Spar denies cash crunch but shares hit 16-year low  

The sudden and unexpected departure of CEO Angelo Swartz, after only three years at the helm, and the poorer-than-expected trading statement for the 18 weeks to end-January have now been followed by news suggesting Spar’s KwaZulu-Natal (KZN) division pushed suppliers to accept relaxed payment terms during February.

An email sent by the accounts division of Spar KZN to some of the group’s major suppliers was brief and to the point: “Due to Cash Flow Issues, there has been a request for an arranged payment for Feb month end, as per below – 50% 20^th Feb, 50% 10^th March. Please advise if you would accept part payments as per above.”

The message seemed quite clear: Spar KZN has cash flow difficulties. This sparked fears that other areas of the group are also under pressure.

Little wonder the shares crashed another 7.5% in the first two hours of trading on Tuesday morning. After reaching a low of R69.77 – a level last seen all the way back in 2009 – the share recovered to close just 2.44% lower, at R74.36.

The supplier payment puzzle

A swift statement from head office clearly settled market jitters. However, it contained some puzzling details.

Apparently, said Spar’s clarification statement, the email from KZN wasn’t looking to delay payment; it was in fact an offer “to a small group of suppliers” to receive early payment for the February/March period. This period, said Spar, “typically reflects increased inventory build ahead of Easter as well as pre-budget procurement activity”.

The proposal would allow participating suppliers to receive 50% of their February payment early, on February 20 (rather than waiting for standard month-end or agreed payment terms for full settlement), “with the balance on March 10”.

According to Spar this sort of “settlement timing adjustment” is common practice for managing cash cycles efficiently and is used “across large retail and wholesale businesses”.

But among the analysts Currency spoke to, none had heard of suppliers being offered earlier payment terms.

Sasfin’s Alec Abraham told Currency this is an “unusual routine practice”; for Opportune Investments’ Chris Logan it is a first; and Protea Capital Management CEO Jean Pierre Verster said he’s never heard of a retailer wanting to pay suppliers earlier than the agreed payment terms.

A payment win-win?

However, Spar said that, from a cash-management perspective, the initiative can benefit both parties.

“For Spar, it smooths settlement timing during a seasonal stock-build cycle, and for suppliers it provides earlier access to a portion of funds rather than waiting for standard month-end or agreed payment terms for full settlement.”

Participation, said Spar, is voluntary “and limited in scope with the suppliers selected based on scale, category alignment and existing commercial engagement”.

It’s unclear how many of the lucky suppliers who received the offer accepted it. The Spar statement merely said the uptake represents approximately 3.5% of KZN’s February credit book.

An alternative interpretation is that Spar KZN acted alone on the initiative in a bid to improve its own balance sheet and that it was, as it appears, a request to suppliers to accept delayed payment.

That may be because Spar KZN was at the centre of a botched SAP rollout, and operations have not yet fully recovered.

During Monday’s presentation of the trading update for the 18 weeks to end-January, current CFO Reeza Isaacs – who becomes CEO effective March – described KZN as “underperforming”, with margins under strain due to overstocking as well as logistics and warehousing inefficiencies.

When the email was leaked to the media, investors already nervous about recent unfavourable developments, reacted dramatically.

One industry source told Currency the reaction was reasonable, given the potential unintended consequences of a request for delayed payment. “The Spar model is unlike a traditional retail model, it’s the independent retailers who carry the brunt of this sort of action by Spar’s regional head office. Mistake or not, this will do little to improve the low levels of loyalty in KZN,” they said.

Cash to spare

Spar head office will now have to work hard to recover from this own goal – and reassure its suppliers, independent retailers, shareholders and banks that there is no general financial stress.

That shouldn’t be too difficult. The latest financials (for the year to end-September 2025) show that cash generated from operations came to R5.4bn. Group leverage ratio (that’s net debt to earnings before interest, tax, depreciation and amortisation) was 1.74 times.

While lower than 2024’s 2.14 times, this is not at crisis levels, though group leverage is still above the South African target of 1.5 times.

Hefty knocks from the sale of its Polish and Swiss operations, as well as losses stemming from the mangled rollout of SAP in KZN have all taken their toll – and that’s before accounting for two mega-claims from Spar’s largest independent retailer, the Giannacopoulos family.

One relates to a five-year legal battle, worth R2bn, and the second, more recent claim, is for R168.7m.

While the cash position isn’t nearly as comfortable as it was in the days before Spar’s ill-considered and poorly implemented international expansion strategy, it’s surely manageable.

At Monday’s presentation of the 18-week trading update, COO Megan Pydigadu assured analysts there are no concerns about bank covenants. There was even talk of a share repurchase programme. The market, however, remains to be convinced.

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_{Top image: Rawpixel/Currency collage.}