SPAR is a warehousing and distribution business listed on ...

SPAR - all rights reserved. 2018 | 1

GROUP PROFILE

SPAR is a warehousing and distribution businesslisted on the JSE in the Food and Drug Retailerssector. The group owns several country licencesfor the SPAR retail brand, which is used by anetwork of independent retailers who tradeunder our brand and are supplied on avoluntary basis through our distribution centres.We are a member of SPAR International, which is present in 48 countries. It has over 242 distributioncentres that serve approximately 13.5 million customers every day.

SPAR International granted the South African licence to SPAR in 1963. Today, we have similar SPARoperations in Ireland (including South West England) and Switzerland. We have an 80% share in theBWG Group (Ireland) and a 60% share in SPAR Holding AG (Switzerland). In 2016, we entered into ajoint venture with Ceylon Biscuits Limited in Sri Lanka to establish SPAR SL. SPAR is a 50%shareholder in this joint venture company with one store in operation. We also acquired a 47.87%share in SPAR Zambia in 2016. The Zambian operation has eight corporate stores and is serviced bythe North Rand distribution centre. In 2017 SPAR acquired pharmacy wholesaler, S Buys Group.

SPAR South Africa services independent retailers across eight formats in 10 countries from eightdistribution centres every day.

We also own SPAR licences for Namibia, Botswana, Mozambique and Angola, which are servicedthrough the South African distribution centres.


SOUTH AFRICA

We have 2 236 stores in the following formats in South Africa:

IRELAND

Our Irish operations comprise one distribution centre in Ireland and twofacilities in South West England, which serve 22 wholesale Value CentreCash and Carry branches and 1 371 stores in the following formats:

SWITZERLAND

SPAR Switzerland supplies goods to 326 company-owned and independentretailer stores in the following formats:


DID YOU KNOW?

Internationally, SPAR is the biggest independent supermarket retail network in the world with morethan 12 800 stores. As part of a global brand, our retailers can leverage off international retail designand trends that have kept the SPAR brand at the forefront of food retailing in Southern Africa

SPAR has the most stores in urban residential areas in South Africa

Pharmacy at SPAR is a SPAR store format and service that is unique to South Africa, with thepotential to be rolled out into Ireland and South West England

BWG Group is the largest retailer in the Irish convenience retail market by market share

SPAR Switzerland has a state-of-the-art distribution centre and efficient distribution logistics

31.9% of our turnover is generated in foreign currency


OUR VALUES AND CULTURE

Our values and culture underpin all that we do.We work according to a decentralised businessmodel. As such, relative autonomy is granted tooperating divisions and thereby to the peoplewho work for them.This model can only be successful if all employees understand the values, ethos and policies of the group,and work according to them.

We are committed to our values of encouraging entrepreneurship, living our family values, anddemonstrating passion. These carry through to our leadership and our relationships with independentretailers. Our values form the foundation of our decision-making and strategy.

WE ARE A FAMILY OF ENTREPRENEURS DRIVEN BY PASSION


ENTREPRENEURSHIP

HOW WE DEFINE OUR VALUES

Creativity and innovationProblem solvingTaking ownership and responsibility for outcomesVisionary leadership and the ability to take calculated risksLong-term focus versus short-term gain

BEHAVIOURS THAT DEMONSTRATE OUR VALUES

Appropriate decentralised decision-makingCourageAdaptability and flexibilityInnovationRule bending and taking challenges head-onResiliencePeople involvement in idea generation and problem solving

HOW WE MEASURE OUR VALUES

Group and divisional performance versus objectivesIntroduction of innovation and continuous improvement into own job/departmentStaff retentionAdaptability in a changing environment


FAMILY VALUES


Creating a sense of belonging in the SPAR family, particularly with our people and our retailersSupporting and embracing every person’s contributionPersonalising work and business relationshipsWorking together for the greater good of the company, which means putting one’s own agenda asideand demonstrating true teamwork, and removing silos

BEHAVIOURS THAT DEMONSTRATE THIS

Demonstrating empathyUnderstanding and embracing diversityListening with purpose and interest; genuine consultationInvesting time in developing peopleTolerating for self-expressionParticipating and encouraging teamworkCommunicatingNetworkingSpeaking up and speaking out respectfullyActing with integrityTreating others like you want to be treated

HOW TO MEASURE IT

Productivity, teamwork and empowerment of teamsQuality of conversations, i.e. whether conversations are free and honestGoal achievementEmployee climate/culture surveysSupplier ratingsRetailer surveys


PASSION


Demonstrating unrelenting commitment to our consumers and retailers, suppliers, the SPAR brand,our jobs and teammatesDisplaying authentic positive energy and attitudeBeing enthusiasticWanting to do what you are currently doing and enjoying it in the process

BEHAVIOURS THAT DEMONSTRATE THIS

Going the extra mileTaking accountabilityWalking the talk, i.e. ‘say what you mean and mean what you say’Owning your opinionBeing professionalOwning up to mistakesGiving credit where credit is due

HOW TO MEASURE IT

Think Retail SurveyAchievementsIndividual and team ratings, or other 360 degree-type measuresStaff retentionPublic opinion of SPAR peoplePride in wearing our uniformsSupport for company activitiesAbsenteeism


OUR ORGANISATIONAL STRUCTURE

The material operations of the group are inthree distinct geographical regions, withsmaller interests in Sri Lanka and Zambia.The three main regions constitute our principal segments for financial reporting as these are alignedto the internal reporting used for management purposes, as well as the source and nature of businessrisks and opportunities.

Our three operational reports (South Africa, Ireland and Switzerland) therefore provide details on thedynamics of the different operating areas and our performance in the past year.

SPAR provides centralised services to the distribution centres in South Africa. Each region is furthergoverned by a guild: read more here. SPAR in Ireland and Switzerland operate as standalonebusinesses and report to the SPAR board.

https://investor-relations.spar.co.za/ir2018/focus-south-africa/

https://investor-relations.spar.co.za/ir2018/focus-on-ireland/

https://investor-relations.spar.co.za/ir2018/focus-on-switzerland/

https://investor-relations.spar.co.za/ir2018/who-we-are/spar-international-guilds-voluntary-trading/


OUR OWNERSHIP PROFILE

SPAR has a broad shareholder base, with 1.83%of shareholders owning fewer than 1 000 sharesand no single shareholder owning more than16.06% of the total shares.At 30 September 2018, 42.51% of our shares were held by offshore investors.

Our share register is managed by Link Market Services and our live share price is available here.

ANALYSIS OF ORDINARY SHAREHOLDERSAS AT 28 SEPTEMBER 2018

RmillionNumber of

shareholdings% of total

shareholdingsNumber of

shares% of issued

capitalShareholder spread1 – 1 000 10 294 68.94 3 531 531 1.831 001 – 10 000 3 561 23.85 10 823 879 5.6210 001 – 100 000 825 5.53 26 903 561 13.97100 001 – 1 000 000 223 1.49 61 214 010 31.78Over 1 000 000 28 0.19 90 129 374 46.80Total 14 931 100.00 192 602 355 100.00

Distribution of shareholdersInsurance Companies 72 0.48 5 784 262 3.00Mutual Funds 904 6.05 105 446 833 54.75Private Investors 13 504 90.44 20 904 512 10.85Retirement Pension Funds 451 3.02 60 466 748 31.39Total 14 931 100.00 192 602 355 100.00 SHAREHOLDER TYPENon-public shareholders 15 0.10 20 977 623 10.89

http://investor-relations.spar.co.za/


Directors and associates 11 0.07 85 038 0.04Government Employees PensionFund 1 0.01 20 795 124 10.80

Share schemes 2 0.01 25 560 0.01Treasury 1 0.01 71 901 0.04Public shareholders* 14 916 99.90 171 624 732 89.11Total 14 931 100.00 192 602 355 100.00 Fund managers holding in excessof 5% of thecompany’s equityCoronation Fund Managers 37 456 007 19.45Public Investment Corporation 24 139 651 12.53Oppenheimer Funds 12 851 344 6.67Total 95 597 645 49.63 Beneficial owners holding inexcess of 5% of thecompany’s equityGovernment Employees PensionFund 30 937 596 16.06

Coronation Fund Managers 17 003 989 8.83Oppenheimer Funds 12 631 942 6.56Total 67 534 075 35.06

* Public shareholders have been determined per paragraph 4.25 of the JSE Listings Requirements.


OUR GEOGRAPHICAL FOOTPRINT

SOUTH AFRICA

Our South African distribution centres serve their regions from a centralised location. These regionaldistribution centres usually consist of warehousing, cold storage, and packing stations.

Of these, four deliver to neighbouring countries. The Build it and S Buys distribution centres supplybuilding materials and pharmaceutical products respectively, nationwide.

The South Rand distribution centre is the largest in the group, at a total of 61 000 m2. It is the onlydistribution centre with a fully automated crane system as part of the inland consolidation centre,which is being ramped up to serve the North Rand and Lowveld distribution centres.

The Build it distribution centre operates on the SPAR system and uses third-party distribution fordeliveries outside KwaZulu-Natal.

Read more about the S Buys distribution centre in the case study.

https://investor-relations.spar.co.za/ir2018/focus-south-africa/case-study-s-buys-and-spar-align-for-pharmacy-success/


STORES IN SOUTH AFRICA


IRELAND

Two distribution centres and a depot serve retailers in Ireland and South West England. The nationaldistribution centre in Kilcarbery outside Dublin provides chilled, ambient and alcohol products toEUROSPAR, SPAR, MACE, Londis, XL and Value Centres Cash and Carry stores in Ireland. Thedistribution centre site covers an area of 240 sq ft (22 230 m2) and encompasses about 9 550 stock-keeping units. We handle more than 900 000 case movements weekly and deliver about 22.6 millioncases per year to stores – all managed through a voice-driven warehouse management system.

The site operates for 24 hours, six days a week and has sophisticated security systems. Kilcarbery has302 employees, comprising permanent and agency employees who work in central billing, customerservices, warehouse, and stock control and transport.

The transport division supplements leased vehicles with partnerships with dedicated subcontractors.The national distribution centre recently implemented bespoke drawbar trailers to service directdeliveries nationwide from Kilcarbery.


Appleby Westward is the SPAR retail distribution centre in Saltash, Cornwall. It services stores inBournemouth, Southampton and Portsmouth in the East, Helston, Falmouth and Truro in the West andBristol, and Bath in the North. The retail distribution centre has strict 24-hour order lead times andships an average of 5.7 million ambient and 5.3 million chilled cases per annum.

Appleby Westward also operates a multi-temperature depot in Cullompton, Devon. Both facilities usevoice technology to operate all warehouse functions, from goods receiving to product assembly. Bothsites operate a fleet of modern vehicles, which have an excellent compliance record with the Driverand Vehicle Standards Agency.

STORES IN IRELAND


SWITZERLAND

The St Gallen distribution centre consists of a modern 33 000 m2 facility that houses the central officefunction and handles the distribution of dry goods and perishables to our network of stores. Frozengoods warehousing and distribution are managed by a third party. Radio frequency, voice picking, andfleet management technology improve productivity and efficiency in our business. This is critical giventhe high average labour cost in Switzerland.

STORES IN SWITZERLAND


OUR DISTRIBUTION CENTRES

SOUTH AFRICA

SPAR South Africa consists of six regional SPARdistribution centres, an Imports (Build it) andthe S Buys distribution centre.These are supported by several satellite warehousing hubs, which reduce transport costs on certain routes.View the location of the distribution centres here.

Distribution centre summarySize

m2

Casesdespatched

annuallymillion

Divisionalmanaging

directorSouth Rand 61 000 61.0 Brett Botten

North Rand 53 317 40.8 DesmondBorrageiro

KwaZulu-Natal 69 112 51.1 Max OlivaWestern Cape 40 405 34.9 Mario SantanaEastern Cape 31 685 31.6 Conrad IsaacLowveld 21 416 12.3 Alison ZweersImports (Build it) 10 000 2.3 Wayne HookS Buys 2 295 –* Jeremy Nicol* The nature of pharmaceutical deliveries is not comparable

https://investor-relations.spar.co.za/ir2018/who-we-are/our-geographic-footprint/


SOUTH RAND DISTRIBUTION CENTRE

SURFACE AREA

61 000 m2

2017: 61 000 m2

CASES PER ANNUM

61.0 million

2017: 62.6 million

Number of stores serviced 2018 2017SUPERSPAR 95 94SPAR 118 119KWIKSPAR 30 30SPAR Express 5 4SaveMor 0 2TOPS at SPAR 192 179Build it 71 72Pharmacy at SPAR 20 15Total 531 515


NORTH RAND DISTRIBUTION CENTRE

SURFACE AREA

53 317 m2

2017: 53 317 m2

CASES PER ANNUM

40.8 million

2017: 35.2 million

Number of stores serviced 2018 2017SUPERSPAR 61 60SPAR 79 75KWIKSPAR 14 15SPAR Express 5 1SaveMor 10 14SaveMor Liquor 6 0TOPS at SPAR 131 127Build it 55 52Pharmacy at SPAR 27 26Total 388 370


KWAZULU-NATAL DISTRIBUTION CENTRE

SURFACE AREA

69 112 m2

2017: 69 112 m2

CASES PER ANNUM

51.1 million

2017: 49.5 million

Number of stores serviced 2018 2017SUPERSPAR 92 89SPAR 58 60KWIKSPAR 25 25SPAR Express 8 3SaveMor 7 10SaveMor Liquor 1 0TOPS at SPAR 153 146Build it 83 85Pharmacy at SPAR 16 16Total 443 434


WESTERN CAPE DISTRIBUTION CENTRE

SURFACE AREA

40 405 m2

2017: 40 405 m2

CASES PER ANNUM

34.9 million

2017: 35.1 million



EASTERN CAPE DISTRIBUTION CENTRE

SURFACE AREA

31 685 m2

2017: 31 685 m2

CASES PER ANNUM

31.6 million

2017: 27.6 million

Number of stores serviced 2018 2017SUPERSPAR 47 47SPAR 49 43KWIKSPAR 16 16SPAR Express 2 1SaveMor 7 7SaveMor Liquor 3TOPS at SPAR 119 112Build it 46 43Pharmacy at SPAR 5 10Total 294 279


LOWVELD DISTRIBUTION CENTRE

SURFACE AREA

21 416 m2

2017: 21 416 m2

CASES PER ANNUM

12.3 million

2017: 11.6 million



IMPORTS (BUILD IT) WAREHOUSE/DISTRIBUTION CENTRE

SURFACE AREA

10 000 m2

2017: 10 000 m2

CASES PER ANNUM

2.3 million

2017: 2.0 million

Number of stores serviced 2018 2017Total 376 368

S BUYS DISTRIBUTION CENTRE/IMPORTS WAREHOUSE

SURFACE AREA

2 295 m2

2017: 2 295 m2


IRELAND

The national distribution centre services BWGGroup’s retail and wholesale operations inIreland; and the Appleby Westward facilitiesservice a chain of SPAR stores in South WestEngland.

Distribution centreSize

m2

Casesdespatched

annuallymillion

Managingdirector

BWG Foods 24 000 22.6 Leo Crawford

Appleby Westward Group Ltd 9 613 11.0 MikeBoardman


BWG GROUP

SURFACE AREA

24 000 m2

2017: 24 000 m2

CASES PER ANNUM

22.6 million

2017: 21.6 million

Number of stores serviced 2018 2017SPAR 402 403Londis 130 133EUROSPAR 53 50MACE 216 216XL 248 243Gala 34 0Out of Appleby Westward 288 285Total 1 371 1 330


APPLEBY WESTWARD LOGISTICS

SALTASH AMBIENT DISTRIBUTION CENTRE

SURFACE AREA

7 209 m2

2017: 7 209 m2

CASES PER ANNUM

5.7 million

2017: 5.7 million

COLLUMPTON FRESH PRODUCE DISTRIBUTION CENTRE

SURFACE AREA

1 904 m2

2017: 1 904 m2

CASES PER ANNUM

5.5 million

2017: 5.1 million

Number of stores serviced 2018 2017Saltash ambient distribution centre

Surface area (m2) 7 209 7 209

Cases per annum (million) 5.7 5.7Collumpton fresh produce distribution centre

Surface area (m2) 1904 1 904

Cases per annum (million) 5.5 5.1


SWITZERLAND

The modern logistics centre in St Gallen handlesthe distribution to the SPAR Switzerlandoperations in German-speaking Switzerland.

Distribution centreSize

m2

Casesdespatched

annuallymillion

Managingdirector

St Gallen 33 000 26.0 Rob Philipson


ST GALLEN

SURFACE AREA

33 000 m2

2017: 33 000 m2

CASES PER ANNUM

26.0 million

2017: 29.0 million

AMBIENT PRODUCT STOCK-KEEPING UNITS

6 500

2017: 6 500

CHILLED PRODUCT STOCK-KEEPING UNITS

1 500

2017: 1 500

FRUIT AND VEGETABLE LINES

350

2017: 350

Number of stores serviced 2018 2017SPAR 155 160SPAR express 26 23MAXI 128 108TopCC 6 9Total 315 300


OUR BRANDS AND SPAR STORE FORMATS

SOUTH AFRICA

Our retailers’ stores are located where peoplelive and are designed around community needsand convenience. They cater for all incomegroups and offer parking and access to publictransport where possible.In South Africa, we offer the following store formats:

SUPERSPAR for competitively priced, one-stop bulk shoppingSPAR for neighbourhood shoppingKWIKSPAR for everyday convenienceSPAR Express for forecourt convenience shopping

TOPS at SPAR for liquor shoppingSaveMor for rural and township marketsBuild it stores for home building requirementsPharmacy at SPAR for prescription medication and other pharmaceutical purchases


SUPERSPARA one-stop superstore

STORE FORMAT OVERVIEW

≥ 1 300 m2 selling areaLarge metropolitan focusFull range of groceries and general merchandiseExtensive service departments, such as fresh produce, and in-store bakery, butchery, deli, ready-to-eatmeals and home-meal replacements

NUMBER OF STORES (INCLUDING SUPERSPAR, SPAR AND KWIKSPAR)


SPARYour neighbourhood favourite


≥ 700 m2 selling areaNeighbourhood and rural supermarket focusCompetitively pricedComprehensive range of groceries and general merchandiseFresh produce, and in-store bakery, butchery, deli, ready-to-eat meals and home-meal replacements


KWIKSPAREveryday convenience


300 m2 – 700 m2 selling areaNeighbourhood and rural focusRange of prices offering good valueCore groceries and general merchandiseFresh produce, baked foods, meat, and ready-to-eat meals



SPAR ExpressForecourt convenience shopping


Garage forecourt convenience storesPartnership with Shell South AfricaOpen 24 hoursCore products in groceries, fresh produce, and baked goodsComprehensive offering of snacking, ready-to-eat and on-the-go products

NUMBER OF STORES

TOPS at SPARLiquor shopping


Average of 175 m2 selling areaStand-alone liquor storesFull range of liquor productsLocated in close proximity to existing SPAR stores

NUMBER OF STORES


SaveMorExcellent value for money


400 m2 – 1 000 m2 selling areaValue focusNeighbourhood and ruralEssential groceries and general merchandiseFresh produce, baked goods, meat, and ready-to-eat products

NUMBER OF STORES

Build itBuild a brighter future


Stand-alone building material storesBuilding and hardware products – all the material required to build a basic houseAimed at home-builders and renovators in lower- and middle-income sectors

NUMBER OF STORES


Pharmacy at SPARCaring for you


In-store and stand-alone family pharmaciesComprehensive range of dispensary and health-related productsIn-store family care clinicsMostly located in close proximity to existing SPAR stores

NUMBER OF STORES


IRELAND

In Ireland and South West England, our storeformat offering comprises mostly conveniencestores, with EUROSPAR representing thesupermarket format.Value Centre Cash and Carry provides a direct general wholesale supply service to the wider, independentretail grocery market. Wholesale brands include BWG Foodservice (servicing the Irish catering industryfrom three depots), and BWG Wines and Spirits (operating from BWG Group’s national distribution centre).

SPAR


Comprises SPAR (49 888 m2 total selling area) and SPAR forecourt stores (22 407 m2 total selling area)Neighbourhood and forecourt convenienceGroceries, fresh produce, baked goods, coffee and liquorComprehensive offering of snacking, ready-to-eat and on-the-go products

NUMBER OF STORES


EUROSPAR


37 311 m2 total selling areaComprehensive range of groceries and general merchandiseFresh produce, in-store bakery, butchery, deli, ready-to-eat products, and home-meal replacements

NUMBER OF STORES

MACE


21 628 m2 total selling areaNeighbourhood and forecourt convenienceGroceries, fresh produce, baked goods, coffee and liquorComprehensive offering of snacking, ready-to-eat and on-the-go products

NUMBER OF STORES


XL


21 673 m2 total selling areaSmaller-scale convenience and neighbourhood storeComprehensive offering of snacking, ready-to-eat and on-the-go products

NUMBER OF STORES

Londis


26 231 m2 total selling areaRange of formats according to selling area and range:

Londis PlusSupermarketFood marketConvenience

NUMBER OF STORES


Value Centre Cash and Carry


115 m2 – 4 645 m2 selling area, varying according to locationDirect wholesale and cash and carryProduct listing of over 15 000 lines across liquor, confectionery, health and beauty, fresh produce,frozen foods, general merchandise, and catering productsGoods and services to the retail grocery trade, and licensed and catering outletsPrimary supplier of XL stores22 branches supplying over 5 000 customers


SWITZERLAND

SPAR Switzerland comprises localneighbourhood stores with a wide productrange, including the on-the-go convenienceformat, SPAR Express.TopCC provides a direct general wholesale supply service to the wider, independent, culinary-focusedretail grocery market. Through the national distribution centre, SPAR Switzerland also services a range ofindependent retailers operating under the MAXI brand, as well as several other retailers.


SPAR


65 943 m2 total selling area155 neighbourhood storesIncludes a broad product range with a focus on FreshProvides a wide selection of quality meats and wines

NUMBER OF STORES

2017: 160 (120 independent and 40 corporate)2018: 155 (121 independent and 34 corporate)

SPAR Express


3 434 m2 total selling area26 forecourt convenience storesComprehensive offering of snacking, ready-to-eat and on-the-go products

NUMBER OF STORES

2017: 23 (18 independent and five corporate)2018: 26 (21 independent and five corporate)


MAXI


Average of 80 m2 total selling area134 neighbourhood stores providing a limited convenience range of dry and fresh products

NUMBER OF STORES

TopCC


44 254 m2 total selling area11 branches supplying 16 000 culinary-focused retail clients and other business customers2 955 m2 – 4 866 m2 selling area, varying according to locationDirect wholesale and cash and carryProduct listing of over 18 000 lines across liquor, confectionary, health and beauty, fresh produce,frozen goods, general merchandise, catering products and non-food items

NUMBER OF STORES


SPAR INTERNATIONAL, THE GUILDS AND THEVOLUNTARY TRADING MODEL

SPAR INTERNATIONAL KEY FACTS

SPAR’S RANKING PER COUNTRY BY TURNOVER

OUR COMMITMENT TO VOLUNTARY TRADING

SPAR International is based in theNetherlands, where SPAR originated. Itconstitutes the world’s largest voluntary tradefood retail chain, with stores in 48 countries.In 1963, The SPAR Group Ltd and BWG Group were both licensed to trade under the SPAR brand inSouth Africa and Ireland, respectively. SPAR Switzerland was licensed to trade under the SPAR brandin 1989.


THE SPAR GROUP LTD HELD THE FOLLOWING COUNTRYLICENCES IN 2018:

AngolaBotswanaIrelandMozambiqueNamibiaSouth AfricaSouth West EnglandSri LankaSwitzerlandZambia

These licences direct and allow the use of the SPAR brand and are rooted in the principles of voluntarytrade.

The concept of voluntary trading is almost a century old and is based on mutually beneficial co-operation between the independent wholesaler (SPAR) and its retailers. Because SPAR applies thevoluntary trading model, it is not a franchise business, nor do we operate chain stores. We areessentially a wholesaler and distributor of goods and services to our independently owned SPAR retailstores.

This model relies on the quality of the relationship between SPAR and our retailers. Therefore, thegroup’s performance relies on our ability to attract and retain retailers’ business by using our tradingexpertise to offer competitively priced products, and superior warehousing and distributioncapabilities. We have developed world-class retail operations to support our retailers in running theirbusinesses.

The voluntary trading model allows retailers to access our various brands and support structures, andaffords them the freedom to stock their stores from any supplier. This ensures that each SPAR storehas its own ‘personality’ and a unique offering targeted at its specific consumer profile.

SPAR’s primary source of income is the sale of goods to the independently run stores. Their success isessential to the group’s overall sustainability, particularly in tough economic conditions. We thereforeplace significant emphasis on supporting retailers to earn their business and loyalty.

Voluntary trading is an example of a model that balances the interests of different stakeholders. Asingular focus on creating financial capital by any one stakeholder would compromise the entiremodel. This is mitigated by initiatives and structures such as joint business planning with suppliers,and by the guilds platform shared with retailers, where any issues putting the model at risk can beproactively resolved.

https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#Collaborating


What SPAR offers retailers as a listed wholesale distribution company

Guild custodianship

Superior warehousing and distribution capability

Single delivery source and purchasing convenience

Competitive pricing

THE VOLUNTARYTRADING MODEL

What independent retailers licencing the SPAR brand gain from the model

SPAR brands

Freedom to source local products

Support from SPAR, including planning and procurement

World-class retail operations services

World-class distribution


HOW THE SPAR GUILDS WORK

SPAR’s relationship with retailers in SouthAfrica is structured according to the guildsystem. The SPAR Guild of Southern Africa(NPC) (the SPAR Guild) has 937 members(2017: 903 members), and the Build it Guildof Southern Africa (NPC) (the Build it Guild)has 376 members (2017: 368 members).The SPAR Guild is a non-profit company for the purposes of:

promoting, implementing and regulating the system of voluntary group trading by wholesalersand retailers;prescribing regulations and obligations regarding the implementation of such systems ofvoluntary group trading that is binding for members of the SPAR Guild;promoting and furthering the interests of members of the SPAR Guild;promoting and fostering co-operation among members of the SPAR Guild;promoting the improvement of services to consumers in the supply of groceries, provisions,and general merchandise; andimplementing and enforcing agreements in terms of which members of the SPAR Guild aregranted the right to participate in a voluntary trading group using the names SPAR or TOPS atSPAR or Pharmacy at SPAR, and the trademarks relative thereto.

The SPAR Guild board comprises 10 retail members and 10 wholesale members and holds at leastthree meetings annually. The SPAR Guild’s chairman, Roelf Venter, is appointed by SPAR. The SPARGuild has six regional committees, on which SPAR is represented by executive management ofdistribution centres. The regional guilds visit stores as part of their annual work plan.

The members pay subscriptions to the SPAR Guild, who uses these monies to advertise and promoteSPAR. During the year, subscriptions of R9.0 million (2017: R8.0 million) were paid to the SPAR Guild.

The intercompany asset/(liability) with The SPAR Group Ltd as at 30 September 2018 amounted to aliability of R83.6 million (2017: a liability of R25.9 million) for the SPAR Guild; and an asset of R5.2million (2017: an asset of R0.4 million) for the Build it Guild. The liability is interest free, unsecuredand no date is set for repayment.

The Build it Guild is a non-profit company for the purposes of:


promoting, implementing and regulating the system of voluntary group trading by wholesalersand retailers;prescribing regulations and obligations regarding the implementation of such systems ofvoluntary group trading that is binding for members of the Build it Guild;promoting and furthering the interests of members of the Build it Guild;promoting and fostering co-operation among members of the Build it Guild;promoting the improvement of services to consumers in the supply of hardware, buildingmaterials, and general merchandise; andimplementing and enforcing agreements in terms of which members of the Build it Guild aregranted the right to participate in a voluntary trading group using the name Build it or TrenDIY.

The Build it Guild board comprises six retail members and six wholesale members and holds at leastthree meetings annually. The Build it Guild’s chairman, Wayne Hook, is appointed by SPAR. The Buildit Guild has six regional committees, on which Build it is represented by executive management of theBuild it division.

Read more about the Social and Ethics Committees of the guilds here.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Social_Ethichs_committee_Terms_of_reference_201808.pdf


OUR INVESTMENT CASE

OUR CORE FUNDAMENTALSSPAR’s unique voluntary trading model meets the needs of retailers who want independence but seekthe benefits of economies of scale. The model is based on two main capabilities: managing anefficient, sustainable supply chain and maintaining sound relationships with five key stakeholdergroups.

Over a period of 55 years in South Africa, we have developed specialist operational expertise inmanaging a wholesale supply chain: from sourcing, new product development and warehousing, todistribution logistics. We can manage the variables associated with anything from long-distancedeliveries, to multiple daily, fresh, and slow-moving product orders.

The SPAR distribution centres carry the inventory and distribution burden. This ensures that retailersfocus on running their stores, shaping demand and generating cash. Thus, large manufacturinggroups and producers, on the supply side, do not have to manage complex, small-batch deliveries to amultitude of stores nationwide.

SPAR’s position in the supply chain is therefore critical as a balancing force, as all players in thetrading network must be successful for the long-term sustainability of the model.

Read more about our capability to create, maintain and build relationships in our materialrelationships.

OPPORTUNITIES FOR GROWTHThe formal food and grocery retail market in South Africa is highly competitive. There are four mainplayers vying for the custom of cash-strapped consumers and available retail sites. The formal sectoris mature and new store openings run the risk of cannibalising existing stores. However, wellmanaged inventory and stringent operating cost controls have enabled the business to delivercontinued solid results, despite the challenging environment and top-line pressures. Food inflationremains low and signs of recovery are expected to be slow. Despite inflationary pressures to foodretail, our South African business continues to benefit from strong growth in both its TOPS liquor andBuild it brands. Furthermore, additional opportunities now present themselves for our Pharmacy atSPAR offering, given the acquisition of S Buys pharmaceutical wholesale business in 2018.

The informal food economy in South Africa also presents an opportunity for growth, albeit a slow andexperimental one. This opportunity was an important consideration in our new supermarket strategydevelopment process. We believe there are many pockets within the food system where SPAR canhave a real and positive social impact, while driving inclusive growth. Read more about thisopportunity in the strategy section.

