The SPAR Group Ltd ($SPP)

Good morning, and thank you for joining us. I am approximately 90 day into the CEO [Audio Gap] and I'm joined by Megan Pydigadu. Who is also 90 days into a role as Group CFO. So this is our first results presentation to the market as the new executive team of SPAR. I want to be direct with you from the outset. The H1 results are disappointing for us, for our people, for our retailers and for our shareholders. The numbers speak for themselves, and there is no dressing that up. And this morning, I want to cover 3 things: what went wrong, why both in this half and the periods before, what we are doing about it and why we remain fundamentally confident in the SPAR model and its future. I will cover the strategic and operational picture, and Megan will walk you through the financial detail, and I will close with our forward-looking focus and the investment case for SPAR. Reflecting on an eventful past few years, this slide really provides important context for where we are today. SPAR has navigated a genuinely difficult few years, shaped by post-pandemic headwinds, the operational disruption associated with the SAP implementation in KZN, sustained margin pressure and a complex international footprint. The international businesses, particularly those we have disposed of, placed significant demands on management time and focus funding and stress on the balance sheet and cash flows. And at the same time, the group was also executing a large-scale SAP implementation across its operations. While that backdrop has been challenging, meaningful progress has been made, and that needs to be acknowledged. The balance sheet is materially stronger with net debt reducing from ZAR 9.8 billion at its 2022 peak. The portfolio has substantially been simplified. Poland and Switzerland has been exited. And with the AWG transaction agreed, the European portfolio review is effectively complete with -- and this is very important, all offshore cross guarantees and exposures removed. The SAP implementation continues to be rolled out across the regions with a focus on finance and the group is operating from a far more stable platform than it was a few years ago. The focus is now much clearer. We are concentrating our resources on our businesses in South Africa and Ireland. And within South Africa, the priority is firmly on groceries and liquor, restoring retailer profitability, strengthening wholesale and distribution execution, improving service levels and rebuilding margins. In Ireland, it's about growing a solid mature business. The challenges and opportunities are well understood. The priorities are clear, and the team is focused on delivering a sustainable recovery. Just reflecting on the half, it's been a tough start to the year. Headline earnings per share is down. The SA operating margin is approximately 1%, significantly below the prior year and materially below where we need it to be. There is no getting away from this. In SA, specifically our core grocery and liquor business, growth was below CPI and also internal inflation at both the wholesale level and the retail level. We experienced margin compression in an attempt to drive sales. And then frankly, we had 2 self-inflicted missteps, the KZN DC underperformance and our Black Friday overinvestment, which I will unpack in a moment. Our cost growth was also too high, driven in part by higher debtors provisioning, a function of the tougher macro, some legacy issues and more conservative provisioning. And then below the line, we also had some residual noncash impairments, some of which affected headline earnings per share. So on the stakeholder management side, retailers expressed their frustrations at the lack of growth, lack of action in addressing long-standing issues and the issues still causing friction at retail, which I will cover in a bit of detail later. But I also want to be balanced. There have been some good things during the half. Ireland performed well, delivering top line growth and a 3% operating margin despite a tougher consumer and competitive environment. And Megan will unpack the Ireland performance in her section in a bit more detail. There were other positives, too. Working capital was well managed, although negatively impacted by timing of the March month in close versus the same time last year. And our funding and liquidity is in place. In SA, Groceries and Liquor loyalty improved over the past 6 months, albeit marginally, and I'll get to loyalty a little bit later. Builders returned to growth at retail and our SPAR Health adjacency grew by 26%. The balance sheet is clean. We completed substantial write-downs of ZAR 5.5 billion. If you recall, we did that last year. And the recent impairments relate mostly to the current period with some legacy items recognized conservatively and also accurately. And I want to emphasize that balance sheet integrity and a prudent stance on risk is important to us. We largely completed the sale of AWG in the U.K., and we made some very important leadership announcements. Megan stepped into the group CFO role, Jerome Jacobs took over [ as groceries and the KMD, ] and we appointed John Bradshaw into the group CMO role. Our leadership team is firmly in place with a mix of deep SPAR, retail and turnaround experience. Okay. So if you look at key drivers for H1, what went wrong in the half? And the 2 own goals I'm about to cover is indicative of the foundational work that we still need to do. Disciplines, processes and accountability is not where it needs to be. Hopefully, surprises an impact on operating profit. Let me explain what happened, what the impact was and what we have done. The DC attempted to drive top line and loyalty hard. But in doing so, margin was sacrificed. GP fell significantly in December and January. In addition, the warehouse and fleet was ill-equipped for higher volumes. Labor agreements restricted outsourcing flexibility, leading to overtime, and we had to hire additional trucks and incurred additional warehousing costs. Quite ironically, service levels also deteriorated and out of stocks peaked and retail experience in the region suffered directly as a result. So what have we done? A new leadership team is in place in merchandise, finance and regional ops. A formal stabilization program has been launched with defined milestones and work stream ownership. The GP percentage improved through the back half of H1 with momentum building towards period end. Out-of-stocks improved materially from its peak, and we have reduced our dependency on expensive external truck hire. As a consequence, KZN delivered 3 consecutive months of operating profit. The recovery is real, but needs to be sustained. It remains a critical execution priority for the second half, and it is one both Jerome and I are personally close to. Issue 2, Black Friday is the second on goal of the half, and it was entirely avoidable. We overspent Black Friday by ZAR 152 million with a negative margin impact of ZAR 60 million in the first half. There was no ROI measurement framework in place. The system was structured to reward supply income rather than volumes and shopper footfall. Accountability was fragmented across DCs, central marketing and merchandising. And the result was that GP was dragged by below-cost pricing and open-ended promotional subsidies. Retail transactions ironically were down 2.3% despite the investment into Black Friday. The required fix is structural, and we have appointed a new CMO who has moved quickly and he is focused on enhancing our brand, marketing and promo strategy. The marketing ROI framework is also now live and all marketing, advertising and subsidy spend will be measured against sales, footfall and loyalty. Brand before promotions is now the operating principle and a fully revamped trade plan for 2027 is already underway and the new approach to Black Friday has been agreed. Moving on to SA Grocery and Liquor loyalty. There are some misconceptions about loyalty levels in SA, which I want to set straight. And this slide is an honest reflection of retailer loyalty over the past few years. So during COVID, loyalty across the network increased as independent retailers benefited from consumers shopping from neighborhood stores. And we saw loyalty peak at just over 83% for the period. The decline that followed was largely driven by the disruption associated with SAP and particularly in KZN. Service levels deteriorated, out of stocks increased and retailers bought outside of the system, resulting in loyalty coming under pressure across the network. We have worked hard at regaining that. The continued instability, obviously, in the last half did not help. However, what is encouraging is what we have seen over the past 6 months. Our 12-month rolling loyalty for groceries and liquor is 78.2% as at the end of April, still below our 88% target, but the direction of travel over the past 6 months has been positive, albeit marginally. While we are not where we want to be, the trend is stable. And it's also worth noting that the loyalty figures shown on this slide includes our Southern African territories that outside of South Africa. So in April, our South Africa grocery and liquor loyalty was 79.9%. So effectively at our 80% target, while the foreign territories were lower at 59.4%. And this reflects the local nuances weighing up logistics costs versus benefits. And there's also in-country legislation that forces local retailers to actually source locally. So the message from this slide is straightforward. Loyalty was impacted by SAP-related disruption, but it is stable, and there are efforts underway to improve it, particularly in KZN. So that is the assessment of where we have been. Now let me turn to what we are building. The SPAR model is a voluntary trade model, and it is important to understand what makes SPAR different. Unlike corporate retail chains, we are not a centrally owned retail business. We are a partnership between the independent retailer and the wholesaler. And independent entrepreneurial retailers own the stores and manage the day-to-day with