consumer, understanding their changing needs and adapting to these needs. We are going to provide a great deal more systems to our retailers in this respect. This requires innovation and change as we evolve our model and reap the benefits of digitalization. Digital transformation is an opportunity for us to shape the future of SPAR. We're pioneering what we call -- it's really a fundamentally different way of working to inject more innovation and agility into our model through digitally empowered people and culture and through investing meaningfully in data science and marketing technology. We'll be in a position to provide greater assistance to our retailers to allow them to understand and interact with their SPAR consumers more effectively. Our 3 priority pillars are currently e-commerce, data-driven marketing and store of the future. We are developing an e-commerce platform, and we are planning a refresh of our loyalty program to establish what we refer to as a loyalty ecosystem that can operate effectively in both brick-and-mortar and digital formats by collecting and harnessing the value of data and insights to predict our best to engage with our consumers. We are driving modernization throughout the business and greater systems efficiencies in the coming months and years through a group-wide SAP implementation project. Mark has already referred to this. But obviously, this will represent a significant investment in future proofing the company's development and growth in the years ahead as we shape our future trading model. So if I can just focus on e-commerce for a sec. -- although many of our retailers have been quick to respond to consumers' needs for online shopping, we have recognized the need for a sophisticated offering tailored for our unique business model. We believe that the farm business model requires an online shopping solution that serves our SPAR consumers, but one which also will add value to our independent retail partners and the communities in which they operate. Call SPAR to you, our platform is highly flexible to support SPAR's unique operating model and will help consumers stay connected with the SPAR that they love. So right, closing out on -- or closing out digital transformation, given how essential SAP is towards overall digital transformation and given the significant CapEx requirements, I'd like to update you on our SAP rollout. We have a highly experienced and highly competent team in place under the leadership of Mark Huxtable our group IT executive. We have an ambitious time line with a solid execution plan to mitigate the risks, and we are further reducing risk with a phased approach. What I mean by that is it's a DC by DC in South Africa and then followed by each of our countries -- again, to mitigate the risk. The first DC to go live will be our DC in Kwazulu-Natal in May next year, May 2022, and the rollout is then planned to be completed by the end of 2023. Turning to our European markets. EWG foods in Ireland has continued to deliver strong results despite the severe COVID-19 impacted labor shortages. In a year of changes in the management team, Mark has already referred to them, which speaks strongly to the succession planning in this business. Brexit took effect in January 2021. But the team had an excellent plan in place to mitigate the risk there of reporting limited disruptions to the business. All retail symbols, including EUROSPAR saw solid retail turnover growth as consumers continue to support their local convenience stores. In the third quarter, EUROSPAR and [indiscernible] left the unrepeatable major sales spikes, which we saw in 2020 during the initial lockdown. However, they still managed to deliver growth for the period. COVID-19 restrictions continue to have a severe impact on the performance of the hospitality industry in Ireland, which impacted the value centration carry and foodservice businesses. Our business in Southwest England, Appleby Westward, has once again delivered a strong performance driven by consumer support of local stores and as well as new corporate stores. And this is despite the disruption, which we'll all be aware of, given the labor shortages in the U.K. within the supply chain. Our Swiss business continues to deliver an excellent performance and has established a foothold as the convenience brand of choice in the Swiss market. The quality of the stores is constantly improving with in-store concepts, being driven by our team there, and they've been well received by the Swiss consumer. In the last year, we launched the baby and the bed concepts, as I said, they were launched during the course of the year. A big focus for the business going forward is the launch of its private label 3-tiered strategy with #1 core and premium product focus, which appeals through that 3-Tier focus to a range of consumer budgets. Very exciting for us was our first EUROSPAR store, which was launched in the fourth quarter, and it continues to exceed expectations thus far. The SSR gas stores have been integrated into the business, there were 60 of them, and this deal has been very beneficial to the business. These stores have added significantly to our wholesale and retail turnover, which has largely been managed with our existing infrastructure and cost base, allowing this business to further drive efficiency and profitability. TopCC Cash & Carry business has suffered due to the impact on the hospitality industry. But it's going new ground during the lockdowns, given changes to competitors in this space, and it remains well positioned. So now moving on to SPAR Poland. Mark and I spent a week with the management team in Poland in October this year. This was my first trip to this market given the pandemic-related restrictions on travel. And the trip was extremely productive and a welcome change from having to help run this business virtually for the past 9 months. With my strong operational background seeing the business in person has given me a great appreciation for the assets we have secured in this region. While we appreciate and we understand this full well that there's much work to be done, we have quality assets from which to leverage off of. The slide -- the picture on the slide in front of you highlights some of our facilities, such as our central office in Poznan as well as our 2 -- or 2 of our distribution centers, the one being in [indiscernible] and the other Kaneko, really, just to give you an idea of the quality of our facilities in this region. Coupled with our DC facilities, we have a network of improving stores. We have the existing [indiscernible] stores, which we