THE SPAR GROUP LIMITED - Unaudited interim results for the six months ended 31 March 2017

    31 May 2017

    SPP 201705310001A
    Unaudited interim results for the six months ended 31 March 2017

    THE SPAR GROUP LIMITED

    REGISTRATION NUMBER: 1967/001572/06
    ISIN: ZAE000058517
    JSE SHARE CODE: SPP
    THE SPAR GROUP LIMITED ("SPAR" or "the company" or "the group")
    www.spar.co.za

    UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2017

    CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

    Change Unaudited Unaudited Audited
    % six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    Revenue 13.9 48 381.4 42 484.2 92 227.3
    Turnover 12.6 47 353.4 42 056.4 90 688.5
    Cost of sales (42 815.2) (38 397.7) (82 281.5)
    Gross profit 4 538.2 3 658.7 8 407.0
    Other income 1 028.0 427.8 1 538.8
    Net operating expenses (4 359.2) (2 821.2) (7 347.6)
    Trading profit 1 207.0 1 265.3 2 598.2
    BBBEE transactions (0.2) (7.2) (20.9)
    Operating profit (4.1) 1 206.8 1 258.1 2 577.3
    Other non-operating items (24.5)
    Interest income 59.0 22.4 98.4
    Interest expense (56.5) (66.6) (110.4)
    Finance costs including foreign exchange gains/(losses) 23.3 (74.8) (106.5)
    Share of equity accounted associate (losses)/income (2.9) 2.0 4.9
    Profit before taxation 7.8 1 229.7 1 141.1 2 439.2
    Income tax expense (321.7) (315.7) (624.2)
    Profit for the period attributable to ordinary shareholders 10.0 908.0 825.4 1 815.0
    Other comprehensive income
    Items that will not be reclassified subsequently to profit or loss:
    Actuarial loss on post-retirement medical aid (7.9)
    Deferred tax relating to actuarial loss on post-retirement medical aid 2.2
    Actuarial gain/(loss) on retirement funds 232.7 (59.8) (220.1)
    Deferred tax relating to actuarial gain/(loss) on retirement funds (36.6) 7.5 30.7
    Items that may be reclassified subsequently to profit or loss:
    Loss on cash flow hedge (2.9) (40.9) (39.2)
    Tax relating to loss on cash flow hedge 0.4 11.0
    Exchange differences from translation of foreign operations (147.2) 132.6 (29.4)
    Share of associates" movement in translation reserve (0.2)
    Total comprehensive income 10.3 954.2 864.8 1 562.3

    EARNINGS PER SHARE
    Earnings per share (cents) (1.1) 471.6 476.8 1 010.0
    Diluted earnings per share (cents) 6.5 468.0 439.3 999.5

    SALIENT STATISTICS
    Headline earnings per share (cents) (0.9) 475.5 480.0 1 020.0
    Diluted headline earnings per share (cents) 6.7 471.9 442.2 1 009.4
    Normalised headline earnings per share (cents) (11.7) 445.1 504.3 1 033.0
    Dividend per share (cents) (5.9) 240.0 255.0 665.0
    Net asset value per share (cents) 50.1 3 005.6 2 002.0 3 140.1
    Operating profit margin (%) 2.5 3.0 2.8
    Return on equity (%) 19.6 24.9 40.5

    HEADLINE EARNINGS RECONCILIATION
    Profit for the period attributable to ordinary shareholders 908.0 825.4 1 815.0
    Adjusted for:
    Loss on disposal of property, plant and equipment 13.3 5.6 15.0
    - Gross 13.6 6.0 17.9
    - Tax effect (0.3) (0.4) (2.9)
    Impairment of goodwill 5.3 4.9
    Loss on disposal of associate interests 0.7
    Profit on disposal of business (3.8) (1.1)
    Profit on disposal of assets held for sale (7.3) (3.0)
    Fair value adjustment to assets held for sale 1.4
    Headline earnings 10.2 915.5 831.0 1 832.9


    CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    ASSETS
    Non-current assets 10 367.3 7 367.2 10 610.4
    Property, plant and equipment 6 015.9 3 436.5 6 160.3
    Goodwill and intangible assets 3 813.2 3 616.6 4 008.3
    Investment in associates 81.9 34.4 38.4
    Other investments 51.9 2.3 54.2
    Operating lease receivables 77.6 87.4 100.5
    Loans 295.9 162.4 217.8
    Deferred taxation asset 30.9 27.6 30.9
    Current assets 15 292.5 13 063.0 16 584.7
    Inventories 3 803.9 2 746.7 3 810.9
    Trade and other receivables 10 090.3 9 674.6 10 544.0
    Prepayments 99.2 95.7 75.4
    Operating lease receivables 67.0 55.0 63.4
    Loans 225.7 29.9 46.8
    Income tax recoverable 4.2
    Cash and cash equivalents - SPAR 803.5 355.8 1 611.8
    Cash and cash equivalents - Guilds and trusts 202.9 105.3 428.2
    Assets held for sale 124.3 190.2 160.7
    Total assets 25 784.1 20 620.4 27 355.8

