IT Problems And Costs Hit Spar Profit By R786 Million

Spar announced on Wednesday that it had delivered a commendable trading performance in the six months to the end of March 2023 in a challenging environment.

Group revenue increased by 7,9% to R72,9 billion.

It added that over the past 12 months, all regions have come under significant inflationary cost pressures.

“The cost pressures, coupled with SAP software go-live challenges at the KwaZulu-Natal distribution centre (KZN DC) and subsequent loss of turnover during the latter half of the period, resulted in a decline in operating profit of 17.5%to R1,5 billion,” Spar said.

“Due to rising interest rates across all geographies, finance costs on debt and overdrafts have increased relative to the prior comparative period.”

The group diluted headline earnings per share – South Africa’s true earnings measure – decreased by 30.2% to 447.7 cents.

“In light of the challenges, the board of directors (board) believes it prudent not to declare an interim dividend.”
The group began rolling out its new SAP software system at its South African headquarters in October 2022.”

The KZN distribution centre was the first regional distribution centre to roll out SAP, limiting the risk to the other regions.

The go-live in KZN started in February 2023.

“The transition to SAP has resulted in various go-live and integration issues negatively impacting distribution operations in KZN. This has caused interruptions in stock deliveries to our retailers’ stores, resulting in reduced service levels and has had a significant impact on retailer loyalty in this region,” Spar said Spar.

The retailer said that measures have been taken to improve delivery to its retail shops. These include supplying these stores from distribution centres in the Eastern Cape, South Rand and North Rand, direct delivery to shops and increased use of drop shipments by suppliers.

“The estimated impact of SAP go-live issues at KZN amounts to R786 million of lost wholesale turnover during the period,” said the company.

Spar said it was rectifying these issues with the help of specialists from SAP and that operational performance was improving.

“The various go-live issues are being resolved and the priority remains to improve order fulfilment to ensure more predictable and consistent supply to our retailers in this region.

“Once service levels have improved to a satisfactory level on the reduced retailer base, KZN will take back the servicing of the rest of its stores from the neighbouring distribution centres.

“The rollout of SAP has been delayed in other regions until all issues at the KZN DC have been completely and satisfactorily resolved.”