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

Good afternoon, ladies and gentlemen, and thank you for joining us with this afternoon's preclose call just before our close period in preparation by our interim results. We're sharing this update this morning to provide insight into the group's saving performance for the 24 weeks to 15 March. As you know, we issued a tailing update in February. So today's update simply includes an additional 4 weeks of trading. Total group turnover for the 24-week period increased by 8.9%, down from the 9.3% we reported at 20 weeks. However, the deterioration is predominantly foreign currency-related. Turning to our regions. In South Africa, the operating environment continues to be challenging. Inflationary pressures combined with high end -- with high unemployment rate continues to place consumers under immense pressure. Our Southern African region delivered total wholesale turnover growth of 5.7%. Within this, our core Food and Liquor business delivered growth of 6% against entirely measured inflation of 7.2%. Our [indiscernible] region is still negatively impacted by new systems and loyalty has declined somewhat in this region. The regional team is working hard to win this royalty back. It's worth noting that national spa grocery and [indiscernible] retail level increased by 7.1% for the 24-week period. This number is more represented for industry comparisons. Our wholesale grocery business in SA grew at 5%, and the liquid category traded strong increasing wholesale sales at 12.8% and [indiscernible] has seen a pleasing return to growth after a sustained period of market transaction, increasing wholesale turnover by 1.1%. This space continues to grow strongly, delivering 17.7% turnover growth for the -- for the 24 weeks, driven by increased retailer pharmacy loyalty and increased sales from our Scriptwise business. Moving on to Ireland, in Southwest England. The operating environment in Ireland and displace pressures from inflation. Higher interest rates and the introduction of a 12.4% increase in the minimum wage from 1 January. Economic growth in Ireland has been subdued, but the unemployment rate remains low at 2.4%. The U.K. market has also been challenging. Labor shortages are still of concern and expectations for economic growth remain uncertain. That said, the BWG Group reported strong sales of 6.6% in local currency, with growth across all retail brands in Ireland. Sales in Ireland have been influenced by a combination of poor weather and consumers feeling the pressure of increases in the cost of living. Situation in England has been extremely challenging for all grocery retailers and this has been affected in January and February for our business in Southeast England. But overall, this is a strong flavor performance for this group. Coming on to Switzerland. The operating environment in Switzerland continues to be challenging, with cost of living increases in health care, transport and electricity and high interest rates, all of which resulted in a surge in cross-border shopping. This has impacted the tailing performance of the local neighborhood SPAR stores. The past 3 weeks have been positive though, with unseasonably warm weather and consequently, more people out and about locally impacting our sales positively. Time is always our best trading period, with our exposure to local convenience so that early spring is helpful within this region. Sales for this region declined by 4.7% in local parity for the 24-week period. In terms of our priorities, as you know, we are working on the best possible plan to exit Poland, and we'll provide more information when it makes sense to do so. That said, sales in Poland have declined by 4.7% in Polish zloty. That's being driven by the loss of a small number of retailers post our announcement to dispose of our interest in this market. We're really focused on reducing debt levels through cash reservation. The optimal debt structure will depend on the outcome of the Polish disposal process. We acknowledge shareholder concerns in respect to our debt levels. Shareholders stay comfortable in the fact that net debt has remained consistent with what it was a year ago, albeit with higher net debt levels at the half versus the full year, which is largely due to the [indiscernible] capital cycles in our European businesses, and is consistent with previous years. The group continues to manage its covenant performance with the support of our financiers and plans to continue operating without seeking additional funds from shareholders. The SAP issues that have negatively impacted the first half more than we anticipated. The system is stable and functioning as designed. However, it is not yet at the efficiency levels anticipated. The main areas impacted are the region's ability to manage gross margin and the delivery cycles, which has, as a consequence, resulted in lower-than-expected gross profits, increased labor costs and our higher investment in working capital in that region. The strategic view of the SAP system and rollout process has been undertaken to ensure further implementations across this [indiscernible] future rollouts as well as assessing where and whether there are quick wins that will benefit the group. Other details will be shared at the interim results presentation in June. We will decide on a new warehouse management system in the coming weeks and we'll provide updates in respective rollout plan when we present the interim results in June. Before we hand over for Q&A session, please be aware that we've decided to move our results date a week later than originally planned due to the timing of the national election. The interim results will now be released on Wednesday, the 12th of June 2024. We apologize for any inconvenience caused because of that. We'll now answer any questions you may have. Kerry, please go ahead.