    EQUITY AND LIABILITIES
    Capital and reserves 5 787.2 3 465.7 5 642.9
    Stated capital 2 231.5 67.6 2 231.5
    Treasury shares (4.1) (36.4) (18.7)
    Currency translation reserve (139.5) 169.9 7.9
    Share-based payment reserve 278.0 441.9 261.1
    Equity reserve (699.1) (545.7) (713.0)
    Hedging reserve (30.7) (40.9) (28.2)
    Retained earnings 4 151.1 3 409.3 3 902.3
    Non-current liabilities 6 987.8 4 124.5 7 590.1
    Deferred taxation liability 297.4 232.8 290.7
    Post-employment benefit obligations 1 081.5 521.0 1 392.2
    Financial liabilities 1 482.8 804.6 1 568.0
    Long-term borrowings 3 976.1 2 465.0 4 164.3
    Operating lease payables 97.5 101.1 116.0
    Other non-current financial liabilities 2.9
    Long-term provisions 49.6 58.9
    Current liabilities 13 009.1 13 030.2 14 122.8
    Trade and other payables 11 254.6 10 683.6 13 162.5
    Current portion of long-term borrowings 389.9 203.0 265.9
    Operating lease payables 68.5 60.0 65.6
    Provisions 34.1 124.9 38.0
    Income tax liability 102.3 43.2 83.7
    Other current financial liabilities 41.1
    Short-term borrowings 186.1
    Bank overdrafts 1 159.7 1 688.3 507.1
    Total equity and liabilities 25 784.1 20 620.4 27 355.8


    CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

    Stated Treasury Currency Share-based Retained Equity Hedging Non- Attributable
    capital shares translation payment earnings reserve reserve controlling to ordinary
    Rmillion reserve reserve interest shareholders
    Audited capital and reserves at 30 September 2015 67.6 (26.9) 37.3 425.1 3 371.0 (545.7) - - 3 328.4
    Total comprehensive income for the year 132.6 825.4 (40.9) 917.1
    Actuarial loss on retirement funds (52.3) (52.3)
    Recognition of share-based payments 10.6 10.6
    Take-up of share options 81.4 (54.0) 27.4
    Transfer arising from take-up of share options 54.0 (54.0) -
    Share repurchases (90.9) (90.9)
    Dividends paid (680.8) (680.8)
    Recognition of BBBEE transaction 6.2 6.2
    Unaudited capital and reserves at 31 March 2016 67.6 (36.4) 169.9 441.9 3 409.3 (545.7) (40.9) - 3 465.7
    Total comprehensive income for the year (162.0) 989.6 12.7 840.3
    Actuarial loss on post-retirement medical aid (5.7) (5.7)
    Actuarial loss on retirement funds (137.1) (137.1)
    Recognition of share-based payments 31.2 31.2
    Take-up of share options 154.1 (98.5) 55.6
    Transfer arising from take-up of share options 98.5 (98.5) -
    Transfer arising from closure of BBBEE transaction (216.5) 216.5 -
    Share repurchases (136.4) (136.4)
    Dividends paid (471.8) (471.8)
    Issue of shares 2 163.9 2 163.9
    Recognition of BBBEE transaction 4.5 4.5
    Non-controlling interest arising on business
    acquisition 384.8 384.8
    Purchase obligation of non-controlling interest (180.3) (384.8) (565.1)
    Exchange rate translation 13.0 13.0
    Audited capital and reserves at
    30 September 2016 2 231.5 (18.7) 7.9 261.1 3 902.3 (713.0) (28.2) - 5 642.9
    Total comprehensive income for the year (147.2) 908.0 (2.5) 758.3
    Actuarial gain on retirement funds 196.1 196.1
    Share of associates" movement in translation
    reserve (0.2) (0.2)
    Recognition of share-based payments 16.9 16.9
    Take-up of share options 109.7 (65.8) 43.9
    Transfer arising from take-up of share options 65.8 (65.8) -
    Share repurchases (95.1) (95.1)
    Dividends paid (789.5) (789.5)
    Exchange rate translation 13.9 13.9
    Unaudited capital and reserves at 31 March 2017 2 231.5 (4.1) (139.5) 278.0 4 151.1 (699.1) (30.7) - 5 787.2


    CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    CASH FLOWS FROM OPERATING ACTIVITIES (990.9) (942.5) 1 547.3
    Operating profit before: 1 206.8 1 258.1 2 577.3
    Non-cash items 268.4 197.8 637.1
    Loss on disposal of property, plant and equipment 13.6 6.0 17.9
    Net working capital changes (1 380.5) (1 411.5) 17.9
    - Increase in inventories (139.7) (263.5) (133.6)
    - Decrease/(increase) in trade and other receivables 252.0 (226.6) (722.2)
    - (Decrease)/increase in trade payables and provisions (1 492.8) (921.4) 873.7
    Cash generated from operations 108.3 50.4 3 250.2
    Interest received 48.4 19.3 89.0
    Interest paid (57.0) (56.0) (110.0)
    Taxation paid (301.1) (275.4) (529.3)
    Dividends paid (789.5) (680.8) (1 152.6)

    CASH FLOWS FROM INVESTING ACTIVITIES (887.0) (386.1) (1 613.5)
    Investment to expand operations (299.9) (179.4) (441.9)
    Investment to maintain operations (205.6) (122.3) (346.8)
    - Replacement of property, plant and equipment (208.9) (126.5) (372.6)
    - Proceeds on disposal of property, plant and equipment 3.3 4.2 25.8
    Acquisition of businesses/subsidiaries (111.1) (44.4) (757.5)
    Proceeds from disposal of businesses 8.0 10.0
    Proceeds on disposal of assets held for sale 31.3 16.5 43.6
    Net movement in loans and investments (309.7) (56.5) (120.9)