purchased in the north of the country. They're all being converted to SPAR with the exception of 1 store at this stage. And then obviously, the independent SPAR retailers in the south of the country, the ones we always talk about with regard to loyalties. So looking at what we set out to achieve for the year, we have -- clearly, we have fallen short on our financial guidance. However, a lot of progress has been made. In terms of our key focus areas, this is what we achieved at a high level. We underestimated just how many setbacks there would be in terms of trying to launch a business during a pandemic. Unfortunately, we will not break even in the quarter 1 of 2022 as guided previously. Retailer loyalty in the South is growing, however, too slowly, and we are focused on accelerating this with a firm approach. We have stabilized operations, business rescue proceedings have been finalized, that's particularly with regard to the business we bought, which has improved relationship with suppliers and our warehouse infrastructure is now in place properly but needs refining. This year, we launched our first members meeting for retailers. We were able to meet with them face-to-face and address their needs and concerns in person. We are steadily improving range, pricing and deliveries through our distribution centers. We are very exciting for us. We have doubled the number of private label SKUs and are currently working with -- very closely with SPAR Switzerland and SPAR International to grow this business. SPAR values are very important to us. We have South African senior executives on the ground who understand SPAR culture and who are working to embed this culture while embracing the local culture in Poland. We have launched our SPAR I’m for You program, which has been rolled out at wholesale and retail to drive spar culture and community awareness, and we have also launched the SPAR e-Learning Academy to drive excellence through learning. So coming on to the plan of action, we are well aware of the need to address the issues in Poland with urgency and our action plan is already in place. We are in the process of terminating the contracts with existing retailers and replacing them with contracts that reward on improved loyalty. All new retailers are being required to sign new contracts with us. We have commenced with improvements in our warehouse and logistics operations that will lead to efficiencies and cost rationalization. Our focus this year was to stabilize the business, especially for the SPAR retailers in the south of the country. And now that this business has been stabilized, we are actively chasing new business and focused on recruiting other independent groups to our SPAR family. We are targeting roughly a 30% increase in store numbers during this coming year. We have already launched our [indiscernible] cafes in our stores in Poland, and we'll be driving deeper penetration of in-store concepts. We're also exploring opportunities in the petro convenience space, similar to the opportunities which we have realized in Switzerland. On top of that, similar to Switzerland, private label remains a big focus area for us, and we introduced the #1 range in October, which will assist us with our value offering and competitiveness. As Mark touched on earlier, we made a strategic decision to not pursue the sale of a food production facility gained during the Petro and Pavel deal. And we plan to be investing in this to drive prepared meals. It's a facility, which produces prepared meals such as a typical Polish cuisine and some -- and typical Polish salads. So we're going to be driving those meal solutions for sale through our stores. Lastly, to touch on Sri Lanka, where we bought -- we started, we didn't buy -- we have a joint venture. We established it with our partners, Salon Biscuits Limited, which is a local company. This business has really brought world-class retail to Sri Lanka. However, it's been severely impacted by the pandemic and severe restrictions, which included the complete closure of grocery stores at certain times during the course of the period. Excitingly, the business breakeven last month, and we'll be launching our first independent retailer in this -- in the year ahead in the month of December. We are very proud of what we have achieved in this market in Sri Lanka. So now turning to the outlook, if I may. Across all of our markets, there's a degree of uncertainty around what the pandemic will bring next. However, we have proven our resilience in this regard. On top of that, 2022, as we've said, we'll see the group-wide rollout of SAP. You will see the commencement of that. Turning to our regions. In South Africa, the consumer is expected to remain under pressure, and we will do our best as a business to absorb costs where possible. We have a strong pipeline of new stores and an aggressive store upgrade program. And we are fully aware of the fact that, that will allow us to really drive the organic growth of our existing retailers, and we'll be relaunching our much anticipated online platform for our retailers and consumers, I touched a little bit earlier. In Ireland and South West England cost control projects are in place to mitigate DC and logistics staffing challenges. The Irish food service and cash & carry businesses are well placed for an expected recovery. We believe both businesses are well positioned for a positive 2022. Switzerland is focused on retail excellence and retaining consumers at retail. We will convert the remaining SSR gas stores to SPAR Express stores and also explore other opportunities in the petro convenience space. In addition, we will continue to roll out the EUROSPAR format to gain further traction for the EUROSPAR brand in this market. In Poland, we are truly aware that urgent improvement is needed to make this business work for our stakeholders. As mentioned, we will be adopting new measures in how we do business with our SPAR retailers and drive greater efficiencies in logistics to reduce costs. With the integration of existing SPAR retailers now complete, we are ready and determined to drive our new business development in that market. So in closing, it has been quite a year. I really would like to thank our people and our retailers for their unwavering commitment and resilience to embed SPAR at the heart of its communities, living our brand -- living our brand essence of its personal because to us, at SPAR, it is personal. I also thank them for embodying our purpose and leading the way as we inspire people to do and be more. Thank you. And on that note, we will now take some questions.