Question one, can you please talk to margin trends in Ireland and Switzerland?

Yes, sure. At September '23, the Irish business reported margins of just over 15%. They are currently holding that trend. So we are confident that we will maintain margins at roughly those levels. Switzerland did see a strong improvement in their margins. They're just over 17.8% at the end of September '23. And in fact, those numbers continue at the moment. So again, we expect to see very similar margins being reported at the interim as we achieved at year-end '23.

Thank you, Mark. Okay. Perfect. Very next question. Where are SA loyalty levels currently versus previous peak? How will you look to improve them?

Kerry, I think if you look at the trading update, we've reported retail sales growth of 7.1% versus core grocery and liquor wholesale business up at 6%. We're seeing a loyalty drop of somewhere around 1% for the year, impacted slightly by [indiscernible], albeit not the whole answer. We are planning on rolling out a new rebate scheme within this vast system and trialing something towards the end of the year, but we also have a strong promotional program coming up in the next few months. targeted towards improving retailer loyalty.

Thank you, Ange. Is SPAR currently trading within its banking covenants?

Yes, it is, Kerry.

Do you currently have more than one interested party in your Polish operations disposal talks?

Yes. So I think we'll give further updates when we come out with our half year results in June, but we're comfortable where the process is at currently and what has been alluded to in the trading update.

Thank you, Megan. Next question. Please, can you talk to gross and operating margins in [indiscernible] given how volatile it's been and the impact it has had on your earnings. Can you give some guidance?

Not a question that we didn't anticipate. I think just given where we're at and going into a close period, it would be -- wouldn't be proper to go into margins. Although having said that, we have indicated that we haven't recovered as strongly as we want to do in the SA business impacted by [indiscernible]. And the SA EBIT margin is -- yes, it's coming in lower than what we had guided initially primarily due to the impact on profitability in [indiscernible] KZN.

Considering the trading update over H1, is it reasonable to assume operating margins in SA sits below 2%, somewhere between 1.5% to 2%? I think you just answered that for the market without providing a range. Is there any definitive timing of when the Polish business sale will be completed? Can we assume it will be done by the end of this financial year?

So in terms of that, we have given the indication that as a management team, we would like to have it closed up and wrapped up by the end of the financial year, and we are working towards that.

Thanks, Megan. Can you provide any initial insight on work management has done to determine what the costs are to close down the Polish operation while also considering the proceeds from asset sales, DC value, et cetera?

So I'm not going to elaborate too much more on that. I think previously, we have said to the market that to fund the Polish operations for this financial year would be just over EUR 20 million. We are still on track in terms of that if we had to fund it for the whole year. So we're not falling outside of that range. But obviously, we are looking at all alternatives and wanting to ensure that from a stakeholder perspective, we exit in the best possible way.

Thanks, Megan. This is the voluntary trading update, but no update on earnings has been provided. Will you give an update on earnings ahead of your interim results?

Kerry, there's no requirement at this stage to make any comment on earnings. We're providing this update really to guide the market on trading performance and obviously some of the strategic key issues. If we are required to make a further update to the market before the results are released, we will do so.

Thank you, Mark. Okay. The next question is on SAP. Will the warehouse management system rollout continue into H2 of '24 as previously guided and is walking away from the implementation at all consideration.

At this stage, walking away from the invitation of KZN is not a consideration. Our key pillar at this point in time is to make a call on the warehouse management system. We anticipate doing that in the next week or 2. Once that's decided, we will guide the market in terms of what our life plans are. It's thoughtful whether we implement another distribution center before the end of this financial year.

Thank you, Ange. The next question is, is profitability related again, which I suspect we'll have to unpack at the interim results. So a 3% SA margin, a key pillar of fine investment case. High level, if we were to think about it like a waterfall chart, what are the key contributors from a depressed 1.3% in FY '23 to a 3% in FY '25?