New growth opportunities are available through investments in the SPAR model in other territories.Our intrinsic knowledge of the SPAR trading model allows us to apply our expertise to optimise similarfinancial and operational models in other countries. We can also apply their expertise in South Africa.This adds a new and diversified income stream for the business while creating even more efficiency.By growing our footprint within SPAR International, we gain opportunities to share knowledge,

https://investor-relations.spar.co.za/ir2018/our-material-relationships/


https://investor-relations.spar.co.za/ir2018/our-strategy-and-business-model/


technology, and product and industry best practice to the long-term advantage of our South Africanbusiness.

OUR INVESTMENT IN IRELAND – A SOLID PLATFORM FORGROWTHThe opportunity in Ireland was straightforward: a business with good growth prospects was sufferingfrom severe long-term property debt strain while SPAR South Africa had an ungeared balance sheet.We were attracted to the deal not only based on price, but also the opportunity to create value anddrive growth in partnership with a strong management team.

Since August 2014, through the acquisition of an 80% stake in the BWG Group, who owns SPAR inIreland and South West England, we have created value in the following ways:

The long-standing professional association between SPAR and the BWG Group created mutual trust.We had a shared commitment to grow the business over the five to eight years of the Irishshareholders’ contracted management involvement. The business is well positioned for furthergrowth, despite Brexit uncertainties, as we prepare for the first minority shareholders’ exit in 2019.

OUR INVESTMENT IN SWITZERLAND – TURNOVER ONTRACKThe early signs of success following the entry into Ireland gave us confidence to explore furtheropportunities for growth and currency diversification in Europe.

The Swiss opportunity to invest was attractive, as it involved one of the last remaining large family-owned businesses in the Swiss grocery retail market. It is an established business which has beenoperating for 30 years, with a mere 2% market share – a strong base from which to grow in a stablemarket. It had been running a much larger portion of company-owned stores compared to SouthAfrica or Ireland. This turned out to be a weakness that we had to address in the period following theacquisition of 60% of the ordinary shares in SPAR Holdings AG in 2016.

We decided to appoint a South African managing director, to sell non-performing corporate stores andbring new energy to the business culture, which positioned this investment as a steady, low-risk base,with the potential for expansion and partnership in the rest of Europe. We have the option to acquirethe balance of the ordinary shares in SPAR Holdings AG in 2021.


OUR INVESTMENT IN SRI LANKASri Lanka has emerged as a new retail hotspot in Southeast Asia since multinationals started rapidlyentering the supermarket segment in 2015. This was driven by rising consumer disposable income,increased urbanisation, growing tourism and the concomitant shift to a more formal food retaileconomy.

SPAR South Africa established a joint venture with Ceylon Biscuits Ltd, and was granted the licence forSPAR to operate in Sri Lanka in 2016. The first SPAR store was opened in Thalawathugoda, Colombo inApril 2018. Through the joint venture we aim to open 45 new SPAR stores by 2023, primarily bydeveloping independent retailers.

IN SUMMARY – POSITIONED FOR SCALEFood retail is a solid business with unwavering demand. Through responsible and strategicinvestments, we mitigated the growth and currency risk associated with our South African business,and established scalable options in other territories through acquisitions. We are well diversified, withan offering in a spread of categories – from food and liquor, to building materials and pharmaceuticalproducts. We supply independent retailers that serve all income groups through a variety of storeformats that are located where people live.

Our core business is managing the supply chain, which differentiates us from other corporate-orientated food retailers. Corporate retailers are, by nature, more fragmented. This is due to factorsthat vary from property management to wholesale and retail challenges.

SPAR South Africa has the potential to scale up in future by continuing to apply learnings in anymarket, to create supply chain efficiencies and to build relationships wherever we go.


CHAIRMAN’S REPORT

APPLYING 55 YEARS’ EXPERIENCE IN 2018

SPAR has been entrenched in the South African retail landscape for 55 years. The typical local cornerstores of the 1960s have since been replaced by world-class retail outlets, with shopping experiencesthat feature a range of products that would have been unimaginable at that time.

We are proud of what we have achieved as a group over 55 years in South Africa and beyond. Ourinternational footprint, extensive and robust supply chains, and deep relationships, have all stood thetest of time. We have learned to adapt and evolve through cycles of change.

The past year’s challenges confirm the relevance of our vision: to be the first-choice brand in thecommunities we serve. The following list contains a few examples of events that affected us on aretail and wholesale level:

The outbreak of listeriosis, highlighting vulnerabilities in food safety in South Africa, whichdirectly impacted salesDramatic increases in the price of fuel, inter alia, due to higher oil prices and a weak Rand,resulting in increased transport costsThe first Value Added Tax (VAT) increase in 25 years, with the list of 19 basic foodstuffs thatare zero-rated under review, affected consumers’ disposable incomeThe challenges experienced by many people who rely on grants from the South African SocialSecurity Agency (SASSA) with changes in the payment system and pay points, which affectedfootfall at stores

Despite these and other operational challenges, SPAR delivered resilient results for 2018. Ourdiversified incomes streams supported revenue growth of 6.0% to R103.0 billion (2017: R97.2 billion)and a 1.9% increase in cases despatched to 291.3 million (2017: 285.9 million). Our investments intoIreland, Switzerland, Zambia and Sri Lanka have not been without their unique challenges. Despitethis, their contributions over the long term add to the stability and sustainability of the group.

We continue supporting retailers in cross-border territories such as Botswana, Malawi, Mozambique,Namibia, the Seychelles and Swaziland. We do not have any short-term plans to venture beyond ourimmediate neighbours.


OUR BOARD PROVIDES GUIDANCE AND SUPPORTWe have a highly effective board with members who actively participate in leading the group. Ourdiversity in gender, race, age and experience means that we have balanced and robust conversations.

In the past year Andrew Waller joined the board, with his appointment ratified at the annual generalmeeting (AGM) in February 2018. At the AGM, all ordinary and special resolutions were approved bythe requisite majority of shareholders.

The full results are available here.

THE MANY FACES OF TRANSFORMATIONThe board is committed to transformation beyond legislative compliance. Through its oversight role,the Social and Ethics Committee encourages efforts to create social and environmentaltransformation. We are particularly proud of the sustainable and multiplying impact of the ruralfarmer hubs and the way these initiatives contribute to employment, food security, nutrition andempowerment. This kind of progress is what South Africa desperately needs.

The development of black retailers continues, but at a slower pace than what we want to see. We willcontinue to do our best to attract and integrate black entrepreneurs.

SPAR committed R20 million to the Youth Employment Service (YES) network launched by PresidentCyril Ramaphosa. We are also increasing our intake of learners and apprentices throughout the groupand continue to support the Jumpstart programme to create a pool of skills for retailers.

We know that our efforts to support sustainability and bring about transformation contribute to thepositive spirit of our retailers. They believe in the businesses, in the future of the country and thepotential of the SPAR brand.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_AFS_2018_12240_WEB.pdf


OUTLOOK FOR 2019Conditions in South Africa will remain tough for food retailing and consumers in general. Electionyears tend to create turmoil and unrest: this is likely to be the case in 2019. In Ireland, we stand by asBritain prepares to leave the EU on 29 March 2019, with much uncertainty remaining. We expecttrading conditions in Switzerland to remain stable.

SPAR has been contributing to a better South Africa for 55 years – and will continue to do so far intothe future. We believe that our role in our communities is to serve. We are committed to realise thevalue inherent in our purpose. SPAR’s values of entrepreneurship, family values and passion, havecreated a strong culture for future success.

A WORD OF APPRECIATIONThe board and executive acknowledge and appreciates the hard work and commitment of ouremployees – our most valuable asset. We recognise the invaluable role played by the divisionalmanaging directors of our distribution centres in overseeing the group’s daily operations, whileremaining committed to supporting social and environmental sustainability at a regional and nationallevel. The same applies to the employees, management and leadership in Ireland and Switzerland,and our new store in Sri Lanka.

We encourage all our shareholders to attend the upcoming AGM of The SPAR Group Ltd, which is to beheld in the company’s boardroom at 22 Chancery Lane, Pinetown on 12 February 2019 at 09:00.

Mike HankinsonChairman


SALIENT FEATURES FOR 2018

We are actively committed to our values of entrepreneurship, family values and passionWe had another good year in Ireland and South West England through organic andacquisitive growthWe drove the turnaround in the Swiss businessWe opened our first store in Sri Lanka, with four more stores in the pipelineWe developed a new South Africa supermarket strategy to drive our business forwardThe acquisition of S Buys positively contributed to our South African performance andprospectsTOPS at SPAR produced excellent results with sales growth up 13.0% in tough marketconditionsBuild it sales recovered strongly through loyalty gains and marketing interventionsWe continue to make capital investments in wholesale capacity and the retail offeringacross three geographies

KEY INDICATORS


A MACROECONOMIC OVERVIEW

SPAR delivered satisfying results consideringthe very different territories and supply chainswe manage. The diversity of the group hasproven to be our strength, and applies topeople, offerings, formats and relationships.In South Africa, the technical recession in combination with factors highlighted in the Chairman’s report,dampened consumer spending power. A downward trend in food inflation was offset by higher fuel pricesand the VAT increase.

Ireland is predicted to deliver the highest GDP growth in the EU in 2018 – this despite continueduncertainty about the impact of Brexit. Following the refinancing of BWG Group’s debt, we are in a strongposition to exploit attractive opportunities in this market.

The weak domestic economy in Switzerland is gradually improving. Low unemployment and minimaleconomic and trade barriers between the European Union and Switzerland resulted in a highly competitivefood retail sector, characterised by cross-border shopping and high wages.

https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/chairmans-report/


GROWTH THROUGH ACQUISITIONS AND NEWINVESTMENTS

The details of our recent acquisitions are set outin the investment case and relate mostly todevelopments in Ireland.

BWG GROUPIn the past year BWG Group acquired 4 Aces, which expanded our supply capacity and reach in Ireland. InSeptember, BWG announced the acquisition of Corrib Food Products, a supplier of fresh and frozen poultryand other frozen foods to customers in Ireland.

S BUYSIncome from S Buys, the pharmaceutical wholesale business acquired in 2017, was included in our resultsfor the first time. The strategic investment has provided momentum for growth in the Pharmacy at SPARbrand. S Buys achieved strong results despite lower-than-expected government-regulated price increases.More detail about the business and our long-term opportunity is provided in the case study on S Buys.

SRI LANKAThe opening of our first SPAR supermarket in Colombo, Sri Lanka, in partnership with Ceylon Biscuits Ltd inApril 2018 was successful. An additional store will open in January 2019 with a further three corporatestores set to open in 2019.

https://investor-relations.spar.co.za/ir2018/why-invest-in-spar/our-investment-case/



CONTINUOUS IMPROVEMENTS TO THE SPARDISTRIBUTION NETWORKS

SOUTH AFRICACASE VOLUME PERFORMANCEAll of the South African distribution centres showed positive volume growth with double digit increasesbeing reported by the North Rand and the Eastern Cape distribution centres.

INLAND CONSOLIDATION CENTRE PROGRESSOur inland consolidation project experienced some delays due to systems integration challenges. We areset to centralise about 5 500 slow-moving stock-keeping units into one warehouse that will serve the SouthRand, North Rand and Lowveld distribution centres. This will free up space in the three distribution centresto introduce new lines and reduce their stock levels, enabling them to become more agile and efficient. Inaddition, North Rand will be able to increase the number of fast-moving full pallet lines over the short tomedium term.

COLD CHAIN MANAGEMENTParallel to the inland consolidation project, we continue to improve our cold chain environments withsophisticated technology and the design of temperature-controlled zones. These include dehumidifier andsmart reporting interface mechanisms to monitor refrigeration plant performance in real time.

REDUCING THE USE OF PLASTICOur efforts to reduce the use of plastic, to transition to packaging that offers improved recycling options,and to save water, are discussed in detail in the sections on our material relationships and in our SouthAfrican operational report. We are proud of the leadership role our distribution centres took in addressingsome of South Africa’s most pressing environmental challenges.

OUR PIPELINE FOR EXPANSIONOur plans to establish a distribution centre in the West Rand and expand our facilities in the Eastern Caperemain subject to improved demand levels and rising economic confidence.





IRELANDINVESTING FOR THE FUTUREIn Ireland we are investing in the Value Centre Cash and Carry network. BWG Foodservice remains one ofthe fastest-growing areas of the BWG business, and will benefit significantly from the Corrib Foodacquisition. Corrib Foods will continue to operate as a stand-alone business for the next 12 months.

LONDIS PERFORMANCEThe Londis acquisition, completed in 2015, has proven to be a resounding success. The original projectionsthat underpinned this acquisition were achieved and surpassed. Cost savings were delivered ahead of theplanned milestone dates and each business case synergy was exceeded.

EFFICIENCY AND COST SAVING INITIATIVESOur investment in a chilled warehouse facility in the national distribution centre in Kilcarbery is deliveringsignificant efficiency and service benefits. It provides a pick-to-zero operation for chilled foods and freshproduce throughout the year, and has a 98% service level to retailers.


SWITZERLANDFINANCIAL PERFORMANCEIn Switzerland we have seen a steady increase in profitability over the past 18 months. Although our 2018results are not yet at the desired level, the rapid improvements show good promise.

Cash generation improved significantly, owing to improved profitability and reductions in inventory –where redundant stock and slow movers are in the process of being eliminated or reduced. Categorymanagement was critical as was a recent clean-up of our non-food goods offering in TopCC.

REGIONAL EXPANSIONRevenue is under pressure due to strategic store closures in 2017, but this was mitigated by expandinginto the French-speaking area of Switzerland in May 2018. This is a new supply channel for our distributioncentre in St Gallen, with 41 stores forming part of the agreement.


STORE PERFORMANCE IN SOUTH AFRICA

Our retailers are showing their resilience andremain upbeat about the prospects for retailgoing forward.TOPS at SPAR has been a consistent winner when it comes to performance and growth for the past 16years. In the past few years we have seen the benefits of a strong and differentiated brand with whichconsumers identify. TOPS achieved 13.0% sales growth bolstered by continued interest in the craftcategory.

We are satisfied with our progress in rolling out a further 15 SPAR Express stores in collaboration with Shellin the next financial year. We are eager to have 70 to 80 of these outlets by the end of 2020.

Pharmacy at SPAR also deserves recognition: 26 new stores were added to the portfolio and, backed bywholesaler S Buys, profitability increased significantly. The market is starting to recognise the convenientshopping experience offered by these additions to the SPAR precinct.

Build it had a great year with 7.5% sales growth. The passion of our management team and the Build itretailers continue to create momentum for the store format – which will roll out a new big store version inthe next financial year. Our strategic loyalty projects and the piloting of some virtual services offered inSPAR stores, contributed to this success.

Our new business team is constantly engaging with landlords to source new and upcoming sites. Wecontinue to engage with various financial institutions to assist us to fund new retailers.


GROWING AND INSPIRING OUR PEOPLE

In the past, our purpose as a group was focusedonly on retailers.We have broadened our purpose – TO INSPIRE PEOPLE TO DO AND BE MORE. This is an important shift andis the outcome of a deeply involved internal and external process that included the national guild, ouremployees and our consumers. Each executive team member has an action plan to manage withdeliverables at group and retail level.

We also shared this new purpose with our retailers at SPAR’s annual convention and it receivedtremendous support.

PLANNING FOR SUCCESSIONSuccession planning remains a priority due to the expertise residing in our senior and executivemanagement teams. We are making good progress in developing an effective talent successionpipeline. We are also targeting top-class black candidates to diversify our pool of internal candidatesfor succession.

The Nomination Committee oversees the succession plans for executive and board positions.


OUR OUTLOOK AND PRIORITIES

SOUTH AFRICAWe expect the trading environment in South Africa to improve in the medium term following the positivepolitical changes implemented by government.

We believe that SPAR’s independent retailers remain suitably positioned to address the remainingchallenges, supported by an extensive distribution capability and market-leading brands.

IRELANDThe BWG Group’s outlook, despite Brexit uncertainties, remains positively cautious. Management’sproactive response to market changes will continue to deliver results in line with expectations. Theacquisition of 4 Aces and Corrib Foods will contribute positively to the Irish group’s growth objectives.

SWITZERLANDThe Swiss business will maintain its focus on driving strategic initiatives to improve overall performance.We expect trading conditions in Switzerland to remain stable.


Our priority for the next year will be to drive the implementation of our new strategy in South Africa. Webelieve this can make a fundamental difference to our business through the commitment to put consumersat our heart. The GUEST retail service programme has an important role to play in permeating thisapproach into every SPAR store in South Africa.

We also remain involved in SPAR International. It is exciting to be part of a global group that continues tocreate demand while rolling out the brand in new countries. The international group is showing greatprogress in countries such as China and Russia, thereby developing and supporting entrepreneursworldwide.

Graham O’ConnorChief Executive Officer

13 November 2018


FINANCIAL REVIEW

SALIENT FEATURES

Rmillion 2018 2017 Change

(%)Turnover 101 018.0 95 373.1* +5.9Operating profit 2 779.3 2 576.1* +7.9Earnings per share (cents) 948.9 945.5* +0.4Headline earnings per share (cents) 965.7 952.8* +1.4Normalised headline earnings per share# (cents) 1 063.2 976.0* +8.9Diluted headline earnings per share (cents) 958.9 946.6* +1.3Dividend per share (cents) 729.0 675.0 +8.0Net asset value per share (cents) 3 692.2 3 407.0* +8.4* The prior year figures have been restated. Please refer to note 42 of the notes to the annual financial

statements for further details.# Headline earnings adjusted for fair value adjustments to, and foreign exchange losses on financial

liabilities, and business acquisition costs

OVERVIEW OF TRADING RESULTSThe SPAR Group (the group) reported a pleasing performance for the year under review, with turnoverincreasing by 5.9% to R101.0 billion, despite continued challenging trading conditions. The result hasagain been positively impacted by improving contributions from the European businesses and the groupincreased operating profit by 7.9% to R2.8 billion. Profit before taxation of R2.5 billion was adverselyimpacted by the fair value adjustments to, and foreign exchange losses on financial liabilities, togetherwith increased interest expenditure resulting from cash outflows for acquisitions.

SPAR Southern Africa contributed growth in wholesale turnover of 6.7%. This includes turnover reported bythe pharmaceutical business, S Buys, acquired during the year. Excluding S Buys, SPAR Southern Africaproduced wholesale turnover growth of 5.3% and stable gross margins, in a tough market environment.The TOPS liquor brand delivered an impressive result with wholesale sales growth of 13.0%. Despite agenerally weak building materials sector, Build it increased sales by 7.5% enabled by strategic marketingefforts and grew market share. The SPAR Southern Africa store network increased to 2 236 stores, with145 new stores opened across all brands. The group completed 276 store refurbishments across allbrands, compared to 259 refurbishments in the prior year.

The BWG Group (SPAR Ireland) has continued to deliver strong euro-denominated results. The BWGFoodservice business reported impressive double-digit turnover growth, while all retail brands enjoyedpositive sales growth in local currency. The Kilcarbery distribution centre saw warehouse turnover increaseby 6.9% as more product was directed through the facility. During May 2018, BWG completed theacquisition of 4 Aces Wholesale Limited which operates three cash-and-carry businesses in central Ireland.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_AFS_2018_12240_WEB.pdf#page=76


This business has been successfully integrated into the BWG Group’s wholesale operations. SPAR Ireland’sstore network increased by a net 41 stores to finish the year at 1 371 stores.

SPAR Switzerland has made significant progress in addressing the overall business performance, despitethe difficult Swiss retail environment. While the reported turnover growth has remained negative, this waslargely due to the strategic closure and sale of corporate retail stores during the year. However, this had amarked positive impact on the profitability of the overall business. The core wholesale business continuedto record improvements in profitability. SPAR Switzerland’s store network grew by the addition of 46 newstores to a total of 315 stores.

The purpose of this review is to provide additional information on the trading performance and financialposition of the group, and should be read in conjunction with the annual financial statements, togetherwith the notes thereto.

FINANCIAL PERFORMANCETurnover of the SPAR Group increased by 5.9% to R101.0 billion (2017: R95.4 billion), with 31.9% (2017:32.5%) of total turnover generated in foreign currency. The comparable Southern African business, withreported turnover growth of 5.3%, continued to be impacted by tough trading conditions. The turnover ofthe BWG Group increased by 4.2% in euro-currency terms. The continued depreciation of the rand againstthe euro over this period contributed to the 9.6% overall increase in reported turnover to R22.5 billion(2017: 20.5 billion). SPAR Switzerland contributed turnover of R9.8 billion (2017: R10.4 billion) with salescontinuing to decline in an extremely difficult retail environment.

Gross margin on a restated basis increased to 10.7% but remained stable year-on-year at 10.1% on a pre-restated basis. SPAR Southern Africa increased its comparable gross margin slightly to 8.3%, despite thecompetitive market, as it continued to drive more product through its facilities – in particular, fresh andperishable categories. The BWG Group and SPAR Switzerland, which both operate in the higher marginconvenience sector, reported comparable gross margins of 12.2% (2017: 12.1%) and 17.9% (2017: 18.0%)respectively.

Group operating expenses were well managed during the year, increasing by 5.6%, or 6.3% on a pre-restated basis, a noticeable improvement on the prior year. Excluding the S Buys business (acquiredeffective 1 October 2017), the group expenses increased by 4.7%. The expense movement was positivelyimpacted by the reduction in costs in the Swiss business of 4.7% through management initiatives and thedisposal, or closure, of corporate stores. In Southern Africa, comparable operating expenses were up 7.8%.This was again attributable to increased marketing and promotional expenditures, higher transport anddistribution costs (impacted by fuel cost increases of 17.9%) and further investment in IT infrastructure.The BWG Group’s expenses grew by a well-controlled 4.4% in euro terms and continued to be impacted byincreased depreciation charges and higher staff costs.

Profit before tax has remained flat year-on-year at R2.5 billion (2017: R2.5 billion), but was impacted by anet interest expense of R23.6 million, compared with net interest income of R17.1 million in the prior year.The negative interest effect was further compounded by a significant foreign exchange loss of R43.5million recognised on the translation of the South African euro-denominated financial liability to purchasethe Irish and Swiss minority interests. Based on an improved Irish profit projection, this liability was alsoincreased by a fair value revaluation of R139.5 million which also impacted profits.

Profit after tax improved 0.4% to R1 827.2 million (2017: R1 820.6 million), due to a slightly lower effectivetax rate in Ireland.


Headline earnings per share increased by 1.4% to 965.7 cents (2017: 952.8 cents). The board approved afinal dividend of 729 cents per share (2017: 675 cents per share), an increase of 8.0% year-on-year.

Cash generated from operations totalled R4.0 billion (2017: R3.3 billion) and reflected a strongimprovement over the prior year due to reduced working capital levels. This was largely attributed toincreased levels of trade payables due to payment cut-offs. The SPAR Group’s cash flow from investingactivities showed an outflow of R1 453.3 million, including total net capital expenditure of R772.3 million(2017: R1 090.9 million). During this period the group concluded two major acquisitions in South Africa: acontrolling interest in the S Buys pharmaceutical wholesaler for R74.4 million and the Knowles ShoppingCentre for R165.7 million. The BWG Group finalised the acquisition of the 4 Aces Wholesale business forR90.9 million. Taking into account the impact of a net R252.0 million outflow to reduced borrowings and afurther R281.1 million for share repurchases, the group still closed the year in a net cash position ofR1 598.2 million (2017: 1 472.0 million).

FINANCIAL OVERVIEW: CASH FLOW


CAPITAL EXPENDITUREIn Southern African, the group’s capital expenditure during the period included operational investments ofR256.1 million. This comprised primarily transport and logistics requirements as well as additionalinvestment in IT infrastructure upgrades and software development. The BWG Group’s capital expenditureamounted to R365.9 million, the majority of which was warehouse equipment, but did also includeadditional investments in retail property and IT technology. Capital expenditure in the Swiss operations ofR149.1 million was incurred, including further store refurbishments and ongoing technology upgrades toenhance the retail offering. The group made further investments of R107.7 million to acquire ten corporatestores, defending strategically located retail locations in South Africa, the United Kingdom and Ireland.

The budgeted capital expenditure for the year ahead in Southern Africa, amounting to R383.4 million(2017: R666.0 million) is expected to reduce to more normal operating levels, as no further propertyacquisitions are planned and construction plans for the previously announced distribution facilities havebeen placed on hold. In Ireland, budgeted capital spends of €32.0 million will continue to address a widerange of retail development commitments, while SPAR Switzerland has CHF25.0 million budgeted forfurther retail investments and additional improvements to own facilities and infrastructure. It is againanticipated that the foreign subsidiaries will fund all capital expenditure from their own cash flows.

GEOGRAPHICAL REVIEWSOUTHERN AFRICAThe turnover of SPAR Southern Africa increased 6.7% to R68.8 billion (2017: R64.4 billion restated), butwas positively influenced by the inclusion of the S Buys. Excluding S Buys, the comparable businessincreased turnover by 5.3% (2017: 4.5%), reflecting the continued tough retail market which remainsunderpinned by weak consumer spend. This result was positively boosted by strong liquor turnover growthof 13.0% and a very pleasing increase in the building materials business of 7.5%. The latter remainscontrary to a weak building sector performance and reflected increased retailer loyalty and the results ofstrong marketing investments. Combined food and liquor wholesale turnover growth was recorded at 5.0%and needs to be viewed against internally calculated food inflation of 1.4%. This inflation measure hascontinued to decline from the 1.9% measured at half year and the 6.0% reported in 2017.

Case volumes handled through the seven distribution centres continued to reflect the constrained marketand increased 3.2% to 231.7 million cases (2017: 224.5 million cases). This positive volume growthreversed the decline in cases delivered recorded in the comparative year.

The retail turnover of SPAR stores increased 4.2% to R79.7 billion (2017: R76.5 billion) and recorded like-for-like retail growth of 2.3%. The combined food and liquor retail sales, which allow for a better industrycomparison, increased by 5.1% and should be viewed against the significant decrease in food priceinflation over the year. Wholesale turnover grew 4.1% to R53.7 billion, continuing to reflect theindependent retailers’ support of the group’s voluntary trading model. Impacted by the material deflationrecorded in certain commodity categories, total house brand turnover increased by 4.3% to R10.7 billion.Demand for SPAR-branded products was stronger at 5.8% for the year, with sales reaching R8.5 billion.The SPAR-branded private-label products continued to offer real consumer value and quality and remain ashopping differentiator for our retailers.

The group maintained the strong organic growth focus of existing retailers to drive profitability. Total retailspace recorded exceptional growth of 3.8% (2017: 1.7%) and was attributed to a number of large new


stores. In addition, 170 SPAR stores were refurbished during the period to ensure they continued toprovide retail offerings to exceed consumer demands. A net 34 stores were opened, bringing the totalSPAR store numbers to 937 by 30 September 2018.

The retail turnover of TOPS at SPAR increased by an impressive 11.3% to R11.2 billion (2017: R10.0billion), as strong marketing initiatives and a refresh of the brand image attracted consumer spend. Like-for-like turnover growth amounted to 7.5% for the period. Wholesale turnover tracked ahead of the retailperformance and grew by 13.0% to R6.5 billion (2017: R5.8 billion). During the period, the TOPS at SPARstore network increased by 41 stores on a net basis to 774 stores, while 53 stores were refurbished. Thetotal retail liquor space increased 6.7% during the year.

Build it’s retail turnover growth increased by 9.7% for the year, significantly higher than the buildingsector’s calculated inflation of 3.8%, and against the backdrop of a challenging trading environment. Thisperformance was underpinned by strong product and brand marketing and an added focus on retailexecution to differentiate the brand. Like-for-like store growth was 7.4%. The group’s buying teams droveincreased retailer loyalty through improved product pricing. The influence of cement, which is a significantcomponent of Build it’s overall sales, continued to impact the turnover, as the continued oversupply hasresulted in low category inflation of 0.5% over the year. Retail activity in the neighbouring countriescontinued to report strong growth totalling 11.9% for the year, which was positively influenced byimprovements in both the Namibian and Mozambican stores. At wholesale level, turnover increased 7.5%to R7.6 billion (2017: R7.1 billion), reflecting still further opportunities to grow retailer loyalty. Build it’shouse brand and imports showed solid growth of 11.0% for the year. At the year-end, Build it’s storenetwork totalled 376 stores, having opened a net eight stores during the year.

The S Buys pharmaceutical wholesale business was acquired with effect from 1 October 2017 and therevenue and profit were consolidated for the first time in this year. This strategic investment provides a fullpharmaceutical wholesale service for the Pharmacy at SPAR retailers and management are activelyworking to convert their purchases to this wholesaler. S Buys reported turnover of R929.0 million for theperiod, which amounted to a pleasing growth of 13.4%. This performance was driven by impressiveincreases of 17.1% in the Scriptwise business – catering for high-value speciality scripts – and 11.7% inwholesale sales, which were largely attributed to increased procurement by SPAR pharmacies. Theprofitability of the business was, however, impacted by a lower than expected government regulated priceincrease of 1.3% compared to the 7.0% in 2017.

The Pharmacy at SPAR business continued its growth trajectory adding 26 new stores and reporting anincrease in retail turnover of 44.3% to R961 million. The retail organic growth was a healthy 17.2% andreflects the marketing and innovation benefits being enjoyed by these retailers. At the end of the periodthere were 101 Pharmacy at SPAR stores.

IRELANDThe BWG Group continued to deliver strong results for the year and reported euro-denominated turnovergrowth of 4.2% to €1.5 billion. This number was boosted by the inclusion of the 4 Aces business from May –if adjusted, the comparable group grew by 2.8%. Exchange rate weakness over the latter half of the yearsaw reported turnover grow 9.6% to R22.5 billion (2017: R20.5 billion). Price measures over the financialyear indicate that the grocery food and non-alcoholic drinks category declined 2.2%, while alcohol andtobacco increased by 3.2%. (Source: Irish Central Statistics). Both the extreme weather conditionsexperienced in March and the above average warm summer brought significant sales benefits to theconvenience sector as consumers bought larger quantities of food and beverages.