autonomy. They have the local ownership, the agility, the community connection. We provide best-in-class merchandise, warehousing, distribution and marketing capabilities at scale. The 2 reinforce each other. When both are operating well, it is a formidable combination and neither side succeeds without the other. Retailers need a strong wholesaler and the wholesaler needs profitable growing retailers. They are 2 sides of the same coin. Our strategy hasn't changed. As a wholesaler, we remain firmly committed to unleashing the power of independent retail. We are addressing the issues that have created friction for retailers, while at the same time, we are strengthening the wholesale and distribution business that supports them. And in the next few slides, I will set out exactly how we are doing that, restoring retailer profitability on the one hand and improving wholesale execution, service levels and margins on the other. I split this part of the presentation into 2. First, focusing on the issues at retail, restoring retailer profitability and fixing the fundamentals. So recent public commentary has made it clear that some retailers are frustrated. We have listened carefully to those concerns. There are areas where retailers have been looking for faster progress, and we are changing the pace at which we are addressing them. So over the past 3 months, I've spent considerable time engaging with retailers individually and with the national guild to better understand the issues and to align on priorities. We have existing structures in place to engage with retailers like the national guilds, subcommittees and regional committees. However, those structures have not always worked as effectively as they should and strengthening that partnership, improving communication and ensuring that issues are resolved quickly is the key. So each of the 5 areas I'm about to cover as an executive owner, a detailed action plan and clear accountability. There are 5 retail focus areas: stronger procurement and sharper pricing, brand and marketing effectiveness, repositioning SPAR2U, building a future-fit retail technology platform and empowering retailers to improve profitability and manage their costs. So let me cover each one briefly. Starting with a stronger procurement, and this is led by our merchandising executive. This is about using our scale to buy smarter and improving availability and pricing on key value lines for our retailers. There's no doubt there has been inconsistencies in pricing that need to be resolved. We have started with the trialing of pricing tools with greater collaboration with our suppliers to address wholesale price disparities and also the central management and tracking of key value items. I've met with a number of our -- they are really keen to support and partner with us, and that is an asset we have not been fully leveraging. So in terms of brand and marketing effectiveness, this is an area of significant investment for retailers through the guilds, for us at the center and through the regions. The Black Friday experience showed clearly what happens when that spend is not coordinated, not measured and not focused on the right outcomes. A full review of marketing process and spend is underway, led by our newly appointed CMO, John Bradshaw. And the aim is to rebuild brand conviction, positioning the independent SPAR retailer as the accessible community-focused hero. I'm very excited by the work that is happening here. John has been in the role for 2 months and has really hit the ground running. Turning our attention to SPAR2U. We have been late to the on-demand journey, and in some ways, we are playing catch-up. So our current SPAR2U proposition is not sufficiently differentiated to materially grow market share against the established online players. The repositioning is built on a clear insight. We do not want to fight our peers on their terms. Our advantage is the My SPAR, its personal proposition, the uniqueness and nuance of each individual store connected to its retailer and the local community. That cannot be replicated by a chain. We are establishing a dedicated focused team with direct accountability for tech enablement and improving the user experience at the retailer and customer level. On the fourth pillar, building a future-fit retail technology platform. So our retail systems landscape is aging, and we need to arm our retailers with modern tools. There's too much manual intervention in the retailer wholesaler interaction in claims processing, in settlements and in reconciliations. And Brett McDougall and the team are leading this with the Guild IT subcommittee. We are launching SPAR IQ as a platform for expanded retail reporting, enabling better insights and the real-time visibility at the store level, modernizing retail technology without disrupting day-to-day operations. That is the principle we are working to. So lastly, empowering retailers to manage their profitability and their costs. So with stagnant sales, rising wages, rising rental and utility costs, retailer profitability is being squeezed from both ends. Benchmarking and the exchange of best practice between retailers is a sensible and immediately actionable lever. We are looking at staff scheduling tools, support on rental reversions and negotiations and cost-effective approaches to store revamp. This work is being led by retail operations alongside the National Guilds profitability subcommittee. Now to the wholesale side. There are levers that are directly under our control and the areas we are driving every day with defined KPIs, accountability and monthly progress review. On the SA margin, I know many of you want to ask me about the 3% operating margin target. And let me be direct, we went backwards in the first half. And the reasons are 2 operational missteps I described, KZN and Black Friday, which point to instability in the system that we are actively fixing. What I can tell you is that 3% operating margin remains an ambition. Right now, we are focusing on fixing the foundations which should result in margin improvement. And when we are ready, we will share targets and time lines with you. I'm not going to overpromise and underdeliver. Okay. Looking at the wholesaler focus areas. The SPAR model succeeds when our wholesale business performs at a best-in-class level. And we recognize that we have not consistently met that standard in recent years. So our priority is, therefore, to strengthen the fundamentals of the wholesale business. Many of the initiatives listed on this page are the same initiatives we discussed earlier. So don't look at this as 20 different projects. This is one integrated recovery plan with multiple levers. We have divided the wholesaler initiatives up into 3 buckets: margin optimization, improving efficiency and growth initiatives. As you can see, there are a number of initiatives under each of these pillars. And I will call out 3 areas specifically that we haven't dealt with previously. So firstly, corporate store losses. Our corporate store portfolio has historically been managed across the 6 regions, resulting in fragmented accountability and inconsistent execution. So to address this, we have consolidated approximately 50 corporate stores under a single executive leader and a dedicated management team. This creates clear ownership, consistent performance management and strong alignment between the store portfolio and our wholesale operations. The team now works closely with each of our 6 DCs to improve overall store profitability has evolved, our supply chain network has become increasingly complex with multiple DCs, several inland facilities and a separate private label warehouse. While these assets provide capacity, they also create opportunities to simplify operations. We have started with warehouse flow improvements in KZN while reviewing the broader network design, transport operations and facility utilization. Moving on to private label. Private label is one of the most significant growth opportunities available to us. While we acquired this capability through Encore in 2023, we have not yet fully integrated into SPAR. And today, it continues to operate with separate structures, warehousing and logistics. Our focus is now on completing that integration. There are 2 key opportunities for us. Firstly, accelerating product innovation and new product development to build a stronger own brand and controlled label capability; and secondly, simplifying the end-to-end value chain between suppliers, Encore, our distribution centers and our retailers. And the opportunity and the value creation is compelling. So globally, private label continues to gain share as consumers seek affordable value. We have a trusted brand, strong supplier relationships and a retailer network that can benefit significantly from a more integrated private label platform. Ultimately, all of these initiatives are aimed at the same outcome, a stronger wholesale business, more profitable retailers and a healthier SPAR network. So over the last few slides, we have spoken about a number of initiatives across both retail and wholesale. But ultimately, you will judge us on outcomes, not activities. So on this slide, we have listed 5 areas that will clearly measure our progress. margin and growth, service levels, retailer health, deleveraging and cash generation and the future-fit IT platform that we are investing in. So these are clear measures that will tell us whether we are succeeding or not. So today, we can point to some encouraging signs, which are -- which we've listed in the middle column. And ultimately, these are the measures that we will use internally to also measure progress. And going forward, they are also the measures that you will use to assess whether we are delivering on the turnaround. I'll now hand you over to Megan, who will walk you through the financial detail. Megan brings deep turnaround experience and operational knowledge of this business. She was Group COO before stepping into the CFO role, and that perspective shapes how she reads the numbers. Megan, over to you.