I don't want to talk in terms of percentage points, but the key contributors were really majorly the loss of margin because of the SAP implementation off the top of my head, Mark, correct me if I'm wrong. We're talking about ZAR 1.2 billion -- sorry, ZAR 700 million and ZAR 720 million cost to the business in margin and an additional expenditure. We then had a number of settlements in the prior year with the retailers and the like, which led to a total including the SAP cost of one-off costs around ZAR 1.2 billion. That would -- those added back would take us to nearly 2.5% or 2.6% level and then business improvement initiatives and seeking efficiency in our operations is what will make that jump be additional 0.4%.

Thank you Angelo, the next question, please. Can you update us on CapEx plans?

CapEx plans, as we guided in the SENS, CapEx program has remained largely in line with how we've historically managed CapEx. So we have quite a robust CapEx planning system, particularly in our logistics operations and will continue. So from a group normal perspective, we are -- we'll continue to see CapEx in line and depreciation in line with where we've been historically as a percentage of turnover, and we don't anticipate moving away from that. Beyond that, the only additional one is what is left in the SAP program. At this stage, we've spent slightly more than half the total cost or the SAP implementation. So just over ZAR 1 billion, I think, around ZAR 1 billion? And the balance of that cost is expected to be spent over the next 2 to 3 years. Having said that, we are making every effort to reduce the SAP implementation cost for ERP costs as much as we can.

The next question is, there has been a lot of debate in the market regarding the franchisee model. How competitive [indiscernible] offering in relation to peers, particularly from a fees and incentive point of view for retailers/franchisees?

Yes, we naturally, I think, biased in this, but we really do believe that we have the best overall offer for retailers. We believe that our -- firstly, our positioning as a group, almost entirely focused on the voluntary daily model or franchisee model is [indiscernible] our entire business depends on that model. And therefore, we structured in such a way as to be most favorable to those retailers. Our cost of entry other than the cost of CapEx, cost into this par system is relatively minor and their ongoing cost there's also quite small other than a marketing contribution -- that marketing contribution, roughly 1% of their sales. In terms of incentives, we have a rich capital incentives that we offer to our retailers. In terms of rebate, settlement discounts, other incentive schemes that we run, and we really do believe our offer is the most competitive. Combined with that, a really well-developed centralized distribution system entirely focused on servicing retailers and lots of support from our distribution centers in terms of the specialist skills around marketing, retail operations IT systems and the like. Yes, we really do believe we have the best system available for independent entrepreneurs in the country.

Thank you, Angelo. The next question is on debt covenants. The debt covenant for net debt to EBITDA was previously 2.75x, but the financiers agreed to increase it to 3.5x until March 2024. Any update here, please?

Now at this point in time, as we indicated from March 2024, I think this is very closely linked to the piece of work that we've guided we are currently undertaking with our lenders relating to the restructuring of our balance sheet to optimize that. And included in that, I'm sure, will be new debt covenants. One new covenants negotiated with the banks once that new financing structure is put in place.

Thank you, Mark. Back to SAP. What benefits is the SAP system going to bring relative to your systems prices? And what further benefits would come when upgrading systems in store? There's 2 separate questions, Ange. There's quite a lot here. Do you want me to carry on reading it?

I'll deal with those.

The first one, sure. Go for it.

Yes. So the implementation of the broad ERP system, not necessarily just SAP, there's an element of that deals with legacy risk because we have aging systems. The choice of SAP as a system was largely driven by what we view as the value it can add to our whole supply chain and making our supply chain more agile and reducing our cost to deliver quite significantly. The SAP system, and it's not the only one in the world that can do this, but it's certainly one of the better ones. Really, will be able to give us real-time reporting and guidance in terms of lease cost to deliver model, we [indiscernible] distribution center items are being delivered from. It also enables us to be more center-led and make more central decision-making around procurement as well as managing cost, more centrally, which will give us a lot more control as we are at the moment, a lot of our systems are relatively disparate across our fixed distribution centers, with a very highly decentralized decision-making structure. SAP, once mature and in place in the SPAR system will allow us to move between decentralized and centralized decision-making seamlessly in the -- to the benefit of the business. In terms of a view to retail. At this stage, we haven't flagged that we will be going by the SAP route at retail. We are looking at a number of options. And a key decision-making metrics there is going to be the total cost of ownership to retail. And we're going to have to look at making sure that we reduce the IP costs with -- to our independent resellers while getting the maximum benefit. And where we are technologically in the world right now, there are lots of more flexible options out there. So I don't want to [indiscernible] to saying that we will be following this to -- with SAP into retail.