The hospitality sector remained strong and again boosted the sales of the BWG Foodservice and BWGWines & Spirits divisions, which reported turnover growths of 14.7% and 5.5% respectively. Compared with


last year, all retail brands recorded positive growth, with the Londis brand increasing turnover to 4.9%,MACE growing by 4.4% and XL reporting growth of 4.5%. It was just as pleasing to report that all retailbrands reported positive like-for-like growth.

The group’s distribution volumes continued to show strong increases and record case movementscontinued to be handled in the Kilcarbery distribution centre which reported a sales increase of 6.9%. Areal highlight for this business during the year was the recognition received through a number ofprestigious logistics and transport awards, including the Irish Logistics Company of the Year award.

In South West England, BWG Group’s Appleby Westward business reported an increase of 2.7% in sterling-denominated turnover. The slight improvement of the sterling decreased the turnover result in reportedeuro terms to 1.2%. This business represents approximately 12.2% of the consolidated BWG Group.

BWG Group’s euro-denominated margin remained stable at 12.2% in highly competitive market conditions.Operating profit grew 13.0% to R574.4 million (2017: R508.2 million) while profit before tax increased15.5% to R537.9 million (2017: R465.8 million).

The total number of stores across BWG Group’s store formats at 30 September 2018 was 1 371 with 105new stores added during the year.

Subsequent to the reporting period, the BWG Group announced the completion of the acquisition of CorribFood Products, a leading independent wholesaler with a significant presence in the chilled and frozen foodsector in Ireland, along with being one of Ireland’s leading suppliers of poultry products. The acquisitioncomplements BWG’s market-leading position in food distribution. It is also consistent with the group’sstrategy for growth and follows the successful acquisition of 4 Aces Wholesale earlier in the year.

SWITZERLANDThe region reported turnover of R9.8 billion for the year (2017: R10.4 billion). Operating profit increased80.6% to R124.6 million (2017: R69.0 million), while profit after tax increased by 17.5% to R67.1 millionfrom a previous year profit of R57.1 million. This result was adversely impacted by finance costs, includingforeign exchange impacts, relating to the valuation of the financial liability for the minority purchaseobligation of R17.2 million (2017: a net gain of R23.4 million).

The turnover performance of SPAR Switzerland continued to be negatively impacted by low economicgrowth in the retail market. While minor inflationary trends have been noted, with prices of food and non-alcoholic beverage products increasing by 1.5%, alcoholic beverages being 0.7% higher, and a slightappreciation of the Swiss franc against the euro, these have been insufficient to slow the attraction ofcross-border shopping that exists in Switzerland. SPAR Switzerland reported a decline in local currencymeasured turnover of -5.1%. However, this result continued to be negatively influenced by the strategicdecision to exit from unprofitable corporate retail stores. If the effect of these corporate stores wasadjusted for, the local currency turnover decline would have been -0.8%. SPAR Switzerland launched 46new stores during the year, including a large group of 41 stores in the west of the country that are nowbeing supplied. At the end of the year there were 315 corporate and independent retailers serviced.

The cash-and-carry business, trading as TopCC, reported a disappointing decline in turnover for the yearwhich was largely attributed to business closures in the Swiss restaurant and hospitality sectors. The groupis investigating upgrade opportunities in the fresh offerings of these stores, as this area is offering growthwhich can be further maximised.

Warehouse turnover increased by a pleasing 1.5% for the year, reversing the declines previously reported,as SPAR retail activity was positively influenced by innovative marketing campaigns, including the launchof a consumer loyalty card. Store delivery frequency, fleet optimisation as well as store ordering initiatives


were implemented during the year, which have resulted in significant improvements in logisticsefficiencies, productivity and overall costs.

Despite the decline in overall turnover, the business succeeded in improving margins and reducing costs.

CURRENCY MOVEMENTS OVER THE COURSE OF THEREPORTING PERIOD

Ireland (€) Switzerland (CHF) 2018 2017 2018 2017Year end rate 16.46 15.96 14.44 13.95Average rate 15.56 14.81 13.40 13.59

BORROWINGSAt year-end the group had external banking facilities in South Africa totalling R3.6 billion of which Rnil(2017: Rnil) was drawn down. Committed facilities totalled R2.4 billion while the group had access to R1.2billion of uncommitted facilities.


The BWG Group has access to €60.0 million of revolving credit and overdraft facilities.

SPAR Switzerland has confirmed credit lines and facilities of CHF62.2 million.

The decrease in net borrowings from the prior year was largely the result of improved working capitalmanagement by the foreign operations.

The net borrowing position at year-end:

Rmillion 2018 2017Long-term borrowings 3 976.5 4 160.4Current portion of long-term borrowings 433.6 364.4Bank overdraft 8.7 268.5Total borrowings 4 418.8 4 793.3Less: cash and cash equivalents (1 377.6) (1 565.6)Net borrowings 3 041.2 3 227.7(Decrease)/increase in funding (186.5) (97.8)

CAPITAL EXPENDITURE AND COMMITMENTSA summary of the group’s capital expenditure and approved capital commitments as at 30 September2018 is set out below:

2018 2017

Rmillion ContractedApproved not

contracted Total ContractedApproved not

contracted TotalSouthAfrica 80.4 93.4 173.8 341.9 88.7 430.6Ireland 89.4 34.2 123.6 143.6 6.1 149.7Switzerland 30.7 15.9 46.6 64.3 64.3Total 200.5 143.5 344.0 549.8 94.8 644.6

FINANCIAL RISK MANAGEMENTThe identification of sustainability and financial risks for the group forms part of the enterprise riskmanagement process. During the course of the year this was again updated by management and theserisks were reviewed by the internal audit team. The group is typically exposed to inflation, interest rate,liquidity and credit risks, the latter specifically impacting trade receivables. No additional risks wereidentified and management are satisfied that these risks are being continuously and proactively managed.


ACCOUNTING POLICIESThe annual financial statements have been prepared in accordance with the framework concepts and themeasurement and recognition requirements of International Financial Reporting Standards, the SAICAFinancial Reporting Guides as issued by the Accounting Practices Committee and Financial ReportingPronouncements as issued by the Financial Reporting Standards Council and the requirements of theCompanies Act, 71 of 2008, as amended. The group has considered and adopted all new standards,interpretations and amendments to existing standards that are effective as at the year-end.

The JSE’s 2017 report on the proactive monitoring of Annual Financial Statements was also considered inpreparing the 2018 integrated report.

The annual financial statements have been prepared using accounting policies that comply with IFRS thatare consistent with those applied in 2017.

In preparation for the new IFRS 15 standard, the group assessed all income streams from suppliers. Thisevaluation revealed that certain rebates and income had been incorrectly accounted for. These amountshave been reclassified and the 2017 comparative corrected. Refer to note 42 to the annual consolidatedfinancial statements for more detail.

GOING CONCERN STATUSThe board has formally considered the going concern assertion of the group and is of the opinion that itremains appropriate for the forthcoming financial year.

Mark GodfreyGroup Financial Director

13 November 2018



FIVE-YEAR FINANCIAL REVIEW

Rmillion 20182017

Restated*2016

Restated* 2015 2014CONDENSED STATEMENTS OFPROFIT OR LOSS AND OTHERCOMPREHENSIVE INCOMERevenue 103 008 97 209 92 227 74 060 55 016Operating profit 2 779 2 576 2 577 2 294 1 865Other non-operating items (144) (55) (25) (131) (1)Interest income 169 194 99 29 34Interest expense (193) (177) (110) (122) (38)Finance costs including foreignexchange gains and losses (137) (64) (107) (108) (3)

Share of equity accountedassociate (losses)/profit (10) (8) 5 (4) (13)

Profit before taxation 2 464 2 466 2 439 1 958 1 844Income tax expense (637) (645) (624) (537) (499)Profit for the year attributable toordinary shareholders 1 827 1 821 1 815 1 421 1 345

Remeasurement of retirementfunds net of tax 131 364 (190) (12) (21)

Remeasurement of post-retirement medical aid net of tax – 8 (6) (3) (8)

Gain/(loss) on cash flow hedgenet of tax 1 (4) (28)

Exchange differences fromtranslation of foreign operations 132 42 (29) 21 16

Total comprehensive income 2 091 2 231 1 562 1 427 1 332 CONDENSED STATEMENTS OFFINANCIAL POSITIONAssetsProperty, plant and equipment 6 967 6 554 6 160 3 221 2 878Goodwill and intangible assets 4 437 4 162 4 008 3 281 2 726Loans and investments 1 454 1 094 831 138 124Operating lease receivables 208 125 101 97 85Deferred taxation asset 14 21 37 34 41Current assets 18 166 16 880 16 807 12 365 11 254


Assets classified as held for sale 10 141 161 194 15Total assets 31 256 28 977 28 105 19 330 17 123 Equity and liabilitiesCapital and reserves 7 110 6 560 5 628 3 328 3 027Deferred taxation liability 413 361 291 215 179Post employment benefitobligations 788 940 1 392 447 415

Financial liability 2 043 1 700 1 568 730 549Long-term borrowings 4 531 4 686 4 700 2 368 1 866Long-term provisions 29 42 59 –Other non-current financialliabilities 3 5 –

Operating lease payables 231 142 116 109 119Current liabilities 16 108 14 541 14 351 12 133 10 968Total equity and liabilities 31 256 28 977 28 105 19 330 17 123 CONDENSED STATEMENTS OFCASH FLOWSCash flows from operatingactivities before dividends 3 334 2 663 2 700 2 281 1 348

Dividends paid (1 358) (1 252) (1 153) (1 012) (867)Cash flows from investingactivities (1 453) (1 496) (1 614) (978) (924)

Cash flows from financingactivities (428) 4 1 667 162 (101)

Net movement in cash and cashequivalents 95 (81) 1 600 453 (544)


RATIOS AND STATISTICS

20182017

Restated*2016

Restated* 2015 2014SHARE PERFORMANCENumber of ordinaryshares (net of treasuryshares) millions 192.5 192.5 192.5 173.1 172.8Headline earnings pershare cents 965.7 952.8 1 020.0 835.5 781.8Normalised headlineearnings per share cents 1 063.2 976.0 1 033.0 940.0 779.8Dividends per share cents 729.0 675.0 665.0 632.0 540.0Dividend cover multiple 1.32 1.41 1.53 1.45 1.45Net asset value pershare cents 3 692.2 3 407.0 3 131.7 1 922.6 1 751.1

COMPREHENSIVEINCOME INFORMATIONGross margin % 10.7 10.7 9.3 8.7 8.3Operating profitmargin % 2.8 2.7 2.8 3.1 3.4Headline earnings Rmillion 1 859.6 1 834.7 1 832.9 1 446.3 1 351.3

SOLVENCY ANDLIQUIDITYReturn on equity % 26.7 29.9 40.5 44.7 43.4Return on net assets % 39.1 39.3 45.8 68.9 61.7

EMPLOYEE STATISTICSNumber of corporateoffice and distributioncentre employees atyear-end 7 204 6 786 6 387 4 724 4 025

STOCK EXCHANGESTATISTICSMarket price per share– at year-end cents 18 413 16 708 19 222 18 500 12 558– highest cents 22 700 20 499 21 971 20 617 13 632


– lowest cents 16 553 15 018 16 161 12 142 11 089Number of sharetransactions 559 330 542 335 499 716 399 399 228 064Number of sharestraded millions 145.5 203.8 178.2 132.7 104.5Number of sharestraded as apercentage of totalissued shares % 75.5 105.8 92.6 76.7 60.4Value of shares traded Rmillion 28 198.2 35 789.6 34 793.2 23 190.3 12 998.2Earnings yield at year-end % 5.8 5.8 5.4 5.1 6.2Dividend yield at year-end % 4.0 4.0 3.5 3.4 4.3Price earnings ratio atyear-end multiple 17.3 17.1 18.6 19.7 16.1Market capitalisationat year-end net oftreasury shares Rmillion 35 454 32 164 37 004 32 027 21 708Market capitalisationto shareholders’equity at year-end multiple 5.0 4.9 6.6 9.6 7.2


VALUE-ADDED STATEMENT 2018 2017

Rmillion% of

revenue %Restated*

Rmillion% of

revenue %Revenue 103 008 97 209Less:Net cost ofproduct andservices 95 263 89 849Value added 7 745 7 360Add:Income frominvestmentsand associates 158 185Wealth created 7 903 7.7% 100.0 7 545 7.8% 100.0Applied to:Employees

Salaries,wages andotherbenefits 4 412 55.8 4 180 55.4

Providers ofcapital 1 687 21.3 1 493 19.8

Interest onborrowings 329 4.2 241 3.2Dividends toordinaryshareholders 1 358 17.2 1 252 16.6

Taxation 637 8.1 645 8.6Replacementof assets 698 8.8 658 8.7Retained in thegroup 469 5.9 569 7.5Wealthdistributed 7 903 100.0 7 545 100.0* Refer to restatement note 9.


OUR MATERIAL RELATIONSHIPS

SUPPLIERS

WHO THEY ARE

In South Africa, SPAR’s approach is to sourcefrom local suppliers with a strong commitmentto supplier development for our SPAR brands.Our rural hubs are examples of how we enable authentic shared value creation with emerging suppliersover the long term. We provide our suppliers with a growing market for their products, which ensures theirbusinesses are viable and sustainable.

5 000+multinational, small and medium enterprises, and individual trade suppliers

500+multinational and small artisan producers for niche fresh food categories

https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#food


Multinational and Swiss manufacturers with a substantial amount of smaller local suppliers

BWG Foods has a wide range of suppliers, with smaller suppliers accommodated through a central billingarrangement which guarantees their payment for direct store deliveries. The Value Centre Cash and Carrynetwork and the BWG Foodservice business are important elements of the total supply network availableto retailers.

In the annual benchmarking survey carried out by The Advantage Group in 2018, suppliers ranked BWGFoods at number two across the trade in terms of overall performance. The survey covers all retailoperators in Ireland and is completed by the top 40 to 50 fast-moving consumer goods (FMCG) suppliers.The supplier group rated BWG Group and its employees as number one across the trade. Suppliers ratedBWG first for building profitable businesses for both parties, and second for implementation of businessplans, including being a good company to do business with. BWG was ranked second within our peer groupfor payment process and resolution of invoice issues.

In Switzerland, our range of relationships allows us to provide a comprehensive offering at retail whilesupporting local industry as a responsible corporate citizen.

HOW WE ENGAGE WITH OUR SUPPLIERSWe have regular interaction through distribution centres and satellite warehouses during deliveriesOur joint business planning sessions target efficiencies in the supply chain, to the benefit ofsuppliers and SPARWe engage through the emerging farmer development programmeWe participate in trade shows: in Switzerland, our annual autumn trade show is used as a platformto share strategy and progress against our action plans with suppliers. BWG Foods organises thelargest trade show event for FMCG suppliers annually in June.

COLLABORATING FOR SHARED VALUESPAR’s operating model in all territories relies on an efficient supply chain and robust relationships withsuppliers to ensure an appealing value proposition for retailers at acceptable wholesale margins. The scaleof our logistics and distribution systems provides suppliers with substantial volumes at reduced operatingcosts. The high volumes handled at our distribution centres ensure a spread of fixed costs that translateinto reduced unit costs.

Joint business planning with our suppliers encourages vertical co-ordination and efficiency, and we haveidentified several cost-reduction opportunities. These include, for example, backhauling and one-wayloads, optimal buying configurations and supply chain mapping. We are increasingly focusing on trade

https://investor-relations.spar.co.za/ir2018/who-we-are/our-distribution-centres/


marketing with marketing volume and value tracked against a scorecard, which is reviewed at biannualjoint meetings.

Backhauling and one-way loads require collaboration with suppliers to deliver goods to retailers on theirreturn journey from our South African as well as cross-border distribution centres, where possible. Wedeliver goods to retailers near our suppliers, then collect goods from suppliers, and return to thedistribution centre with a full truck. These initiatives reduce the unnecessary labour and fuel costsassociated with empty delivery trucks returning to their point of origin. Optimised supplier fleet utilisationfurthermore results in a reduction in our carbon footprint.

Supply chain mapping uses our cost-to-serve modelling tool and enables us to work with our suppliers tooptimise the most effective route to market. These initiatives result in increased efficiencies and sharedsavings for our suppliers and the group. By stripping unnecessary costs from our supply chain, we arefurther able to pass the cost-saving benefit to our retailers.

Most of our procurement happens at distribution centre level, and certain products are sourced from localsuppliers at store level. This enables sourcing that supports local enterprise. We work with suppliers toencourage sustainable product development and transparent sourcing. Our emerging farmer developmentprogramme assists vertical co-ordination between commercial and community farmers to the benefit ofthe surrounding rural economies.

Buyers typically engage with suppliers on a cycle of every six weeks and monthly with larger suppliers.Purchasing managers engage quarterly and the divisional marketing director at least every six months.

Build it’s supplier base is made up of strategic national and regional suppliers with a healthy balance ofbroad-based black economic empowerment (BBBEE) companies. Suppliers are selected and maintained tomeet the specific and, in some instances, tailor-made requirements of Build it retailers. Dedicatedmarketing employees are responsible for regular engagement with existing and prospective suppliers toensure that the group’s offering to retailers and consumers remains highly competitive.

Within Appleby Westward, a joint business planning process creates a sustainable climate of co-operationwith suppliers. Promotional forecasting and the implementation of agreed plans are key areas that benefitfrom effective collaboration.

In Switzerland, we rolled out a central billing and drop shipment network that enables small to mediumsuppliers to participate in an expanded retail network. Local suppliers, including the local manufacturersfor multinationals, small producers and farmers, constitute the largest part of our supplier base.

We have set up joint business planning sessions with major suppliers, including the largest dairy supplierin Switzerland. Significant cost benefits have already been identified and the sessions will be rolled out tomore suppliers soon.


ENSURING SUSTAINABLE SUPPLYWe formalised engagement with our South African house brand suppliers on a range of sustainabilitymatters. We have commenced collecting data on their environmental management systems, specificallyfocusing on energy use, transport, greenhouse gasses, waste and waste water, water use, emissions,pollution prevention and treatment of hazardous substances. This allows us to compare sustainabilityindicators across suppliers, and assess the extent of their gearing for the longevity of their businesses. Ourengagement includes site visits, during which suppliers share information. By using this information, wecan build relationship while increasing awareness of our collective environmental responsibilities.

Our aim is to contribute to efficiency improvements and ensure that our suppliers are sustainable andsecure.

Sustainable supply also relies on developing and attracting new suppliers.

In 2018 we launched the SPAR Natural brand that provides products which are free of synthetic chemicalsand minimally processed. The launch this brand required extensive dealings with suppliers to ensuresustainable, scalable and reliable access to the required product.

An example of a new supplier contracted this year followed the popularity of the Johannesburg freshproduce market, which has evolved into a one-stop destination for retailers, shopkeepers, street traders,restaurateurs and exporters. The market offers a wide variety of fresh fruit and vegetables. We identified asupplier already operating within the market with their own packhouse and a strong relationship withmarket agents and farmers. The new SPAR supplier now secures good quality produce at good prices anddelivers it directly to the South Rand distribution centre.

One of the trade-offs that we manage in the supply chain is where there are long standing relationships atdistribution centres and suppliers are at risk of losing their share of the business when new suppliers areintroduced. Buyers are expected to objectively assess strategic value and benefits in managing theirsupplier portfolio.

OUR COMMITMENT TO ETHICAL SUPPLY CHAIN DEVELOPMENTSPAR continues to engage with non-profit organisations, suppliers and activist groups to plan our approachto dealing with any unethical practices currently being carried out in our supply chain. SPAR understandsthe difficulties in addressing these issues and is committed to actively drive education in the supply chain


towards understanding the need for change. We take these considerations into account when designingenterprise development businesses that become part of our supply chain, thereby ensuring thatdevelopments are based on ethical principles. We address any instances where unethical practices areidentified with a supplier.

A STRONG FOOD SAFETY FOCUSAs a South African retailer and member of the Consumer Goods Council, SPAR has adopted the Global FoodSafety Initiative (GFSI) assessment, which provides a global benchmark for advancing food safety. Thismeans we require all our suppliers to comply with these standards and, eventually, to be GFSI certified, asthis will ensure common standards for the production and trade of food products in the group.

Our role is to support suppliers and enable capacity building. The GFSI global market capacity buildingprogramme is for small or less developed businesses that encounter difficulties in implementing evenbasic levels of food safety (according to the Hazard Analysis and Critical Control Points system (HACCP)) intheir food businesses. This can be due to their size, the nature of their work, and lack of technicalexpertise or economic resources.

The GFSI has a tiered approach to certification, which allows individuals responsible for food safety withinsmall and less developed businesses to develop a systematic action plan that can be implemented overtime. This reassures customers that they are developing effective food safety management programmesthat will reduce food safety risks.

The SPAR house brand food safety requirements are:

Certificate of Acceptability (Department of Health);GFSI food safety audit: basic (low-risk products such as biscuits);GFSI food safety audit: intermediate (high-risk products such as cut vegetables and processedproducts);Global Gap for Farmers (fruit and vegetables);Abattoir certificate (meat);Export Certificate (Department of Agriculture, Forestry and Fisheries); andFSSC 22000, BRC or International Featured Standard certification.

All private label suppliers are audited at intermediate level and we encourage them to apply forcertification (FSSC 22000, BRC, IFS, AIB).

KEY FACTS ABOUT SPAR SUPPLIER CERTIFICATION

ELEMENT TOTAL SUPPLIERSGFSI INTERMEDIATE

(%) CERTIFIED (%)

Freshline Bakery 42 79 21

Freshline Produce 103 15 85

SPAR brands 144 37 63

A new initiative has been launched to monitor and track all regional suppliers to align them with the GFSIGlobal Markets Capacity Building Programme.


Read more about food safety in our stores in the section on our relationship with retailers.

STRATEGIC RISKS RELATING TO SUPPLIERSPolitical instability in SPAR markets may hinder businessDisruption of operations may occur due to labour disputes and/or industrial and mass actionTransformation issues across all areas may impact the business negatively

CREATING A SCALABLE AND SUSTAINABLE FOOD SYSTEM

The concept of having rural farmers supply fresh produce to SPAR distribution centres started as anaspirational idea. In theory, we knew that this would provide employment, grow rural economies,ensure food security and improve nutrition, reduce transport costs for SPAR, shorten lead times, andincrease freshness and shelf life. Even as a concept, there were evident challenges such as financing,infrastructure and skills. Nevertheless, four years later, we have created a sustainable model that canbe rolled out nationally.

According to the current model, each hub consists of a packhouse that works much like a minidistribution centre, to which local farmers bring their produce. The produce is then distributed tostores within a 200 km radius. SPAR committed to funding the capital and operational expenditure, aswell as the associated logistics infrastructure required for the development of the three initialpackhouses.

The success of the model requires the support of a range of stakeholders, including farmers,communities, government, food manufacturers and wholesalers, retailers, financial institutions, andfunders.

The intention for the hubs is to have a 51% BBBEE ownership model.

The emerging farmer development programme is SPAR’s flagship corporate citizenship initiative,aiming to establish sustainable, commercial rural food hubs. Two hubs are already in operation:

The Mopani hub was established in June 2016 in Ofcolaco, Mopani, Limpopo. The packhouse wasopened in August 2017. Hub farmers supply the packhouse with produce and are building up abasket of goods to sell to retailers. It had a turnover of R10.1 million for 2018 and is set to reachbreakeven in year four. Funding was provided by the Dutch government and SPAR – the latter atno interest with 90% of the loaned funds paid back. Capital was invested in tractors, ploughingequipment, delivery vehicles, fridges, packhouse equipment, etc. The SPAR distribution centre inthe Lowveld provides financial management support.The Ikhwezi hub in Mpumalanga opened on 1 October 2017.


KEY FACTS:

TRAINING AND TECHNICAL SUPPORT FOR A SUSTAINABLE HUBA non-profit organisation provides technical services and lends comprehensive, on-the-ground supportto the smallholder farmers. Moreover, a commercial farmer mentor was appointed, thereby providinga critical link between the rural and commercial supply chains.

All hub farmers were trained in the following modules:

EconomicsLand preparationPlantingLegal

Pest and diseaseFertilization


IrrigationHarvesting

All of the farmers will receive localg.a.p. training as a stepping stone to achieving GLOBALG.A.P.certification – an internationally recognised standard for good agricultural practice (G.A.P.) and farmproduction that ensures safe and sustainable agriculture. All Ikhwezi hub farmers are receivingtraining including localg.a.p.

NUTRITION AND FOOD SECURITY FOR A SUSTAINABLE HUBOne of the aims of the emerging farmer development programme is to increase food security –particularly in the lower-income groups – by improving access to diverse, fresh and nutritiousproduce. Comprehensive nutrition diversity research was commissioned by SPAR to identify baselinenutrition intake in rural areas.

Based on the research, a nutritional campaign was developed according to five levers of change:

Make it understoodMake it easyMake it desirableMake it rewardingMake it a habit

The nutritional campaign aims to increase awareness and provide education by using a variety ofchannels – from newspapers to radio, and point-of-sale material. By providing consumers in targetedareas with messages, tips, and opportunities to learn about the benefits associated with certain fruitand vegetables, the campaign supports health and wellbeing in communities while driving demand forthe rural hub produce.

OPPORTUNITIES TO EXPAND OUR CONCEPT SUSTAINABLYIn the past year, we launched the SPAR RASET alignment project: a collaboration with the KwaZulu-Natal Provincial Government to build an effective and secure agro food system for the province. Theaim of the project is to ensure meaningful participation by previously disadvantaged farmers in thefood value chain, and improve the distribution of fresh produce in KwaZulu-Natal. Potential sites wereidentified and discussions are underway with donors and financial institutions to generate funding foradditional hubs and to create a fund for entrepreneurial development.

By taking a holistic approach to food system development and working with a network of partners theSPAR rural hub concept is gaining traction and creating a multiplier effect to the benefit of allstakeholders. We are creating a new future together.


EMPLOYEES

WHO THEY ARE

SPAR is built on strong relationships between allstakeholders, which hinge on our employeesand their ability to forge, maintain and servethese relationships.We therefore aim to develop leaders and employees who deliver excellent service within the parameters ofa lean business model that directs decision-making at the right levels.

HOW WE ENGAGE WITH OUR EMPLOYEESIn South Africa, each distribution centre has a fully fledged human resources (HR) department tosupport business operations in all matters related to our employees. We interact with the team inIreland in terms of sharing ideas on strategic HR matters and use existing synergies to learn from


each other. Interactions with the team in Switzerland were mainly on business processes andgeneral information sharing.From a group perspective, we have functional forums that review progress according to focus areasand agree on group projects.We support career and skills development through the SPAR Academy of Learning.Engagements include various committees established at the South African distribution centres,including health and safety, shop stewards and values committees, as well as an employeewellness clinic at each South African distribution centre.

CREATING A WORK CULTURE BASED ON VALUESMotivated employees are crucial to SPAR’s future. We pride ourselves in being a business built on solidrelationships that align behaviour to our values and foster meaningful workplace interaction.

Living our values is an integral part of advancing SPAR’s organisational culture. We keep the values top ofmind by creating awareness and recognising employees who are actively living the values. The associatedbehaviour is integrated into HR processes, such as, employee on-boarding, training interventions andrecruitment.

We have a Values Committee, the members of which we train to ensure they become catalysts for drivingvalues-based behaviour. An example is the training offered to shop stewards: this includes the dutiesassociated with their roles, understanding our values and culture, and the importance of maintaining apositive culture.

The SPAR values are integrated into our leadership capabilities and form part of managementdevelopment and performance management.

SPAR is committed to maintaining an organisational culture that respects human rights principles aimed atpromoting and protecting human rights. This includes the Universal Declaration of Human Rights and theInternational Labour Organisation’s Declaration on Fundamental Principles and Rights at Work.

BEING A TOP EMPLOYERSPAR was certified as one of the Top Employers in South Africa in 2018. This is the 5th year we werecompared with top organisations worldwide, and certified based on an independent audit.

https://investor-relations.spar.co.za/ir2018/who-we-are/our-values-and-culture/


Crucial to the Top Employers certification procedure is a stringent research process – the Top EmployersInstitute’s international HR Best Practices Survey – to assess participants against the standards set toachieve the certification. To further reinforce the validity of the process, all answers were independentlyaudited, meaning this research verified our outstanding employee conditions among a select group ofcertified Top Employers.

SPAR earned the certification as a Top Employer because our employee offerings across all measuredcriteria surpassed the minimum requirement.

We recognise the importance of positioning SPAR as an employer of choice in an unpredictable businessenvironment where we must compete for scarce skills.

Our employment offering has expanded significantly over the past few years, following the acquisition ofseveral international operations. Throughout the group, employees have career options in differentgeographies.

During the 2018 financial year, 16 316 days (2017: 13 411 days) were spent on employee training in SouthAfrica. Courses cover a wide spectrum – from enhancing operational proficiency at floor level, todeveloping programmes to grow management. In total, R22.9 million was spent on training (2017:R25.3 million), which reached 7 204 employees across the group’s operations. Read more about ouremployee development here.

INDUSTRIAL COLLABORATION FOR VALUESPAR upholds our employees’ rights to freedom of association and collective bargaining. In South Africa,we have a record of strong relations with our workforce and the trade union, the South African CommercialCatering and Allied Workers Union (SACCAWU). We are committed to maintaining positive relationshipswith unions at the relevant distribution centres and to agree on acceptable terms of employment ofunionised members.

Three of our South African distribution centres, namely KwaZulu-Natal, North Rand and South Rand, areunionised and have recognition agreements in place with SACCAWU. Each of these distribution centresengages in wage negotiations according to a cyclical programme, and these negotiations are conducteddirectly between senior management and union representatives. The other five distribution centres,namely Western Cape, Eastern Cape, Lowveld, S Buys and Build it, are not unionised.

A two-year wage deal was signed last year, with the next round of wage negotiations in 2019.

