A failed implementation of SAP enterprise software cost Spar Group R786 million in lost wholesale revenue in the six months to the end of March 2023.
Spar is facing a double-digit drop in earnings and has deemed it “prudent” not to declare an interim dividend as a result. The company said high interest rates, load shedding, difficulties implementing its new IT system and rising costs are to blame for its weak results.
The retailer reported on Wednesday that its operating profit fell nearly 18% to around R1.5 billion for the latest interim reporting period. Its overall diluted earnings per share fell more than 30% due to cost pressures, leading to a subsequent loss of revenue during the second half of the period. The financial costs of debt and overdrafts have also risen, and the group said that over the past 12 months all regions have been under considerable inflationary cost pressures.
SAP software implementation challenges at Spar’s KwaZulu-Natal distribution center added to the challenges as stores are forced to use other distribution centers to fulfill orders in that province. “Solving all remaining SAP software implementation challenges remains an urgent priority for the business and for our retailers in the KwaZulu-Natal region,” the group said.
The distribution center in KwaZulu-Natal was the first regional distribution center to launch SAP software, in February 2023. But the group reported that the transition resulted in various start-up and integration issues, which had a negative impact. in distribution operations in KwaZulu-Natal. This caused disruptions in deliveries of stock to retailers’ stores, resulting in reduced service levels, which had a significant impact on retailer loyalty in this region.
Spar said SAP’s problems cost it R786 million in lost wholesale turnover during the period. He said that he is solving these problems with the assistance of SAP specialists and that operational performance is improving. “The various start-up issues are being resolved and the priority remains to improve order fulfillment to ensure a more predictable and consistent supply to retailers. SAP implementation has been delayed in other regions until all issues in KZN DC have been fully and satisfactorily resolved.”
Meanwhile, load shedding has cost Spar more than R700m worth of diesel for generators over the past six-month period, the retailer said, warning of much higher spending if the power situation deteriorates.
Crippling power outages are leaving homes and businesses in the dark for up to 10 hours a day, but with 97% of its stores in South Africa covered by generators, Spar operations remain largely uninterrupted, interim CEO mike bosman he said in an interview.
Spar’s spending on fuel for its generators, which are ready to run 24 hours a day, makes doing business “incredibly expensive”, but the cost is not passed on to consumers.
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Bosman said that at current levels, Spar’s diesel spending for its entire fiscal year would be R1.4bn. “If (the energy situation) does not improve and if it deteriorates, it will be much more.”
Spar shares were up more than 4% in early trading to R107.69. This follows a drop of more than 19% two weeks ago when it released a trading statement indicating its interim earnings. – © 2023 NewsCentral Media, with additional reporting by Tannur Anders, © 2023 Reuters