The first question is from [ Seneca Maseko ] from JPMorgan. Please could you remind us what the impact of rising energy prices has on your operations, both locally and offshore. What are operating costs to fuel represent?

[ Seneca ], let me take the first one. As far as rising energy costs, in fact, one of the things that the small business in South Africa did some time ago was invest in solar in almost all of our distribution centers. It's now operational. So in fact, in the financial year just ended '21, our utility costs actually declined by 3% to ZAR 152 million, a saving of ZAR 5 million over the previous year. So not to suggest that should the Eskom debacle results in substantial price cost increase. That's not to say that our costs don't increase, but I think we've already mitigated against a lot of that. We're not completely off the grid, but we put in place a great deal of protection against that. As far as the European business, it has been flagged, particularly in the Irish business, where there's been an increase in gas and diesel price. There has been a flag cost risk pressure against that. But as far as the other 2 geographies, it's not on the radar at this stage. Secondly, as far as fuel costs in South Africa, that number was historically circa 10%, obviously, in a year of volume decline. That number has declined. So at the moment, diesel and related costs in the SA business is circa 8%, and I would use that as a model guide going forward.

Great. The next question is from Paul [indiscernible] of Bank of America. When do you think Poland will now break even?

We currently -- so some of the stuff I've spoken about today with regard to a change in the way we operate in Poland following our visit there with regard to the 2 main issues being the revision to the contracts of those SPAR retailers in the South. As we've said, we've grown the loyalty from 0 to 27%, which is no mean feat given the complexity and given the issues around the pandemic. That issue, we're just not happy with -- obviously, the pace of that growth in loyalty, and we've now taken the decision to have them sign new contracts with us. We understand full well that, that might mean that we will lose some of our SPAR partners in the south of the country. However, we're prepared to accept that. We just can't continue at a 27% loyalty number. So we're in the process of doing that now. That issue, coupled with the -- what I spoke about with regard to our logistics and warehousing changes in terms of -- currently, we have a warehouse outside Warsaw, which we are using. It's a perishable facility, which we are using to cross-dock fresh produce and dairy products to some of the stores in the South. And the transport costs are really astronomical. And we have taken a decision to shut down that facility and extend the facility in the south of the country in [indiscernible] to then do the produce and the dairy through that facility. So that will definitely assist us from a transport efficiency perspective. We're currently redoing those numbers as we speak because we -- as I say, we've just made a decision in the last couple of weeks. We expect those numbers to be with us pretty soon. But our target would be to try to get to a breakeven in the month by the end of 2022. So that's what we're looking to do, Paul.