    CASH FLOWS FROM FINANCING ACTIVITIES 223.6 121.5 1 666.6
    Proceeds from issue of shares 2 163.9
    Proceeds from exercise of share options 43.9 27.4 83.0
    Share repurchases (95.1) (90.9) (227.3)
    Proceeds/(repayments) from borrowings 274.8 185.0 (353.0)
    Net movement in cash and cash equivalents (1 654.3) (1 207.1) 1 600.4
    Net cash balances/(overdrafts) at beginning of period 1 532.9 (37.8) (37.8)
    Exchange rate translation (31.9) 17.7 (29.7)
    Net (overdrafts)/cash balances at end of period (153.3) (1 227.2) 1 532.9


    NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL RESULTS

    1. BASIS OF PREPARATION AND COMPLIANCE WITH IFRS
    The condensed consolidated interim financial statements have been prepared in accordance with the SAICA Financial
    Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued
    by the Financial Reporting Standards Council and the information as required by IAS 34 Interim Financial Reporting,
    the JSE Ltd Listings Requirements and the requirements of the Companies Act of South Africa, 71 of 2008, as amended.
    The accounting policies are in terms of International Financial Reporting Standards and are consistent with those
    applied in the financial statements for the year ended 30 September 2016.

    The information contained in the interim report has neither been audited nor reviewed by the group"s external
    auditors. The condensed consolidated financial statements have been prepared under the supervision of
    Mr MW Godfrey CA(SA), Group Financial Director, on behalf of The SPAR Group Ltd.

    2. SEGMENTAL REPORTING
    Segment accounting policies are consistent with those adopted for the preparation of the condensed consolidated
    financial results.

    The principal segments of the group have been identified on a primary basis by geographical segment which is
    representative of the internal reporting used for management purposes as well as the source and nature of business
    risks and returns.

    The Chief Executive Officer (the Chief Operating Decision Maker) is of the opinion that the operations of the
    individual distribution centres within Southern Africa are substantially similar to one another and that the risks
    and returns of these distribution centres are likewise similar. The risks and returns of the Ireland and
    Switzerland operations are not considered to be similar to those within Southern Africa or each other.

    As a result, the geographical segments of the group have been identified as Southern Africa, Ireland and
    Switzerland. All segment revenue and expenses are directly attributable to the segments. Segment assets and
    liabilities include all operating assets and liabilities used by a segment, with the exception of inter-segment
    assets and liabilities, and IFRS adjustments made by segments to their management report for the purposes of IFRS
    compliance. These assets and liabilities are all directly attributable to the segments.

    Analysis per reportable segment:
    Southern Ireland Switzerland IAS 19 Consolidated
    Rmillion Africa adjustment Total
    Unaudited six months ended March 2017
    Total revenue 32 781.2 9 810.4 5 789.8 48 381.4
    Operating profit 1 010.4 204.7 4.9 (13.2) 1 206.8
    Profit before tax 1 084.9 184.6 (26.6) (13.2) 1 229.7

    Other information
    Interest income 52.8 5.5 0.7 59.0
    Interest expense 16.2 25.6 14.7 56.5
    Depreciation 94.3 98.9 129.2 322.4

    Statement of financial position
    Total assets 13 179.6 8 067.2 4 537.3 25 784.1
    Total liabilities 9 287.1 6 655.7 3 581.2 472.9 19 996.9

    Unaudited six months ended March 2016
    Total revenue 31 224.1 11 260.1 42 484.2
    Operating profit* 1 060.5 197.6 1 258.1
    Profit before tax* 974.0 167.1 1 141.1

    Other information
    Interest income 18.0 4.4 22.4
    Interest expense 31.7 34.9 66.6
    Depreciation 85.4 107.3 192.7

    Statement of financial position
    Total assets* 11 783.1 8 837.3 20 620.4
    Total liabilities 9 566.7 7 588.0 17 154.7

    Audited year ended September 2016
    Total revenue 62 232.3 23 471.5 6 523.5 92 227.3
    Operating profit 2 057.3 487.8 45.0 (12.8) 2 577.3
    Profit before tax 2 001.2 431.7 19.1 (12.8) 2 439.2

    Other information
    Interest income 86.8 10.1 1.5 98.4
    Interest expense 42.3 51.4 16.7 110.4
    Depreciation 174.3 213.9 143.2 531.4

    Statement of financial position
    Total assets 13 521.2 8 741.5 5 093.1 27 355.8
    Total liabilities 9 582.4 7 468.4 4 045.9 616.2 21 712.9

    * Revised to be consistent with current period classification.

    3. BUSINESS COMBINATIONS
    3.1 During the course of the financial year The SPAR Group Ltd acquired the assets of six (2016: three) retail
    stores in South Africa. These acquisitions were funded from available cash resources. The principal activity of
    these acquisitions is that of retail trade and all its aspects. These stores were purchased in order to protect
    strategic sites, and the goodwill arising on the business combinations is a reflection of future turnover expected
    to be made by the group as a result of these acquisitions.