It is important for SPAR to have an industrial relations climate conducive to providing excellent service toour retailers. Any disruptions in the supply chain due to industrial action result in out-of-stock situationswhich directly impacts all financial indicators, as well as our relationships and reputation. Such disruptionsfurther carry potential risks related to the safety of our people and assets.

We build good relationships with our employees and unions and, if disputes occur, we deal with them assoon as possible. We have green area meetings where departmental objectives are discussed and if anyissues are raised, we ensure that they are addressed as soon as possible.

In addition, we have management and shop stewards’ meetings, workers’ councils and various forums toensure communication is effective in the workplace.

We invest in the development of our shop stewards as well as sharing information with them. We involvethe union officials as stakeholders to ensure we educate them about our business. We pride ourselves in

https://investor-relations.spar.co.za/ir2018/focus-on-switzerland/capital/#Employee_development


paying above-average salaries in our industry. We provide a minimum of eight weeks’ notice prior to theimplementation of any significant operational change that could substantively affect employees or theirelected representatives as we believe in being transparent in our dealings and involving those affected infinding a solution.

No material industrial relations incidents occurred in the 2018 financial year.

SUPPORTING EMPLOYEE WELLNESSSPAR provides employees with a wellness service through clinics at each distribution centre. These fullyfledged clinics are operated by an occupational health practitioner. A doctor visits weekly to attend tomatters of employee wellness. We invested R4.6 million (2017: R4.3 million) in this service during the 2018financial year. The service is provided free of charge to all on-site employees, with support focused onhealth and wellness, and liquor and substance abuse. In terms of wellness, we partnered with abiokineticist, who developed an exercise programme offered to employees twice a week at head office, tobuild strength, and aid body conditioning and stress release.

HIV/Aids continues to be an area of focus and includes peer education to avoid discrimination in the caseof someone living with HIV/Aids. SPAR has an HIV/Aids policy and management framework in place. HIV-positive employees have access to voluntary counselling and support. SPAR runs HIV/Aids awarenesscampaigns, accompanied by regular training facilitated by dedicated peer counsellors, to addressworkplace challenges relating to HIV/Aids. All employees have access to an annual voluntary medicalexamination.

Although our retailers’ employees are a secondary level stakeholder, we provide retailers with HR support,training and information.

STRATEGIC RISKS RELATING TO EMPLOYEESDisruption of operations may occur due to labour disputes and/or industrial actionPoor data quality and analysis capabilities may prevent effective business intelligenceLack of transformation across all areas may impact the business negatively

Read about how we mitigate these risk in the strategy and business model section.



RETAILERS

WHO THEY ARE

SPAR retailers are independent entrepreneurswho choose to own their businesses andmanage these under our internationallyrecognised brand.Each SPAR store has its own regional personality, offering consumers products that are unique to theirlocal store and requirements. Our retailers take full advantage of the benefits of the voluntary tradingmodel by sourcing specific goods from local traders, while using SPAR’s buying expertise.

BWG Foods has a company-owned retail estate operated by a network of franchisees: there are 104company-owned stores operated by 71 retailers. There are a further nine company-owned and company-operated stores which are in transition to new operators. It is not BWG Foods’ policy to operate individualcompany-owned stores on a long-term basis.

Within the wider independently operated SPAR and EUROSPAR estates, there are several retailers whooperate more than one site, and in some cases also operate different formats.

MACE and Londis share a similar profile of ownership: most independent retailers trading under thesebanners operate one store. MACE has over 20 retailers who operate two stores or more. There is also asupply contract in place with Maxol, which operates more than 70 forecourt sites.

In the Appleby Westward business, most independent retailers own one store with a minority owningbetween two to five stores.




SPAR retailers in Switzerland are predominantly smaller individual store operators.

HOW WE ENGAGE WITH OUR RETAILERSRetailers have regular interactions with regional and distribution centre management andoperations teamsOur retail operations teams in South Africa make regular store visits and do monthly performancemonitoring through tailored service packages (TSPs)South African, Irish and Swiss retailers are invited to the annual SPAR retail conventionRetailers are members of the regional and national guilds with representatives who attend regularmeetings to give input on marketing, pricing and strategyWe invite retailers on ‘Look and Learn’ trips, locally and abroad

COLLABORATING FOR SHARED VALUEThe success of the voluntary trading model hinges on maintaining a robust working relationship betweendistribution centres and retailers. For SPAR, the quality of this relationship is dependent on our ability toequip our retailers to run a sustainably successful and professional business. Under the current economicconditions, and in the face of rising inflationary cost pressures and increased competition, maintaining thisrelationship remains our top priority.

The SPAR support team provides retailers with consultation and assistance in all areas of retail operations,including merchandising, promotions and advertising programmes, financial controls, employee andindustrial relations, new store development, and refurbishments to existing stores.

We recently increased our support through financial benchmarking and the development of TSPs thatrespond to the unique challenges of individual stores. This is particularly important in South Africa, wherecustomer demographics, spending power and the surrounding infrastructure vary greatly across regions.

All retailers have access to an online database with various store and product specifications, and bestpractice manuals. This includes guidance on recipes and pricing to achieve consistency and quality in freshproduce and the growing home-meal replacement segment. This is supported by the SPAR Academy ofLearning, that provides access to a variety of e-learning programmes shaped in response to retailers’needs. These programmes range from short-term guidance on how to solve day-to-day issues in-store, tolonger-term programmes that build HR and supervisory capability. The guilds further provide retailers withmarketing support and access to SPAR’s development fund to invest in refurbishments.

We remain committed to growing our retailer base, while supporting our existing retailers. We have aparticular focus on attracting black entrepreneurs in South Africa. All new retailers receive support andguidance from the group as well as the guild in assisting them to overcome challenges associated with theinitial set-up phase.

We also support our retailers in their engagement with their communities. SPAR retailers invest in a broadvariety of community-based programmes.

Within BWG Group engagement with retailers is primarily carried out by the field-based sales team withsupport from additional functions such as the merchandising and development teams. Regional meetingsencourage communication and information sharing, with most retailers seeking support to combatincreasing costs being experienced in their respective businesses.



In Switzerland, the introduction of trade shows, members’ meetings, a new marketing committee, travelincentives and a revised co-operative and inclusive structure for our guild has allowed a lot moreopportunity for engaging with retailers. We have consequently experienced a shift in culture towards whatis familiar in South Africa.

We restructured our retail operations function to provide dedicated support for the various channels,including a dedicated store designer for new and refurbished stores. Ongoing financial and operationalsupport is provided for stores in distress. Our biggest area of focus over the past year has been retailprofitability.

RETAIL TRAINING INITIATIVES IN SOUTH AFRICA

Jumpstart We collaborate with Mr Price Group to help address youth unemployment andprovide invaluable retail work experience through the Jumpstart programme.It links unemployed youth with entry-level skills to job opportunities in retailand its supply chain. This creates a pool of candidates from which retailers canrecruit.SPAR will increase its investment to more than R10 million over the next fewyears. 1 391 candidates were trained during the year and 584 were placed injobs.

Good Food Fundi This is a skills programme in the areas of baking, fresh produce, home-mealreplacements, and butchery.

Retail managementprogramme

Our distance learning course improves skills of managers and assistantmanagers with credit-bearing modules. Since 2011, more than 600 delegateshave completed this course.

Management inductionprogramme

This programme assists new retailers to understand how SPAR operates. Since2002, 1 544 delegates have completed the course.

Fresh programme This programme helps to effectively manage wastage and shrinkage, identifyways of improving profits, implement and understand legislative health andsafety standards and maintain the SPAR standards for a fresh department.

GRV training We developed an in-house goods receiving voucher (GRV) training programmeaimed at our employees’ children who are unemployed to provide them with ascarce retail skill.

IT systems This is online training provided to retailers and teaches them how to managetheir information systems.

E-learning We reached 553 stores this year, with more than 350 000 topics conductedand 57 217 employees trained.

These training initiatives – e-learning, in particular – address the needs of retailers who require access toaffordable training without employees having to travel extensively to attend sessions. Retail employeescan complete training at times convenient to them and that do not disrupt operations.

Each distribution centre employs a training manager to roll out training interventions for retail. In someinstances, this includes the physical delivery of training programmes, or finding alternate providers.


SHARED FOOD SAFETY FOCUS AT RETAIL LEVELSouth African retailers rely on SPAR’s supplier management and audits to ensure food safety compliancefor the products provided by the distribution centres. Where retailers elect to source their own productsfrom smaller suppliers, they take responsibility for food safety. Since this poses a risk to SPAR and retailersalike, we work with retailers and hold them accountable to ensure that the appropriate controls are inplace and documented. We also assist small suppliers to improve and align with programmes such as GFSI.

The operations in Ireland and Switzerland rely largely on government inspectors who enforce food safetyregulations, enhanced by an internal SPAR audit programme.

We have a dedicated team of quality controllers in Switzerland and are regularly audited bothindependently and by government inspectors to ensure we achieve the highest standards of quality andcold chain.

FOOD SAFETY AUDITSFood safety audits at distribution centres and stores are conducted through a service provider, SAI Global(QPRO). The distribution centres’ audit is aligned with the requirements for storage and distribution of foodproduct, inclusive of good manufacturing practices. Distribution centres are subject to bi-annual audits.Store audits are aligned to the relevant and recently updated regulations. Store audits are conductedquarterly.

SAI Global assists SPAR with microbiological sampling and testing at stores and distribution centres. Thistypically includes one food sample, two hand swabs and two surface swabs. We test for bacteria such asListeria Monocytogenes, Staphylococcus Aureus, E. coli, Bacillus cereus, Salmonella and Coliforms.

Following an audit, the retailer or distribution centre managing director receives a report and the microanalysis of the findings of the audit. The score rating varies depending on the risk to the business andbusinesses are scored according to critical non-conformance, major non-conformance, and partialconformance. This assists the stores to prioritise corrective action.

SAI Global supports our business in offering basic food safety training for food handlers. It also acts as acertification body for the GFSI programme.

THE GUEST PROGRAMME EVOLVESTo assist our retailers in continuously improving their customer service levels, we launched a GUEST


programme in 2017 around the following key themes:

The programme aims to treat customers as personal guests. It was launched with a manual, point-of-salematerial, e-learning modules, and a monitoring element that will include video feedback per store.

The rollout of the GUEST programme included induction sessions, videos, and awareness initiatives. TheGUEST champions are responsible for implementing and driving the GUEST programme in their stores.

PROGRESS WITH RETAILER TRANSFORMATIONSPAR remains committed to fast track black enterprise development amongst its brands. Successful blackretail entrepreneurs contribute to empowerment, job creation and are role models for young peopleseeking to start businesses. With funding being one of the main barriers to entry, SPAR launched a rangeof initiatives to support development.

During the 2018 financial year, SPAR placed 47 new BBBEE operators in SPAR stores in addition to itsexisting 292 BBBEE operators.

We are currently working on initiatives focused on:

Recruitment and identification of prospective black retailers from within our ranks at thedistribution centres and from various other sectors of the population, including graduates andunemployed peoplePlacing recruits on the appropriate training programmes and in relevant partnerships until they areequipped to run their own businesses sustainablyWorking with prospective funders from areas such as the Jobs Fund, the Labour ActivationProgramme through the Department of Labour and SETAsJoint ventures and mentorships with existing retailers to assist in developing new operators will beexplored

STRATEGIC RISKS RELATING TO RETAILERSPoor individual retailer performance may negatively impact the groupNew and existing competition may take market shareLoss of retailers and retail stores to competitorsPoor adherence to and implementation of group initiatives by retailersDisruption of operations may occur due to labour disputes and/or industrial and mass actionPoor data quality and analysis capabilities may prevent effective business intelligence




CONSUMERS

WHO THEY ARE

Due to our geographical spread and range ofstore formats, we service the full spectrum ofincome groups in all territories.We strive to provide consumers with an enjoyable and memorable shopping experience through a serviceand product offering that includes more than 1 000 exclusive SPAR house brand products. These productsdeliver premium quality at competitive prices.

BWG serves a wide range of consumers across the Republic of Ireland. They span all age profiles anddemographics. We serve an average of over 1 million consumers every day across our community-basedstores.

SPAR consumers in Switzerland consist of middle- to upper-income earners that are ethnically diverse – theimmigrant population makes up 25% of the total Swiss population. Our stores vary in location from ruralvillages to suburban and central business districts, commuter nodes and forecourt operations each with anoffering customised to their relevant market.

HOW WE ENGAGE WITH OUR CONSUMERSWe invite consumers to interact with us through marketing and promotional campaignsWe do ad hoc customer perception surveysIn South Africa, we have an in-house customer care lineOur owner-managed store model facilitates direct daily interaction with consumersWe engage through social media channels, including through Text Me and our SPAR Rewardsprogrammes

CREATING AUTHENTIC SHARED VALUE FOR CONSUMERSQuality and convenience is critical in growing and maintaining our market share, while ensuring that SPARis perceived as offering customers value. In South Africa, we remain within the industry price benchmarkon the surveyed basket. We also work with our retailers to offer consumers a comfortable and rewardingshopping experience focused on cleanliness, convenience, and employee friendliness.

The income spectrum of clients exposes the group to a wide range of trading patterns. Generally, higher-income consumers opt for convenience items and fresh produce. This includes ready-to-eat products,home-meal replacement items, and daily, top-up shopping. Conversely, lower-income consumers are more


likely to do a monthly shop, with an emphasis on commodity and bulk products. The ability to stock theappropriate product mix to cater for unique customer profiles at store level is a key strength of thevoluntary trading model. This enables retailers to customise their service offering, thereby unlocking valuefor consumers.

We further strive to offer consumers value through our South African SPAR Rewards programme.Participating consumers benefit from electronic product coupons that are sent to their mobile phones tohelp them save money. Steady growth in card activation, store participation and Text Me messagesconfirm the success of the programme. The launch of TOPS Rewards further expanded the programme.

Money market counters and kiosks are part of the South African customer experience, whereas BWGGroup continues the rollout of ATM facilities at its stores. These provide another reason for consumers toenter the store and two additional opportunities (sending money and receiving money) for SPAR to build along-term relationship with the consumer.

In South Africa, SPAR has an in-house customer care line that addresses complaints and queries. Thisnumber is provided on all SPAR branded products. All queries relating to non-SPAR branded products aredirected to the relevant suppliers.

Marketing campaigns focused on promoting family values and a balanced lifestyle – important inmaintaining the group’s positive engagements with consumers.

The business continually adapts to meet the changing needs of consumers in Ireland. Our campaigns overthe past year focused on delivering strong value in a competitive environment. We also promote a widerange of healthy options through programmes such as our SPAR Better Choices programme.

Since the launch of the SPAR Friends loyalty card in Switzerland this year we have registered more than123 000 card holders.

OUR COMMITMENT TO PRODUCT RESPONSIBILITY ANDNUTRITIONSPAR’s commitment to food safety and nutrition provides consumers with quality assurance and aims topromote healthy living. We deliver on our promise to provide consumers with high-quality, traceableproducts through strict adherence to product and packaging specifications. This includes providinginformation on sourcing and ingredients.

To ensure our products meet the highest health and safety standards, we contract with an externallaboratory that conducts random monthly testing across our entire product range. This ensures that ourproducts meet a strict set of composition specifications. These specifications are in line with best practiceand comply with all relevant legislation. This includes meeting government’s proposed reductions in sugarand salt concentration.

SPAR developed a nutritional strategy to support its commitment to house brand innovation and to raiseawareness about healthy nutrition for consumers. The following are the core principles of the strategy:

Providing enough information to enable consumers to make informed choicesLeveraging our house brands and our suppliers’ brands to deliver on our strategyEnsuring compliance with legislationCollaborating with government, where possible, to deliver nutritious food to the lower end of themarket



We are committed to promoting the responsible consumption of liquor. SPAR is a member of aware.org, aregistered non-profit, public benefit organisation. Further initiatives in terms of nutrition is the introductionof water at checkout counters, leaflets in stores and options to reduce the sugar and fat content inproducts. Our future focus will be on the reformulation of products and the development of new productsin our range, particularly in meal solutions.

STRATEGIC RISKS RELATING TO CONSUMERSMacro-economic factors may cause a decline in businessDisruption of operations may occur due to labour disputes and/or industrial and mass action




COMMUNITIES

WHO THEY ARE

Our stores are owner-managed by individualswho engage with their local communities in theareas surrounding the stores and distributioncentres.

HOW WE ENGAGE WITH COMMUNITIESEach SPAR store aims to be at the centre of the community by offering an end-to-end productrangePhilanthropic activities at retailer level to grow brand loyalty and play a positive roleInvestment in community development initiatives at group level, including sponsorships

CREATING AUTHENTIC SHARED VALUE FOR COMMUNITIESSPAR stores play a key role in the community as the local supplier of household goods. Other brandofferings, such as TOPS at SPAR and Pharmacy at SPAR, further ensure that a local neighbourhood SPARcan become a convenient, one-stop shopping destination. Build it stores provide rural and urbancommunities with a one-stop home building solution.

The voluntary trading model enables retailers to support local enterprise development and, in so doing,add value by growing the local economy. Retailers and their employees are also often from the localcommunity, which strengthens personal ties with their target market.

SPAR is founded on entrepreneurship, family values and passion. To foster this culture and position theSPAR brand as a force for good in society, the group encourages retailers to be the centre of theircommunity by supporting philanthropic and sponsorship initiatives at store level.

There is a symbiotic relationship between SPAR’s continued growth and the sustainability of thecommunities that support our stores. Our formal corporate social investment (CSI) policy ensures allocatedfunds support meaningful, sustainable projects, locally and nationally. During the year, SPAR investedR17.7 million (2017: R13.9 million) in CSI initiatives and R26.1 million (2017: R19.3 million) in varioussponsorship projects.



INVESTING IN OUR COMMUNITIESSPAR has an established community investment programme, implemented according to the group’s CSIpolicy. This policy guides community engagement on a national, distribution centre and community levelto ensure we move beyond donation-making to partnering with communities to contribute towardssustainable projects.

We believe in the power of education, and skills transfer and personal development are incorporated in ourchosen community engagement initiatives. Our involvement in sports and sport-related initiatives is anarea where we can promote SPAR as a brand associated with health and well-being, personaldevelopment, and community wellness.

In South Africa, on a national level, SPAR’s community projects address prevalent issues with a far-reaching impact. Many stores across South Africa are involved in projects, ranging from anti-drugcampaigns to soup kitchens and sponsorships – all in collaboration with networks of stakeholders. On adistribution and community level, projects respond to the specific needs of local communities to createmeaningful change.

Our main focus areas are:

feeding schemes, food production through income-generating projects, and educationalprogrammes aimed at minimising the impact of poverty on communities;educating communities on health issues such as nutrition, cancer, and the impact of HIV/Aids; andtraining unemployed youth and supporting community transformation initiatives that play a role incombating crime.

Community engagement is fully integrated into the daily operations of SPAR – at our corporate offices,distribution centres and warehouses. The table below contain a few examples of the kind of projects whereSPAR retailers and distribution centres are involved, listed according to our focus areas:


Food security andnutrition – eat smarter,live stronger

• In addition to the commercial benefits generated by the emerging farmerhubs, the Mopani rural hub assists in providing food security. Read more in thecase study on the emerging farmer development programme.• The SPAR Western Cape distribution centre partnered with Root to Grow toplant vegetable gardens in communities. School children plant vegetableseeds as part of their curriculum which covers planting, healthy eatingchoices, self-sufficiency, responsibility and recycling. They can run their ownfarmers’ market with the surplus produce or sell the produce to their localSPAR store.• The South Rand distribution centre supported the Sparrow FET CollegeProject through the sponsorship and stipends for 10 learners participating inthe Professional Cookery Learnership.• The My Spaza My SPAR initiative at the Lowveld distribution centre teachesyoung children about healthy food choices, how to use money and be anentrepreneur.

Health and wellbeing –supporting healthy living

• The SPAR Western Cape distribution centre participated in the AnnualCancervive Ride to educate communities and employees on the importance ofearly cancer detection and treatment.• In 2018 a HIV/Aids campaign at the Western Cape distribution centreincluded workshops to raise awareness and promote testing.• The SPAR distribution centres at North and South Rand were title sponsors tothe Whispers of The Orient event with Igazi Foundation as the beneficiary,focusing on the treatment of blood cancers.• Build it supported the upgrade of the Tswelopele Primary School toiletfacilities.

Crime prevention –empoweringcommunities

• A Victim Friendly Support Room Initiative was launched by the SPARdistribution centre in the Western Cape in conjunction with Business AgainstCrime. The partnership pledges to combat domestic violence, sexual offences,and other crime-related events.• Trauma counselling is provided for retail store employees if they areexposed to a crime incident.• 58 learnerships and internships were implemented at the North Randdistribution centre to provide work exposure and build skills that can be usedin the future to secure employment.


BETTER WAYS FOR BETTER LEARNING

The Unilever/SPAR partnership with the Department of Basic Education aims to deliver a behaviouralchanging hygiene and sanitation programme to over 15 000 primary schools in South Africa, focusingon grade 1 learners. Hygiene packs were delivered by distribution centres to SPAR stores for onwardcollection by school headmasters.

Achievements to date are:

2018 2017Stores 2 448 10Schools 5 439 542Children 457 982 32 496WAKE UP AND TALK ABOUT CANCERSPAR contributes to the Vuka Khuluma (wake up and talk) campaign run by the Childhood CancerFoundation of South Africa (CHOC). The campaign highlights the prevalence of cancer among childrenwhile increasing diagnoses of childhood cancer and driving access to available care and treatment.

Through its national store footprint, SPAR can reach communities even in rural and peri-rural areas.The opportunity to participate in Vuka Khuluma was extended to all SUPERSPAR, SPAR, KWIKSPAR,SaveMor, Build it and Pharmacy at SPAR stores in KwaZulu-Natal. Stores volunteer an in-storerepresentative to be trained by CHOC on the early warning signs of childhood cancer. These storesthen serve as Vuka Khuluma touchpoints to which the community may turn for guidance andassistance.

INVESTING IN OUR COMMUNITIES IN IRELAND ANDSWITZERLANDBWG Group supports a wide range of community projects through our retail brands, consisting of acombination of fundraising and awareness campaigns. Our current charity partnerships are:

SPAR: Cystic Fibrosis IrelandEUROSPAR: Irish Heart Foundation’s Mobile Health Unit/Defibrillator at Every EUROSPARProgrammeLondis: Pieta House, providing therapeutic support for people who are in suicidal distress andthose who engage in self-harmMACE: Downs Syndrome IrelandXL: Simon Community, working with homeless people

Our selection of partnerships is based on social causes that resonate with our retailers, storeemployees, consumers, and the communities in which our stores operate. Retailers vote for theirpreferred charity every two years. Since 2013 we have raised more than €1.5 million to support arange of very worthy charity causes through our retail brands.


The effectiveness of the charity programmes is measured through brand awareness and shopperresearch. We set fundraising targets for each programme and benefit from positive press coverage.

In Appleby Westward, charity fundraising demonstrates social responsibility while engaging in positiveactivity.

At SPAR Switzerland our marketing byline is “Being the good neighbour” and most of the projectsconducted this year were aimed at enhancing this position. Employees, retailers and consumersparticipated in initiatives that included:

Kids Flight day in association with Swiss Cancer AssociationLadies run/walk series sponsored in several towns and citiesSwiss Handball sponsorshipGood Neighbours day

STRATEGIC RISKS RELATING TO COMMUNITIESPolitical instability in SPAR markets may hinder businessThe inability to develop new sites may stunt growthDisruption of operations may occur due to labour disputes and/or industrial and mass actionTransformation issues across all areas may impact the business negatively




OUR NEW SUPERMARKET STRATEGY FOR SOUTHAFRICA

The 2018 SPAR strategy development processstarted with the recognition that we neededto develop a strategy that focuses on SPARsupermarkets in South Africa.Since our previous in-depth strategy development process in 2012, SPAR has transformed in thefollowing manner:

We acquired new businesses in different territoriesWe entered new categories, such as pharmaceuticalsWe had leadership changesOur markets evolved through heightened competition, economic and political challenges as well asconsumer shifts – driven to a large extent by technological advancements.

Although the board reviewed the strategy annually since 2012, there was a need for a morecomprehensive reflection, focusing on driving the retail and wholesale aspects of our business inSouth Africa. It was also key to involve retailers, particularly the national guild, in the strategydevelopment process.

The strategy review process was underpinned by extensive background research that helped identifykey trends, opportunities and challenges, and gave insight into where SPAR could make a realdifference in the country.

Key retail trends that we considered:

Buy local Global expansion War on packaging

Convenience Integrated digitalsolutions ‘Shrink-flation’

Health and well-being Deep discounting Increased security

War on food waste


These trends are amplified by growth in the informal food economy, the consolidation of formal foodsystem players and the pressure on primary producers – the latter at risk to scale effectively for futuredemand while complying with increasing legal and audit requirements.

The strategy process was further guided by the Sustainable Development Goals (SDGs) which assistedin defining primary themes for SPAR around equality, poverty reduction, human settlement, food andnutrition, sustainable growth and quality education. Read more about how we align the SPAR valueswith the SDGs here.

As input into the strategy process, we initiated a stakeholder engagement project that encompassedfocused interviews, workshops and team discussion, as well as trade intelligence. Our maininteractions were with retailers, the guilds, employees, suppliers and consumers.

First choice brand in the communities we serveThere was collective agreement that the SPAR vision should remain the same: it continues to highlightour focus on understanding our consumer and recognises that different communities need differentthings. It also implies a sense of belonging. The vision further confirms that we have a bigger role toplay in communities than just selling and making money – it emphasises our culture of caring.

The strategy development process culminated in a board-approved supermarket strategy for SouthAfrica – not a radical change from our previous strategy, but a refinement with a shift in emphasistowards our consumers.

http://gmfdev.co.za/spar/ir2018/our-strategy-and-business-model/our-value-creation-contribution/


THE SUPERMARKET STRATEGY AT A GLANCE


OUR SHORT TERM STRATEGIC PRIORITIESThrough the strategy development process, we identified the following key priorities for the next 12months:

Understand and segment our consumers and retailers based on their various needsReview our offerings to both consumers and retailers by segmentCapture informal market opportunitiesUpdate voluntary trading model standards and rules to address key challenges that threatenthe long-term sustainability of the modelActively drive our desired cultureDesign the organisation of the future and commence implementationDrive supply chain optimisation and efficienciesDrive cold chain management at distribution centre and retail level

Detailed action plans are being developed for each strategic focus area with appropriate keyperformance indicators and phasing.

OUR STRATEGIES IN OTHER TERRITORIESAn overarching group strategy will be developed as a next phase, serving to align the strategies in thedifferent territories. Strategies for each format, such as Build it, Pharmacy at SPAR and TOPS at SPAR,will also be developed.

SIX STRATEGIC PLANS FOR IRELANDCurrently, BWG works according to a strategic plan 2016 to 2021 aimed at shareholder value creationthrough six specific plans:

1. Distribution Specific imperatives up to now included a strategic review of theBWG supply chain for all channels to stress test distribution andminimise costs. This was followed by optimisation plans for thedistribution centres to assess capacity, productivity, and servicelevels to improve capacity management and reduce working capital.In 2018, a transport optimisation plan was developed to refine assetuse and reduce costs.


2. Information technology(IT)

The IT plan focuses on more efficient and lower-cost infrastructureupgrades, standardisation and redesign. We developed an e-commerce strategy to address online, mobile and integratedsolutions. Further imperatives include software consolidation, socialmedia, and business intelligence capabilities.

3. Acquisitions The acquisition plan is based on growth aspirations, shareholdersupport and management expertise. Targets were identified andexplored while ensuring retention of strategic retail business. Afurther imperative is the retention and development of strategiccategories.

4. People The top imperative for the people plan is to refine the managementstructure based on the need for succession planning and talentrequirements. Further focus areas include the e-learning academy,strengthening the company culture through feedback programmesand training, while ensuring greater productivity and efficiency.

5. Property The property plan is a long-term imperative aimed at enhancingprofitability and reducing liabilities. It considers asset valuations,disposals, and the development of an intellectual propertymanagement mandate for the business.

6. Retail Our focus is on developing a multi-brand strategy for the differentstore formats and to drive SPAR as the leader in the conveniencemarket over the long term. The plan also addresses the EUROSPARbrand strategy imperative and considers innovation to grow margins.

Read about activities supporting these plans for 2018 in the operational report: Focus on Ireland.

STRATEGIC OUTCOMES FOR SWITZERLANDSPAR Switzerland adopted a new strategy in February 2017 with the following elements:

Purpose: Enable retailers to profitably meet the individual needs of theircustomers

Vision: Convenience brand of choice for the customers we serve

Values: Trust, passion and entrepreneurship

The following actions plans shape SPAR Switzerland’s operations toward six outcomes:

http://gmfdev.co.za/spar/ir2018/focus-on-ireland/operational-overview/


1. The best employees We aim to motivate and empower employees through our culture,values and processes. We focus on improving communication,providing competitive remuneration, talent management, trainingand apprenticeships.

2. World-class supply chain We focus on supply chain optimisation through supplier engagementand relationships to reduce costs and increase quality. This includeslogistics efficiencies and productivity improvements.

3. Customised range We focus on category management through an assortment gearedtoward customers. This also informs new product development.

4. Competitive pricing We balance pricing with retailer profitability through marketing andpromotions, and by optimising our store portfolio.

5. Loved/trusted/believablebrand

We focus on targeted sales and marketing activities, including ourrewards programme.

6. New business growth We focus on expanding our footprint through new sites and stores,and by using technology.

Read about activities supporting these plans for 2018 in the operational report: Focus on Switzerland.

THE LINK BETWEEN STRATEGY, GOVERNANCE AND RISKThe SPAR board believes there is an inextricable link between strategy, risk, sustainability, andperformance management, which is effectively measured and controlled through the enterprise andrisk management (ERM) process. The successful implementation of the strategy therefore relies oneffective mitigation of strategic risks.

The board, supported by the Risk Committee, implements effective policies and plans to mitigatethese risks and to support the company in being ethical and a good corporate citizen.

In developing the strategy and overseeing risk management, the board provides overall guidance anddirection, including the relevant approvals and monitoring. The South African executive team andmanagement provide structure for both processes and input into the discussions by considering pastperformance and a changing operating landscape. Progress against the strategic focus areas and anupdated risk register forms part of the quarterly reporting to the board and the relevant committees.