Next question from Paul. The Ireland operating margin fell by 46 bps in the second half of '21. What is driving this margin pressure? And what is the outlook for Irish margin in FY '22?

Well, it's -- if we're talking at a gross margin level, the numbers have been largely flat. At an operating margin level, there has been cost pressure coming through in that business. And secondly, as additional corporate stores were required, that will impact operating margin as well. We have flagged risk insofar as labor cost pressure in the year ahead. That was definitely recognized during our budget discussions. But in typical fashion, the Irish have grinds and told us that they will improve their profits in 2022.

Okay. Next question from Paul. What is your forecast for CapEx in FY '22 and FY '23? And how much will that cost over what period?

Okay. Paul, I'll take that one as well. The group approved a consolidated ZAR valued budget for 2022 at just over ZAR 2.5 billion. The lion share of that, in fact, is in South Africa, where the budget is just over ZAR 1.1 billion, of which ZAR 700 million is the investment cost expected to be incurred in 2021 on SAP, leaving a balance of circa ZAR 350 million towards normal operational requirements for South Africa. And then the Irish and the Swiss businesses, excuse me, are circa 900 and 500. So ZAR 2.5 billion for the year ahead. The Irish business is somewhat abnormal compared to its normal run rate. The pandemic did face restrictions on a number of retail investments that were scheduled that didn't take place. I would suggest to you that as we start heading into the heart of the SAP implementation by 2023. That number is probably going to be circa 2.5% to 2.6% again. And then as we come out of the SAP rollout in 2024, that will cut back quite substantially.

Another question for Paul. You mentioned that [indiscernible] has to look at the dividend payout given higher CapEx for the SAP project. What dividend cover do you see going forward?

All, at this stage, the Board has not made any official ruling on that or not made any decision on it. It was elected to be flagged in the announcement purely to put it on the radar. At this stage, we are still in discussions with financiers and also our subsidiaries in Europe as to financing mechanisms. So there has been no decision taken. We just flag it and we will stay -- we will keep you updated as that develops or should it change in the months ahead.

Another question from [ Seneca ]. Is there a minimum loyalty level that is a contractual obligation on the part of the retailers to be able to continue using the SPAR brand equivalent. How do you go about reworking the right of the use of the SPAR brand for retailers that are below the required threshold.

So [ Seneca ], what we're doing, the current contract that's in place, there's no minimum loyalty level in place. We have a right to terminate contracts based on one of their in that contract is around the stocking of the private label product in store. So we have a right to terminate contract based on that, which we are currently doing. But the new contract that we visit our retailers signing will incentivize behavior in terms of loyalty. So in simple terms, the more that they purchase from us, the more the rebate will be, which is -- it's just how it works in South Africa to a certain degree. So that's what we will be doing. And we expect that we will because of the fact that the SPAR brand in Poland is -- as we all know, it's an international brand. It's sort of, and that's why these retailers stuck with it even through the really tough times with the previous license holder. We believe that we won't lose -- we believe that we will have [indiscernible] contract with us to enable us to then pay their rebates based on the improved loyalty, which we need to get to. So in the South, currently, some of the retailers are actually up in the 60% to 70% mark. We've always targeted to get to 40%. So it's not like -- it's not possible to get to those kind of numbers. We've just been struggling to really get them on board and move in the direction if we want them to guide you. So yes, so I think I've answered that -- we really have to get these retailers on board with us. We've tried to share with them the investment we've made in the country in terms of our warehousing facilities and we need them to come on board with us. And we've had a positive response from our interactions with them in the little -- in the couple of weeks since we've been there, as I say, in October -- late October.

Next question from [ Rod Salmon ]at [indiscernible] Research. Could you please let us know how sustainable you think the Swiss trading is once COVID cross-border travel restrictions lift. Do you have any current trading details that would give an idea?