    3.2 Assets acquired and liabilities assumed at date of acquisition
    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    Assets 12.0 9.5 5 314.9
    Liabilities (4 407.0)
    Total identifiable net assets at fair value 12.0 9.5 907.9
    Non-controlling interest (384.8)
    Goodwill arising from acquisition 99.1 34.9 737.7
    Purchase consideration transferred 111.1 44.4 1 260.8
    Cash and cash equivalents acquired (306.8)
    Business acquisition costs 21.0
    Loss on cash flow hedge through OCI 39.2
    Deferred consideration (224.3)
    Contingent consideration (32.4)
    Net cash outflow on acquisition 111.1 44.4 757.5

    3.3 Assets and liabilities at date of disposal
    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    The assets and liabilities disposed of relate to South African retail stores.
    Non-current assets 4.2 - 8.9
    Property, plant and equipment 2.6 8.9
    Goodwill 1.6
    Profit on disposal of business 3.8 1.1
    Proceeds 8.0 - 10.0

    3.4 Finalisation of SPAR Holding AG ("SPAR Switzerland") acquisition
    The initial accounting for the acquisition of SPAR Switzerland in 2016 was provisional for the value of intangible
    assets acquired as the valuation of these assets had not yet been completed. This process has now been concluded,
    which has resulted in no value being attributed to intangible assets acquired for this business combination, and no
    change to the initial goodwill arising on acquisition.

    3.5 Finalisation of GCL 2016 Ltd ("Gilletts") acquisition
    The initial accounting for the 2016 acquisition of Gilletts was provisional for the value of the repairs as a
    result of the dilapidation valuation, the contingent consideration, inventories, trade and other receivables, and
    trade and other payables. The working capital element of the acquisition was subject to a completion account
    process which requires that the value of the working capital purchased at the date of acquisition be finalised.
    This process has now been concluded, and resulted in no material changes to the values disclosed for this business combination.

    4. FINANCIAL RISK MANAGEMENT
    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    Financial instruments classification
    Net bank (overdrafts)/cash balances (153.3) (1 227.2) 1 532.9
    Loans* 521.6 192.3 264.6
    Other equity investments*** 51.9 2.3 54.2
    Trade and other receivables* 10 090.3 9 674.6 10 544.0
    Trade and other payables** (11 254.6) (10 683.6) (13 162.5)
    FEC liability*** (0.2) (0.7)
    FEC liability**** (2.9) (40.9)
    Borrowings** (4 366.0) (2 854.1) (4 430.2)
    Financial liability*** (1 482.8) (804.6) (1 568.0)

    * Classified under IAS 39 as loans and receivables.
    ** Classified under IAS 39 as financial liabilities measured at amortised cost.
    *** Classified under IAS 39 as financial assets and liabilities at fair value through profit or loss.
    **** Designated as a hedging instrument.

    Fair value hierarchy
    The group"s financial instruments carried at fair value are classified into three categories defined as follows:

    Level 1 financial instruments are those that are valued using unadjusted quoted prices in active markets for
    identical financial instruments. These instruments consist of the forward exchange contracts.

    Level 2 financial instruments are those valued using techniques based primarily on observable market data.
    Instruments in this category are valued using quoted prices for similar instruments or identical instruments in
    markets which are not considered to be active; or valuation techniques where all the inputs that have a significant
    effect on the valuation are directly or indirectly based on observable market data. Financial instruments
    classified as level 2 are mainly comprised of other equity investments.

    Level 3 financial instruments are those valued using techniques that incorporate information other than observable
    market data. Instruments in this category have been valued using a valuation technique where at least one input,
    which could have a significant effect on the instrument"s valuation, is not based on observable market data.

    The following financial instruments on the statement of financial position are carried at fair value.

    The financial instruments are further categorised into the appropriate fair value hierarchy:

    Financial instruments Fair value
    Rmillion Carrying value Level 1 Level 2 Level 3
    Unaudited six months ended March 2017
    Other equity investments 51.9 51.9
    FEC liability designated as a hedging instrument (2.9) (2.9)
    Financial liability (1 482.8) (1 482.8)
    Total (1 433.8) (2.9) 51.9 (1 482.8)
    Unaudited six months ended March 2016
    Other equity investments 2.3 2.3
    FEC liability at fair value through profit and loss (0.2) (0.2)
    FEC liability designated as a hedging instrument (40.9) (40.9)
    Financial liability (804.6) (804.6)
    Total (843.4) (41.1) 2.3 (804.6)
    Audited year ended September 2016
    Other equity investments 54.2 54.2
    FEC liability at fair value through profit and loss (0.7) (0.7)
    Financial liability (1 568.0) (1 568.0)
    Total (1 514.5) (0.7) 54.2 (1 568.0)

    Level 3 sensitivity information
    The fair value of the level 3 financial liabilities of R1 482.8 million (2016: R804.6 million) was estimated by
    applying an income approach valuation method including a present value discount technique. The fair value
    measurement is based on significant inputs that are not observable in the market. Key inputs used in the valuation
    include the assumed future profit targets and the discount rates applied. The assumed profitability was based on
    historical performances but adjusted for expected growth.

    The following factors were applied in calculating the financial liabilities at 31 March 2017:

    TIL JV Ltd
    - Discount rate of 7.2% (2016: 8.67%)
    - Closing rand/euro exchange rate of 14.29 (2016: 16.82)

    SPAR Holding AG
    - Discount rate of 2.0%
    - Closing rand/Swiss franc exchange rate of 13.38

    The following tables show how the fair value of the level 3 financial liabilities would change in relation to the
    interest rate if the interest rate increased or decreased by 0.5%:

    TIL JV Ltd
    Discount rate Sensitivity Liability
    % % Rmillion
    Unaudited six months ended March 2017
    Financial liability 7.2 0.5 (13.5)
    Financial liability 7.2 (0.5) 13.1
    Unaudited six months ended March 2016
    Financial liability 8.7 0.5 (17.4)
    Financial liability 8.7 (0.5) 17.8
    Audited year ended September 2016
    Financial liability 7.2 0.5 (15.8)
    Financial liability 7.2 (0.5) 16.2