Just a few more questions on SAP in the FY '23 presentation, there was a write-off of ZAR 94.1 million for SAP, which regions is a supply to?

They have put some pieces in the 3 international European businesses. So that would be Ireland, Poland and Switzerland. And the reason for that is because we've strategically made the decision not to follow a global SAP template and we are going to be following [indiscernible] template in each country. Largely, Switzerland at this stage is on the SAP template and run their business on SAP, although it's a different version to the one we run in SA, but their business is quite mature and operates SAP quite well. In terms of Poland, naturally, we aren't going to be investing in the systems infrastructure there right now. And then in Ireland, we run a fairly complex business, which is both horizontally and vertically integrated end to end, sells into a max of larger variety of channels than we do in our other businesses. And we don't feel that SAP is the right option for that particular business. And we are busy exploring what future modernization looks like. Having said that, the Irish business does have quite a bit of runway on the system it currently runs. And so there's no urgency to make a decision in Ireland right now.

Thank you, Angelo. And are you able -- or when do you plan to give an update on the rest of the rollout?

We will be in a position to provide a lot more guidance in June. As I mentioned earlier, we're going to be making a decision on the warehouse management system in the next week or 2, which will then enable us to provide much clearer guidance in terms of where we go by the June meeting.

Perfect. Please let me speak to the difference between the foreign debt being ring-fenced versus the financial guarantees provided for on the same debt from the SA balance sheet. Is there effectively recourse to South Africa?

Yes, there is. The parent has provided financial guarantees to the borrowers in both Ireland and Switzerland and Poland. So effectively, there is recourse when we refer to it as being ring-fenced, what we are trying to demonstrate to the market is the debt in those 3 foreign geographies was structured in such a way that it is serviced by those businesses. And effectively, the in-country covenants are sufficiently constructed to have enough headroom that the performance of those geographies does not create any risk. Obviously, the deterioration of the Polish business meant, as Megan alluded to earlier, that the South African business has been required to provide financial support to the operating overheads. So in a nutshell, yes, there is recourse to the South African balance sheet in terms of those parental guarantees. But fundamentally, the debt is being serviced by those geographies, and there is no cross subsidization from any of the other regions.

Thank you, Mark. Are there any plans to exit Switzerland in the short to medium term? And if not, can you explain why?

There are no plans, no direct plans to exit Switzerland, as guided at the end of last year. We believe there's a business case to get source margins or EBIT margin up to an acceptable level in the next while. Our focus right now is on concluding the Polish disposal. Once that disposal has taken place, we will consider the future of Switzerland. Our preferred route is to trade that business to a level that where margin is acceptable. If that doesn't happen, the sale of Switzerland is also not something that's impossible to consider.

Can you please explain the gap in retail sales versus wholesale sales, given KZN is approximately 1/3 of the business, if memory serves. Are there any other areas in the business where loyalty rates are declining? Or is that gap all explained by KZN?

At this stage, the majority of the gap is explained by KZN. There are small parts in the other regions, but largely loyalty static in the other regions. KZN has big upside. It's about 25% of the business. And that gap really just talks to primarily the difference in KZN.

Okay. When you mentioned high labor costs in KwaZulu-Natal, how much of that will specifically affect OpEx as opposed to the lower-than-expected gross profits you explicitly called out?

Sorry to pass the question. Can you read that question again, Kerry?

Yes. Actually, it's not clear. So how much of that will specific -- okay. So when you mentioned higher labor costs in KZN, how much of that will specifically affect OpEx at all of its OpEx as opposed to the lower-than-expected gross profits you explicitly called out?

Yes. So they are -- both those impacts the gross profits and if you can [indiscernible] us gross margin in internally reversed to gross profit. I'm aware that the market will always see it that way. So our gross profits from the sale of goods has been impacted somewhat by a lack of visibilities that our buyers have. And then the second element being that our workforce is not as productive as it was before, which will impact OpEx in KZN. So those are 2 distinct issues as opposed to one.