The board’s role in considering and approving strategy includes ethical leadership, which evaluates,for example, the trade-offs between different stakeholders which ensures progress is measured andmonitored. To enable the latter, the board approves policies, frameworks and the plans that drivebudget allocation.

The risks outlined below have been identified and ranked as the top 12 risks most likely to impact thebusiness. The risk register links key risks to strategic imperatives and identifies key risk indicatorsthat are tracked to determine likelihood and impact. These risks are monitored and managed at boardlevel. To strengthen accountability and mitigate the key risks identified, detailed action plans havebeen developed, with clearly defined roles and timelines.

The summary below tracks strategic risks, identifies mitigation plans and show the trend movementagainst a 2016 baseline:

http://gmfdev.co.za/spar/ir2018/focus-on-switzerland/operational-overview/


High inherent risk

Medium inherent risk

Unchanged movement in rank compared to 2016

RISK TITLE DESCRIPTION MITIGATING PLANS

Macroeconomic factors maycause a decline in business

Factors include global andmacro-economic conditionssuch as inflation, currencydepreciation andunemployment.

Medium- to long-termmitigation strategies includeforward cover and stockpilingfuel. We track and report trendsaccording to indicators and setthresholds, for example, for theRand exchange rate and the oilprice.

Political instability in SPARmarkets may hinder business

National or internationalpolitical events can causefundamental shifts in theeconomic system of thecountry.

We receive regular politicalinsights from knowledgeablecommentators that assist increating scenarios to determinethe potential impact on ourfuture business.

Poor individual retailerperformance may negativelyimpact the group

This can have a wide spectrumof impacts, includingreputational and financialthrough subpar stores, priceperceptions, store viability,group profitability andefficiency. Further drivers areincreasing working capitalconstraints at retail because ofpoor financial management byindividual retailers. Poorperformance includes retailersnot involved in thecommunities they serve in ameaningful and sustainableway, thereby not living theSPAR vision.

We drive increased financialdisclosure and benchmarkingfor retailers while offeringtraining and support.We actively manage the list ofpoor-performing retailers perregion and identify appropriateand specific action plans toaddress performance. We havealso increased the audit of coreretailer (business) processes.

New and existing competitionmay take market share

This takes the form ofaggressive competitionincluding foreign or local newentrants, with expandeddomestic competition bycurrent retailers – for example,competing on range, price, andhygiene factors.

We developed plans for allstrategic stores and identifiedmarket share gaps.We have also developed a clearemerging market strategy foreach region.


Loss of retailers and retailstores to competitors

Competitors target SPARretailers to buy stores, evenwith unrealistic or extravagantoffers.

We identified unique actions toimprove our relationship witheach retailer, based on ananalysis of each retailer’sspecialist support needs.Vulnerable stores are indexedand tracked.

Poor adherence to andimplementation of groupinitiatives by retailers

Resistance and lack of buy-inand discipline by some retailersmay result in an inability tomarket our offerings on anational basis, resulting infinancial and reputationaldamage.

We conduct and documentrobust pilots for all newconcepts to act as reference inthe rollout to retailers. Regionalcommittees list mandatoryinitiatives, conduct audits, andreport on retail compliance withdocumented remedial actionsfor non-compliant retailers.

The inability to develop newsites may stunt growth

Acquiring new sites isfundamental to our growthstrategy. Barriers include guildapprovals, objections by otherretailers, and othermajors/competitors owningproperty.

To drive new business, weidentified new businesschampions per region withaction plans. We developed agroup developer engagementand funding strategy. We alsoidentified retailers per regionwho have the desire andcapacity to own multiple stores.

Major customer groups maynegatively influence thesustainability of the business

Large groups may have aproportionally large influenceon the profitability, reputation,relationships, and standards ofspecific distribution centres.This might lead to the potentialloss of a significant percentageof business.

We identified key risks permajor customer group anddocumented an action plan toaddress these.

Disruption of operations mayoccur due to labour disputesand/or industrial and massaction

Labour unrest may be causedby a spill over from relatedindustries such as transport, orthe unsatisfactory resolution ofcentral bargaining andoutsourcing issues or retailstrikes with empathy fromSPAR employees.

We have identified uniqueactions to improve relationshipswith unions and employees,including improving thecapacity of shop stewards. Wehave strike contingency plansdetailing responsibilities andexpectations. We conduct anannual comprehensive climatesurvey at all sites.


Poor data quality and analysiscapabilities may preventeffective business intelligence

The lack of quality data acrossthe group may limitopportunities to optimisebusiness processes, the supplychain and forecasting. It mayresult in an inability toaccommodate businessrequirements. This isdetrimental to performancemanagement.

We conducted an informationneeds analysis for each functionand the development ofbusiness intelligencecomponents was prioritised. Wecontinue to drive, throughtraining and other means, theproper use of systems at retailand corporate systems. Weimplemented of a groupwidedata governance programmethat introduces governedmaster data and data qualitymanagement.

The financial model may fail toensure retailer profitability,thereby jeopardising SPAR’ssustainability

Retailers may not able to makesustainable and acceptableprofits, which threatens thewholesale model. Retailmargins are under pressure.

We identified key actions toreduce cost or enhance revenuewithin retail in the regions. Wedetermine the true cost andprofitability for SPAR andretailers across the value chainfor a selected basket of goods.We identified key driversimpacting the wholesale/retailmodel, including the impact ofcross-subsidisation and sharedcosting for retailers and SPAR.

Transformation issues across allareas may impact the businessnegatively

Multiple issues aroundtransformation regardingemployees, management,ownership, supply chain,enterprise development andretailers, and training anddevelopment must bemonitored. There arechallenges in hiring for skill vsimmediate BBBEErequirements.

We updated our transformationplan based on the new BBBEECodes and are executingaccordingly. We educateretailers on new requirements,such as liquor licensing.


OUR VALUE CREATION CONTRIBUTION

SPAR creates value on a global scale throughour voluntary trading model and convenientdelivery of fresh food and groceries to storeslocated where people live.The group creates significant value for our independent retailers, who benefit from the economies of scalegained by our buying efficiencies, and the cost savings through operational efficiency and a wide scope ofproducts offered and distributed through our distribution centres.

Our business model relies on relationships in all aspects of value creation. We explain our materialrelationships here, as these provide input into our business activities and help us mitigate the risks,including wastage and resource depletion, associated with distribution and wholesale businesses.

Retailers further benefit from the value created by the merchandising expertise, support services andbenchmarking offered by SPAR, which enable them to offer a range of products at competitive prices.Voluntary trading further equips retailers with the ability to customise their product and service offering tobe responsive to their local, niche consumer segment’s needs and expectations. This unlocks value forretailers and consumers.

We strive to manage our use of resources and the six capitals of value creation through environmentallyand socially sustainable business practices. Read more about these commitments and our progressagainst targets in the operational reports.

Our sustainability pledge is to create authentic shared value, though the following outcomes:

Our commitment to creating authentic shared value is inherently linked to our values and our support ofthe 17 SDGs in the following ways:

http://gmfdev.co.za/spar/ir2018/who-we-are/spar-international-guilds-voluntary-trading/

http://gmfdev.co.za/spar/ir2018/who-we-are/our-distribution-centres/

http://gmfdev.co.za/spar/ir2018/our-material-relationships/why-are-relationships-important/

http://gmfdev.co.za/spar/ir2018/focus-south-africa/


INPUTS REQUIRED TO CREATE VALUEWe source products according to the requirements of our retailers who, in turn, shape their offeringaccording to each store format and their consumer community needs. These products are sourced locallyor imported, and consist of fresh and packaged foods, beverages, groceries, building materials, andpharmaceuticals. These products rely on natural resources, and are then converted, processed, packagedand transported to our distribution centres. We rely in manufactured capital in the form of factories, plants,and road infrastructure for these business inputs. Once products enter our distribution centres, they arehandled according to SPAR’s inventory, quality control and order processes – which are further essentialmanufactured capital resources.

Our range of SPAR branded products are developed and packaged for SPAR according to our specificrequirements. These products rely on our intellectual capital in addition to the manufactured capitaloffered by the suppliers selected to produce these.

Other products are branded by their producers and sold under third-party brands in our stores. We follow astringent supplier selection process to ensure the quality, safety, and secure supply of products – acapability that requires intellectual capital.

Social and relationship capital enable us to form partnerships that endeavour to change manufacturing,packaging and consumption behaviour related to the use of plastics, other packaging and water. Initiativesrelated to our new carbon reduction framework use intellectual capital in defining indicators, measuringperformance, and developing action plans to minimise our detrimental effect on natural capital.

The people working in our distribution centres handle, sort and move inventory according to orders anddeliveries. They constitute the human capital required to run the operational side of the business. Theiractivities are supported by employees dedicated to the financial, marketing, retailer services, informationtechnology and human resources aspects of the business.

Our fleet of trucks – and those in our network of suppliers – form a pool of manufactured capital which isapplied to optimised delivery through drop shipments, shared loads, and backhauling, thereby minimisingour natural capital impact.


We depend on financial capital in almost all business activities as we require funds to procure goods andservices, to pay salaries, to develop new products, to invest in facilities, equipment and to executiverepairs. Financial capital is used to make acquisitions, expand out footprint and deliver long-term growth.

SPAR’ INTERACTION WITH THE SIX CAPITALS

CAPITAL OF VALUECREATION

CAPITAL INPUT REQUIRED TOEXECUTIVE OUR BUSINESSACTIVITIES

CAPITAL INCREASED,DECREASED ORTRANSFORMED THROUGHOUR BUSINESS ACTIVITIES

FIND MOREINFORMATION ANDEXAMPLES OFVALUE CREATEDTHROUGH THECAPITALS

Financial capital We use this capital to procuregoods and services, to paysalaries and tax, to developnew products, to invest infacilities or operations,equipment and repairs, and topay our funders andshareholders. We also providefinancial capital to ourretailers as credit facilitiesand to assist with storeacquisitions orrefurbishments.

Changes in the availabilityand quality of the capital isevident from increasedturnover, margins andoperating profit. Financialcapital is at risk throughremuneration increases andwage negotiations, storeclosures, provisions andpenalties. Positive impactsare delivered throughefficiencies and costsavings.

Reports from ourleadersWhy invest in SPAR

Manufacturedcapital

We use this capital toestablish, maintain andoperate distribution centres(with cooling facilities,recycling and reclamationplants), warehouses, trucks,forklifts, road and portinfrastructures.

We measure our impactthrough increaseddistribution centre space,trucks and volumeshandled, stores opened,refurbished or closed. Newmarkets, routes and productofferings impactmanufactured capital. Wereduce our reliance on thiscapital through efficiency,optimisation andconsolidation efforts.

Operational reports

http://gmfdev.co.za/spar/ir2018/#slide4

http://gmfdev.co.za/spar/ir2018/#slide4

http://gmfdev.co.za/spar/ir2018/why-invest-in-spar/our-investment-case/



Intellectual capital We use this capital to developthe SPAR strategy, SPARbrand, the guild structure,promotions and marketingcampaigns, pricing strategies,‘learning journeys’ andretailer conferences. Itinforms our values andculture, board andgovernance structures,category managementcapability and joint businessplanning with suppliers.

We measure our impactthrough increased sales ofhouse brands, our deliveryon strategic outcomes(through the ethics riskassessment), our ability toimprove integrationbetween functions, andcollaboration betweendistribution centres andcountries. Intellectualcapital informs our auditprogrammes andcertifications achieved, aswell as the effectiveness ofour enterprise riskmanagement rollout.

Strategy andbusiness modelGovernance

Human capital We use the skills, capabilitiesand passion of employees, ourmanagement teams andboard to execute businessactivities and formrelationships.

We measure our impactthrough theincrease/decrease in totalemployees, our trainingspend and access toincreased skills. The qualityof human capital input isinformed by our health andsafety measures, thenumber of injuriessustained, visits to ourclinics, and employeeturnover.

Operational reportsOur materialrelationships

Social andrelationship capital

We use our ability to createand sustain materialrelationships with keystakeholders (suppliers,retailers, employees,consumers and communities)to create an environment inwhich to perform our businessactivities, to partner forfurther value creation and toensure a sustainable foodnetwork.

We measure our impactthrough awards, salesvolumes, retailers lost,customer satisfaction andmarket share, CSIcontributions, food safetyincidents and GUESTprogramme successes.One of the key measures ofsuccess is the sustainabilityof the emerging farmerhubs.

Our materialrelationshipsOperational reports

http://gmfdev.co.za/spar/ir2018/our-strategy-and-business-model/


http://gmfdev.co.za/spar/ir2018/governance-approach/


http://gmfdev.co.za/spar/ir2018/our-material-relationships/






Natural capital We use this capital as input ofthe products we distribute andsell, our properties and thewater and energy we use inour operations (includingelectricity, diesel, fuel andgas).

We mainly decrease thiscapital through themanufacturing, distributionand consumption of goods.We mitigate this throughreclamation and recycling,solar power, reducing theuse of plastic, and throughthe targets set by ourcarbon reductionframework.

Strategy andbusiness modelOperational reports

CREATING VALUE THROUGH OUR BUSINESS ACTIVITIESOur business activities are similar to other companies managing wholesale and distribution businesses.What differentiates SPAR is the dynamics of the voluntary trading model, which extends our scope in termsof retail support and marketing activities. Our business activities ensure that we fulfil our purpose.

Our business activities are interdependent in the three main territories in which we operate. As a system,these business activities collectively ensure good supply chain management which streamlines processesand result in resource savings.

Read more about these activities and outputs in the operational reports. Our business activities aresummarised below, with the emphasis on our South African operations:

PROCUREMENT

> 5 000

suppliers and service providers

> 1 300

SPAR-branded products

We buy goods from suppliers and sell them to retailers at a margin.

Our bulk procurement creates economies of scale. Fixed costs are spread over vast volumes, therebyreducing cost per unit.

Joint business planning with key suppliers targets supply chain efficiencies, including the responsibleuse of resources.





http://gmfdev.co.za/spar/ir2018/who-we-are/our-values-and-culture/


http://gmfdev.co.za/spar/ir2018/our-material-relationships/our-relationship-with/#Collaborating


Our support of local suppliers benefits small businesses, for example through the rural hubs.

WAREHOUSING

286 935 m2

total floor area

39 676 m2

satellite warehouse space

4 296 811

cases despatched per week

We operate warehouses across our distribution centres and satellite facilities, and across varioustemperature disciplines.

We apply advanced technology to optimise the complex process of storing vast quantities of goods fordelivery.

Goods are received from suppliers and unpacked into pick slots.

Retailers’ orders are processed electronically and sorted for transportation.

http://gmfdev.co.za/spar/ir2018/our-material-relationships/our-relationship-with/#food


DISTRIBUTION

351 trucks

in South Africa

403 trailers

in South Africa

231.7 million

cases despatched groupwide

Increasing fuel prices emphasise the importance of route management systems, truck specifications,turnaround times and driver efficiency.

There is a dual strategic drive to increase our bottom line and decrease our carbon footprint.

We are increasing the use of biodiesel as fuel, which we collect from South African retailers and whichwe recycle.

Our joint business planning streamlines processes, including backhauling and packing techniques.

RETAILER SUPPORT AND MARKETING

903

independent retail owned stores in South Africa

We share the benefits inherent in the voluntary trading model with retailers.

We encourage entrepreneurial flair, within SPAR guidelines, to ensure consistency.

We provide a range of retail support services:



Store refurbishment and design assistanceMerchandising best practicePublic relations assistanceThe SPAR development fund for retailers


OUR STRATEGIC OUTCOMES AND TRADE-OFFSWe identified three main outcomes as part of the strategy development process. These outcomes considerimpacts that are internal or external to SPAR and its material stakeholders throughout the value chain.

The outcomes are also subject to deliberate trade-offs where the interests of one stakeholder are weighedagainst another over a given period. The voluntary trading model, for example, allows retailers to procureproducts from alternative suppliers or to compare supplier prices against those offered by the SPARdistribution centres. For SPAR there is then a trade-off in margin to be weighed against the risk to thebrand associated with products not necessarily subject to the same safety and compliance requirementsas those offered by SPAR. Reputational risk is often carried to a greater extent by SPAR than by anindividual store owner. The need for consistency in terms of the SPAR brand and stores vs the free choiceof an independent owner remains a core conflict to be managed in the value creation process.

http://gmfdev.co.za/spar/ir2018/our-strategy-and-business-model/our-new-supermarket-strategy-for-south-africa/#Glance


OUR NEW SUPERMARKET STRATEGY FOR SOUTHAFRICA

The 2018 SPAR strategy development processstarted with the recognition that we neededto develop a strategy that focuses on SPARsupermarkets in South Africa.Since our previous in-depth strategy development process in 2012, SPAR has transformed in thefollowing manner:

We acquired new businesses in different territoriesWe entered new categories, such as pharmaceuticalsWe had leadership changesOur markets evolved through heightened competition, economic and political challenges as well asconsumer shifts – driven to a large extent by technological advancements.

Although the board reviewed the strategy annually since 2012, there was a need for a morecomprehensive reflection, focusing on driving the retail and wholesale aspects of our business inSouth Africa. It was also key to involve retailers, particularly the national guild, in the strategydevelopment process.

The strategy review process was underpinned by extensive background research that helped identifykey trends, opportunities and challenges, and gave insight into where SPAR could make a realdifference in the country.

Key retail trends that we considered:

Buy local Global expansion War on packaging

Convenience Integrated digitalsolutions ‘Shrink-flation’

Health and well-being Deep discounting Increased security

War on food waste


These trends are amplified by growth in the informal food economy, the consolidation of formal foodsystem players and the pressure on primary producers – the latter at risk to scale effectively for futuredemand while complying with increasing legal and audit requirements.

The strategy process was further guided by the Sustainable Development Goals (SDGs) which assistedin defining primary themes for SPAR around equality, poverty reduction, human settlement, food andnutrition, sustainable growth and quality education. Read more about how we align the SPAR valueswith the SDGs here.

As input into the strategy process, we initiated a stakeholder engagement project that encompassedfocused interviews, workshops and team discussion, as well as trade intelligence. Our maininteractions were with retailers, the guilds, employees, suppliers and consumers.

https://investor-relations.spar.co.za/ir2018/our-strategy-and-business-model/our-value-creation-contribution/


THE SUPERMARKET STRATEGY AT A GLANCE


First choice brand in the communities we serveThere was collective agreement that the SPAR vision should remain the same: it continues to highlightour focus on understanding our consumer and recognises that different communities need differentthings. It also implies a sense of belonging. The vision further confirms that we have a bigger role toplay in communities than just selling and making money – it emphasises our culture of caring.

The strategy development process culminated in a board-approved supermarket strategy for SouthAfrica – not a radical change from our previous strategy, but a refinement with a shift in emphasistowards our consumers.

The focus areas detail the key aspects we need to prioritise to deliver our outcomes. They are thefoundation stones of the strategy and are closely linked to the vision and outcomes. By developingaction plans and indicators according to the focus areas, we create structure around how to achieveour outcomes.

OUR SHORT TERM STRATEGIC PRIORITIESThrough the strategy development process, we identified the following key priorities for the next 12months:

Understand and segment our consumers and retailers based on their various needsReview our offerings to both consumers and retailers by segmentCapture informal market opportunitiesUpdate voluntary trading model standards and rules to address key challenges that threatenthe long-term sustainability of the modelActively drive our desired cultureDesign the organisation of the future and commence implementationDrive supply chain optimisation and efficienciesDrive cold chain management at distribution centre and retail level

Detailed action plans are being developed for each strategic focus area with appropriate keyperformance indicators and phasing.

OUR STRATEGIES IN OTHER TERRITORIESAn overarching group strategy will be developed as a next phase, serving to align the strategies in thedifferent territories. Strategies for each format, such as Build it, Pharmacy at SPAR and TOPS at SPAR,will also be developed.


SIX STRATEGIC PLANS FOR IRELANDCurrently, BWG works according to a strategic plan 2016 to 2021 aimed at shareholder value creationthrough six specific plans:

1. Distribution Specific imperatives up to now included a strategic review of theBWG supply chain for all channels to stress test distribution andminimise costs. This was followed by optimisation plans for thedistribution centres to assess capacity, productivity, and servicelevels to improve capacity management and reduce working capital.In 2018, a transport optimisation plan was developed to refine assetuse and reduce costs.

2. Information technology(IT)

The IT plan focuses on more efficient and lower-cost infrastructureupgrades, standardisation and redesign. We developed an e-commerce strategy to address online, mobile and integratedsolutions. Further imperatives include software consolidation, socialmedia, and business intelligence capabilities.

3. Acquisitions The acquisition plan is based on growth aspirations, shareholdersupport and management expertise. Targets were identified andexplored while ensuring retention of strategic retail business. Afurther imperative is the retention and development of strategiccategories.

4. People The top imperative for the people plan is to refine the managementstructure based on the need for succession planning and talentrequirements. Further focus areas include the e-learning academy,strengthening the company culture through feedback programmesand training, while ensuring greater productivity and efficiency.

5. Property The property plan is a long-term imperative aimed at enhancingprofitability and reducing liabilities. It considers asset valuations,disposals, and the development of an intellectual propertymanagement mandate for the business.

6. Retail Our focus is on developing a multi-brand strategy for the differentstore formats and to drive SPAR as the leader in the conveniencemarket over the long term. The plan also addresses the EUROSPARbrand strategy imperative and considers innovation to grow margins.

Read about activities supporting these plans for 2018 in the operational report: Focus on Ireland.

https://investor-relations.spar.co.za/ir2018/focus-on-ireland/operational-overview/


STRATEGIC OUTCOMES FOR SWITZERLANDSPAR Switzerland adopted a new strategy in February 2017 with the following elements:

Purpose: Enable retailers to profitably meet the individual needs of theircustomers

Vision: Convenience brand of choice for the customers we serve

Values: Trust, passion and entrepreneurship

The following actions plans shape SPAR Switzerland’s operations toward six outcomes:

1. The best employees We aim to motivate and empower employees through our culture,values and processes. We focus on improving communication,providing competitive remuneration, talent management, trainingand apprenticeships.

2. World-class supply chain We focus on supply chain optimisation through supplier engagementand relationships to reduce costs and increase quality. This includeslogistics efficiencies and productivity improvements.

3. Customised range We focus on category management through an assortment gearedtoward customers. This also informs new product development.

4. Competitive pricing We balance pricing with retailer profitability through marketing andpromotions, and by optimising our store portfolio.

5. Loved/trusted/believablebrand

We focus on targeted sales and marketing activities, including ourrewards programme.

6. New business growth We focus on expanding our footprint through new sites and stores,and by using technology.

Read about activities supporting these plans for 2018 in the operational report: Focus on Switzerland.

THE LINK BETWEEN STRATEGY, GOVERNANCE AND RISKThe SPAR board believes there is an inextricable link between strategy, risk, sustainability, andperformance management, which is effectively measured and controlled through the enterprise andrisk management (ERM) process. The successful implementation of the strategy therefore relies oneffective mitigation of strategic risks.

The board, supported by the Risk Committee, implements effective policies and plans to mitigatethese risks and to support the company in being ethical and a good corporate citizen.

In developing the strategy and overseeing risk management, the board provides overall guidance anddirection, including the relevant approvals and monitoring. The South African executive team andmanagement provide structure for both processes and input into the discussions by considering pastperformance and a changing operating landscape. Progress against the strategic focus areas and anupdated risk register forms part of the quarterly reporting to the board and the relevant committees.

The board’s role in considering and approving strategy includes ethical leadership, which evaluates,

https://investor-relations.spar.co.za/ir2018/focus-on-switzerland/operational-overview/


for example, the trade-offs between different stakeholders which ensures progress is measured andmonitored. To enable the latter, the board approves policies, frameworks and the plans that drivebudget allocation.

The risks outlined below have been identified and ranked as the top 12 risks most likely to impact thebusiness. The risk register links key risks to strategic imperatives and identifies key risk indicatorsthat are tracked to determine likelihood and impact. These risks are monitored and managed at boardlevel. To strengthen accountability and mitigate the key risks identified, detailed action plans havebeen developed, with clearly defined roles and timelines.

The summary below tracks strategic risks, identifies mitigation plans and show the trend movementagainst a 2016 baseline:


High inherent risk

Medium inherent risk

Unchanged movement in rank compared to 2016

RISK TITLE DESCRIPTION MITIGATING PLANS

Macroeconomic factors maycause a decline in business

Factors include global andmacro-economic conditionssuch as inflation, currencydepreciation andunemployment.

Medium- to long-termmitigation strategies includeforward cover and stockpilingfuel. We track and report trendsaccording to indicators and setthresholds, for example, for theRand exchange rate and the oilprice.

Political instability in SPARmarkets may hinder business

National or internationalpolitical events can causefundamental shifts in theeconomic system of thecountry.

We receive regular politicalinsights from knowledgeablecommentators that assist increating scenarios to determinethe potential impact on ourfuture business.

Poor individual retailerperformance may negativelyimpact the group

This can have a wide spectrumof impacts, includingreputational and financialthrough subpar stores, priceperceptions, store viability,group profitability andefficiency. Further drivers areincreasing working capitalconstraints at retail because ofpoor financial management byindividual retailers. Poorperformance includes retailersnot involved in thecommunities they serve in ameaningful and sustainableway, thereby not living theSPAR vision.

We drive increased financialdisclosure and benchmarkingfor retailers while offeringtraining and support.We actively manage the list ofpoor-performing retailers perregion and identify appropriateand specific action plans toaddress performance. We havealso increased the audit of coreretailer (business) processes.

New and existing competitionmay take market share

This takes the form ofaggressive competitionincluding foreign or local newentrants, with expandeddomestic competition bycurrent retailers – for example,competing on range, price, andhygiene factors.

We developed plans for allstrategic stores and identifiedmarket share gaps.We have also developed a clearemerging market strategy foreach region.


Loss of retailers and retailstores to competitors

Competitors target SPARretailers to buy stores, evenwith unrealistic or extravagantoffers.

We identified unique actions toimprove our relationship witheach retailer, based on ananalysis of each retailer’sspecialist support needs.Vulnerable stores are indexedand tracked.

Poor adherence to andimplementation of groupinitiatives by retailers

Resistance and lack of buy-inand discipline by some retailersmay result in an inability tomarket our offerings on anational basis, resulting infinancial and reputationaldamage.

We conduct and documentrobust pilots for all newconcepts to act as reference inthe rollout to retailers. Regionalcommittees list mandatoryinitiatives, conduct audits, andreport on retail compliance withdocumented remedial actionsfor non-compliant retailers.

The inability to develop newsites may stunt growth

Acquiring new sites isfundamental to our growthstrategy. Barriers include guildapprovals, objections by otherretailers, and othermajors/competitors owningproperty.

To drive new business, weidentified new businesschampions per region withaction plans. We developed agroup developer engagementand funding strategy. We alsoidentified retailers per regionwho have the desire andcapacity to own multiple stores.

Major customer groups maynegatively influence thesustainability of the business

Large groups may have aproportionally large influenceon the profitability, reputation,relationships, and standards ofspecific distribution centres.This might lead to the potentialloss of a significant percentageof business.

We identified key risks permajor customer group anddocumented an action plan toaddress these.

Disruption of operations mayoccur due to labour disputesand/or industrial and massaction

Labour unrest may be causedby a spill over from relatedindustries such as transport, orthe unsatisfactory resolution ofcentral bargaining andoutsourcing issues or retailstrikes with empathy fromSPAR employees.

We have identified uniqueactions to improve relationshipswith unions and employees,including improving thecapacity of shop stewards. Wehave strike contingency plansdetailing responsibilities andexpectations. We conduct anannual comprehensive climatesurvey at all sites.


Poor data quality and analysiscapabilities may preventeffective business intelligence

The lack of quality data acrossthe group may limitopportunities to optimisebusiness processes, the supplychain and forecasting. It mayresult in an inability toaccommodate businessrequirements. This isdetrimental to performancemanagement.

We conducted an informationneeds analysis for each functionand the development ofbusiness intelligencecomponents was prioritised. Wecontinue to drive, throughtraining and other means, theproper use of systems at retailand corporate systems. Weimplemented of a groupwidedata governance programmethat introduces governedmaster data and data qualitymanagement.

The financial model may fail toensure retailer profitability,thereby jeopardising SPAR’ssustainability

Retailers may not able to makesustainable and acceptableprofits, which threatens thewholesale model. Retailmargins are under pressure.

We identified key actions toreduce cost or enhance revenuewithin retail in the regions. Wedetermine the true cost andprofitability for SPAR andretailers across the value chainfor a selected basket of goods.We identified key driversimpacting the wholesale/retailmodel, including the impact ofcross-subsidisation and sharedcosting for retailers and SPAR.

Transformation issues across allareas may impact the businessnegatively

Multiple issues aroundtransformation regardingemployees, management,ownership, supply chain,enterprise development andretailers, and training anddevelopment must bemonitored. There arechallenges in hiring for skill vsimmediate BBBEErequirements.

We updated our transformationplan based on the new BBBEECodes and are executingaccordingly. We educateretailers on new requirements,such as liquor licensing.


OUR VALUE CREATION CONTRIBUTION

SPAR creates value on a global scale throughour voluntary trading model and convenientdelivery of fresh food and groceries to storeslocated where people live.The group creates significant value for our independent retailers, who benefit from the economies of scalegained by our buying efficiencies, and the cost savings through operational efficiency and a wide scope ofproducts offered and distributed through our distribution centres.

Our business model relies on relationships in all aspects of value creation. We explain our materialrelationships here, as these provide input into our business activities and help us mitigate the risks,including wastage and resource depletion, associated with distribution and wholesale businesses.

Retailers further benefit from the value created by the merchandising expertise, support services andbenchmarking offered by SPAR, which enable them to offer a range of products at competitive prices.Voluntary trading further equips retailers with the ability to customise their product and service offering tobe responsive to their local, niche consumer segment’s needs and expectations. This unlocks value forretailers and consumers.