    SPAR Holding AG
    Discount rate Sensitivity Liability
    % % Rmillion
    Unaudited six months ended March 2017
    Financial liability 2.0 0.5 (13.3)
    Financial liability 2.0 (0.5) 12.9
    Audited year ended September 2016
    Financial liability 2.0 0.5 (15.5)
    Financial liability 2.0 (0.5) 16.1

    Movements in level 3 financial instruments carried at fair value
    The following tables show a reconciliation of the opening and closing balances of level 3 financial instruments
    carried at fair value:

    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    TIL JV Ltd
    Balance at beginning of year 824.4 729.8 729.8
    Finance costs recognised in profit or loss 28.1 32.8 96.3
    Net exchange differences arising during the period (68.9) 42.0 (1.7)
    Balance at end of period 783.6 804.6 824.4
    Undiscounted value of financial liability 1 003.4 1 180.4 1 094.2

    SPAR Holding AG
    Balance at beginning of year 743.6 - -
    Initial recognition - - 789.4
    Initial recognition reducing non-controlling interest balance 384.8
    Initial recognition in equity reserve 180.3
    Deferred consideration 224.3
    Finance costs recognised in profit or loss 7.0 7.7
    Net exchange differences arising during the period 10.5 4.2
    Foreign exchange translation (61.9) (57.7)
    Balance at end of period 699.2 - 743.6
    Undiscounted value of financial liability 736.9 - 803.6

    Total present value of financial liabilities 1 482.8 804.6 1 568.0
    Total undiscounted value of financial liabilities 1 740.3 1 180.4 1 897.8

    The TIL JV Ltd financial liability is calculated as the present value of the non-controlling interests share of
    the expected redemption value and discounted from the expected exercise dates to the reporting date. As at 31 March 2017,
    the financial liability was valued at R783.6 million based on management"s expectation of future profit performance.
    Repayments will commence in December 2019 and continue in 2020 and 2022.

    The total obligation of the SPAR Holding AG financial liability of CHF56.3 million is calculated at the present
    value of the obligation, discounted from the expected settlement date to the reporting date. This financial
    liability will be repaid between December 2020 and February 2021.

    Interest is recorded in respect of these liabilities within finance costs using the effective interest rate
    method. Net exchange differences on these financial liabilities have also been presented in finance costs.

    Capital risk management
    The group manages its capital to ensure that it will be able to continue as a going concern while maximising the
    return to stakeholders.

    The group"s overall capital management strategy remained unchanged in 2017. The strategy entails a philosophy of
    tight risk management and minimum use of derivative instruments.

    The capital structure of the group consists of equity attributable to shareholders comprising issued capital,
    reserves and retained earnings and borrowings.

    Treasury shares are held from time to time for the purpose of settling option holder obligations and these are
    only acquired on approval from shareholders and where the market presents value in their acquisition.

    The strong cash inflow generated by group operations is utilised to fund distribution centre expansions and other
    capital expenditure, and to settle dividends declared, taxation and trade payable obligations.

    5. CONTINGENT LIABILITIES
    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    Guarantees issued in respect of the finance obligations 1 039.8 1 006.3 1 065.6
    - Loan guarantees 722.0 693.8 743.7
    - Rental guarantees 3.2 0.9 3.1
    - Customs and excise guarantees 150.4 139.2 152.3
    - IT retail computer equipment lease scheme 164.2 172.4 166.5

    The board has limited guarantee facilities to R990 million (2016: R930 million) relating to Southern Africa. The
    board has also provided a financial guarantee on the TIL JV Ltd bank facilities to the value of 238 million euros,
    and SPAR Holding AG borrowing facilities to the value of 40 million Swiss francs.

    The company has guaranteed the finance obligations of SPAR Retail Stores (Pty) Ltd, Kaplian Trading (Pty) Ltd,
    TIL JV Ltd, Annison 45 (Pty) Ltd and Sun Village Supermarket (Pty) Ltd to its bankers.

    These guarantees commenced 15 April 2011, 25 July 2011, 24 June 2015, 29 September 2015 and 13 December 2016
    respectively and are for an indefinite period.

    6. COMMITMENTS
    6.1 Operating lease commitments
    Future minimum lease payments due under non-cancellable operating leases:
    Land and Other
    Rmillion buildings
    Unaudited six months ended March 2017
    Payable within one year 1 648.0 65.3
    Payable later than one year but not later than five years 5 176.8 156.2
    Payable later than five years 4 127.5 20.2
    Total 10 952.3 241.7
    Unaudited six months ended March 2016
    Payable within one year 1 113.4 27.4
    Payable later than one year but not later than five years 3 739.2 50.6
    Payable later than five years 3 121.9 2.6
    Total 7 974.5 80.6
    Year ended September 2016
    Payable within one year 1 596.6 71.5
    Payable later than one year but not later than five years 5 157.2 145.9
    Payable later than five years 4 193.9 14.0
    Total 10 947.7 231.4

    6.2 Operating lease receivables
    Future minimum sub-lease receivables due under non-cancellable property leases:
    Unaudited Unaudited Audited
    six months six months year
    ended ended ended
    March March September
    Rmillion 2017 2016 2016
    Receivable within one year 994.6 788.7 937.8
    Receivable later than one year but not later than five years 2 929.3 2 540.8 2 755.7
    Receivable later than five years 1 753.3 1 411.1 1 515.9
    Total operating lease receivables 5 677.2 4 740.6 5 209.4

    6.3 Capital commitments
    Contracted 403.5 165.3 322.0
    Approved but not contracted 56.7 19.9 154.6
    Total capital commitments 460.2 185.2 476.6

    Capital commitments will be financed from group resources.