Good morning, everyone, and welcome to our half year presentation. It's been a difficult 6 months, and I want to start by giving context to the macro operating environment. In South Africa, food inflation softened to 3.4% by March 2026, down from 4.4% in September. However, we are seeing signs of reacceleration driven by fuel costs. Consumer habits are shifting toward discount and online channels, whilst the informal sector remains robust and competitive. In Ireland, consumer confidence has hit a 3-year low, driven by geopolitical uncertainty and high living costs. The labor market remains tight at 4.7% unemployment. Against that, BWG delivered a solid result, which I will cover later. We have continued to invest in omni channel and experiential retail strategies, but the backdrop is challenged. Both environments demand disciplined execution. Let me take you through the group salient features for the half. This was a challenging 6 months, and these numbers reflect that. Turnover was ZAR 67.5 billion, up 2.1%, but that's below our internal inflation, which tells you volumes went backwards. The pressure showed through in operating profit, ZAR 730.7 million at a margin of just 1.1%. That's roughly half of where we were a year ago. Three major items drove that decline, all related to the Southern Africa grocery and liquor business. The KZN distribution disruption, the Black Friday investment that didn't deliver the return we expected and a series of balance sheet cleanups. I'll unpack each of those in the slides that follow. HEPS at ZAR 200 is down nearly 55.9% on a comparable basis. Earnings were materially lower, and we did not declare an interim dividend, consistent with the prior year. Free cash flow was negative ZAR 2 billion, largely driven by working capital movements related to trade creditors. Despite the earnings pressure, the balance sheet held ROCE at 11.7%, net debt at ZAR 7.3 billion and gearing actually improved to 2.75x and better than the 2.81x a year ago. H1 was under real pressure. The causes are specific and largely within our control, and the balance sheet gives us the room to fix them. H2 is where we are going to have to show and focus on that. Moving to the group income statement. I'll give you the shape of it and then flag where we're spending our time unpacking the performance. Starting with turnover. Growth was muted with highly competitive trading environments on both sides of the business. South Africa was up 1.7% and Ireland was up 2.2% in euro, translating to a 1.8% increase in constant currency at group level. So the top line grew, but slowly and behind inflation. Ireland largely performed in line with our expectations. It delivered solid organic growth. The gross margin held, costs were well controlled and finance costs were down as we kept deleveraging. Ireland is doing what we needed to do, a stable cash-generative business, which means the story of the half and the reason earnings are down as much as they are, sits almost entirely in South Africa. In the following slides, I will unpack the SA performance in detail. On gross profit, the margin softened driven by product mix and promotional activity, most notably the Black Friday campaign and softness in gross profit margins in KZN. On costs, operating expenses are where the real pressure shows. SA marketing and selling costs rose sharply on the Black Friday investments. The cost to serve in KZN from a logistics perspective ran over, and we raised elevated credit loss provisions on SA debtors. Extraordinary items comprise balance sheet cleanups, which are largely noncash and included impairments related to goodwill and PPE system software and build it Imports warehouse closure and corporate store impairments. Net finance costs were marginally lower overall. Profit after tax on continuing operations was ZAR 292 million, down 64%. If we now turn to unpacking Southern Africa Grocery and Liquor revenue. Wholesale revenue from our core grocery and liquor business grew just over 1%. Our internal selling price inflation was 2.6%. Revenue grew slower than that. So once again, you strip out price, real volumes went backwards. Perishables held up better than dry groceries, where demand was softest and reflecting renewed focus on a higher-margin category. Liquor continues to shift towards lower alcohol lines. And then there's a clear geographic split. Coastal regions are growing ahead of our inland divisions. Retailer loyalty held at 78.5%, albeit less than our 80% target and rewards sales were up 9.3%. So even in a soft volume environment, shoppers are staying engaged with the brand. This slide tracks how revenue and gross profit moved across the half, and the story is really of 1 of 3 distinct phases. It opens with Black Friday in October and November. We saw a sharp short lift in revenue, but it came at a cost. The promotional intensity and below-cost pricing we ran to drive that volume suppressed margin heavily. Through the festive period in December and January, sales momentum held as consumer activity stayed strong, but gross profit remained deeply negative, weighted down by the same promotional drag and ongoing margin pressure in KZN. The encouraging turn comes in February and March. This is the most positive period of the half. Revenue growth accelerated to 2.1% and crucially gross profit growth turned positive at 2.3%. That reflects early stabilization in KZN, less promotional drag and a better category mix. So the underlying trend is improving even if the reported numbers don't fully show it yet. Builder delivered resilient organic retail sales growth of 6.1% in H1, an improvement on the 5.4% achieved in the prior year, supported by increased access for consumers to microfinance, particularly in South Africa through our recent partnership with Capitec. Headline retail sales growth of 1.5% was below the 5.1% reported in H1 2025, primarily reflecting store closures and the strategic exit from Mozambique. Organic growth significantly exceeded product inflation, demonstrating underlying volume growth rather than price-led expansion. Wholesale revenue increased by 1.3% to ZAR 5.2 billion, while retailer loyalty remained broadly stable at 68.1%. On a reported basis, loyalty showed a marginal increase, supported in part by the exit from Mozambique, which represented a relatively small component of wholesale sales. Excluding Mozambique, underlying loyalty declined by approximately 2%, driven by a combination of factors, including shifts in product mix across the network. This trend highlights a clear opportunity for growth to recover lost loyalty and strengthen performance off the current base. The business continues to build organic growth momentum and remained well positioned for sustainable growth with positive trading trends continuing beyond the half year period. Turning to SPAR Health. The story here is one of continued sales momentum. While profitability sits a little behind, and that's by design as we work through a deliberate investment cycle. Total sales revenue reached ZAR 1.2 billion, up 26.1%. Part of that step-up reflects the addition of Aptekor, the Western Cape Pharmacy wholesaler that has operated as a SPAR subsidiary since 1 November. Below the top line, the operating businesses are performing well. Scriptwise was up 12.2% and continues to hold its #1 position in patient support programs, while pharmacy at SPAR delivered retail turnover growth of 13.6% year-to-date, 7.7% on a like-for-like basis, comfortably outpacing competitors. Customer engagement is also moving in the right direction with loyalty climbing to 65% from 58% a year ago. This is largely attributable to having a DC in the Western Cape. On profitability, the single exit price regulatory cap at 1.47% versus an expected budget 5% based on the prior year is a regulatory headwind entirely outside our control and has had an impact on gross margins. We also launched Project 125 a year ago to drive our pharmacy footprint. 