We strive to manage our use of resources and the six capitals of value creation through environmentallyand socially sustainable business practices. Read more about these commitments and our progressagainst targets in the operational reports.

Our sustainability pledge is to create authentic shared value, though the following outcomes:

Our commitment to creating authentic shared value is inherently linked to our values and our support ofthe 17 SDGs in the following ways:



https://investor-relations.spar.co.za/ir2018/our-material-relationships/why-are-relationships-important/



INPUTS REQUIRED TO CREATE VALUEWe source products according to the requirements of our retailers who, in turn, shape their offeringaccording to each store format and their consumer community needs. These products are sourced locallyor imported, and consist of fresh and packaged foods, beverages, groceries, building materials, andpharmaceuticals. These products rely on natural resources, and are then converted, processed, packagedand transported to our distribution centres. We rely in manufactured capital in the form of factories, plants,and road infrastructure for these business inputs. Once products enter our distribution centres, they arehandled according to SPAR’s inventory, quality control and order processes – which are further essentialmanufactured capital resources.

Our range of SPAR branded products are developed and packaged for SPAR according to our specificrequirements. These products rely on our intellectual capital in addition to the manufactured capitaloffered by the suppliers selected to produce these.

Other products are branded by their producers and sold under third-party brands in our stores. We follow astringent supplier selection process to ensure the quality, safety, and secure supply of products – acapability that requires intellectual capital.

Social and relationship capital enable us to form partnerships that endeavour to change manufacturing,packaging and consumption behaviour related to the use of plastics, other packaging and water. Initiativesrelated to our new carbon reduction framework use intellectual capital in defining indicators, measuringperformance, and developing action plans to minimise our detrimental effect on natural capital.

The people working in our distribution centres handle, sort and move inventory according to orders anddeliveries. They constitute the human capital required to run the operational side of the business. Theiractivities are supported by employees dedicated to the financial, marketing, retailer services, informationtechnology and human resources aspects of the business.

Our fleet of trucks – and those in our network of suppliers – form a pool of manufactured capital which isapplied to optimised delivery through drop shipments, shared loads, and backhauling, thereby minimisingour natural capital impact.


We depend on financial capital in almost all business activities as we require funds to procure goods andservices, to pay salaries, to develop new products, to invest in facilities, equipment and to executiverepairs. Financial capital is used to make acquisitions, expand out footprint and deliver long-term growth.

SPAR’ INTERACTION WITH THE SIX CAPITALS

CAPITAL OF VALUECREATION

CAPITAL INPUT REQUIRED TOEXECUTE OUR BUSINESSACTIVITIES

CAPITAL INCREASED,DECREASED ORTRANSFORMED THROUGHOUR BUSINESS ACTIVITIES

FIND MOREINFORMATION ANDEXAMPLES OFVALUE CREATEDTHROUGH THECAPITALS

Financial capital We use this capital to procuregoods and services, to paysalaries and tax, to developnew products, to invest infacilities or operations,equipment and repairs, and topay our funders andshareholders. We also providefinancial capital to ourretailers as credit facilitiesand to assist with storeacquisitions orrefurbishments.

Changes in the availabilityand quality of the capital isevident from increasedturnover, margins andoperating profit. Financialcapital is at risk throughremuneration increases andwage negotiations, storeclosures, provisions andpenalties. Positive impactsare delivered throughefficiencies and costsavings.

Reports from ourleadersWhy invest in SPAR

Manufacturedcapital

We use this capital toestablish, maintain andoperate distribution centres(with cooling facilities,recycling and reclamationplants), warehouses, trucks,forklifts, road and portinfrastructures.

We measure our impactthrough increaseddistribution centre space,trucks and volumeshandled, stores opened,refurbished or closed. Newmarkets, routes and productofferings impactmanufactured capital. Wereduce our reliance on thiscapital through efficiency,optimisation andconsolidation efforts.

Operational reports

https://investor-relations.spar.co.za/ir2018/#slide4

https://investor-relations.spar.co.za/ir2018/#slide4

https://investor-relations.spar.co.za/ir2018/why-invest-in-spar/our-investment-case/



Intellectual capital We use this capital to developthe SPAR strategy, SPARbrand, the guild structure,promotions and marketingcampaigns, pricing strategies,‘learning journeys’ andretailer conferences. Itinforms our values andculture, board andgovernance structures,category managementcapability and joint businessplanning with suppliers.

We measure our impactthrough increased sales ofhouse brands, our deliveryon strategic outcomes(through the ethics riskassessment), our ability toimprove integrationbetween functions, andcollaboration betweendistribution centres andcountries. Intellectualcapital informs our auditprogrammes andcertifications achieved, aswell as the effectiveness ofour enterprise riskmanagement rollout.

Strategy andbusiness modelGovernance

Human capital We use the skills, capabilitiesand passion of employees, ourmanagement teams andboard to execute businessactivities and formrelationships.

We measure our impactthrough theincrease/decrease in totalemployees, our trainingspend and access toincreased skills. The qualityof human capital input isinformed by our health andsafety measures, thenumber of injuriessustained, visits to ourclinics, and employeeturnover.

Operational reportsOur materialrelationships

Social andrelationship capital

We use our ability to createand sustain materialrelationships with keystakeholders (suppliers,retailers, employees,consumers and communities)to create an environment inwhich to perform our businessactivities, to partner forfurther value creation and toensure a sustainable foodnetwork.

We measure our impactthrough awards, salesvolumes, retailers lost,customer satisfaction andmarket share, CSIcontributions, food safetyincidents and GUESTprogramme successes.One of the key measures ofsuccess is the sustainabilityof the emerging farmerhubs.

Our materialrelationshipsOperational reports



https://investor-relations.spar.co.za/ir2018/governance-approach/








Natural capital We use this capital as input ofthe products we distribute andsell, our properties and thewater and energy we use inour operations (includingelectricity, diesel, fuel andgas).

We mainly decrease thiscapital through themanufacturing, distributionand consumption of goods.We mitigate this throughreclamation and recycling,solar power, reducing theuse of plastic, and throughthe targets set by ourcarbon reductionframework.

Strategy andbusiness modelOperational reports

CREATING VALUE THROUGH OUR BUSINESS ACTIVITIESOur business activities are similar to other companies managing wholesale and distribution businesses.What differentiates SPAR is the dynamics of the voluntary trading model, which extends our scope in termsof retail support and marketing activities. Our business activities ensure that we fulfil our purpose.

Our business activities are interdependent in the three main territories in which we operate. As a system,these business activities collectively ensure good supply chain management which streamlines processesand result in resource savings.

Read more about these activities and outputs in the operational reports. Our business activities aresummarised below, with the emphasis on our South African operations:

PROCUREMENT

> 5 000

suppliers and service providers

> 1 300

SPAR-branded products

We buy goods from suppliers and sell them to retailers at a margin.

Our bulk procurement creates economies of scale. Fixed costs are spread over vast volumes, therebyreducing cost per unit.

Joint business planning with key suppliers targets supply chain efficiencies, including the responsibleuse of resources.







https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#Collaborating


Our support of local suppliers benefits small businesses, for example through the rural hubs.

WAREHOUSING

286 935 m2

total floor area

39 676 m2

satellite warehouse space

4 296 811

cases despatched per week

We operate warehouses across our distribution centres and satellite facilities, and across varioustemperature disciplines.

We apply advanced technology to optimise the complex process of storing vast quantities of goods fordelivery.

Goods are received from suppliers and unpacked into pick slots.

Retailers’ orders are processed electronically and sorted for transportation.



DISTRIBUTION

351 trucks

in South Africa

403 trailers

in South Africa

231.7 million

cases despatched groupwide

Increasing fuel prices emphasise the importance of route management systems, truck specifications,turnaround times and driver efficiency.

There is a dual strategic drive to increase our bottom line and decrease our carbon footprint.

We are increasing the use of biodiesel as fuel, which we collect from South African retailers and whichwe recycle.

Our joint business planning streamlines processes, including backhauling and packing techniques.

RETAILER SUPPORT AND MARKETING

903

independent retail owned stores in South Africa

We share the benefits inherent in the voluntary trading model with retailers.

We encourage entrepreneurial flair, within SPAR guidelines, to ensure consistency.

We provide a range of retail support services:



Store refurbishment and design assistanceMerchandising best practicePublic relations assistanceThe SPAR development fund for retailers


OUR STRATEGIC OUTCOMES AND TRADE-OFFSWe identified three main outcomes as part of the strategy development process. These outcomes considerimpacts that are internal or external to SPAR and its material stakeholders throughout the value chain.

The outcomes are also subject to deliberate trade-offs where the interests of one stakeholder are weighedagainst another over a given period. The voluntary trading model, for example, allows retailers to procureproducts from alternative suppliers or to compare supplier prices against those offered by the SPARdistribution centres. For SPAR there is then a trade-off in margin to be weighed against the risk to thebrand associated with products not necessarily subject to the same safety and compliance requirementsas those offered by SPAR. Reputational risk is often carried to a greater extent by SPAR than by anindividual store owner. The need for consistency in terms of the SPAR brand and stores vs the free choiceof an independent owner remains a core conflict to be managed in the value creation process.

https://investor-relations.spar.co.za/ir2018/our-strategy-and-business-model/our-new-supermarket-strategy-for-south-africa/#Glance


OUR PROFILE IN SOUTH AFRICA

We serve licensed SPAR retailers in South Africaand neighbouring countries through our eightdistribution centres, which contract with morethan 5 000 suppliers and service providers tooffer more than 1 300 SPAR branded productsto consumers.

South African retailers trade through nine different branded store formats offering groceries, freshproduce, liquor, pharmaceuticals, and building material.

The focus on Freshline development resulted in an offering that now comprises about 300 bakery lines and350 fresh produce lines distributed to about 800 stores in the country.

The range of SPAR store formats allows us to serve the entire range of consumer income groups in allregions of South Africa and select neighbouring countries. We have a tiered offering that recognises thatsome stores serve the full consumer income range – our range therefore includes products appropriate formultiple profiles, from basic to high-quality, specialised products. Our focus is on sourcing locally: this is anethical decision and reduces the risk and cost related to transport. Imports are supplementary to localproduce due to seasonal variation and demand.

A significant portion of retail sales are sourced through our distribution centres. This is testimony to thefact that our offering remains comprehensive and competitive.


Build it is emerging market focussed with a brand that is stronger in rural, country areas than in the urbanmarket. Most clients are small builders or contractors.

Our SPAR and Build it distribution centres constitute a total of 286 935 m2 warehousing space anddistributed a total of 231.7 million cases this year. Our distribution network handles 57.3% of SPAR’sturnover whereas 42.7% is sourced directly from third-party suppliers. Our distribution activities resulted ina total distance of 30 889 633 km travelled for the year.

Most of the distribution centres own some retail stores or run stores temporarily under managementcontracts. South Rand owns and operates the highest number at 20 retail outlets.

AWARDS FOR 2018The Western Cape distribution centre achieved first place in the March National First AidCompetition 2018Built it sponsored the Isolomzi school foundation in Transkei with materials and renovation support– a project that won the regional Lead SA award for the Western CapeCornel Zaayman, a North Rand retailer, was selected as the National Mr SPAR

Find our store profiles here and read more about the distribution centres here.

https://investor-relations.spar.co.za/ir2018/who-we-are/our-ownership-profile/



UNDERSTANDING OUR OPERATING ENVIRONMENT

In the 2018 financial year, South Africanconsumers experienced a 1% increase in VAT, anew levy on beverages containing sugar,dramatic increases in fuel prices and foodsafety concerns following the Listeriosisoutbreak. The deflation in maize and flourprices offered little respite.

The group operates in a defensive sector as people need to eat and drink. Reduced confidence anddisposable income therefore has a lower impact than on other forms of retail. However, positiveconsumers traditionally spend more, which means lower levels of consumer confidence will affect ourbusiness.

Consumers are cash strapped and uncertain about their prospects. Fuel increases mean that the cost ofpublic transport increased, resulting in consumers buying local, thereby stimulating more informal trade intownship areas.

Consequently, mid-month peak shopping flatlined in most areas, with bulk purchases happening at monthend. We further experienced a shortening in the month-end period: where retailers previously enjoyed upto an eight-day month-end peak, this decreased to an average of three days. This is compounded byconsumers cherry-picking among specials and promotions at month end.

Promotional activity is prevalent in retail stores and drives ever-more aggressive advertising campaigns.Loyalty programmes abound to gain a bigger share of consumers’ wallets.

When consumers are under pressure, this has a knock-on effect on retailers, who in turn postponeinvesting into their stores. Retailer loyalty is declining slightly as they search for better deals and supplierdiscounts.

These trends are compounded by macro aspects such as climate risk and political change. The drought inthe Western Cape highlighted a range of vulnerabilities in the supply chain. We are experiencingincreasing levels of community activism around services, which are expected to increase in the build-up toelections in 2019. Some stores experienced strike action which resulted in temporary closures. Theseincidents disrupt delivery and transport, affecting consumer and retailers’ safety. 125 SPAR storesexperienced robberies during the year.

Where neighbouring territories provided healthy and growing demand in the past, most of these countries


are under pressure as they fight their own battles with liquidity, commodity cycles, political uncertaintyand low-growth scenarios.

DEVELOPING A NATIONAL SPAR PLAN FOR WATER

The drought in the Western Cape that began in 2015 was declared a natural disaster in February2018. Fears that municipal water supplies might be cut off on ‘Day Zero’ had a significant impact onthe economy of the province, including commercial farming and tourism. Through water-savingmeasures and water supply augmentation, Cape Town managed to reduce its daily water usage bymore than half. Although the crisis was averted, it had a lasting impact on communities and trade.Farmers experienced significant losses and seasonal workers received lower income.

The water crisis had a direct detrimental effect on sales in the northern and central Karoo areas of theprovince, as well as coastal or holiday areas – the latter due to lower tourism numbers.

At the Western Cape distribution centre, the drought required us to rethink our approach tosustainability. We sunk three boreholes and added an adiabatic cooler to reduce our waterconsumption and any pressure on municipal supply. We launched an internal awareness campaign byproviding employees with regular tips on how to save water and informing them of alternative waterwise options. We also assisted our retailers in mitigating water risk and ensured the responsiblepricing of bottled water.

We launched a water security assessment in June 2018 at all distribution centres to obtain a holisticview on how much and how SPAR uses water. This information will be used to implement groupwideplans and education around the use of water.


OPERATIONAL OVERVIEWRead about South Africa’s financial performance in the financial review.

MITIGATING FUEL COST INCREASESSouth Africa experienced some of its highest fuel price hikes this year. This has resulted in increasingcalls for government to urgently address the policy and structural issues which have put fuel usersunder severe pressure.

Fuel costs comprises 3.9% of SPAR’s overall expenses and constituted approximately R184.4 millionfor the year (2017: R156.2 million). For consumers, the inflationary fuel pressures counteracted thedeflationary trend seen in the price of food.

Continuous improvement of the SPAR vehicle fleet is therefore a core focus over the long term. Ourlogistics team continues to find alternative ways to get products to markets and ensure loadoptimisation, as well as driver management and effective routing solutions.

The national integrated transport system is fully operational and aims to enable the movement ofstock through the entire network. Where the different supply chains at the distribution centrestraditionally operated independently with limited product moving between them, these now form partof an integrated system. Our logistics partner has contracted with several key suppliers securingdeliveries into the respective distribution centres. Further deliveries from the distribution centres arethen executed to stores. Due to this initiative, several third-party transporters were onboarded, whichassisted in job creation. Positive impacts include the sharing of savings achieved and a reduction incarbon emissions due to the number of empty return transports trips being drastically reduced.

Driver productivity schemes continue to drive further efficiencies.

A QUICK RESPONSE TO LISTERIOSISIn October 2017, there was a national outbreak of Listeriosis, with 180 deaths reported. SPARdistribution centres and retailers responded quickly by pulling lines that could possibly have beencontaminated.

Consumers became more conscious of deli and cold meat products due to this outbreak and the localperishables business was severely impacted.

Since the outbreak, SPAR increased the number and frequency of food audits and implementedheightened protocols in terms of cleaning. More diligence and a greater emphasis on food safety willremain, with the emphasis on upholding SPAR standards and to comply in a more consistent manner.Read more about food audits at supplier and store level in our material relationships.

https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/financial-review/

https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#audit


COST-SAVING INITIATIVES WITH IMPACTSeveral initiatives have been implemented to save costs by realigning these to lower volumes.Specific initiatives at the distribution centres included the review of cube utilisation per section, moreefficient pallet builds to maximise payloads and reduce vehicle running costs. We have implementedbigger delivery windows by executing night drops to several stores on both dry goods and freshproduce to improve service levels, while gaining efficiencies delivering outside peak periods.

We continue prioritising delivery from source where possible, which entails collection at the factoryand delivery at the point of order, thereby avoiding the distance, handling cost and risk, andadministration requirements of transfer into regional distribution centres.

The positive long-term impact of the introduction of a new slow-moving product model between ourNorth and South Rand facilities have not yet been fully realised following delays in the IT rollout forthe project. Consolidation has been completed for the South Rand distribution facility and will berolled out to North Rand in January 2019.

STORE PERFORMANCESPAR, SUPERSPAR, KWIKSPAR AND SPAR EXPRESS

TOPS AT SPAR


BUILD IT

PHARMACY AT SPAR

SAVEMOR

Overall, 145 new stores were opened during the 2018 financial year, 276 stores were refurbished, and39 stores were closed.

The SPAR branded stores remain at the core of our offering: a format that is well-suited to urban andnon-urban markets in South Africa, while being the driving format for countries such as Botswana andZambia. Refurbished stores added to positive consumer experiences and supported turnover growthdespite very challenging trading conditions.

KWIKSPAR is experiencing challenges in some areas where it has been contested by a growingnumber of forecourts, while higher pricing means that it is no longer the first choice for month-endshoppers.

The SPAR Express format is still being embedded and is showing promising volume growth andmarket uptake. Great looking stores with expanded offerings are becoming competitive and areattracting new business.

SPAR Mini was piloted in the Lowveld last year, and is still in a testing phase. It takes the form of asmall satellite or extension store near the main retail store, offering a limited fresh food offeringgrocery range while relying on the main store for systems and replenishment support.

Our North Rand distribution area now has the highest concentration of Pharmacy at SPAR stores and adedicated focus on developing black retailers for this format. Pharmacy at SPAR introduced its firstincentive competition in 2018, based on S Buys loyalty, own brand support, and participation invarious initiatives. There is a significant opportunity to promote this store format to independent


pharmacists and expand the dedicated supply to SPAR pharmacies through S Buys. Read more in thecase study on S Buys.

TOPS at SPAR continues to be a star performer. Sales numbers confirm that consumers identify withthis brand and remain loyal. Craft beverages continue driving growth especially in the gin category.

Build it arranged its first retail convention with over 800 attendees. At the convention new storeformats (Build it PLUS and DIY) were launched in addition to a full brand refresh. This will provideimpetus for improving the Build it store offering, enable clearer segmentation of the offer by storeformat type and introduce a new modern look and feel. The intention is to offer consumers a morediverse range of products and service options. Build it completed its loyalty card pilot and will startrolling out the programme to all stores. Although the broader rollout of the TrenDIY format wasdiscontinued, it remains successful in specific locations.

Sales of cement experienced further volume declines due to independent cement blenders enteringthe market. The Build it house brand showed pleasant growth. Overall, there has not been anoticeable change in consumer behaviour other than an increase in credit sales during the year. Therehas been a slowdown in project sales through our contractor client base, with reports from smallercontractors that construction decisions are delayed due to uncertainty regarding land expropriation.

The SaveMor group of stores continues to offer a compelling value proposition for consumers, and anequally attractive entry point for new black retailers making their first investment. These stores havelower capital investment requirements and focus on active cost management. Although new storegrowth was muted this year, there is consistent support for this format.

The group took ownership of 7 additional corporate stores in 2018 and disposed of 4 stores. SPARacquires these stores as they constitute strategically important sites. These stores are oftenrefurbished and then sold to new retailers. In the meantime, they offer the group a unique opportunityto offer practical retail training and serve as a testing group for experimental products and services.

RETAIL SUPPORT PRIORITIESRetailers were under pressure this year in terms of growth and profitability, but were also challengedby crime, labour and community unrest. Cash flow management was a specific concern for manyretailers.

We launched numerous retail support projects involving specialised and store-specific marketinginitiatives, refinancing options, strategic partnerships, and developments of new businesses such asthe secondary TOPS initiative. There has also been a lot of work done around redeveloping stores tokeep these relevant and attractive.

We continue supporting retailers in terms of recruitment, training, and IT systems, with new models orprogrammes being launched throughout the year. A highlight was Build it’s launch of a leadershipdevelopment programme with 12 senior managers from Build it stores.

Specific focus by the retail teams on developing and implementing a growth plan per store broughtfresh perspectives in terms of key opportunities and threats, a better understanding of financialindicators and the setting of meaningful action plans.



NEW PRODUCT DEVELOPMENT AND HOUSE BRANDSOur focus on the development of SPAR house brands continues to grow momentum as these productsprovide value for money for consumers under financial stress. Sales of SPAR branded productsincreased by 5.8% to R8.5 billion (2017: R8.0 billion), well ahead of growth in other wholesalecategories.

The new Country Value private label brand offers affordable value in the bakery and producedepartments.

SPAR Steak CO., with its range of the finest Class-A beef cuts, and SPAR Smart Butcher, consisting ofspices, casings and marinades, were launched. These have been well supported by retailers anddelivered solid new business income. Smart Baker was launched late in the financial year with goodgrowth expected in the next financial year.

Our home-meal replacement lines, Chicka Chicken and Smart Chef, delivered consistent growth.McCoy Pie, launched in 2017, made excellent progress.

Given the consumer demand for gin and vodka we have listed several craft variants, including vodkaflavour lines.

MOMENTUM FOR SPAR REWARDSThe SPAR Rewards programme is working well, as consumers enjoy the benefit of free purchases andpreferential treatment in competitions. We have been able to promote baskets of goods catering to allmarket segments with substantial saving for consumers. The combination of instant rewards andaccumulated benefits also continue to attract new members. At store level, retailers are experiencingadditional sales driven by the Text Me system, as these can be targeted for high impact.

The TOPS at SPAR awards launched last year showed monthly growth and will gain further momentumwith increased visibility through neck tags and stickers.


2017 FOCUS AREA EXAMPLES OF PROGRESS AND CHALLENGES DURING 2018

Organic growth throughrefurbishments and storeformat optimisation

Organic growth was dependent on whether investments were cost-saving or retail-sales driven. Many retailers delayed investment dueto uncertainty and low confidence in growth prospects. Stores thatinvested to gain retail sales experienced growth compared to theirsales history prior to the investments. On the cost savings side, weachieved energy consumption savings.Refurbishments included upgrades to the look and feel of stores,improved offerings and a dedicated focus on service areas. We aimto provide consumers with a competitive shopping experience.Refurbishments of Build it stores were well received by consumerswith more impact expected in the next financial year. The launch ofthe new store formats and a loyalty programme will further driveorganic growth.

Success of retailers anddistribution centres throughdriving promotions,collaborating with suppliers,and building loyalty throughpromotions

SPAR’s 55th birthday celebration delivered good promotional salesgrowth nationally.The success of Super Saturday and deep cut one-day promotions inJanuary, June and September involved supplier products withsignificant SPAR rewards redemption values.At Build it, the focus was on price and quality engagements withsuppliers with the intent to change consumer perceptions andimprove retail buying patterns. Promotions are a secondary driver forloyalty.

Focus on increased localsourcing through the rolloutof the emerging farmer hubs

To date, two farmer hubs have been rolled out with Mopani servicingstores in Lowveld and North Rand and Malelane servicing Lowveldstores. A third hub is expected to be opened in the KwaZulu-Nataldistribution centre area, with more in development. Read more in thecase study on emerging farmers.



FOCUS AREAS IN SOUTH AFRICA

SPAR PRIORITIES FOR 2019Rollout and communication of the new supermarket strategy

Organic growth through refurbishments and store format optimisation

Driving increased purchases from Pharmacy at SPAR through S Buys and convertingmore independent pharmacies to our format

Growing Fresh and SPAR house brands as a differentiator

Develop management and leadership capabilities at distribution centres to supportsuccession planning and growth ambitions

SOUTH AFRICAN RETAILER PRIORITIES FOR 2019Growth1.Profitability2.Stock management3.


CASE STUDY: S BUYS AND SPAR ALIGN FOR PHARMACYSUCCESS

S BUYS AND SPAR ALIGN FOR PHARMACY SUCCESS

SPAR acquired pharmacy wholesaler, S Buys Group, effective 1 October 2017, seven years afteropening the first Pharmacy at SPAR store in South Africa. The acquisition signalled a commitment togrow this format for SPAR through an investment in a wholesaler with a diversified customer base,stable and dependable supplier relationships and the ability to service 95% of medical schemes.

S Buys evolved from a pharmacy that was opened for the mines in Carletonville 25 years ago. Thewholesaler was eventually followed by a specialist training academy. Today, S Buys consist of threelines of business:

A licensed wholesaler, located in Carletonville, with a national reachThe ScriptWise specialised pharmacy that delivers high-value medication for high-risk, high-costpatients (a courier pharmacy)An accredited academy offering specialised training in pharmaceutical services, with about 2 000pharmacist assistants trained annually

S Buys is an existing supplier to most Pharmacies at SPAR (none of the current distribution centres arelicensed to sell scheduled medicines) – a relationship that will now be expanded with a mutualcommitment to increase the product range, footfall, number of stores and quality of the experience.

A Pharmacy at SPAR is independently owned and managed by a qualified, independent pharmacist.Stores typically consist of a dispensary, a clinic and a personal care, front-end section. SPAR’s biggestcontribution to the success of an independent pharmacist is in retail: we offer front-shop categorymanagement systems, store design, reward/loyalty programmes, house brand products andpromotions that consumers have come to expect, but which are often lacking in independentpharmacies.

The S Buys product range complements SPAR’s retail expertise to create comprehensive andspecialised support offering to community pharmacists. S Buys supplies scheduled medicines, surgicaland medical devices, with an expanding range of front-shop house brand, healthcare and beautyproducts.

The S Buys acquisition mitigated the most significant risks for SPAR associated with this store formatthrough a deep understanding of the industry and associated regulations, combined with the ability tomanage and control distribution complexities.

The pharmacy business model is subject to fixed government directed annual price increases (whichfor 2018 was limited to 1.26%), however, individual pharmacies can set their own service feestructure, and control front-end pricing, which somewhat mitigate the risk of shrinking margins.

SPAR provides S Buys with an anchor customer base and logistics expertise whereas the wholesaleropens access to an additional portion of the retail value chain for SPAR: S Buys will continue supplyingand growing its existing footprint in the pharmaceutical sector in South Africa.


Through the S Buys acquisition, SPAR has now created a solid position in a market with resilient andgrowing demand where it has low current penetration and the ability to scale up quickly.


BUSINESS LINE KEY CAPABILITIES FOR S BUYS

Wholesale • Stockholding (forecasting and availability)• Electronic ordering efficiencies, on time deliveries and responsetime to queries• Accuracy and reliability are key factors

ScriptWise • Working with and across a large healthcare delivery team ofspecialist doctors, nurses, clinics, case and disease managers• Securing funding/authorisation for high cost medicines• Working with pharmaceutical suppliers and patient supportprogrammes• Ensuring accuracy and reliability in delivery and repeats

Academy • Managing course content and learning experiences• Monitoring on-the-job training• Delivering assessments of individual candidates


S BUYS AND SPAR ALIGN

SPAR commits to growing its presence in thepharmacy value chain in South Africa.


OUR FOCUS ON HUMAN, SOCIAL AND RELATIONSHIPCAPITAL

We provide details about our communities andemployees in our material relationships.Due to the material size and contribution of our South African workforce, this section contains detail abouttheir demographics, key performance indicators and development. This supports the transformationimperative: building an employee base that reflects South Africa’s demographic diversity is a crucial partof our social mandate and contributes to the success of SPAR.

OUR APPROACH TO HUMAN CAPITAL AND CULTURECulture is a key enabler of the new SPAR supermarket strategy. We identified the need to shift our cultureto enable and support the following focus areas in wholesale and retail:

Distribution centre and retail relationshipsHigh-performance teams, teamwork and empowermentSpeed and agilityCommunicationCustomer service

To achieve this shift, we must implement a robust change management process with HR functions as keydrivers of the process. They work according to workstreams and are responsible for defining and shapingthe desired culture through stakeholder analysis, identifying and addressing obstacles and resistance tothe required culture shift, including interventions, role changes, and the use of technology as an enabler.

https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#COMMUNITIES

https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#EMPLOYEES


EMPLOYEE DEMOGRAPHICSAchieving greater transformation is a major aspect of our strategy, and our employee demographics are acore measurement of progress. We are committed to building a culture that embraces diversity andpromotes equal opportunity, as these contribute to our strength as a group. We rely on our ability toaccess a wide range of skills, talents and ideas. This is an ongoing challenge for SPAR, and we haveallocated responsibility at executive level.

SPAR employs 3 743 people across our corporate offices, distribution centres and warehouses inSouth Africa (2017: 3 602) and adheres to all the relevant South African labour legislation and standards.The following table provides data regarding SPAR’s black employees as a percentage of our total numberof employees and the split between male and female across all race groups, as at 30 September 2018:

Occupationallevels SPAR categories 2018 %* 2017 %*

Maleemployees

2018 %**

Femaleemployees

2018 %**Board ofdirectors

Executives andnon-executivesPatersonGrades EU andF 40.0 40.0 82.0 18.0

Seniormanagement

Group Exco(excludingexecutivedirectors),divisionalexecutives andspecialisedgroup functionsE band 17.0 16.6 88.2 11.8

Professionallyqualified andexperiencedspecialists andmid-management

MiddlemanagementPatersonGrades DL andDU 55.0 44.2 68.7 31.3

Skilled technicaland academicallyqualified workers,juniormanagement,supervisors,foremen andsuperintendents

Supervisory andtechnicalpositionsPatersonGrades CL andCU

80.6 79.0 51.4 48.6


Semi-skilled anddiscretionarydecision-makingUnskilled anddefined decision-making

Operators andclerical staffDefineddecision-makingpositions

96.8 96.1 78.2 21.8Paterson Grade1 96.2 100 93.1 6.9

Total permanentblack employeesas apercentage oftotal employees 84.8 85.0 63.5 21.3

* Black employees as defined in the BBBEE Act.