    7. EVENTS AFTER THE REPORTING DATE
    No material events have occurred subsequent to 31 March 2017 which may have an impact on the group"s reported
    financial position at this date.

    SPAR COMMENTARY FOR THE SIX MONTHS ENDED 31 MARCH 2017

    HIGHLIGHTS
    - Turnover up 12.6%
    - Profit before tax up 7.8%
    - Headline earnings up 10.2%
    - Net asset value per share up 50.1%
    - Interim dividend declared 240 cents per share

    REVIEW OF TRADING RESULTS
    The SPAR Group achieved positive growth for the six months to 31 March 2017, largely supported by the recent
    diversification of its operations into international markets:

    - SPAR Southern Africa defended its market position with continued growth in turnover and stable gross margins. This
    was despite a challenging trading environment characterised by heightened competition and constrained consumer
    spending. The store network grew to 2 069 stores, with new stores opened across all brands and the group completed
    89 store upgrades.

    - BWG Group (SPAR Ireland) has continued to deliver solid euro-denominated growth despite a deflationary trading
    environment. It benefitted from the positive contribution of recent acquisitions, including the Londis brand and
    Gilletts stores. However, rand strength against the euro substantially eroded this business result on
    consolidation. SPAR Ireland increased its store network in Ireland, bringing its total store network to
    1 335 stores.

    - An ongoing focus on improving the retail performance of the recently acquired SPAR Switzerland culminated in the
    appointment of a new Chief Executive Officer from SPAR South Africa to drive the process. The positive performance
    of the core distribution activities was dampened by disappointing results from the corporate owned stores. The group
    is aggressively driving interventions to enhance this retail performance. SPAR Switzerland"s total store network
    remained constant at 301 stores.


    GROUP FINANCIAL REVIEW
    Summary segmental analysis
    Southern Ireland Switzerland The SPAR
    Rmillion Africa Group Ltd
    Turnover 32 498.2 9 636.7 5 218.5 47 353.4
    Gross profit 2 636.9 1 175.7 725.6 4 538.2
    Operating profit 1 010.4 204.7 (8.3) 1 206.8
    Profit before taxation 1 084.9 184.6 (39.8) 1 229.7

    The reported turnover of The SPAR Group was up 12.6% to R47.4 billion (2016: R42.1 billion), with 31.4% of total
    turnover generated in foreign currency. The Southern African business, with reported turnover growth of 4.9%, was
    impacted by tough trading conditions which are being aggravated by the uncertain economic and political landscape.
    The turnover of the BWG Group increased by 1.6% in constant euro-currency terms. However, the significant
    appreciation of the rand against the euro over this period saw a 13.1% decline in reported turnover to R9.6 billion
    (2016: R11.1 billion). SPAR Switzerland contributed turnover of R5.2 billion as it reached its acquisition
    anniversary. Additional factors which had a minor impact on reported turnover in all regions was the later timing
    of the Easter holiday in 2017 compared to the prior year, as well as there being an additional day of trading in 2016.

    The group"s gross margin increased to 9.6% (2016: 8.7%). SPAR Southern Africa maintained its gross margin at 8.1%,
    despite the competitive market. BWG Group and SPAR Switzerland, which both operate in the higher margin convenience
    sector, reported gross margins of 12.2% (2016: 10.3%) and 13.9% respectively.

    Group operating expenses rose 54.5%, the major impact being the inclusion of SPAR Switzerland which was acquired
    with effect from 1 April 2016. On a comparable basis (excluding SPAR Switzerland), operating expenses increased
    8.3%. In Southern Africa, operating expenses were up 12.9% due to increased costs associated with the defensive
    purchase of corporate stores which contributed 3.1%. Increased marketing and property-related costs were
    responsible for adding 1.9% and 0.6% respectively. Wholesale employment costs increased 3.2% and included higher IT
    staff costs associated with current infrastructure investment. The BWG Group"s expenses grew by 2.0% on a net basis
    and were again very well controlled.

    SPAR Switzerland incurred an operating loss of R8.3 million. This was largely attributable to the declining sales
    performance which impacted all divisions, and the disappointing trading performance of the corporate retail stores.
    This loss was further impacted by an IAS19 pension cost adjustment, which if ignored would have seen this business
    report a small operating profit of R4.9 million.

    Profit before tax was up 7.8% to R1.2 billion (2016: R1.1 billion), as a result of net interest income of
    R2.5 million compared to net interest expense of R44.2 million a year ago. Lower interest charges were incurred in
    Ireland following the debt refinancing, while SPAR Southern Africa benefitted from higher cash balances following
    from the successful equity raising in April 2016.

    Profit after tax improved 10.0% to R908.0 million (2016: R825.4 million), due to lower effective tax rates in
    Ireland and Switzerland.

    Headline earnings per share declined marginally by 0.9% to 475.5 cents (2016: 480.0 cents), fundamentally due to the
    higher weighted average number of shares of 192.5 million shares (2016: 173.1 million shares) as a result of the
    issue of shares in April 2016 to part fund the foreign acquisitions, as well as settling the BBBEE share schemes in
    August 2016. The board approved an interim dividend of 240 cents.

    Cash generated from operations rose to R108.3 million (2016: R50.4 million) because of reduced receivables in
    Ireland and lower payables across all operations due to payment timings. The SPAR Group"s cash flow from investing
    activities showed an outflow of R887.0 million, including total net capital expenditure of R505.5 million. Taking
    into account the impact of a net R274.8 million inflow from borrowings, the group had a net overdraft position of
    R153.3 million (2016: overdraft of R1.2 billion) at the reporting date.