47 pharmacies have signed up to date, of which 28 launched. SPAR Health is a healthy growing platform that we are deliberately investing in now to build a stronger earnings base over the next few years. Moving across to Ireland and the BWG business. This is a solid set of results, and they're all the more credible given the challenging Irish consumer backdrop that we've had through the half. Sales came in at EUR 856 million, up 2.2% across the Irish business with continuing strong growth in our Food Services business. Encouragingly, the quality of sales improved too. Gross margin rose 20 basis points to 13.7%, helped by better supplier trading terms and an improved product category mix. On costs, the team kept a tight grip, Wage inflation of 3.5% was absorbed through distribution efficiencies. Payroll and operating costs stayed well controlled. The standout though, is the balance sheet. Net interest fell almost 23% to EUR 3.8 million as the deleveraging program continued. Net debt is now EUR 139.3 million, some EUR 44 million below the 2022 peak. And we still have EUR 96.7 million of available facilities. In short, Ireland is converting steady top line growth into healthier margins and a materially stronger balance sheet, a resilient performance in a tough market. As we simplify the group portfolio and sharpen our focus on South Africa and Ireland, BWG remains an important part of the group. It is a high-quality business with a strong market position, disciplined management and a proven ability to generate earnings and cash through the cycle. This bridge explains the operating profit decline by separating one-off drag from underlying performance. We have bucketed into 2 parts, the first being current period anomalies, which includes the KZN disruption and the Black Friday promotional spend. We have also included the current year impairments, which related to corporate stores in South Africa and Ireland and then the cost for the closure of Build it Imports warehouse. Secondly, our legacy matters are the balance sheet cleanups, provisions and historic items. The impact on performance is within our control and not necessarily structural. We need to ensure we exercise tight discipline in managing the business. This slide is really here for reference. It bridges reported profit through to headline earnings. HEPS is down 55.6% on a comparable 182-day basis, with headline earnings of ZAR 385 million against ZAR 835 million a year ago. The adjustments are mostly noncash and one-off impairments and asset disposals rather than anything in the underlying trading that we've already covered. A few key lines from the balance sheet. Total assets of ZAR 44.8 billion, made up of noncurrent assets of ZAR 19.4 billion, including property, plant and equipment of ZAR 5 billion and goodwill and intangibles of ZAR 6.5 billion. Current assets of ZAR 25.4 billion includes inventories of ZAR 4.6 billion and trade and other receivables of ZAR 16 billion. Cash and cash equivalents, excluding guilds and trusts were ZAR 1.1 billion at period end. On the liability side, total liabilities of ZAR 39.4 billion, net long-term borrowings of ZAR 6.4 billion and equity of ZAR 5.4 billion. The balance sheet is cleaner and more focused than at any point in recent years. And with the completion of the disposal of the U.K. business by year-end, we will be through our cycle of assets held for sale. Let me turn to the debt picture, broken down by country here, so you can see where leverage sits across the group. The ZAR 5.4 billion net debt at September 2025 moved to ZAR 7.3 billion at March 2026 driven primarily by the unfavorable working capital movement due to timing. Overall leverage has decreased from a year ago with improvement in our leverage ratio, considering the Swiss debt that was taken on to the SA balance sheet of around ZAR 680 million in September. It's a really good outcome. Funding was adequate at the reporting date, and we retained good headroom across cash and facilities. Working capital management remains a priority. The adverse H1 movement was driven primarily by a trade payables reduction, and it can be clearly seen where we generally run on close to net neutral working capital. September last year was an anomaly and has affected cash flow negatively this year. This is a timing distortion, not a structural deterioration. Inventory was well managed through the period after the buildup to the festive season, we saw tight discipline to bring stock levels down. Going into debtors in a bit more detail and specifically putting a spotlight on the South African debtors book and more broadly, the health of our retailers, an area we're watching closely. The honest message is that rising overdues are signaling genuine distress among some retailers as cost pressures work their way through their businesses. The takeaway is how actively this is being managed. Credit committee oversight has been intensified and early warning indicators are in place. We identify problems sooner and ensure our retail operations teams are on the ground to assist the highest risk sites. So while overdues are a real watch item, the takeaway is that we have visibility, the right governance and active mitigants in place. Free cash flow was negative ZAR 2 billion versus positive ZAR 694 million in H1 FY '25. The primary driver is working capital, a net outflow of ZAR 1.8 billion. This is overwhelmingly driven by the trade payables' timing distortion I mentioned. It is a mechanical timing-driven number, not a structural cash deterioration. As the AP timing normalizes in H2 and earnings recover, the free cash flow picture should improve materially. SA operational cash flow is negative ZAR 1.5 billion, while Ireland is slightly negative at EUR 15.5 million, which is manageable. This waterfall chart captures the total cash movement, including discontinued operations. Including the U.K. discontinued operations, total cash has been absorbed this half by operations and the disposal process. The U.K. exit eliminates a structurally loss-making business. Cash flows will normalize as the disposal completes in H2. Turning to capital expenditure. Our CapEx target remains firmly in place at roughly 1% of revenue. In the first half, spend was concentrated on our strategic