Back to the EBIT margin again, difficult for management to guide at this point in time. Do you think you can still achieve EBIT margin of 2.5% in FY '24 and 3% by FY '25?

I think that's unlikely. We, at this stage, probably look towards 3% in FY '26, yes.

Given SPAR's debt levels and weak balance sheet as well as the relatively local performance, is it not a strong argument to exit all foreign operations, including BWG?

That's an interesting question. I hadn't anticipated that. Look, I think we are looking at each of their markets on their own merit. And at this stage, we've made the decision on Poland [indiscernible] intend to exit that market by the end of the year. We are in the process of evaluating the investment in Switzerland and all the outcome of that decision is really driven by our ability to get Swiss margins up to an acceptable level, upward of 2% to 2.5% EBIT margin. Ireland is a business that's comfortably operating now at that level in the economy that is struggling. Having said that, the Irish management team continued to show a really strong ability to turn even in difficult times to turn a good margin. They have taken that business with our support from somewhere around 1% EBIT margin to now comfortably over 2.5% over time. And we really do think that the geographic diversity is good for us and for the shareholder. And I wouldn't say that we are at all considering exiting BWG.

Thank you, Angelo. On retailer loyalty, do you think that there is anything structural to this where, for example, multi-store franchisees are sourcing directly to the producers, from the producers?

I think that risk has always been there. It is not a new one. Our market store franchisees are exceptionally strong and that comes with good and bad risks. I think one is when they are big, they are able to purchase at better pricing, but they can negotiate with us, too, which they all do. At the same time, it also lowers our risk in terms of credit risk. And Yes. In the current period, I wouldn't say that this element of multi-store owners is impacting our loyalty matches our issues within SAP.

Thank you, Angelo. You suspended franchise fees in case then due to the SAP issues. Are these fees still suspended?

No.

Here's one for Megan. What is Poland's plan B and C assuming plan A does not materialize, assuming A is that you are able to sell it at least the asset value?

So I think we're still confident that we can dispose of Poland and find a new owner for Poland that best suits the business. We are obviously continuously looking at how we mitigate risk there and bring down costs and long-term commitments. So there's ongoing work in that space to manage it.

Thank you, Megan. Angelo, is there any risk of a [indiscernible] issue in the foreseeable future?

[indiscernible] now it is -- management's considered decision that whilst [indiscernible] fund that deal that we over time can pay those [indiscernible] and we do not plan on [indiscernible] issue.

Thank you, Angelo. Why do you think you've lost loyalty among retailers? Is it service levels or are retailers signing more competitive pricing elsewhere?

As stated earlier, the challenges with loyalty levels are related to KZN. I think the challenges are multifold. One during the period where we weren't able to service them effectively, they opened up new relationships and with -- because they had to keep this [indiscernible]. Together with that, many of them have now invested in infrastructure to allow them to purchase outside of the group, their mind that one of our key differentiators is how easy we make business for them. All your goods delivered on one back to your -- back to sourcing goods from individual suppliers is quite challenging. So that level of convenience was -- and remains a differentiator for us. In the KZN region, some retailers have invested in infrastructure to make that easier to deal with. And that really has been the lag in getting the loyalty back. Having said that, I think we're making some really good slides in that space. And we've got some really great ideas in terms of getting that back even more forcefully in the next few months.

Thank you, Angelo. The next question is, is the SPAR format becoming less relevant? It seems that other retailers are perhaps making aggressive inroads into areas in which SPAR was previously stronger or relatively strong?

Look, I think -- and I can understand intuitively why the question is being asked. Our retail sales growth at 7.1% indicates that we are keeping pace with the market and we [indiscernible] in the last year, our market share has been roughly flat. And so the fact, I guess, to sell that. Having said that, we haven't made any major moves in terms of formats and format changes to be more agile and to designate more with consumers. We're doing a lot of work in that space right now, in particular, to be able to make our store formats much more relevant to the communities they serve and in particular, in respect of the LSM grouping.