    The group"s capex during the period included operational investments of R213.3 million in Southern Africa. This
    comprised expenditures totalling R95.6 million to expand the perishables facilities at the North Rand and Western
    Cape Distribution Centres. In addition, the group invested in IT infrastructure upgrades and software development.
    Further investments of R111.1 million were made to acquire six corporate stores, defending strategic retail
    locations in South Africa. The BWG Group"s capital expenditure amounted to R196.4 million, the majority of which
    included investments in retail property to deliver on its five-year growth strategy. Capital expenditure in the
    Swiss operations of R99.1 million was incurred, including store refurbishments and technology upgrades in support
    of the group"s strategy to enhance the retail offering.

    The capital expenditure budget in Southern Africa for the next six months is approximately R500.0 million and
    includes land purchases for future expansion at the KwaZulu-Natal distribution centre and for the construction of a
    future distribution centre west of Johannesburg.

    GEOGRAPHICAL REVIEW
    SPAR Southern Africa
    The turnover of SPAR Southern Africa increased 4.9% to R32.5 billion (2016: R31.0 billion) reflecting a weak retail
    market. Continued growth in liquor sales, albeit at a slower pace than in prior periods, positively supported this
    performance, whereas depressed building material sales had a converse effect. Combined food and liquor wholesale
    turnover growth was recorded at 5.4% compared to internally calculated food inflation of 8.2%.

    Reflecting the challenging market backdrop, volumes processed through the seven distribution centres decreased 5.1%
    to 112.5 million cases (2016: 118.6 million cases).

    The retail turnover of SPAR stores, reflecting the tough market conditions, increased 4.5% to R38.5 billion
    (2016: R36.8 billion) and recorded organic like-for-like growth of 3.8%. Combined food and liquor retail sales, which
    allow for a better industry comparison, increased by 5.0%. Wholesale turnover grew 5.0% to R26.1 billion,
    demonstrating that SPAR"s independent retailers remain loyal to the group"s voluntary trading model. The relevance
    of SPAR-branded private-label products, offering consumers value and quality, continued to be confirmed with sales
    increasing 8.3% to R5.1 billion. Wholesale perishable sales growth continued to outstrip the ambient categories and
    was underpinned by strong performances in meat, bakery and chilled products.

    SPAR maintained its organic growth focus in order to support the profitability of existing retailers. The marginal
    increase in total retail space growth of 0.6% (2016: 0.5%) was largely on plan, although delays in rolling out a
    few new retail projects by developers also had an impact. A total of 59 SPAR stores were refurbished during the
    period to ensure they continued to provide retail offerings in line with evolving consumer trends. A net of six
    stores were opened, bringing the total SPAR store numbers to 896 by 31 March 2017.

    The retail turnover of TOPS at SPAR increased 9.1% to R5.2 billion (2016: R4.7 billion), as growth was impacted by
    competitors" aggressive entry into the liquor market. Same store growth amounted to 5.6% for the period. Wholesale
    turnover closely followed the retail performance and grew 8.9% to R3.0 billion (2016: R2.7 billion). During the
    period, the TOPS at SPAR store network increased by 14 stores on a net basis to 705 stores while 13 stores were
    revamped.

    Constrained consumer spending had a significant sector-wide impact on demand for building materials with Build it"s
    retail turnover growth slowing to 3.6% for the period, slightly higher than building sector inflation of 3.3%.
    Oversupply in the cement market, which is a significant component of Build it"s overall sales, put pressure on
    cement prices and thereby turnover. Blended cement and imports are also debasing this market. These products
    negatively affected retailer loyalty through direct purchasing and concerted efforts are being made to reverse
    this. Retail activity in the neighbouring countries of Namibia, Lesotho and Mozambique has been adversely
    influenced by either political or economic instability, while second quarter rains in South Africa slowed sales.
    At a wholesale level, turnover increased 1.4% to R3.4 billion (2016: R3.3 billion). Build it"s house brand imports
    showed strong growth of 20.0% for the period. As at 31 March 2017, Build it"s store network totalled 354 stores,
    having opened a net six stores in the period.

    SPAR Ireland
    The BWG Group again performed ahead of budget for the six months and reported euro-denominated growth of 1.6%.
    However, the business experienced a significant slow-down in second quarter growth across all customer categories.
    This was largely attributed to new deflation trends. Latest measures indicate that food and non-alcoholic drinks
    declined 2.6%, while alcohol dropped 5.2%. While the Irish economy is growing and consumer spending has increased,
    this trend has not yet been seen in the grocery retail sector.

    A buoyant hospitality sector boosted the sales of BWG Food Services, which supplies hotels and restaurants. The
    SPAR and Londis retail brands reported good performances with sales increases of 4.2% and 3.0%, respectively. Both
    brands benefitted from new business as a net eleven stores were added in Ireland and BWG grew its market share.

    The XL brand, which soon celebrates its 20th anniversary, also delivered strong sales growth for the period.

    Led by strong sales volume growth, the BWG Group"s distribution volumes showed good increases. The number of cases
    despatched from the Kilcarbery distribution centre increased 13.2% from a year ago, with the strongest growth
    experienced in the perishables category.

