Spar chair fails to soothe rattled investors  

The market didn’t seem to take much comfort from reassurances – reiterated several times – by Spar chair Mike Bosman during Wednesday morning’s AGM. By the close of trade the share price had lost 2.92% in value to close at R66.25. That’s 25% down in one month. It didn’t help that most of the other listed grocery retailers managed to eke out share price increases during the day.

“What we’ve been through over the past month or two wasn’t easy or expected,” Bosman told shareholders attending the AGM. He attributed the turmoil to the recent dramatic departure of CEO Angelo Swartz, just two-and-a-half years after taking up the appointment.

That said, Bosman saw nothing much wrong in the CEO’s departure, given that the board was able to seamlessly appoint a replacement, in the form of CFO Reeza Isaacs. Isaacs’ position as CFO was assumed by Megan Pydigadu, until recently the group’s COO.

Succession in action

Bosman was almost right when he said that what we had just witnessed was “an example of a board’s succession plan in action”.

The only problem is that the change of leadership is just one of the issues Spar now has to deal with. There’s the matter of a considerably worse-than-expected trading update released days after Swartz’s departure, and the not-inconsiderable issue of a R167m damages claim recently announced by one of the group’s largest independent retailers.

And it wasn’t as though Spar was coasting along in untroubled waters. Most investors are still trying to come to terms with the governance issues that blew up in 2022, combined with the urgent need to dispose of major international acquisitions at hefty losses. And, of course, let’s not forget the mangled SAP rollout.

Is it any wonder shareholders are skittish?

But, and perhaps it’s necessary for a chair to at least feign optimism, Bosman was determined to deliver an upbeat message. Loyalty levels (measuring how much independent retailers buy from Spar’s distribution system) are a solid 80% he said, except in KwaZulu-Natal where they’re about 70% because of the SAP woes, and Limpopo where they’re low because of problems in Mozambique.

‘Incredibly bullish’

Good-quality people are in place across the group; debt levels have been reduced by 50% to R6bn; Spar has managed to take massive write-downs on assets; it’s returning to its former cash rich-capital light model; and, importantly, it has the support of all its banks. There is indeed much to be upbeat about. And, as Bosman noted, all those write-downs will buff up the return on assets and capital.

“I’m incredibly bullish about all of this,” said Bosman, who evidently doesn’t fully understand why the market has knocked the share price so hard in the past few weeks. “I’m not going to comment on the vagaries of the market, I’ve wondered myself whether there’s been some hedge funds in action … and that would be completely normal.”

The problem, as Bosman sees it, is that investors may have underestimated the scale of the challenges facing Spar. “Like any business transformation process, the mistake one makes is to think it can be done in a few months; it can’t, Spar is a gigantic organisation.”

So it seems investors must be patient. This, of course, is something not many investors are good at. And while there is no doubt the management team has made huge progress since 2023 (leaving aside the legacy problem of SAP) and, more than most executives deserve to be well remunerated, there is one troubling matter that seems overlooked. That’s the relationship between executive management and the independent retailers.

There is no end of formal reference to the importance of the independent retailers in the Spar model, but it’s unclear if the Spar executive team treats the Spar Guild – which joins together Spar and its retailers – with the respect it needs and deserves.

The importance of the guild

The Spar Guild is essentially the organisation that manages the often-competing interests of the independent retailers and the Spar Group. If, with an eye to shareholder demands, Spar wanted to hike its own margins, it could do so by squeezing the independent retailers. The guild is in place to ensure this doesn’t happen.

During the AGM, in response to one of the many queries about Swartz’s departure, Bosman referred to the stress Swartz had been under. This came from many sources, but one highlighted by Bosman was the independent retailers. “He gave everything to the business and more,” said Bosman. “He had been in it a long time and had close relationships with all the retailers. This put a great deal of stress and strain on him because all the retailers would call him directly.”

You have to wonder where was the guild in all of this. It was surely designed to allow the top executives get on with big-picture stuff?

Recall, this was the same time Swartz was leading the exit from Poland and Switzerland, and dealing with the SAP matter.

A strained relationship

And, of course, there’s the Giannacopoulos matter. If nothing else, the two damages claims (one for R2bn and a second for R167m) are evidence of a poorly functioning guild system.

Just the scale of disagreement about the facts of the latest legal battle speaks volumes about the strained relationship between the Spar Group and its independents. During the AGM Bosman dismissed the Giannacopoulos claim in rather fanciful terms, indicating that though he “has respect for the family”, he feels they’re being rather whimsical.

Bosman claims the Giannacopoulos family initially put in a demand for R7.2m and then reduced it to R5m – though the family denies making any claims at this stage. Spar offered them R4m, which they rejected. “The next thing we heard there was a R167m claim against the company, so you can imagine how shocked and surprised we were with that.”

A properly functioning guild might have helped to avoid the shock and surprise. And might also have kept Swartz with the group.

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_{Top image: Spar chair Mike Bosman. Picture: Spar Group..}