Moving on. Can you update on your major court case in South Africa as well as any potential cash flow impact on any proposed settlement?

I guess this is [indiscernible] group. At this stage, we don't expect any cash settlement with the group. We've settled virtually all our disputes with the family with the exception of the damages claim that they put in against us to ZAR 2.1 billion. Our positions in terms of where the damages were done and how much those could be quantified by any far part. And as guided previously, we will either go to arbitration or go to court. And we've been negotiating that for the family at the moment, yes.

Thank you, Angelo. Can you elaborate more on the new rebate system? Is it increasing returns to retailers?

We are looking at offering a slightly richer rebate system for greater loyalty. And it's something we'll trial in the next few months.

Thank you, Angelo. Next question, can you give us any new insights on your plan to open up a discounter format at this stage?

The business plan for the discount is being finalized as we speak. We are considering rebranding or reusing our SaveMor brand is that as that format is a brand that's been in the table for a long time, although we're going to -- we will change the basic operating model and style of date in that business. We are hoping, as I said, we're busy finalizing that business model as we speak, and we're hoping to start launching those towards the end of this calendar year or early 2025.

Thank you, Angelo. How much of the headwind is declining volumes to GP margins? And would we base offset this impact?

The modeling we are doing is making sure that any additional rebates are self-liquidating, they pay for themselves. So any changes to that policy, our premise is that the volumes offset any additional margin as we pass back. So it would naturally impact trading margin, but the overall net position should be better off.

Okay. Has the change in net debt being driven by a reduction in euro debt levels or from a change to working capital levels?

It's actually both of those 2 components. Obviously, we continue to pay down the term debt in terms of the amortizations, albeit the numbers are in the region of [indiscernible] about EUR 40 million per annum of debt reduction in terms of structured arrangements. The balance of that will be the use of revolving credit facilities at this interim date which the European business is generally draw down on to increase stock holdings for a either the [indiscernible] increases in tobacco in the U.K. or be in advance of the summer hot season trading in Europe.

Thank you, Mark. SPAR has suffered a very marked decline in return since it commenced this geographical expansion. At the AGM, the chair seemed to open -- seem to be open to disclosing ROIC per geography. Is this something you'll consider implementing when the interim results are released?

We have no objection to that.

Okay. Thank you Angelo. In the SA operations, you mentioned GMP operating cost growth. Are operating cost growth currently showing negative draws?

I'm hesitant to answer that question in respect of giving improper guidance but there are challenges [indiscernible].

Okay. Are you able to provide any more detail on the cost-saving opportunities that you've identified?

So the SA management team have basically done a complete overhaul review of all their costs. I mean, we've got to look at the biggest cost element of the South African business, which is people. So not that we are suggesting any major retrenchment arrangements, but we have to look at our people costs and opportunities to save, particularly on the variable element of our people cost. Angelo has already alluded to KZN. A lot of the increased labor cost is the variable element in overtime and shipped allowances where the efficiency of the system is adding unnecessary or additional cost. And then across the board, we've looked at effectively all of the areas. This is not a business that historically has had high cost basis. So it's not suggestive that it's very easy to just going to cut major elements of the cost out, but we basically force the business to relook and rethink its way of doing business and to the areas of opportunity and removal we cut them out. So everything from pellet costs to security costs to the electricity costs, we've spoken previously about the implementation of solar handling in our distribution centers to minimize. And in those instances, largely to protect ourselves somewhat against load shedding, but there's significant cost savings that come through that as well. So effectively, at a line item level, a detailed review of the whole business.

Thank you, Mark. Are there any strategic initiatives being implemented in SPAR Ireland, in the Irish business, to mitigate the double-digit wage inflation?

There are a number, clearly. It has been highlighted as a major risk to our retailers in Ireland. So the minimum wage increase. It doesn't impact our wholesale business so much as our retail partners. So in that case, there are a number of strategic initiatives where our Irish management team are working with retailers to mitigate and find productivity gains as well as looking for areas of passing additional margin on to those retailers to ensure that they remain as profitable as possible.

How significant has the pressure been on franchisees looking to leave the group?