    Appleby Westward, BWG Group"s operations located in South West England, also recorded positive wholesale sales
    growth of 4.1% in Sterling terms, with like-for-like sales increasing 1.7%. The substantial weakening of the
    Sterling since the Brexit decision has negated these positive results and in reported euro terms, the Appleby
    Westward sales declined 10.3%. This business represents approximately 11.0% of the consolidated BWG Group.

    Stringent cost management partially mitigated the currency impact, while efficiencies in the chilled and frozen
    distribution implemented in the prior year also contributed to the improved profit performance.

    The total number of stores across BWG Group"s store formats as at 31 March 2017 was 1 335, with 33 new stores opened.

    SPAR Switzerland
    The sales of SPAR Switzerland were adversely impacted by muted economic growth of 0.4% in Switzerland, as well as a
    slightly deflationary environment with food and non-alcoholic beverage prices down 0.8% and alcoholic beverages
    1.3% lower over the comparable period. SPAR retail sales on a like-for-like basis declined by 4.2% over this period
    in local currency terms. Three new stores were opened and at the period end there were 184 SPAR and SPAR Express
    stores serviced.

    Expansion into the Italian part of Switzerland has been promising and the first SPAR Express store in this region
    will launch early in the second half of the year.

    The cash and carry business, trading as TopCC, was impacted by the negative performance reported in the Swiss
    restaurant and hospitality sectors. Sales performance in this division declined 3.1%.

    Overall warehouse sales declined in line with the market. SPAR Switzerland"s core distribution and warehousing
    activities delivered an improved gross margin, despite a 6.0% reduction in cases despatched due to the lower
    overall sales. The region reported turnover of R5.2 billion for the six months.

    The performance of the 47 corporate stores was very disappointing, and retail operations remain the major focus for
    management to drive improved returns in Switzerland going forward.

    In order to achieve the expected returns, the group transferred the Managing Director of SPAR"s KwaZulu-Natal
    region to SPAR Switzerland to take over as Chief Executive Officer. Together with the recently bolstered retail team,
    he will be responsible for improving the retail offering to the same standard as the other regions in which the group
    operates. Plans include updated store designs and revised product offerings which have been positively received by
    local independent retailers.

    PROSPECTS
    In South Africa, the tough trading environment is likely to persist for the balance of this year, particularly with
    the political uncertainty undermining consumer and business confidence. SPAR"s extensive distribution capacity and
    SPAR-branded products that offer exceptional value to consumers ensure that its independent retailers are suitably
    positioned to address these challenges.

    The BWG Group"s economic growth outlook is cautious, largely influenced by the Brexit uncertainties. However,
    management"s proactive approach to addressing the slowing sales should ensure SPAR Ireland adapts to the changing
    conditions and will deliver a result in line with expectation. Recent acquisitions have strengthened this business
    and further retail consolidation opportunities will be evaluated to achieve its growth objectives.

    In Switzerland, the new retail focused management team is tasked with addressing issues in the retail environment
    and the group recognises that this will take some time to achieve. The focus is primarily on retail execution and
    performance to achieve the required returns, supported by SPAR Switzerland"s world-class distribution capability.

    DECLARATION OF ORDINARY DIVIDEND
    Notice is hereby given that an interim gross cash dividend of 240 cents per share has been declared by the board in
    respect of the six months ended 31 March 2017. The dividend has been declared out of income reserves.

    The salient dates for the payment of the interim dividend are detailed below:
    Last day to trade cum-dividend Tuesday, 20 June 2017
    Shares to commence trading ex-dividend Wednesday, 21 June 2017
    Record date Friday, 23 June 2017
    Payment of dividend Monday, 26 June 2017

    Shareholders will not be permitted to dematerialise or rematerialise their share certificates between Wednesday,
    21 June 2017 and Friday, 23 June 2017, both days inclusive.

    In terms of South African taxation legislation effective from 1 April 2012, the following additional information is
    disclosed:

    - The South African local dividend tax rate is 20% (2016: 15%);
    - The net local dividend amount is 192 cents per share for shareholders liable to pay tax on dividends and 240 cents
    per share for shareholders exempt from such dividend tax;
    - The issued share capital of The SPAR Group Ltd is 192 602 355 (2016: 185 166 384) ordinary shares; and
    - The SPAR Group Ltd"s tax reference number is 9285/168/20/0.

    By order of the board

    Mandy Hogan Pinetown
    Company Secretary 30 May 2017

    DIRECTORS: MJ Hankinson* (Chairman), GO O"Connor (Chief Executive Officer), MW Godfrey, WA Hook, MP Madi*,
    M Mashologu*, HK Mehta*, P Mnganga*, R Venter, CF Wells*
    * Non-executive

    COMPANY SECRETARY: MJ Hogan

    THE SPAR GROUP LTD ("SPAR" or "the company" or "the group")

    REGISTRATION NUMBER: 1967/001572/06

    ISIN: ZAE000058517

    JSE SHARE CODE: SPP

    REGISTERED OFFICE: 22 Chancery Lane, PO Box 1589, Pinetown, 3600

    TRANSFER SECRETARIES: Link Market Services South Africa (Pty) Ltd, PO Box 4844, Johannesburg, 2000

    AUDITORS: Deloitte & Touche, PO Box 243, Durban, 4000

    SPONSOR: One Capital, PO Box 784573, Sandton, 2146

    BANKERS: Rand Merchant Bank, a division of FirstRand Bank Ltd, PO Box 4130, The Square, Umhlanga Rocks, 4021

    ATTORNEYS: Garlicke & Bousfield, PO Box 1219, Umhlanga Rocks, 4320

    WEBSITE: www.spar.co.za

    Date: 31/05/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ("JSE").
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