So Rod, I think for us, the board has actually have been open for some time. in Switzerland. And we were -- we watch this carefully towards the H2 of the period under review, and we've been able to maintain a lot of the customers that -- or consumers that we gained in the neighborhood stores as a result of the upgrades to the stores that we did and the launching of concepts like Food -- to Go, coffee and those type of concepts. So we've seen that happening already, and we haven't seen a major falloff in consumer or in footfall in those stores. Coupled to that is obviously the integration of the SSR Gear business, the 60-odd stores which we brought in during the course of the year. And we will -- as I said, we will continue to rebrand those by Express. So we think we're well positioned to hold on to consumers gained. And with the addition of that extra business, we believe we're in a strong position in Switzerland.

And next question is from Paul. What is the Polish disposal you talk about? Please elaborate on your strategic change and decision on this disposal and what the loss was for this business?

So Paul, that was -- I touched on it briefly in my section of the presentation. That was the [indiscernible] food production facility. We -- it was actually not loss making. It made a small profit for us. However, there was an interested buyer who, who was looking at that business. We experienced some problems with the due diligence. We thought we were going to sell it towards the back end of the year under review and realize a profit in the region of ZAR 80 million. So net fell through and we visited again in October and realized that we actually, if we do a little bit of investment in that business, we can really drive this food-to-go offering, as I say, through to then drive these products, which are on labels [indiscernible] products for our stores, we can really drive that option through the stores, and we've opted now to do that and make a little investment in that business. And as I say, put some pressure into upping production and driving those sales in our stores.

We have another question from Rod. Could you update us on [indiscernible] on a couple of dispute?

So Rod, just briefly, that's -- there's no real progress here other than the fact that the appeal, the termination of fuel was heard in the [indiscernible] High Court on the 15th of October, and we're awaiting the outcome of that decision on the appeal court.

Next question. Do you expect an inflationary profit benefit from forward stockpiling with food prices rising substantially?

Whose question is that Kerry?

Also from Rod.

Rod, we -- so Mark and I discussed the inflation this morning because in our year under review, we -- our internal inflation number was 4.9%. In our budget for the new year, we worked around the 5% -- early 5% mark. But we are seeing -- and we are hearing, obviously, with global supply chain issues and some of the supplies we interact with. We are hearing some talk around, I mean, inflation ticking up. But the consumer being under so much pressure in South Africa, I think it's going to be quite a tough ask. At this stage, we don't envisage any massive stockpiling in our distribution centers. Obviously, where we can, we will take advantage of like we always do, but I don't see that being any different currently as from what's normal.

Next question from Paul. What is the like-for-like sales growth in Switzerland in FY '21 interest terms if you have it?

So the Swiss business grew by circa 5.6 in local currency. Although like-for-like becomes a little confusing as to the timing of the acquisition, which happened in February, we stripped that out call circa.

And added to that Brian Thomas from Laurium Capital. In Switzerland, if you stripped out the SSAG acquisition, what would the organic sales growth have been in [indiscernible].

Circa 2.

Another question from Rod. Could you please give the Polish turnover target for FY '22, considering a disappointment in the similar target for FY '21?

So Rod, I can't give you that number at this stage. As I said, because of the fact that we've made that decision around those [indiscernible] contracts, we're expecting a revised budget number from the team in Poland any day now. So they're busy with it now, and we will hopefully have that within the next week or so.

Thomas, I think we have answer your question on Switzerland. Emmanuel from [indiscernible] Capital, does the management team underestimate the competitive retail environment in Poland? Or was it due to not being able to obtain the required supply?

So, Emmanuel, I think, look, it is a competitive environment. Make no mistake, and having been there to have a look at the likes of Lidl and [indiscernible]. There are a lot of competitive offerings. However, we compete in a competitive environment in South Africa. So there's no reason why we can't with our SPAR model, make a success of the SPAR business in Poland. However, having said that, the loyalty of the retailers in the South has been really challenging for us. And I think on top of that, one needs to take into account the fact that it took us so long to firstly, to deal with the sanitation proceedings that came out of the deal with [indiscernible] and then also even the legal wrangle with the previous license holder, [indiscernible] which would then allow us to interact with the retailers in the South, that was only finalized in the first quarter of 2021. So I think it's a combination of those factors that have really challenged us and have resulted in the slower-than-anticipated growth in the royalty.