There's been actually no pressure in terms of franchisees designing, not to my knowledge, okay, but there is certainly pressure on the profitability of retailers in general, but those are driven by the macro impacts that all retailers are feeling, the cost of load shedding, in particular and the minimum wage increases in the South African context as well driving up the cost to run stores. But in terms of retailers putting us under pressure to leave for other banners. I won't talk to any pressure in that space at this point in time.

Thank you, Angelo. On the debt again, as part of a group-wide debt restructure, is it inevitable that your debt will be refinanced in South Africa, resulting in higher finance costs going forward?

Kerry, I wouldn't say it's inevitable. Obviously, we have to look specifically at the Polish business and how much of the Polish debt remains after the sale. And effectively, that debt would need to be serviced by the other 3 remaining geographies, whether it's necessary to bring that debt back to South Africa and how is it [indiscernible] or to refinance it in Europe in Euros and then services from those geographies is part of the piece of work that's currently being done.

Thank you, Mark. Are you able to comment on trends or any color around overdue retail accounts? Have you seen a need to increase provisions?

So with the exception of KZN, where we were intentionally increasing their accounts to give them the reading space to cope with the pressures that the SAP implementation had brought on them which has since started reducing quite positively. Across the rest of the group, there are no significant negative trends suggesting that any increases in ECL provisions will be required. But obviously, we are very cognizant of the pressures that a low growth environment is going to happen in our business. At this early stage, we're not flagging any ECL provision increases, no.

Okay. The next question is on retail rebates again. So what is the current overrider or incentive rebate retailers get based on loyalty and volumes? Is this percentage likely to increase for retailers considering the increased competition?

So it's quite a complex question to answer. We have a number of different rebate schemes in place. We have a loyalty scheme, where depending on the store format, they can get anywhere between 0.5% and 1% back over riders of their purchases back over riders up to maximum at this stage of up to 1% depending on the size of a group. And then there are a number of other margin areas that we pass on swell allowances, et cetera. And in so far as it makes economic sense for us to do so. We'd like to improve the incentives for retailers to buy through our systems. Having said that, yes. I mean I just want to make it clear that we will only do so if it makes economic sense for both parties.

Given the trouble, one of your fellow retailers has found itself in the marketplace, are there any opportunities there for SPAR? And if so, how?

We've had a number of approaches across the country, have discussions, and I think that there are opportunities there. Having said that, our competitors' franchise agreements in both cases are quite strict in terms of how and when contracts come to an end and when people allowed to leave, and you really have to plan for that timing well in advance. Together with some speculation about some space being available in big shopping centers, as our competitor, this particular competitor gives up space. We will also assess those cuts and see if they -- anything that we're interested. Step into the beach to take up opportunities, but only where it makes sense.

Thank you, Angelo. Assuming you're able to conclude a deal for the exit of Poland by end of FY '24, how long would it take to finalize with regards to the competition authorities, et cetera?

So generally in Poland, how it works is that the purchaser would take on the business. And then if there were issues from a comp-comp perspective, they would be given a period within which to dispose of the stores, but the comp-comp process is probably a 2- to 3-month process.

Thank you, Megan. Can you please remind us what percentage of franchisee store footprint do you have head leases on?

Somewhere between 45% and 50%.

Can you speak to the net number of retailers gained who lost over the past 12 months in South Africa?

We are net about 20 better than in the first 5 months of this year. It's about 12 [indiscernible] 5 months. Yes, over the last 5 months.

How many new sites have been added that have online delivery as an option? Why are we so late to this online trend? Are you on track with your year-end target for online?

In terms of number of sites, we're now available in just over 400 sites, I think. I could get this wrong because their sites being added every day, but we're somewhere around 405 sites around the country we got now. We were late to this game really fundamentally because of the difficulty of customizing a model like this for individual retail, which made our implementation more challenging. I'm told by our team who runs part to you that this was the first implementation of an on-demand mobile [indiscernible] environment anywhere in the world. So it was something that we had to do bespoke and be bold, there was no infrastructure available that we could spot off the shelf. So we're quite proud of that. In terms of number of stores, we really are exactly where we plan to be, if not slightly ahead from a group or from a ton of perspective in that channel, I think we're going to end up slightly behind where we wanted to be, but there remains a big opportunity and we are growing at [indiscernible] space.