** All employees split between male and female.

NEW EMPLOYEE HIRES AND TURNOVER RATEWhile we endeavour to retain our talented human capital, we recognise that an appropriate level ofturnover is healthy and creates opportunities for growth. SPAR’s ability to attract diverse, qualifiedemployees further reflects the strength of our brand as an employer of choice. The following table reflectsnew employee hires and employee turnover according to age group, gender, and percentage of blackemployees:

2018 2017

Maleemployees

2018 %

Femaleemployees

2018 %

Blackemployees

2018 %New employees 91 58 72.9 27.1 47.1Employee exits 242 142 65.0 35.0 80Group employeeturnover rate

6.93.9 4.5 2.4 5.5


BROAD-BASED BLACK ECONOMIC EMPOWERMENT (BBBEE)We measure our BBBEE score as a group in South Africa, which includes the central office and the eightdistribution centres. Our rating in the respective elements is provided in the table below. According to thelatest verification conducted in December 2018, the group is a level 6 contributor (2017: level 8), with a60% recognition level.

Scorecard element Weighting 2018 2017Ownership 25 17.00 2.90Management control 19 9.16 8.84Skills development 20 24.95 23.59Enterprise and supplier development 40 20.43 17.52Socio-economic development 5 5.00 5.00The number of black retailers owning SPAR stores increased from 292 to 339.

Find our latest BBBEE scorecard here.

EMPLOYEE DEVELOPMENTThe group’s internal employee development programmes, which are run through The SPAR Academy ofLearning, are crucial to attracting, retaining, and developing a diverse talent pool. The followingdevelopment programmes are in place:

Find our latest BBBEE certificate here.

Programme for Management Development (UCT)SPAR Leadership Development ProgrammeManagement Growth ProgrammeSupervisory Development Programme (various)Graduate Training Programme

During the 2018 financial year, training covering a range of other areas also took place. This includes,among others:

First-aid and firefighting trainingDriver trainingMy SPAR Picker ProgrammeSPAR Values ProgrammeOperating a lift truck and other vehicle combinationsMentoring and coachingAdult Basic Education and Training (ABET)

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_B-BBEE_Scorecard_Analysis_2018.pdf

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_B-BBEE_Certificate_2018.pdf


In line with the group’s transformation imperative, our skills development programmes, such as ABET,Sector Education and Training Authority (SETA) and management training, are focused primarily onupskilling previously disadvantaged candidates.

The following table reflects the average number of hours of training received by SPAR’s employeesaccording to gender and employee category:

SPAR categories 2018 2017

Maleemployees

2018

Femaleemployees

2018Executives and non-executives 111 360 1 880 30 762 3 704Group divisional executives andspecialised group functions 3 504 1 936 7 600 2 264Middle management 24 512 21 960 23 072 1 440Supervisory and technicalpositions 42 256 42 672 34 352 7 904Operators and clerical staff 167 216 222 240 128 376 38 840Defined decision-making positions 28 016 5 504 30 672 3 704SPAR participates in national efforts to address unemployment including the YES initiative and Jumpstart.Read more about these contributions in the Chairman’s report.

During the year there was a specific focus on sourcing funds to create learnerships aimed at specific toscarce skills. These funds are aimed at the following:

Professional driversFreight handlingDiesel mechanic apprenticeshipElectrician apprenticeship

We continue to support employees who aim to obtain formal qualifications with reputable institutions andwe have a specific commitment to upskilling female employees.



HEALTH AND SAFETYA comprehensive risk management programme is in place to protect the health and safety of ouremployees. It is audited on a regular basis by an external risk management service provider. The fivecomponents of the programme are emergency planning, health and safety, transport, fire and security.

Implementation is monitored and reviewed on an ongoing basis, with the understanding that legislativecompliance is the minimum standard, and that excellence should be pursued. Each distribution centre hasits own Health and Safety Committee, which oversees regular training and emergency drills, and isresponsible for resolving or escalating issues that arise. During the 2018 financial year, 688 employeesreceived health and safety training (2017: 792 employees).

The bulk of our health and safety incidents occur at the distribution centres, where employees handle bulkgoods and operate heavy machinery. Strict health and safety compliance is a daily discipline for ourdistribution centres.

The table below indicates our health and safety performance for the year:

Incident 2018 2017Disabling injuries 13 8Non-disabling injuries 172 151Deaths on duty 0 1Number of employee visits to on-site clinic 10 865 10 732


OUR FOCUS ON MANUFACTURING AND NATURALCAPITAL IN THE SUPPLY CHAIN

As a provider of food, we recognise ourresponsibility to deliver quality products to ourconsumers through a sustainable network offirst-choice suppliers.Read more about our supplier development initiatives in the section on material relationships. Ouremerging farmer development programme remains our flagship initiative in this regard.

With the growing participation of emerging farmers in the SPAR supply chain, we adopted localg.a.p. as anentry-level food safety standard with the aim of achieving full compliance with GLOBALG.A.P. Large-scalecommercial farmers are expected to comply fully with GLOBALG.A.P. All suppliers are expected to complywith the Global Food Safety Initiative (GFSI).

Suppliers and retailers must comply with SPAR’s food safety standards – read more about this in oursection on material relationships. All SPAR stores are furthermore subject to hygiene and safety audits. Thegroup has a SPAR-appointed central resource to ensure food safety, compliance, and audits forall suppliers.

OUR COMMITMENT FOR A NEW FUTURESPAR’s fundamental environmental aim is to reduce its use of various natural resources. This extends toour supply chain, where emphasis is placed on supplier and retailer practices that SPAR can influence forthe better. Read more about our role in the food system in the section on strategy and our emergingfarmer development programme.

Our environmental initiatives are developed to yield commercial gains and foster environmental welfare,as the long-term reductions in input costs will positively impact the business. In support of this, SPARadjusted its business’s technology strategy and specifications, particularly for large-scale infrastructureinvestments. This includes, for example, vehicles, buildings and equipment, as well as incorporating greentechnology wherever possible. By implementing socially and environmentally sustainable businesspractices, SPAR seeks to guarantee its own long-term viability.

https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/



https://investor-relations.spar.co.za/ir2018/our-strategy-and-business-model/our-new-supermarket-strategy-for-south-africa/




Supply chain optimisation and innovative energy management are critical to achieving cost and reducingour carbon footprint. SPAR engages directly with smallholder farmers in our value chain to encouragesustainable farming practices. Due to the large role that packaging materials play in SPAR brandedproducts, we engage with packaging material suppliers to reduce our environmental impact and waste.Read more about our initiatives in the case study below.

SPAR engages with our independent retailers to assist them in reducing their carbon footprint. This is doneby making recommendations on green building practices and assisting them with purchases of energy-efficient technologies.

REDUCING OUR PLASTIC FOOTPRINT

The challenge of single-use plastics and their impact on human health, life on land and life under thesea became a prominent issue in South Africa in 2018. SPAR joined efforts to reduce single-useplastics and address the longer-term challenge to collect and recycle all plastic.

In South Africa, environmental legislation came into effect in 2003 prohibiting the use of thin plasticbags and encouraging retailers to use thicker, durable, recyclable bags to reduce plastic waste.

Last year, it emerged that plastic manufacturers were using increased volumes of chalk filler (from7% to 25% – 30%), resulting in a heavier albeit cheaper plastic. Recyclers, on the other hand, rejectedthe heavier bags as they sink during the recycling process and therefore discard these to landfill aswaste. This effectively made plastic carrier bags unrecyclable at the time.

Several SPAR distribution centres, spearheaded by the Eastern Cape, launched campaigns andprojects to address the plastic shopping bag problem.

We started to encourage SPAR customers to take ownership of the problem and to stop usingconventional plastic shopping bag altogether. In store communication encouraged shoppers to:

Bring your own shopping bagBuy a SPAR brown paper bagBuy a SPAR canvas bag

Carry your groceries to your car and pack into your bootOnly as a last option, buy a plastic bag – but please recycle responsibly

A further example was the SPAR Eastern Cape offer to give members of the public a paper bag free ofcharge for every 10 plastic shopping bags brought into an outlet, irrespective of the retailer or thebrand – for a limited period.


Several SPAR group actions and commitments followed these initiatives:

SPAR is now selling only 100% recyclable plastics bags with an 8% calcium carbonate filler. Plansto only sell plastic bags made from 100% recycled plastic are underway for the 2019 financialyear.We are taking periodic samples from the market to ensure compliance across all SPAR carrier bagmanufacturers.We are in the process of approving a SPAR bag philosophy as a formal declaration of our intent torecycle and reduce the use of plastic.

In December 2017 we initiated a SPAR paper bag customer feedback campaign to support retailerswishing to move away from plastic carrier bags, to engage with our customers on the topic andunderstand their views.

Consequently, we launched alternative paper carrier bags made by a local manufacturer from wet-strength paper and not wax-lined – making them easy to recycle. The paper is Forest StewardshipCouncil certified and we have encouraged our supplier to apply for certification of its site.

The uptake of these bags has exceeded expectations: we are now sourcing additional wet strengthpaper and are exploring ways to integrate our cardboard recycling at the distribution centres with thepaper bag supply chain.

We also started a strategic collaboration with Tetra Pak to find more holistic solutions to the plasticchallenge. These consider the environment, product safety, affordability, health and nutritionrequirements. Our ultimate objective is to offer products that are made from renewable sources, arefully recyclable and are made locally, while being scalable and available to all players in the industry.

All distribution centres have comprehensive recycling programmes in place for plastic and cardboard.This includes waste generated at the distribution centres and by certain participating retail stores.This waste is backhauled when deliveries are made.

As a leading retailer, SPAR is committed to contribute towards changing the culture around the use ofplastics.


OUR ENVIRONMENTAL COMMITMENT

SPAR’s fundamental environmental aim is toreduce its use of various natural resources. Thisextends to our supply chain, where emphasis isplaced on supplier and retailer practices thatSPAR can influence for the better.Our environmental initiatives are developed to yield commercial gains and foster environmental welfare,as the long-term reductions in input costs will have a positive impact on the business. In support of this,SPAR adjusted our business’s technology strategy and specifications, particularly for large-scaleinfrastructure investments. This includes, for example, vehicles, buildings and equipment, as well asincorporating green technology wherever possible. By implementing socially and environmentallysustainable business practices, SPAR seeks to guarantee its own long-term viability.

Supply chain optimisation and innovative energy management are critical to achieving cost and carbonfootprint reduction. SPAR engages directly with smallholder farmers in our value chain to encouragesustainable farming practices. Due to the large role that packaging materials play in SPAR-brandedproducts, we engage with packaging material suppliers to reduce our environmental impact and waste.

SPAR engages with our independent retailers to assist them in reducing their carbon footprint. This is doneby making recommendations on green building practices and assisting them with purchases of energy-efficient technologies.

CLIMATE CHANGE IMPACTSWe are conscious of the challenges climate change poses to our business and society. Our riskmanagement and sustainability approach are premised on the understanding that this will effectsignificant changes in the way economies use and value natural resources in the future. We identified thekey risks and opportunities posed by climate change that could have a substantive impact on SPAR. Theseare classified according to regulatory, physical, and other risks and monitored by the Social and Ethics andRisk committees. Mitigation plans and the cost of mitigation have been determined in our latest CDP(formerly the Carbon Disclosure Project) carbon and water submission.

SPAR has participated in the CDP since 2009. SPAR’s carbon footprint is calculated according to theInternational Greenhouse Gas (GHG) Protocol’s Corporate Accounting and Reporting Standard, and thedata provided pertains to the period from 1 October 2016 to 30 September 2017. Scope 1 and 2 emissionswere independently verified.

The scope of the submission comprises the central office and the seven distribution centres with theirassociated distribution fleets. SPAR is committed to reducing our carbon emissions, specifically aroundScope 1 (Mobile Combustion, Stationary Combustion and Fugitive Emissions) and Scope 2 (Electricity).

https://investor-relations.spar.co.za/ir2018/pdf/2018_CDP_Carbon_Submission.pdf

https://investor-relations.spar.co.za/ir2018/pdf/2018_CDP_Water_Submission.pdf


To achieve meaningful GHG reduction we have set science-based targets (SBTs). This is a joint initiative ofCDP, the UN Global Compact, the World Resources Initiative and WWF and is in line with the level ofdecarbonisation required to keep global temperatures’ increase below 2 °C.

We have selected an appropriate SBT methodology, a Sectoral Decarbonisation Approach (SDA), whichseparates SPAR’s business into three sector categories:

warehouse;distribution; andretail.

Based on the SBT research, we developed a carbon reduction framework which was approved at the end of2017. The framework provides an outline of the optimal pathways to achieving sustainable minimisation ofSPAR’s carbon footprint in South Africa. It further provides a framework for meeting SBTs and considersparallel imperatives which will impact on GHG management going forward:

Carbon tax liabilityEnergy and GHG reporting regulationsEnergy management systems integration

A baseline was measured in 2016 with action plans set for 2017 to 2025 and then key actions for 2025 to2035 followed by 2035 to 2050. We mapped projects with potential savings to prioritise the key actions.

Based on the framework, we designed an internal carbon pricing methodology aimed at the followingoutcomes:

reaching our proposed GHG emission reduction targets;protecting SPAR Group against risks relating to compliance with future carbon pricing systems suchas a Carbon Tax;encouraging investments in low-carbon technologies; andmaking sound investment decisions in terms of energy efficiency projects and future operationalchanges


SPAR CARBON REDUCTION FRAMEWORK: OUR PERFORMANCE AGAINSTTHE 2016 BASELINE

During the 2016/2017 financial year, reported in the CDP data submitted in 2018, SPAR’s activities emitteda total of 79 101 tonnes of carbon dioxide equivalent (CO2e) for Scope 1 and Scope 2 emissions(2015/2016: 82 984 tonnes). This decrease was due to the reductions achieved in the better managementof the fuel used by our fleet and forklifts along with the reduction in fugitive emissions. Significantreductions in Scope 2 emissions were due to further installation of air curtains in the freezer sections ofsome distribution centres, the installation of timers on air conditioning units, lighting and better energymanagement.

Electricity consumption contributes toward our Scope 1 and 2 emissions. We consumed a total of 45 620MWh of electricity for the stated period compared to 43 974 MWh in the previous period and well withinour target of 42 673 MWh (from a 2013 base year of 51 500 MWh). The reduction is the result of ourheating, ventilation, and air conditioning (HVAC), refrigeration and machine replacement programme,which reduced consumption at our distribution centres and warehouses through the introduction of newerand more energy-efficient technologies. Solar panels were installed at the South Rand distribution centrein October 2017. The impact of the solar panels will be seen in our 2017/2018 CDP submission in 2019.Internal monitoring of municipal electricity usage at the South Rand distribution centre shows thatmunicipal electricity consumption has decreased from 9 642 MWh in 2016/2017 financial year to 7 542MWh in the 2017/2018 financial year.


Plans are in place for solar panels to be rolled out to North Rand and the Western Cape distribution centresduring 2018/2019. We also run behavioural change campaigns to raise employee awareness around thebenefits of reducing electricity consumption. The group neither purchased nor consumed heat, steam orcooling energy during the stated period.

The breakdown of the Scope 1 and 2 emissions below are tracked from a 2013 base year:

Scope per GHGprotocol 2014 2015 2016 2017 2018Total footprintScope 1 and 2(CO2e)

78 758

77 882 82 984 79 101 81 271Scope 1: directGHG emissionsfrom vehicles,warehousingcooling and air-conditioningfacilities (CO2e) 37 644 37 203 39 010 34 081 39 201Scope 2: indirectGHG emissionsfrom electricityconsumed (CO2e)

41 114

40 800 43 974 45 020 42 070* The figures in this table have been restated after external verification of our Scope 1 and 2 data. The

figures in the 2018 column are not verified and will only be verified once the 2019 submission of theCDP is completed.


TRANSPORT AND LOGISTICS IMPROVEMENTSSPAR’s logistics model and strategy is focused on route planning and fuel efficiency to reduce ourenvironmental impact and transport expenses, particularly on the back of rapidly rising fuel prices. Fuelcosts for SPAR’s day-to-day operations were approximately R184.4 million for the year (2017: R156.2million). Continuous improvement of the SPAR vehicle fleet is a core focus over the long term.

Initiatives include:

Monitoring of fuel consumption, excessive idling, route determination and optimisation, routeadherence, and speeding via an on-board computer systemFitting of aerokits on long-distance vehicles to reduce dragIncreasing the use of 95:5 (diesel:biodiesel) fuel mixDriver training, with associated assessments and remuneration incentives, to improve fuelefficiencyThe implementation of a national integrated transport system across regional boundariesFleet optimisation, also to meet the increasing need for night deliveriesRoute optimisation in all territories, with improved analysis of cross-border costsIncreased demand for recycling space at distribution centres with a concomitant need to optimiserecycling initiatives

The North Rand distribution centre implemented solar systems on refrigerated and dry trailer boxes, whichaid the operation of tail lifts and auxiliary equipment used to power up CCTV cameras. Asset lifeimprovements follow as a secondary benefit. New vehicle fleet technology improvements as well as designchanges on trailer boxes substantially improved vehicle performance and fuel consumption.

RECYCLING FOR A BETTER WORLDAll distribution centres have comprehensive recycling programmes in place for plastic and cardboard. Thisincludes waste generated at the distribution centres and by certain participating retail stores. This waste isbackhauled when deliveries are made.

Recycling is targeted at SPAR branded packaging. We have successfully partnered with third-party serviceproviders to achieve major improvements in this area. Our approved SPAR packaging suppliers haveundertaken to channel their waste into our recycling programme, and to use the recycled cardboard fromour distribution centres (and participating retail stores) in our SPAR branded packaging. In this way, weclose the loop in our cardboard waste cycle and contribute to our overarching goal of reducing our wasteto landfill. Recycling includes the recycling of vehicle lubricants and refrigeration oils.

Organic waste is converted into compost, which is used by local community farmers. This initiative iscurrently piloted at one of SPAR’s distribution centres. We anticipate that other facilities will implement theprocess going forward. Glass and metal recycling is not in place at all distribution centres, but isanticipated to become more of a focus going forward.


Recycling of electronic waste is becoming a further imperative. A permanent container has, for example,been placed at the South Rand distribution centre to collect electronic waste. Typical waste includes olddesktop computers, laptops, monitors, keyboards, telephone handset and cables. This ensures we do notdispose electronic waste into our landfills, which in turn prevents toxins, metals and ashes being releasedinto air, water and soil.

TAKING ACTION FOR A NEW FUTURE

The South Rand distribution centre launched the SPAR VUCA project this year to address three wastemanagement challenges:

Food security and waste: the aim of this initiative is to reduce food waste at canteens (about 9 kgdaily) by involving stores and consumers. The focus is on food waste management education,particularly during October, which is food waste month and 16 October, which is world food day. Acompetition served to motivate employees and departments to take a pledge on how to combat foodwaste.

Retail water security: this project aims to improve water management in stores and communities. Westarted by approaching selected stores and requesting them to buy 5 litre water bottles. R1 of everybottle bought was used towards buying a Jojo tank. The project is set for a wider rollout in October.

Food sustainability: this project aims to increase rain harvesting by providing Jojo tanks tocommunities and schools, and working with suppliers to revamp learners’ toilets. We partnered withSharpeville Spar, Build it and the Department of Agriculture to better the serve the community aroundSharpeville. Tsoelopele Primary School was selected as the first beneficiary and had its kitchen andtoilet facilities upgraded. A Jojo tank was installed for gardening which has resulted in reducedmunicipality bills for the school.


CLOSING THE RECYCLE LOOP FOR PACKAGING

We are committed to recycling for a new future. Two partnerships illustrate how we are making this areality.

We partnered with Tetra Pak, a long-standing supplier, to work towards fully renewable packaging forSPAR juice and milk. In terms of cartons, we have been able to preserve the product through seven-layered packaging, which means we do not have to use preservatives in the juice or milk.

Tetra Pak launched the world’s first bio-based cap which we are implementing for SPAR UHT milk as afirst step. The caps are made from a high-density polyethylene (HDPE) derived from sugar cane. Byusing the new bio-based cap we are increasing our material used from renewable resources from 67%to 83%.

In October 2017, we started procuring corrugated cartons that are environmentally friendly andresponsibly managed for all SPAR branded products. Corruseal Group was identified as our partner.They created a fully integrated national corrugated business: they manufacture, collect waste andfeed this back into their paper mill. The mill, which is Forest Stewardship Council accredited, suppliesthe bulk of the Corruseal Group’s recycled paper requirements.

With the help of Corruseal we collect waste cartons from most SPAR distribution centres and supplythese back into the paper-making process. Paper is then distributed to the Corruseal Corrugatemanufacturing plants for the manufacture of new boxes according to the SPAR brand requirements.

By creating a sustainable loop and recycling, we reduce our reliance on natural capital and save coststhroughout the value chain, thereby creating a new future.

RECYCLING INNOVATION THROUGH VENDING MACHINES

To recycle for a better world, SPAR is exploring the use of innovative new reverse vending machines.Consumers can use these to return packaging at stores. Once deposited, the reverse vendingmachine can sort used packaging according to weight, volume and classification. It is further able tosupply real time information on all these indicators, including identifying the parent company of thewaste and region. These collection reports can be used to determine trends and averages over time,helping us to increase recycling.

Through the reverse vending machine we can educate consumers about packaging while potentiallyincentivising this through our rewards programme. It will support our efforts to reduce packagingwaste and track progress.

We are piloting 10 units in Johannesburg to understand consumer behaviour and to identify the bestsites for these machines.


USING WATER FOR THE FUTUREThe use of water is imperative in SPAR’s stores and distribution centres to maintain a hygienicenvironment for the storage and sale of food products. Access to a constant, good-quality water supply isalso critical in terms of the group’s agricultural activities, with limited availability posing a risk to theavailability of food sources. Recycled water is used for activities such as washing trucks, ablution facilitiesand watering on-site.

In accordance with the group’s sustainability strategy, water risks are identified and evaluated byanalysing and prioritising those relevant to SPAR’s operations. SPAR participates in the CDP’s waterprogramme.

In terms of our target of a 30% reduction in the use of municipal water we have achieved a 17% reduction.To ensure that the group’s retailers, suppliers, consumers and communities are protected against waterrisks, we undertake enhanced due diligence in assessing water risks and opportunities as part of ourprocurement process.

We also consider water risks when investing in new opportunities, expanding to new retailers and in ourengagement with potential suppliers. All distribution centres have water recycling systems installed, andwater recycling/collection schemes are being explored on existing sites, as well as in the development ofnew sites and expansions.

Water targets and goals (along with energy, waste and fuel) have been included as part of the group’s aimto improve its sustainability performance.

Our North Rand distribution centre has, for example, invested and implemented two water harvestingtechniques using a closed loop system. Defrost cycle water from ammonia condensers is diverted from aneffluent drain into a softener plant and used in cooling towers. Approximately 5 m3 of water is saved perday in this way. The distribution centre is also doing a feasibility study on a rain water harvest system aswell as a greywater plant.

Read more about water risk mitigation in the Western Cape in 2018 here.

A SUSTAINABLE FOOD SYSTEMA sustainable food system is a collaborative network that integrates all aspects of the value chain toensure the environmental, social and economic value for communities and regions. One of SPAR’scommitments in terms of a sustainable system is to innovate through our house brands. We have madesignificant progress in working with our suppliers towards sourcing responsibly, reducing waste andimplementing biological farming. Our Freshline team, for example, assists local farmers in the Freshlinesupply chain to adopt more sustainable farming methods.

On the other side of the value chain, we engage with consumers in terms of nutrition, water use andreducing the use of plastic. Read more about the ways in which we reduce plastic use here.

https://investor-relations.spar.co.za/ir2018/focus-south-africa/understanding-operating-environment/#water

https://investor-relations.spar.co.za/ir2018/focus-south-africa/focus-manufacturing-natural-capital-supply-chain/#plastic


SPAR’S COMMITMENT TO SUSTAINABLE SEAFOOD

SPAR is a co-signatory to industry and government bodies on issues relating to fishery improvementsand is aligning all SPAR seafood procurement to be within the parameters of the World Wide Fund forNature (WWF) Southern African Sustainable Seafood Initiative (SASSI) guidelines on how seafoodshould be caught and sold.

SPAR offers an extensive house and supplier branded seafood range. However, the Southern Africanseafood industry faces several sustainability-related issues that go well beyond competition in themarketplace.

These concerns include illegal harvesting or poaching and the over-exploitation of marine resources.SPAR is committed to collaborating with WWF-SASSI to overcome these challenges and guard thesustainability of seafood resources.

SPAR joined the WWF-SASSI Retailer/Supplier Participation Scheme in December 2010. Since then, wehave completed an assessment of the SPAR house brand seafood range demonstrating that all SPARhouse brand seafood procurement is taking place according to our formal sustainable sourcing policy.

We created internal awareness of the WWF-SASSI and SPAR commitments, and generated externalawareness through the guilds. We provided real-time access to seafood data by linking WWF-SASSIand suppliers to SPAR’s online portals. Through working closely with suppliers, we have been able toestablish full traceability of SPAR branded seafood products. This included random DNA testing onSPAR branded seafood products to ensure correct identification and labelling.

We expanded this initiative beyond SPAR house brand products to all seafood and fish in procuredthrough our distribution centres. We engaged with and assessed all suppliers who engaged directlywith distribution centres according to the standards stated in the SPAR brand procurement policy. Wealso focused on training buyers at the distribution centres and gathering seafood information from allseafood suppliers to assess whether any species were red listed. Work was also done to assistretailers that sourced their own seafood and a pilot project was launched with Fish4Africa, whichsupplied fish directly to SPAR stores.


OUR PROFILE IN IRELAND

SPAR operates in Ireland through itsownership of the BWG Group – the marketleader in convenience retail in Ireland, withapproximately 12% total grocery marketshare, and over 40$ share of the conveniencechannel.

In South West England, through Appleby Westward, we service 288 (2017: 285) SPAR stores. TheBWG Group operates a multi-brand retail strategy, which includes SPAR, MACE, XL, Londis and ValueCentre Cash and Carry. The acquisition of 4 Aces added the Gala convenience group and theacquisition of Corrib Food Products, expanded our offering in fresh and frozen poultry and other frozenfoods this year.

SPAR Ireland has a three-tier house brand strategy with S-Budget (entry level), SPAR (emphasis onvalue and quality) and SPAR Select (a premium offering). We also offer a Fresh Choice brand for fruitand vegetables and the Glenmor brand for fresh meat and poultry. There are three main offeringswithin the SPAR brand, namely SPAR, SPAR Express and EUROSPAR.


SPAR

SPAR provides neighbourhood shopping, with central locations and extended shopping hours tomaximise convenience.

EUROSPAR

EUROSPAR provides comprehensive supermarket shopping, offering a broad range of groceriesand general merchandise, fresh produce, in-store bakery, butchery, deli and ready-to-eatproducts and home-meal replacements.

SPAR Express

The SPAR Express format is used exclusively on forecourt sites.

Londis

Londis has a mix of store formats from neighbourhood supermarkets to small convenience stores.Our recent development plans and recruitment of new stores have dramatically changed the lookand feel of the Londis brand. The brand promise of ‘Local Like You’ is about a family philosophythat permeates throughout the group.

MACE

MACE is the longest-established convenience shopping brand in Ireland, and includes communitystores and forecourt shopping, with a total of 216 stores around the country.

XL

The XL brand is concentrated on a rural spread of smaller, independent stores that are servicedby the Value Centre Cash and Carry network.

Value Centre

Value Centre has a network of 20 Cash and Carry branches (excluding the recent 4 Acesacquisition) servicing over 20 000 customers across the independent retail, licensed andfoodservice trades.


BWG Foodservice

BWG Foodservice specialises in product innovation and the supply of multi-temperature productsto all sectors of the foodservice industry and has about 3 000 customers.

Gala

Following the acquisition of the 4 Aces wholesale business, BWG Foods now supplies 34 Galaretail stores in Ireland.

AWARDS FOR 2018BWG Group and the SPAR brands have a strong reputation following many top industry awards overthe years, with individual SPAR stores also regularly featuring among the best in their categories.

Recent awards for the BWG national distribution centre facility in Kilcarbery include the following:

We have also garnered digital technology awards for Best B2B Technology from Eir Spiders in 2017and the Tech Excellence Awards for the Private Sector Project 2018.

SPAR Fermoy won the Best Convenience Store Award for Stores 2 500 – 4 000 Sq ft at the ShelfLifeNational C-Store 2017 Awards.

The Londis advertising campaign won a range of innovation awards from the Institute of createadvertising and design.

Cash and Carry Manager of the Year, Garry O’Callaghan from the Value Centre, Limerick, was selectedby ShelfLife for a Grocery Management Award.


UNDERSTANDING OUR OPERATING ENVIRONMENTSince the deep recession 10 years ago there has been a structural change in consumer behaviour towardsvalue-conscious choices. Although Irish consumers are positive about their spending outlook, the shoppinghabits developed during the recession have not been forgotten. This has led to smaller average basketsizes and a greater level of promiscuity as shoppers spend across a wider range of store options.

Online options made it easier for consumers to seek out value, which in turn change how they engage withstores. Christmas 2017 was a victim of this, with deep Black Friday discounting disrupting consumer spendin a key trading period in terms of revenue and profit generation.

Groceries however remain predominantly a ‘bricks and mortar’ channel with low but growing penetrationof online.

The grocery sector overall returned to growth this year and the persistent gap between sales value andsales volume growth started closing in recent months. This would suggest that retailers are finallybeginning to extract some value growth from what has been a highly competitive, price-obsessed marketover the last decade.

There has been sustained grocery deflation in the Irish market with the cost of food decreasing. This isputting ongoing pressure on wholesale and retail margins. On the upside, in many cases where deflationhas occurred because of changes in the €/£ exchange rate, the lower cost of goods yielded a dividend toretailers as retail pricing did not always track the lower cost of goods.