initiatives, principally the SAP and omni initiatives. On the expansion side, we deployed ZAR 118 million on store acquisitions in South Africa and purchased a cash and carry business that strengthens our footprint in Ireland. Looking at replacement CapEx, retail capital contributions of EUR 3.8 million went towards store revamps, keeping the estate fresh without overcommitting capital in Ireland. And as we move into H2, the strategic spend largely relates to the SAP Finance go-live. We are ensuring we are disciplined around capital deployment. We have a clear hierarchy when it comes to capital allocation. Operational investment and CapEx first, debt reduction and covenant headroom second, shareholder returns when sustainable. Dividends remain suspended. Free cash flow has been negative this half. Earnings are not yet restored and gearing is still elevated. Capital preservation and debt reduction is the mandate. This is not a permanent position. It is the right position for now. Our intention is to return to paying dividends. On the share buyback, the Board has the authority in place, but we are deliberately not activating it now. With rising interest rates and the current market conditions, the cost of carrying debt is elevated. Returning cash to shareholders while leverage sits at 2.73x and free cash flows negative in the first half would not be responsible capital stewardship. Shares are materially undervalued, which makes the case even more compelling when conditions allow. Prudence comes before returns. Importantly, holding back here is a position of strength, not weakness. We retain real optionality. We have ZAR 6.6 billion of total available funding. Covenant headroom is maintained and the balance sheet carries unencumbered hard assets. This gives us further flexibility, should we choose to use it. Our focus remains on operating cash generation, deleveraging through earnings recovery and working capital discipline rather than dilutive equity. The buyback like the dividend will be reconsidered once leverage is on a sustainable downward path and free cash flow is consistently positive. The final milestone in portfolio simplification is complete with the disposal of our U.K. business. The asset purchase agreement was signed with A.F.Blakemore for the Salt ash depot and 71 stores on the 4th of May 2026. We expect the Salt ash takeover at the end of June, and it's all on track. Phase store transfers go through until September. The H2 U.K. trading losses are forecast at approximately GBP 5 million. It's important to note the disposal structure does not involve the group assuming or settling AWG debt as part of the exit consideration. At September 2025, AWG bank debt had already been reduced to nil. The GBP 13.875 million intercompany loan balance was fully impaired as part of the broader impairment recognized during FY '25. This is the final step in a 3-year portfolio simplification program. With the U.K. exit, SPAR's footprint is now South Africa and Ireland. This is where our focus belongs. Given how topical this is, we wanted to give you a sense of how fuel costs impact our business. H1 was actually a tailwind for us. Diesel averaged at ZAR 18.42 a liter in H1 versus ZAR 18.67 a liter in the prior period. Fuel represents around 15% to 18% of warehouse and distribution costs. It's the single largest cost variable in our DC network. Total fuel spend was ZAR 254.6 million. Liters consumed were down 3.5%, reflecting route optimization efforts. In the first half of the year, fuel actually helped us because prices were lower than expected. We expect that to flip in the second half and work against us, but we have already sized it and have a clear plan to absorb it. There are 3 parts to the plan. Firstly, we are simply using less fuel by running our trucks smarter, planning better routes and loading them more fully. Route optimization and load consolidation already reduced liters consumed by 3.5% in H1. Secondly, we look to suppliers for surcharges, so we are not carrying the whole cost ourselves. Thirdly, because we now buy trucking across both South Africa and Ireland, we have more weight at the table when we negotiate with outside haulers. And in KwaZulu NATAL, we have moved away from renting trucks at short notice towards owning more of our fleet, which makes costs far more predictable. In short, fuel will be a headwind in the second half, but is a known and manageable one. H2 presents a constrained macro environment. In South Africa, we see intensifying price competition as chains expand discount formats. Independent retailers are under margin pressure, and we see a significant growth in promotional activity. Successive fuel hikes are putting pressure on the supply chain and the SARB raised rates 25 basis points in May. We are also seeing increased prices coming in from our suppliers and expect inflation to uptick if the Iran war remains unresolved. In Ireland, the convenience market remains highly contested. We expect the ECB to raise interest rates by at least 50 basis points through 2026, while consumer confidence is at a 3-year low. These headwinds are real as we go into H2. This leads me to the next slide, which sets out a response to our low growth top line and constrained margins from a cost perspective. This is what we are doing about it. Cost growth ran ahead of inflation in the first half. So we put a structural cost reset in motion, a realignment program designed to start showing through in the second half. We have started with an overall review of our operating costs to understand our cost base, organizational structure and design compared to benchmarks. We have identified where we can get the quickest wins. This is not a once-off program and will be embedded into a continuous improvement plan as to how we drive cost efficiencies across the business. We have also established and centralized non-trade procurement. Historically, each DC sourced independently. We are now sourcing centrally and some examples include marketing agency costs, security, pallet wrap and canteen costs. On our distribution network, we have had to very quickly respond to the increased fuel price by optimizing routing and frequency of deliveries to bring down logistics costs per kilometer. The consumer and our retailers cannot afford to absorb the increased cost of fuel. As outlined earlier, we have various initiatives underway. On marketing, as already touched on by Reeza, we've completed an effectiveness review of spend and adopted an ROI framework to ensure spend is better controlled and more effective. On people, the voluntary service program in the center is the clearest early proof point, a ZAR 27.3 million cost, which falls into H2. But that unlocks around ZAR 33.2 million of annual savings. Alongside this, the organizational design and spans and layers work is now underway across various functional areas. This is a deliberate structural reset rather than short-term trimming. The actions are already in flight, and we'd expect the benefit to build through the remainder of the year. On that sobering note, I would like to hand back to Reeza.