Next question, Rod, we've answered some CapEx. David Eliot from Integral Asset Management, maintaining dividend cover does not mean the dividend is not cut as shareholders are receiving less.

Okay. So David, the issue is fundamentally that what we have done for the last 7 years as we have calculated a normalized headline earnings, and the dividend cover has been based on that. So to illustrate the point, in the current year, headline earnings grew by some 5.5% and the dividend actually does go negative. However, if you go back and look at the 2020 year, headline earnings were actually 0.5%, but the dividend increased by 8.1%. Now the reason for that is in the 2020 year, there was circa ZAR 255 million worth of fair value adjustments that were done to the financial liability accounting. In calculating that normalized headline earnings, we gave back to the shareholders the value of that ZAR 255 million charge, thereby increasing the headline earnings by EUR 255 million and arriving at that normalized headline earnings number, and it was on that, that the dividend was based -- in the current year, there is no such adjustment. So effectively, on a normalized versus normalized headline earnings basis, the current year's earnings actually declined by 5.6% and maintaining the dividend cover. The dividend outcome also declined by 5.6%. It's not -- it's simply a metrics of the fact that we gave back to shareholders in years of where there were headline earnings or rather earning charges for that financial liability, we gave the benefit back to shareholders. That obviously now going forward is no longer an issue and effectively, the headline earnings will drive the dividend.

Another question from Paul. Please quantify the FX loss on intergroup charge and credit loss of payments and net debt write-off and if theirs is OpEx in FY '21.

So for the FX impact on intergroup charges, in fact, it's the results and debtor that arose out into group charges. The FX effect on that was just over ZAR 90 million, and that was the movement over the 2 years. So in the previous year, we had a profit. In the current year, we had a loss, and the aggregated movement was just ZAR 92 million. And the reason I give you the aggregate is that if you're trying to analyze how the expense impact was impacted, you need to look at the swing. And then as far as the impairment movement is concerned in the current year, that increase was also circa ZAR 90 million.

Question from Emmanuel, has the group had to support its franchisees financially during the year? What was the level of this financial support?

Emmanuel, very definitely, if we just take the most recent events in KZN, as I indicated in my report, at the end of September, we were already supporting some ZAR 350 million worth of trade accounts for retailers whose stores have been affected by the unrest -- we obviously are closely working with them, as Brett has alluded to, with the insurance claims and supporting them and assisting them with submission of those claims, circa more than ZAR 100 million of that has since been paid back. If we just look at the balance of our retail customers across South Africa, yes, we are supporting and assisting them in all of our geographies as required. In a low-growth environment, a lot of those retailers are coming under stress, particularly when their liquor performance has been or the liquor sales have been restricted. A lot of our retailers rely quite substantially, particularly our smaller retailers onto the performance of their liquor business. And as those sales have been restricted, so they come in distress. But as Brett also intimated the fact that we are seeing a growth in that space is relieving that pressure as well.

Next question from Rob, could you please give more details about e-commerce in South Africa? What is the percentage of sales currently? And what is the target? How will you make it profitable with extra picking and delivery cost? And what is the profit/loss split between the retailer and SPAR?

`So Rob, that's -- right now, we -- as I said, we're going to file it -- so let's go back. We have been in e-commerce, as we said at the half year presentation for a number of years. But some applications in some stores, really professional others, rudimentary to be kind at about 150 stores we thought across our country. What we did realize with where we were there was that we were not able to scale and market the solution. So we embarked on a new project in conjunction with international SPAR both on the [indiscernible] platform, very exciting under the leadership of Blake Raubenheimer which we're now piloting, as I said later this month, early December in a store in [indiscernible] Johannesburg, north of Jonesburg because we -- I think 70% of all e-commerce happens in [indiscernible]. Our plan is to roll out this e-commerce option to reach 100 stores by the end of 2022. So quite an ambitious target. The costing structure, we haven't yet finalized that, but we understand the investment that's required from a SPAR Group perspective. The retailer is going to be responsible for the -- obviously, the picking, the packing and the delivery will be outsourced, but there's infrastructure investment required within our stores. We need to -- as we talked about earlier, in a shared value ecosystem with our unique model, we need to be thinking about involving our retail stores in this solution. And there's going to be a, what we call a playbook or a list of must have if you want to buy or sign on for our new online shopping solution because we need to obviously -- our retailers need to be well aware of what the costs are. We all know that this is not a short-term game. It's been it for the long term. We think that in 5 years' time, we could be online shopping from a grocery perspective, could be up to 5% of turnover. So it's not very significant. Now we're thinking somewhere it depends on who you talk to, but we're talking about low single digit, but it's certainly going to grow. So we're investing now, as I said, for the future, sharing the costs and the revenues, but we haven't finalized exactly the split because we don't at this stage know what that looks like from once we start to scale.