Thank you. We have time for 2 more questions. How confident are you that you can compete with Shoprite, [indiscernible] in the lower LSM market with your new discounted format?

This is for people insights part, I think this question becomes a little bit frustrating. And we have spoken about arranging a tour for investors so they can see this on us. In the low LSM markets where we have stores, rural and township stores, we are -- we tend to be extremely dominant through our current format, SPAR and Super SPAR stores all over the country. We have an exceptional group of stores. We also -- those stores really are what is driving our growth at this stage, our growth in let's call them, and the lower LSM communities around South Africa is ahead of our total growth. And it is an area of strength for SPAR that I think often is not broadly understood by the investment community. Having said that, we think there are opportunities for our SaveMor or discounted format to plug smaller gaps and in particular, within smaller rural and agricultural towns around the country and in some smaller townships around the country. We know that having an independent retailer in this form makes all the difference and is able to trade exceptionally well against all the competitors you mentioned. So we have no reason to believe that won't be the best in our discounted format as well.

Thank you, Angelo. So Poland's last guidance, you previously guided a likely loss for FY '24 in line with FY '23. Is this the PLN 166 million last reported or the loss ex the PLN 98 million impairment, so i.e. PLN 68 million?

I think, clearly, the previous guidance was at an operating profit level, so regardless of impairments, and at this point in time, we are tracking well done on or well better than that number.

Thank you, Mark. And then the last question, actually, 2 more questions. Any plans to reinstate dividends? Or is it still suspended until FY '25?

At this point in time, I think it would only be appropriate to repeat what the Board's position was and that was quite simply to reintroduce dividends as soon as possible. I think as far as the interim result for FY '24 is concerned, the arrangement with our bankers is such that dividends will potentially be restricted, and we are finalizing those discussions as we speak. But as far as the full year is concerned and regarding to FY '25, I think we will leave it to the Board to make those decisions based on the business' performance, and obviously, any restrictions that our lenders might impose on us.

Thank you, Mark. Last question is, is there any funding support provided to retailers in order to renovate their stores as considering profit pressures many likely could be here to [indiscernible]?

Okay. So Kerry, just to clarify, I mean, in terms of [indiscernible], which is the umbrella organization, all the retailers blended, there is a fund within that business or within that operation that retailers contribute to on a stock fill arrangement where they can draw down interest-free for upgrades and revamps to those stores. Obviously, the quantum would not be to the level of a major Super SPAR or a major SPAR upgrade, so they would still need to look to bankers. We do have arrangements in place with WesBank where retailers can apply for funding at somewhat preferential rates, at least at prime for investment in their stores. On our own balance sheet, we, at this point in time, are not providing any funding support to retailers, albeit in the past, we have provided, particularly to support. Let's refer to them as [indiscernible] or back retailers to invest in SPAR store. We have managed to move that funding to bankers. So it's off our balance sheet at this point in time. But I think going forward, the retailers are clearly still showing appetite for investment in stores looking at the number of upgrades and rebanks that they've completed in the last 5 months. So, yes, it is risky if you're a retailer in a low growth environment to invest multimillion rands in upgrading your stores, but I think they're still definitely are demonstrating appetite to do that and the facilities and funding is available.

I just want to add, I think with regard to the [indiscernible] what we call this spot yield development fund, a recent decision by the guild together with ourselves has increased the maximum they can draw down on those loans and roughly doubled what's available in that space, that has really sped things on. And then additionally, I think retailers are using those funds both to revamp their stores and at the same time, to mitigate some of the risks around load shedding by installing solar battery solutions and the like.

Great. Angelo, there are no further questions.

Thank you all for joining us. And Kerry, thank you very much for putting this together. And all together, it's going to be a quiet 2 months for us until we speak to you at the beginning of June, and we really -- we thank you for your time and for spending this time with us. We really hope that we've answered some of your questions, yes. Right now, our focus is really just to dive the South African business, reduce our cost in this business as well as take a serious view of where our debt position is. We're working alongside our bankers, and we're going to focus on over the next while being the total debt of the group done. And yes, we look forward to sharing some exciting news with you in June as well. Thank you, Kerry.

Thank you, Angelo.