Thank you, Megan. So let me close with where we are going. So firstly, -- with the focus on accountability and execution, there are 6 data points that I want to leave you with. Groceries and Liquor revenue growth improved in February and March with GP stabilizing. And post period, early signs of progress has continued. We have 5 retail improvement areas clearly identified. Retail and guild engagements have intensified and retail profitability has been adopted as a primary operating metric. The asset purchase agreement has been signed with A.F.Blakemore on the fourth of May. Our focus is now entirely on South Africa and Ireland. February and March GP growth turned positive, and the underlying category mix is improving. We had 3 consecutive profitable months in KZN and the recovery is in flight. Lastly, the new leadership is in place, and I'm very excited about the team that we have assembled. We have a leadership team with a mix of deep institutional knowledge of SPAR, retail and turnaround experience. And we have exceptional depth of talent in our Island team led by [ John Moon ], there is clear accountability in place at the top of the organization. The case for SPAR. So SPAR remains one of the largest food retail networks in Southern Africa with more than 2,000 stores operated by over 1,000 independent retailers across 6 countries. We hold a leading position in convenience retail, have the strongest liquor brand in South Africa and are the largest building material supplier to independent retailers through build it. It is a capital-light model, largely working capital neutral and one that has proven its resilience over many decades. And Ireland reinforces that proposition. BWG is the leading voluntary trading group in Ireland. With more than 1,000 stores across brands, including SPAR, EUROSPAR, MACE and Londis, alongside a scaled food services business. It delivered approximately EUR 70 million of EBITDA over the past 12 months and consistently generate strong cash flows. At the next results presentation are planned to get John to join us as we do not do justice to that business in 1 slide. So this is why we remain confident in the future of this group. So throughout today's presentation, we have been candid about where we have underperformed and where we need to improve. But it is equally important to recognize the underlying strength of our brands, our people and our businesses, and that remains intact. And these awards and rankings come from customers, industry bodies, and independent third parties. In other words, we are not the only ones who continue to believe in the strength of SPAR. Now about execution. So let me close on this. The hard work over the last 3 years is behind us. Much of the heavy lifting has been done, but the past 6 months has shown that there is still work ahead. You will have noticed that we have not set out cost to margin targets today or announced any major strategy resets or initiatives to turn around the business. That is deliberate. At the end of the day, we are simple wholesale and distribution business working for the benefit of our retailers who in turn serve their communities. We buy smartly at scale. We distribute efficiently and we support our retailers with the right tools and by simplifying their lives. So that they can focus on serving their customers. This model works. It is proven globally and has particular relevance in South Africa with our diverse communities. We have briefly lost our way and have been distracted with offshore complexity and SAP. So in a nutshell, for myself and the team, it is focus, focus, focus and execute. Starting with the basics. Hopefully, we have demonstrated that we are firmly on that journey. So before we take your questions, allow me to end on a more personal note. I want to thank the people who are SPAR, our customers, our staff, our suppliers, our retailers, our Board, our funders and our shareholders. It has not been an easy time for this business over the past few years. I don't take for granted the support that you have shown us through it or your belief in SPAR. Across my 18 months with SPAR first as CFO and our CEO, what has struck the most is the importance of relationships. The strength of the special ecosystem we are part of and the role that every 1 of us plays in serving our communities. We will prevail, and we are, without doubt, better together. Thank you. [Presentation]