[ Sami ] from [indiscernible] is just asking, what is it [indiscernible] a ZAR 1.8 billion CapEx spend across FY '22 '23?.

Sami, the budget for SAP in 2022 is circa ZAR 700 million, which means that by the end of 2022, we would have incurred just over ZAR 1.1 billion, and that should leave between ZAR 500 million and ZAR 700 million to be incurred in '23.

And [indiscernible] emerging market, what is the combined capital requirement -- sorry, for SAP and Polish expansion plans? What funding options is the company likely to look at for these growth initiatives?

Okay. So Peter, I think I've answered the SAF number. As far as the Polish number at this stage is concerned, we are looking at somewhere in the region of ZAR 200 million. So effectively, we're looking for ZAR 2 billion over the next 3 years. And as far as funding alternatives go, there are a wide range of opportunities from conventional debt funding to more elaborate fund structures in Europe. And those are all currently being discussed with bankers.

Okay. Christian [ Korte ], I think we've answered your questions. The next question is from [ Megna Makan ] from Benguela Global. The [ disposition ] is starting to really stretch the balance sheet, and you'll need to possibly adjust the dividend policy to free or funding is also evidence of this, how do you intend to manage this in the next few years and what leverage metrics would you be targeting?

Well, Megna, I think the fundamental issues, yes, it is a concern to the Board and simply layering another ZAR 2 billion worth of [indiscernible] on the group balance sheet is something that we are currently exploring. We are working with bankers to look at opportunities. At this stage, we haven't refined into our metrics, but it's fundamentally got to do with what funding is available to us, what the cost of that funding is and where we source that funding both globally or in South Africa.

Another question from Jamie [indiscernible]. Are you partnering with an on-demand delivery service to manage the electric bike deliveries for the SPAR [indiscernible] -- are you able to mention your partnering with?

Yes, Jamie, we are partnering with someone I'd rather not mention that right now. Just to say that not all of the vehicles will be electric. There will be some. There were others won't be electric. And again, because of the -- of our model and again, the independent retailer angle to it. So some of the stores, which when we start to roll out and scale the solution, some stores may not be severely be part of the third-party logistics partnership because, for instance, a store that services a game lodges or golf estate lodges will maybe use their own delivery vehicles to cover that delivery aspect of the solution. So certainly, where we have our normal online shopping app as we see it, we've got a partner that we're working with, but it may not necessarily be only that partner going forward.

And the next question is from Warren. Please, could you comment on trading post period across all of your geographies?

So, Warren, I can say that post period end, we've seen a nice uptick in South Africa, which obviously was for me very pleasant or pleasing to see given the disappointing top line number throughout the course of -- well, in 2021. So yes, a nice uptick in sales. And I think seeing the impact of liquor coming back on stream and the impact of that on our SPAR business in South Africa, the biggest chunk of our business. Ireland, Switzerland pretty much on par with where they've been. So no real change there and Poland also on par with the back end of the year. So the biggest chunk of the business being South Africa, a pleasing uptick.

Okay. I'm afraid we don't have any more time for questions. So I will come back to those whose questions we haven't yet answered. Any closing remarks Brett?

Yes. Just thank you very much to all of you for joining us. As we said, a robust performance, but really difficult trading conditions for all of us. Thank you for joining us and all of the very best to you. Goodbye.