Thank you, Megan. Thank you, Reeza. One presentation down, 100 to go.

I'll start with a question for you, Reeza. Please talk to retailer loyalty at present and how are you looking to improve this metric?

As I covered in the presentation, we haven't seen any significant shifts in loyalty. I think our challenge slow remains in KZN. Overall, loyalty in South Africa, it's actually close to 80%. And but we need -- there's work to be done in certain areas. And KZN is 1 of those areas. We need to get back to where we were pre SAP and pre-COIVID levels in SAP. And the current instability in the system as it has been shown by the last by the last 6 months has not helped. And we need to stabilize operations, improve service levels and focus on the basics, as I've outlined, the 5 basic areas.

Thanks, Reeza. We've got quite a lot of questions on fuel cost impact. So I'll just sort of lump them in a bit. I'll give this one to you, Megan. Please talk to the rise in fuel prices and how that will impact expenses in H2 in SA? And there's also some questions around how the fuel bill has increased split between SA and Ireland?

Thanks, Zihle. So we did try and unpack the fuel cost and the impact on our business quite significantly in the presentation. I think obviously, we realize there's a headwind. I think we've been quite transparent about the amount of liters we consume, the cost of diesel, and it is going to have a significant impact on our business. We're not necessarily going to disclose the value. But that being said, we still think that we can get an uptick in margins even with the fuel price and the headwinds as a result of that. There are certain things we're doing to improve the cost of fuel and the efficiency within our supply chain. And those are largely around how we do our loads, making sure our vehicles are full optimizing routes and also the regularity of delivery to our retailers. And then on top of that, we are also looking at other efficiencies, what we can get from a surcharge from suppliers, and seeing how that all adds in. So I think overall, it is going to be a headwind. But from an overall perspective, we still think even with that, we should see an improvement in margins in H2.

Thanks, Meg. Question on the debtors book. What percentage of the SA debtor's book is fully up to date with payment terms?

Okay. So in terms of our debtors book, we did disclose that our debtors book overdue portion was 16%. So 84% is improved -- is in terms. But I think it's important to understand when you look at the provision that we've got in place for our debtors book compared to last year, at the end of last year, we were roughly around 50% provided on overdues. And if we look at where we are now is close to 67% provided. So I think we've been relatively conservative when it comes to our debtors book and making sure that we've got the right provisions in place.

Thank you, Meg. Some questions on KZN. The KZN stabilization plan has shown improvement over the past 3 months. Can you quantify for us the recovery in terms of revenue margin loyalty relative to the pre-disruption baseline?

Look, the KZN, just to put it in context, I mean, KZN was an unwelcome surprise for us this period. At the same time, last year, the DC was well on the way to break a better performance and performance fell away in the last quarter of the year. and then that continued into the first half. So I mean as I mentioned, a number of improvements have been -- we've done a root cause analysis. We've identified what the issues are. It is -- and as I said, a number of self-inflicted on goals. We drove top line hard. We try to improve loyalty, but operationally, we won't gear up for the higher volumes and the operational demands on the business. And that root cause analysis has been done. We've changed the team, the retail operations, executive of the marketing and the finance executive. And there's been 3 months of of profit delivered January, February, March in that region. And the focus really is on stabilization and making sure that we have sustainable changes in the business. And the signs are encouraging. I think the top line growth is improving. The key thing for us is really GP margin management. And then below the -- and those disciplines are definitely in place. And the GP has seen a consistent uplift and the team is definitely focused on that. And then below, what I would say, below the GP line, we are still incurring extra unplanned for costs as we stabilize the operations and as we do the logistics improvements. But that should deliver margin improvement consistently through the rest of the year.

Yes. Thanks, Reeza. Megan, maybe I'll ask you to talk to this one. Can you please explain if you expect the ZAR 123 million KZN disruption and the ZAR 212 million Black Friday profit impact do not recur?

So again, going back to the presentation, we really tried to show current period anomalies. And both those items, we would not expect to happen going into H2. So if we look at Black Friday, there are 2 parts to it. We gave away GP margin around ZAR 60 million. And then the ZAR 150 million related to promotional activity. If we look into H2, there actually aren't any -- there isn't like a Black Friday, there isn't Eastern, there isn't a Christmas. So we should see improvements in margins. Reeza has also spoken about the fact that we have a new CMO. And so we're being a lot more disciplined around our promotional activity, and we we deeply discount. And then going to KZN, Reeza has I think spoken extensively about it. And we have seen coming into April and May, that the GP margins are improving. There's been better discipline around costs. So a lot of the costs we were incurring in terms of overtime and hiring in vehicles, we've resolved those issues and so we're starting to see better performance in KZN. So we wouldn't expect to see that recur in H2.

Thanks, Meg. Question for you, Reeza. So with regards to the original 3% operating margin target, is that no longer on the table? And what would you say we should be looking at going forward? And what would be the drivers?

Look, the reality is in the past 6 months, we've delivered a margin that was closer to 1% than 3%. In actual fact, we went backwards and as I said in the presentation, I'm not setting out cost to make margin targets today. We really do not -- we are focusing on those improvement areas within the business. And and delivering on those. And for me and the team, it's about focus, focus, focus and then execution and accountability. And that is deliberate also. I do not want to overpromise and under deliver. And I think as we the -- when we are ready to share targets and time lines with the market, I think we'll do that. But I think there needs to be a little bit of patience for us to gather that assess exactly where we are and share that with the market. But I think everyone can be assured that we are absolutely focused on improving this business. At the end of the day, we are -- as I said in the presentation, we are a simple business at our core. We have to buy smartly, we have to warehouse. We have to distribute efficiently. We have to spend our marketing funds and our budgets in the most cost-effective way. And those are the things that we're focusing on.

Thank you, Reeza. Can you talk to post-period trade and growth as you're seeing it currently?

Yes. So so with the shift in Easter, we have seen the timing effect of Easter benefit. Obviously, it was earlier this year, so it benefited the 6 months to the end of March. And we have seen that the comparative number for April being softer, but that's because of the Easter effect. I think for us, it's still relatively tough and competitive out there. And -- but we have seen an improvement in margin. And that's where the focus really is.

Thanks, Reeza. Question around private label. What's the current private label contribution? And what's the medium target for SPAR?

Currently, we're sitting at about 22% of total sales. It is our stated ambition. I think we've mentioned this publicly as well. We would like to be closer to 30%. So we see that as a as a big opportunity. Actually, it's a part of the business that we have under-potentialized, I mean it's 1 of the areas I called out in the presentation. We bought our private label business about 3 years ago. But we did not do a post what we call a post-merger integration properly into the business has been run effectively as a separate business. There's enormous opportunity in that business. We from a product development and innovation perspective, but then also integrating the KPI and the commodity items into the core Grocers and Liquor business. And that work has currently started. It's kicked off, and that is being run under with -- currently with the head of Encore Tony Mun-Gavin and Jerome Jacobs are both leading network together with our merchandise executives.

Yes. Thanks, Reeza. Okay.Just scrolling past questions I have asked already. Has 60-60 not undermine the SPAR convenience proposition?

I think it's important to understand the -- our proposition is around arming our retailers with the tools I need to compete in the market. And to date, we are at over 600 stores in the network. We offer SPAR2U. So that has grown significantly. And of course, we've offered Uber Eats. So it's really about providing our retailers with the tools to compete at retailer and to serve their customers. I think the -- and we've identified certain sort of constraints to growth, both internally within SPAR, we've rearranged ourselves now with -- under a separate team. And we have -- we've also identified pain points at the retail, and we've identified pain points for the end consumer with the user experience. And all of those are getting attention. we're going to invest significantly in changing that and changing the cost of travel. But I think we're also going to focus on this way spot to you and the on-demand experience links back to our brand and our proposition and the work that John Bradshaw is also doing. And we're going to link it to to the community connection and making it -- are we calling it MySPAR, it's personal. And the differentiation is really around the retailer and the community connection, and that personal connection. But I don't want to give away too much, but it's really playing to our strength. And as I said, we're not going to fight the other players on the terms but we're going to focus on our strengths and our differentiators.

Thanks, Reeza. A question on -- well, can you comment on the -- sorry, on the articles around adverse findings by a BDO report. Anything you'd like to say around that, Meg?

I think we have -- I mean, Megan can add, but it's been a bit -- to be honest, it's been a distraction that really didn't warrant the attention that it got. To be fair, we've dealt with it in a sense that we published separately. And ultimately, it was not an investigation review done in respect of one particular store valued at Circa ZAR 4 million. It wasn't an investigation. It wasn't a fraud or forensic investigation. It had certain findings. We're certainly interested in the findings and ensuring that we've got our accounting and our governance in order. And at the end of the day, our own auditors, PwC, have not found any instances of reportable irregularities or material irregularities. We also had our internal auditors, EY, conduct a review and apart from some misclassification issues in the accounts, which has no impact. Let me just state this, no impact on the fiscus and VAT. There's been no major issues raised by them either. And I think the reasons for the issue being raised, I think we've also set out very clearly what we believe the reasons are in the sense.

Thank you, Reeza. Happy with that. Megan, I'll ask you this one, was the SA covenant negotiated higher? Yes.

So in terms of the covenant, we obviously work closely with our banks. And going into the half year, we were concerned around the covenant level, specifically related to the fact that we were going into the Easter period and Easter was earlier this year. So we did work with our banks, and they did increase the level. So -- and they were happy to do that, and we were within the covenant levels.

Okay. Thank you, Meg. Can we please get some color around the payables outflow of ZAR 1.8 billion?

Sure. So again, I'm going to point back to the presentation. And I think just to give context of where we normally run from a working capital perspective, net working capital, we generally run relatively neutral. And if you look at where we ended in September last year, we were relatively negative from net working capital perspective. And that largely related to a large trade payables balance. I think last year, Reeza came in for slack and said that we had held back in payments, and that's why our cash flow looked good last year. Well, the opposite has happened this year and the outflows sits in H1. It's really a timing issue of when month end falls and it's got nothing to do with structural issues.

Thank you, Meg. Scrolling past some of the repeated questions. So okay, Debtors ECL provision, are you comfortable that no further increases are required in H2?

Okay. So that question was asked a little bit earlier, and I've just given some context in terms of where the provision sits now based on overdues. That being said, obviously, we did go through quite a detailed review for the half year in terms of our debtors book. We do understand that there's macro strain in the economy. And there may be some reason to provide further at September, but I wouldn't think it would be significant. And hopefully, you get some comfort from the level of provisions we've got against overdue, which have increased significantly since September last year.

Thanks, Meg. With regards to accounts payable timing issues, does this mean payments were made prior to period end?

So it was more the payments that related to September that flowed into this period from a cycle perspective that hits the net working capital.

There doesn't seem to be much CapEx to keep stores fresh in South Africa. Is that a concern as competitors roll out new stores?

I think the CapEx that we spend, and we said, look, we will keep CapEx with -- I mean, CapEx, we are capital light working capital-neutral business, and that's what we are. The CapEx that we don't own the stores. The CapEx that we spend are essentially on on the operations that either our fleet or our DCs. I think the -- having said that, there's no doubt that there are stores within the chain that needs refreshing. I think that's part of the profitability work that we are doing and the support that we are giving retailers and we need to do some of those refreshes in a capital-light way. We have we have mechanisms that at our disposal, like a development fund run by the guild. But we're not accessing those funds. Obviously, we have to access it jointly with our retailers. But we need to rebuilt, I think, confidence in the system so that we can support retail through this process. I think the the focus is definitely not -- we're not taking the focus away from growth and we have identified and we continue to do work on white space and where we should be and where we are underrepresented, and that continues. Yes.

Yes. Thank you, Reeza. Can you provide some color on the difference in performance between inland and coastal? Meg, I'll give that one to you.

Sure. So I think what we saw from a coastal perspective is that the growth was a lot higher from a top line perspective in the coastal regions. That being said, obviously, KZN does form part of the coastal regions, and we did see an impact from a GP margin perspective. Our inland businesses, the growth there was less, probably just slightly positive. So it has been our coastal regions that have carried the business.

Okay. Thank you. I see it is 10:59. We've got a hard stop at 11:00. We do have a few more questions, which I will address via e-mail to the various people who have asked. Any closing up comments, Reeza?

No, I think for us, really, it's been quite an eventful 3 months. And we've set out very clearly what our noses of what the issues are. So I think it's important to understand what the issues are before addressing it. We are certainly focused on reducing the issues both at retail and within our own wholesale business. We have a new team in place with turnaround experience with retail experience and with deep SPAR knowledge, and we are tackling it in a very systematic and deliberate way. And I think the -- ultimately, the market will judge us and investors will judge us on the progress that we made, not the promises that we make. So we are very absolutely very aware of the way to a responsibility that we carry. And certainly, Megan is and certainly the rest of the ExCo is. And we are tackling this in the best possible way that we can. And we will be honest and transparent with our communication with the market.

Thank you, Megan. Thank you, Reeza, and thank you, everyone, for joining us this morning.