In the supermarket sector, the three largest competitors have very similar levels of market share andcontinue to vie for top position. Competition remains intense and geared towards discount options.Consequently, BWG Foods has had to invest in pricing support to EUROSPAR retailers to ensure that theyremain competitive within the supermarket segment.

BWG invested in the wholesale pricing of key impulse categories such as soft drinks and confectionary toensure competitive pricing on the best-selling lines on our wholesale price from the distribution centre.Competitor prices are tracked weekly and our prices amended accordingly to match the lowest competitorprice. This ensures that the distribution centre is aligned to its key competitor set – an importantguarantee to retailers and an assurance that they are consistently able to buy at the very best pricesavailable on categories where profitability is key to the retail model.

The Kantar Worldpanel, a world leader in consumer knowledge and insights based on continuous consumerpanels, describes Ireland as ‘Europe’s most competitive grocery landscape’. To match or outperform themarket in terms of growth will continue to be a significant achievement for BWG Group.

In the UK market we saw several acquisitions of competitors by the large multiple supermarket operators.

Food inflation is forecast to rise with uncertainty over Brexit, the value of the sterling and weather impactsfollowing a wet winter and an exceptionally hot summer putting pressure on the agriculture sector. Half ofBritain’s food is imported, with 30% from EU countries. Food prices have varied by commodity type, withan average 2.9% like-for-like inflation during 2018. Forecast for food prices post Brexit vary widely.


Above-inflationary increases in labour rates – resulting from government-introduced changes to theNational Living Wage and National Minimum Wage – impacted overall wage costs for wholesale and retailbusinesses.

Regulatory changes remain a significant threat to total category sales in Ireland, particularly related to thealcohol category. The Public Health (Alcohol) Bill was signed into law by the President on 17 October 2018;each module within the legislation requires activation by the responsible Minister and no activation has yetbeen triggered.

There has been a long period of consultation on the Alcohol Bill and the structural separation element hasbeen substantially diluted from the original draft bill. In terms of minimum unit pricing (MUP), this isunlikely to be introduced in the near future based on the uncertainty of the seamless border and the needto balance pricing across the island of Ireland.

The potential impact of legislative and other tariff or duty changes post Brexit remains significant andunquantifiable at this stage, based on the uncertainty of the final solution post March 2019.


OPERATIONAL OVERVIEW

Buoyed by a long spell of fine weather, salesin the Irish retail sector grew by 2.8% in 2018.Retail categories such as grocery, DIY and hardware, and fuel benefited strongly from the sustainedspell of warm weather during June. From a grocery perspective, there was particularly strong demandfor seasonal products such as soft drinks, beer and wine, ice cream, BBQ food and fresh foodcategories, with the spike in demand pushing retailer supply chains to the limit during summer.

Once-off events such as the football World Cup and the royal wedding in the UK provided a welcomeboost to trade for retailers, with sales of soft drinks, alcohol, and magazines benefiting most.

This trend reflects a broader move towards event-led retail in recent years as retailers seek toleverage such events to help promote consumer spend.

All BWG retail brands showed growth in 2018 and either maintained or marginally grew their marketshare. According to Nielsen Scantrack statistics, the convenience market grew by 3.7% year-on-yearand the supermarket channel grew similarly by 3.7%.

Londis was the strongest performer among the BWG Group brands, with sales growth of 5.9%. SPAR,as our largest brand, increased sales by 4.1%. EUROSPAR outperformed the supermarket channel byachieving 4.3% sales growth. There is no empirical track of wholesale or cash and carry channel salesbut based on volume and value sales growth over the last 12 months, combined with supplierfeedback, we are confident that Value Centre has grown its market share in the wholesale channel, ashas BWG Foodservice.

STORE PERFORMANCE OVERVIEWEUROSPAR operates in the supermarket sector of the Irish grocery trade, which remains highlycompetitive in nature. EUROSPAR delivered wholesale sales growth of 1.79% – consistent with thatachieved over the past number of years –despite strong sterling weakness-induced deflationaryheadwinds. EUROSPAR store numbers also continue to grow, with four new EUROSPARs opened. Wecontinue our focus on executing the EUROSPAR strategy by developing the brand’s ‘Famous for Fresh’credentials. These manifest in the delivery of quality, in-store prepared, ready-to-eat and ready-to-cook fresh foods, and accompanying in-store consumption facilities.

Sustainable retailer profitability is also top of mind for EUROSPAR management, who aim to deliversales and profitability improvements to its retailer base.


SPAR sales were strong with overall wholesale growth of 3.04%. Performance was challenged by theloss of seven SPAR Stores from the Pelco group in January. After a challenging start to the year onnew business recruitment, 19 new SPAR stores started trading in 2018.

MACE wholesale sales grew by 4.4% this year with new format stores performing well ahead ofexpectations. Although store number growth is a key challenge, 12 new stores opened. In terms ofcategory performance, Fresh foods, particularly coffee to go, and alcohol, saw very strong growth.

Notwithstanding the fact that new store growth remains a challenge, the XL retail brand continues togrow strongly at 44.5% year-on-year through increased loyalty and a focus on fresh food categories.

Londis delivered growth ahead of the current market trends with wholesale sales increasing by 4.9%.Key weather events played a part in this performance and challenged our supply chain. Our continuedfocus on fresh food categories, combined with retailer profitability workshops, is having a positiveeffect on profitability and business mix. The signing of six new stores affirms our ability to attract newretailers to our brand.

The retention of stores remains paramount: the loss of four stores has been financially driven ratherthan the result of competitive interference. There is, however, a significant increase in retailerenticements from our competitors. With the expected initiation of retirement conversations withseveral retailers in the coming year, we are confident in finding suitable successors from within theoverall BWG estate.

BWG Foodservice continues to show strong double-digit growth, particularly in chilled, fresh andfrozen food categories. This growth has been driven by new customer ‘wins’ and expansion of rangesto existing customers. The BWG Foodservice business remains one of the fastest growing parts of theBWG Foods business.

Value Centre Cash and Carry had an exceptional sales year and continues to outperform thecompetitor set by increasing its market share.


DISTRIBUTION CENTRE OVERVIEW

SHOPLINK: OUR BESPOKE, BEST-IN-CLASS RETAIL SOLUTION

The development and deployment of the Shoplink platform was a major success factor for theyear. Shoplink is a bespoke, best-in-class solution to increase simplicity in stores and to driveretailer efficiency when ordering stock from BWG Foods. It enables 24/7 order placement, allowscustomers to review the full range of BWG products and deals, as well as selecting the bestpromotions. As a B2B platform, it enables complete integration between BWG and in-store EPOSsystems for live sales updates and complete order histories.

Shoplink is deployed to the entire BWG Group retail symbol estate, which opens options forsupply chain transformation, route optimisation and demand shaping. Shoplink is being deployedin the Value Centre Cash & Carry division. There has been a significant migration of customers tothe platform, resulting in higher value sales across a wider product range, delivering a highermargin.

The Shoplink platform was awarded Best B2B Technology 2017 at the prestigious ‘Eir Spiders’Awards. In the ‘Tech Excellence Awards’ it was recognised as the winner in the category PrivateSector Project 2018.

Improvements in our distribution centre capabilities this year included the deployment of digital shelfedge displays in the chilled warehouse environment. This has dramatically reduced the daily gridcreation process from one hour to one minute. The technology is currently being deployed for otherareas of the operation where dynamic signage or labelling requirements can benefit from improvedaccuracy and timeliness.

The retail foodservice and the quality of the fresh food offers in stores are crucial for successful andprofitable retail operations. We established a new retail support team who are responsible foridentifying and tracking new food trends and providing a retail response to satisfy the changing needsof our customers.

Our Retailer Benefit Programme has grown year-on-year in terms of the financial pool generated bysupplier support for the core ranges. This is now a very important part of the overall retail profitabilitymodel. Now in its fourth year of operation, several changes are planned, including a full review of thecore ranges, and the opportunity for retailers to adapt the programme to better match the profile oftheir store sales. This change will be available for 2019 and aims to recruit additional retailer supportfor the programme.

Within Appleby Westward, The Retailer Club was introduced to drive additional sales through selectedlines. For the retailer, this provided the opportunity to earn additional discounts based on purchasevolumes and to benefit from additional margins on SPAR branded lines.

We also created an affinity deal for retailers on credit card charges. With almost 800 members sincelaunching this initiative three years ago, average store savings on fees are significant.

The programme of company-managed ATM rollouts has proven to be a great financial success for the


BWG Group and its retail customers. This is the first venture by SPAR Ireland into financial services. 53new ATM facilities were installed this year and a further eight are planned.

INNOVATION IN 2018BWG Foods launched a consumer loyalty app for SPAR. The app allows the delivery of tailored, highlypersonalised offers to key customers. We also continued to trial innovative solutions in ordering appsfor the deli and lunchtime sector, which is delivering significant insights about consumer behaviourand ordering patters.

BWG Group’s loyalty and rewards programmes continue evolving for the retail brands SPAR,EUROSPAR and Londis. At EUROSPAR a new initiative was launched targeting lapsed SuperEasyRewards members and attracting them back to EUROSPAR stores with bespoke offers and tacticalpromotions.

There is continued rollout of Londis Smart Rewards across the Londis estate, with 25 Londis storeshaving the programme in place. Londis Smart Rewards has more than 20 000 fully registeredmembers.

A new bakery range was launched under the O’Dwyers brand. It offers a range of everyday bread andcakes, while the more premium Kake & Co brand will deliver high quality and seasonal products. Atotal of over 40 new stock-keeping units were launched within the new bakery range.

The BWG Wines & Spirits business features a range of exclusive wines that are sourced on behalf ofits retailers: these are key to offering a very strong consumer value proposition and delivering a goodretail margin. The continued popularity of these wines, based on great quality at very competitiveretail pricing, has been essential in driving the growth of the BWG alcohol business by over 5.5% in2018.

In Appleby Westward a new SPAR brand wine range was launched. Following several winetastingevents with retailers and distribution incentives, these products were successfully launched in stores.

The Irish market is heavily weighted towards pre-packed fresh produce lines. Fresh Choice is thehouse brand for fresh produce in BWG Foods. It allows us to consolidate our volumes under one brandand gives us better buying power when agreeing tenders and promotions. Fresh Choice is a significantpart of our total fresh produce turnover and is used for pre-packed lines only. All Fresh Choice linesare packed at source by our produce category partners to guarantee freshness and quality.

All subcategories within our produce business have pre-packed Fresh Choice lines, including fresh cutfruit, nuts and seeds, prepared bag salads and produce-based meal solutions. We have beensuccessful in winning several national foods awards for lines in our prepared grab-and-go ranges.

The Glenmor brand for fresh meat and poultry had a successful year of sales growth, includingsignificant uptake of the barbeque range. This is despite a challenging and competitive market. Thefocus with all suppliers is on maintaining sales growth through development of new product optionsand smaller case sizes for retailers.


2017 FOCUS AREA EXAMPLES OF PROGRESS AND CHALLENGES IN 2018

Monitoring and mitigatingthe risk of Brexit

There is an ongoing dialogue with government and trade bodies tounderstand and appreciate the changing dynamics of the ongoingnegotiations. There is also extensive consultation and dialogue withsuppliers on contingency strategies to ensure that stock is availablefor retail and wholesale groups in the rest of Ireland post Brexit inMarch 2019. We are assuming that there will be no sales from theValue Centre Cash and Carry wholesale business to the UK/Sterlingarea because of new legislation, borders, and tariffs in 2019.

We will continueinvestigating potentialacquisition opportunities

The acquisition of 4 Aces is complete, and the full integration processis underway. The acquisition of Corrib Foods was completed inSeptember 2018. Corrib Foods is a foodservice business which will becomplimentary to the existing BWG businesses. Corrib Foods willcontinue to operate as a stand-alone business for the next twelvemonths.

Continuing to supportretailers to achieve like-for-like top-line growth andsuccess in the retail business

BWG Foods has a significant co-investment commitment withretailers and will make further capex co-investment in the next year.

Continuing growth of theBWG Foodservice businessthrough new contract wins

BWG Foodservice is one of the fastest-growing parts of the BWGbusiness. Double digit sales growth has been driven by newcustomers and an expanded product offer. The acquisition of CorribFoods business will consolidate this growth and will add to ourfoodservice credentials. The acquisition will provide greater scale inkey areas of foodservice and provide access to new commoditysourcing for BWG.

Looking forward, BWGGroup’s capital investmentwill focus on an expansion ofthe chilled productdistribution facilityat Kilcarbery

Significant capital investment across the BWG distribution andinformation technology (IT) functions included the upgrade andrenewal of the physical IT structure and transport fleet. This wasprioritised over the expansion of the chilled product facility – theoriginal project is in planning for the coming year.


FOCUS AREAS IN IRELAND

BWG PRIORITIES FOR 2019Integration of the 4 Aces wholesale acquisition and delivery of synergies

Commence the communication and roll-out of the new SPAR strategy for 2019 and beyond

Delivery of the business plan for 2019, including• Mitigation of the Brexit risk to the business• Continued like-for-like top-line growth• Continuing to support retailers to achieve top-line and profitability growth• Completion of the Corrib Foods acquisition in foodservice

Innovation and differentiation around retail foodservice are key elements of the BWG Foodsoffer to its retail estate. The business has invested in new resources to create an innovationteam whose focus is to identify new food trends and to create new foodservice offers tosatisfy the changing needs and tastes of consumers.

SPAR RETAILERS’ TOP PRIORITIES FOR THE NEXT YEARDelivering like-for-like sales growth

Maintaining net profitability levels

Management of the labour challenge in a full employment economy

Ensure business continuity post Brexit



Retail is Ireland’s largest industry, the largestprivate sector employer, and a criticalcontributor to the country’s economy.As a market leader, the BWG Group has established operating policies that govern our engagements withmajor stakeholders and comply with all relevant legislation.

OUR EMPLOYEES AS AN ASSETAt SPAR Ireland we believe that the hard work and commitment of our employees – our most valuableasset – must be respected. We are committed to providing a working environment that is not only safe, butalso conducive to personal well-being and growth. BWG Group is a significant employer (both directly in itswholesale and retail operations, and indirectly through its extensive retail store network) and is fullycompliant with all labour legislation. BWG Group maintains positive relations with the two recognisedunions – the Services, Industrial, Professional and Technical Union (SIPTU) and the Mandate Trade Union –and no significant labour issues occurred during 2018.

The full employment economy is resulting in more pronounced employee risks, compounded by limitedrental accommodation in urban centres. There has, for example, been a significant change in theavailability of weekly waged employees, which has manifested itself in a drain of experienced pickers andqualified warehouse employees from the national distribution centre and a shortage of drivers across thewider market. Attracting skilled IT resources is also a challenge. BWG Foods is a well-established localemployer that works hard to recruit, train and retain talented individuals across the business.

The core skills required by our management team include the ability to manage and integrate newacquisitions, service orientation and innovation. Our training focus this year was on negotiation skills.

SPAR Ireland is committed to employee learning and development, and continues to train all employees toensure that they are adequately equipped to carry out tasks efficiently, safely and according to requiredstandards.

Read more about our employees in the section on material relationships.



HEALTH AND SAFETYThe health and safety of on-site employees is a highly regulated aspect of our business.

In terms of wellness initiatives, we do health screening for employees and have an Employee AssistanceProgramme that facilitates activities for head office employees such as pilates and gym session, runninggroups and nutrition talks.

All sites have passed the BWG Foods internal audit.

FOOD SAFETYAs a food retailer, the BWG Group implements best practice to ensure the safety and quality of all ourproducts. This is measured according to six key areas:

Industry standards, emerging issues and liaising with government bodiesAllergensSupplier approval

Retail employee trainingFood safety manualsStore audits


INVESTING IN OUR COMMUNITIESSPAR Ireland’s community investment policy is to raise awareness of and funds for a few deservingcharities and organisations within its communities.

These relate, among others, to cystic fibrosis, homelessness, hospice services, heart health and suicideprevention services. Our collaboration with Food Cloud, across BWG Group’s wholesale and retailbusinesses, connects our surplus food to nearby charities that need it, through an app and a website.

Through major sponsorships, the SPAR brand receives large-scale exposure and is associated with healthand wellness.

BWG Foods, its employees and the wider retailer communities have been involved in several volunteer andcharity initiatives this year:

Business in the communityMizen to Malin cycle in aid of cystic fibrosis

Pieta House CycleHowth to Bray Walk



We continue introducing innovative initiatives tomake our operations more environmentallyfriendly.Energy-reduction projects have been implemented in the retail and wholesale businesses. LED warehouselighting is a key investment for the group, along with a similar replacement programme of store lighting.We provide a fully funded solution for retailers looking to reduce their carbon footprint and electricity bill.

The scheme aims to replace inefficient lighting systems with LED systems. The up-front capital is fundedby the electricity provider and savings in electricity costs are shared between the parties. The funds paidout in 2017/2018 were used to fund new projects, of which 30% related to new schemes in Value Centrepremises and the national distribution centre as well as planned refurbishment work in retailer premises.

Typical savings are approximately 20% on the total bill. In addition to this, there are reductions in yearlymaintenance costs.

In terms of electricity usage, BWG is working on a tender for combined electricity volumes under an affinitydeal to its retail customers. Participation in the scheme will deliver average savings of about 5% perannum on total electricity charges.

Emissions are not measured, but all vehicles are Euro 6 rated, which means they all contain BlueTEC ECOtechnology, which delivers superior fuel efficiency.

Recycling of dry mixed recyclables and food waste, food composting and cardboard and plastic bailingtakes place at all BWG Group sites. All cardboard and plastic waste generated by the national distributioncentre is bailed for recycling.

Further initiatives to support sustainability and cost savings include:

A pilot of ‘compressed natural gas’ fuel for the transport fleetA move to compostable cups across the BWG Foods coffee programmeActive membership of Repak, the umbrella organisation for recycling and waste management.Repak is a not-for-profit company set up by Irish business and owned by its members. Repakcharges fees to its members in accordance with the amount and type of packaging they place onthe Irish market. These fees are used to subsidise the collection and recovery of waste packagingthrough registered recovery operators across Ireland so that the individual member companies areexempt from this requirement.


UNDERSTANDING OUR OPERATING ENVIRONMENT

SPAR Switzerland is a relatively small player inthe Swiss market and currently holds a 2.5%market share. The grocery market is dominatedby Migros and Coop.Interest rates and core deflation remained neutral and stable in 2018. Despite a slight devaluation of theSwiss franc (CHF) against the euro, this has not been sufficient to negate the attraction of cross-bordershopping prevalent across Switzerland. Many potential customers continue shopping across the Swissborder where they have greater buying power and where goods can be bought at significantly reducedprices – and free of value-added tax. Swiss import tariffs and trade protection further drive up pricessignificantly with the result that Switzerland is more than 50% more expensive for an average shoppingbasket than our neighbouring EU countries. This gives further momentum to the cross-border shoppingtrend. Estimates are that in excess of CHF 14.2 billion of retail spend bleeds across the border every yeargiven the substantial price differentials that exist.

In an effort to mitigate this, we have started benchmarking with SPAR Austria to identify opportunities toreduce the net landed costs into our distribution centre. This is an extremely complex process given thelegislation and tariff structures in place, but early signs are promising. Further to this we are also exploringcollaboration with global suppliers to open more cost-effective supply into Switzerland through theirinternational sourcing capacity with a big focus on our house brand categories.

Expansionary growth in German-speaking Switzerland has been limited due to local rules in site approvalsresulting in delays. Organic growth relies on SPAR driving the convenience differentiation in all elements ofour business with a focus on advertising, range expansion in Fresh, store design and in-store execution.


OUR PROFILE IN SWITZERLAND

“Our intent is to develop the SPAR brand DNA torepresent the most admired convenience foodoffering in the German-speaking partof Switzerland.”

SPAR Switzerland has a multi-brand retail strategy in German-speaking Switzerland, serving 39 corporateand 142 independent retailer stores under the SPAR banner. There are two formats under the SPAR brand,namely SPAR, which is aimed at neighbourhood shopping, and SPAR Express, which is for forecourtconvenience and high-frequency commuter type shopping. Our six TopCC stores provide a direct,wholesale and cash-and-carry service catering specifically to the restaurant and business trade and not thegeneral public as this is not permissible under Swiss law. Altogether, the 181 SPAR and SPAR Express, sixTopCC and 128 MAXI stores comprise the 315 stores serviced out of our distribution centre in St Gallen.

SPAR Switzerland’s national distribution centre is a modern logistics centre supplying 8 300 ambient and 2240 chilled product stock-keeping units.

SPAR neighbourhood stores offer a range of between 7 000 and 12 000 products, depending on the size ofthe store. The category assortment for Fresh generally constitutes 44% of the product range. SPARExpress stocks between 2 500 and 3 000 products, and TopCC has a product range of 18 000 products,making it one of the largest players in the Swiss cash-and-carry market.

With the average SPAR Switzerland store at 200 m2 to 500 m2, our stores lend themselves to theconvenience store model, which does not compete purely on price, but on accessibility, quality and profit-generating specialised items like convenience foods and coffee.

Find our store profiles here and read more about the distribution centre here.

https://investor-relations.spar.co.za/ir2018/who-we-are/our-brands-and-store-formats/



OPERATIONAL OVERVIEW

SPAR Switzerland maintained a steadyimprovement in its financial position since theturnaround achieved in 2017.Retail turnover is slightly down compared to last year given the strategic closure of six loss-makingstores since February 2017 as well as the pressure on the restaurant and business trade that supportsour cash and carry operations, which has seen significant closures and liquidations in the year. Ourmost significant challenge remains the ability to drive top-line growth in the context of a flateconomy.

Expense and margin management was exceptional, resulting in a solid profit after tax of CHF6.3million for the year (2017: CHF2.5 million). Read more about Switzerland’s financial performance here.

A strong focus on the implementation of category management resulted in significant improvementsin demand-based planning which supported a dramatic reduction in stock levels. The latter wasespecially effective in terms of promotional stocks. Category management has been implemented at69 stores and two TopCC stores, and is expected to be completed for all stores within 24 months. Atthe distribution centre, this resulted in revised range requirements and the elimination of stock-keeping units.

The successful category management rollout impacted volumes of cases despatched negatively,which was exacerbated by the closure of stores. However, the improvement in cash flow, increasedprofits and increased consumer basket spend negated reduced volumes.

Three new SPAR stores opened this year and we gained a supply contract for a further 27 storestrading under their own brand in the French-speaking area of Switzerland. 19 stores were refurbishedof which seven involved major upgrades.

Our store disposal drive has slowed down due to the extensive funding required to facilitate thesedeals. We anticipated 10 closures but only achieved four. We continue to explore the feasibility offurther closures.

Significant progress and savings were made in our people and supply chain costs. We optimised ourworkforce following the sale of several underperforming corporate stores. Warehouse productivityimprovements followed from an initiative to start using rolltainers – saving warehouse space andtransport costs.

https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/financial-review/#Switzerland


Although we continue to reduce the frequency of deliveries, the launch of Fresh To Go and thecommencement of supply to a new group of stores in the Western part of Switzerland, limitedpotential cost savings.

A new transport management and fleet optimisation system is on track to be introduced in Octoberthis year to further improve efficiencies. This, combined with backhaul and one-way loadopportunities, as well as the use of rail transport to remote areas, will allow us to further reduce andoptimise distribution costs.

A master plan for capital expenditure over the next ten years has been approved by the board. Thiswill ensure that we maintain and upgrade facilities according to a long-term, phased and returns-driven plan.

SPAR Switzerland focuses on delivering value through Fresh, and providing a wide selection of qualitymeats, wines, and day-to-day grocery products at a competitive price in the convenience market. Tosupport this position, SPAR Switzerland launched the first SPAR Natural concept which focuses onhealthy eating, organics, vegan and vegetarian options as well as supplements. The Fresh To Gobrand was launched in May, emphasising freshly prepared, tasty and healthy daily take home meals.The offering will be expanded following early successes. An in-store liquor and wine concept is set tobe launched in 2019.

Our relationship with SPAR South Africa is particularly important in new product and concept launchesas we can test and adapt South African versions without incurring research and development costs.Examples of this include the Win A Car competition, the SPAR Friends loyalty programme, fleetplanning and in-store concepts such as Beantree@SPAR.

Having developed an omni-channel and online delivery strategy in 2017, aimed at cost-effectivenessand practicality, a TopCC store was used as a pilot this year. This provides a platform for futureexpansion into the SPAR network. On completion of the pilot, the capability will be rolled out to thebalance of TopCC outlets.

SPAR Switzerland’s omni-channel strategy includes an integrated ordering and delivery systemthrough our internet shop, which is fully integrated in the SAP IT environment. Customers can orderquickly and conveniently, and delivery takes place directly through our own truck fleet, with click-and-collect also as a potential future option.

As the current challenging economic conditions are expected to prevail over the medium term, we arefocusing on creating additional revenue streams through our Fresh and convenience offerings. TheFresh To Go range realised an additional CHF 1 million in sales in the first six week after beinglaunched – a successful driver for further growth.


2017 FOCUS AREA EXAMPLES OF PROGRESS AND CHALLENGES IN 2018

Improving our retail execution andperformance to achieve the requiredreturns. This will be supported by SPARSwitzerland’s world-class distributioncapability and support services, and withthe recognition that this will take sometime to achieve.

Distribution centre and retail profitability increasedsubstantially in the past year. Sustained successdepends on the ability to develop and expand our storebase despite exceptionally high construction andrefurbishment costs.

Going forward, SPAR Switzerland will buildtrust and strengthen our relationships withour retailers thereby involving them in ourdecision-making processes and strategy.

We have been sharing our vision and strategy with allour retailers and at our members’ meetings. Weestablished a Marketing Committee and encouragedmore involvement and decision-making support fromthe guild – historically not the case. Travel incentivesand exposure to South African retailers andconventions help us shift the culture of the business.

We will focus on quality and convenienceand cluster our stores based on consumerneeds defining hero categories per cluster,as well as creating convenience drivensolutions for our retail stores.

The evolution and success of concepts such asBeantree@SPAR and Fresh To Go are evidence ofprogress. 43 Beantree@SPAR concepts were launched.SPAR advertising also assists by emphasising ourconvenience driven strategy.

In terms of category management, we willperform continuous range reviews to alignwith customer needs, use data andanalytics to determine Swiss consumersegments and their needs and position ourstores and product offering based on thesecustomised needs.

The implementation of category management resultedin more customised ranges based on consumer needs.We launched the Spar Friends programme as a loyaltyplatform that is critical for future growth. By combiningthe launch with a Win A Car competition, we registered123 000 customers. Since the launch we achieved a21% contribution to retail turnover from card holdersdue to our ability to customise our offering. Theaverage card holder basket is also significantly higherin value than those of non-card holders.

SPAR Switzerland plans to host jointbusiness planning sessions with our majorsuppliers to focus on the collectiveopportunities that exist to eliminate wastein the supply chain and share the benefitsthat accrue.

Joint business planning commenced with one of ourbiggest suppliers, and significant opportunities havebeen identified for joint savings. Unilever has beenlined up to further progress this initiative and through2019 we will expand this project to maximise itspotential across our supplier network.

In line with our new strategy, an employeeculture programme, to bed down ourpurpose values and vision, is in theplanning stages and almost ready for roll-out.

The very heart of our business remains our values andculture, which underpin all that we do. The employeeculture programme was launched and activities toembed this is underway.


FOCUS AREAS IN SWITZERLAND

SPAR PRIORITIES FOR 2019Top line growth

Profitability

Cash flow

New business expansion, development of our existing footprint and driving wholesalesupply opportunities

SWITZERLAND RETAILER PRIORITIES FOR 2019Profitability

Growth

Development and concept inclusion

Sustainability



SPAR Switzerland has been involved in theSwiss retail landscape for almost 30 years andremains committed to adding value to thecommunities in which we operate.We strive to deliver outstanding service and excellent product offerings, while simultaneously workingtowards social and environmental prosperity for all. We are involved in ongoing initiatives to strengthenthe SPAR brand and enhance the reputation of SPAR Switzerland in the minds of stakeholders.

INVESTING IN OUR COMMUNITIESOur marketing approach is directed by “Being the good neighbour” which features a strong socialresponsibility and sponsoring foundation. Through our community investment projects, we apply our corevalues and develop our reputation as a responsible and involved corporate citizen. SPAR Switzerlandsponsors a number of festivals and sporting and recreational events to encourage active, healthylifestyles, including a Good Neighbours Day.

Most of the projects undertaken this year were aimed at enhancing this positioning with our employees,retailers and consumers. In this way we enhance our neighbourhoods’ loyalty to their local SPAR. Theseincluded a Kids Flight day in association with the Swiss Children Cancer Association, which we have beensupporting for many years. We sponsored a ladies running/walking series in several towns and cities, aswell as Swiss handball.

OUR EMPLOYEES AS AN ASSETOne of our focus areas is fostering motivated and empowered people. We strive to provide our employeeswith a working environment that nurtures career growth and development. We conduct biannual employeesurveys to monitor and manage employee concerns and expectations to ensure we can attract, retain anddevelop our talent pool.


EMPLOYEE DEVELOPMENTWe continually invest in the development of our people: our apprenticeships, for example, are a valuabledifferentiator. Our extensive training program this year included 103 learnerships and initiatives such as:

Category management trainingProductivity and efficiency trainingHealth and safety trainingEnglish and German language trainingService department coursesSpecialist functional trainingEmployees bursaries in their field of expertise

The launch of e-learning has been delayed due to the extent of translation and customisation required andwill be completed in 2019.

Read more about our employees in the section on material relationships.

HEALTH AND SAFETYThe health and safety of SPAR Switzerland’s employees is critical to the success of our business and tosafeguard employee health and wellness, SPAR Switzerland subsidises employees’ annual medical check-ups. This initiative is particularly important for our more senior employees, who provide leadership andexpertise within the organisation. We subscribe to all the legislated requirements for health and safety andare audited accordingly.

FOOD SAFETY FOCUSSPAR Switzerland ensures that the highest standards of food safety are maintained. We have a dedicatedquality control department to monitor food safety, and inspections are done in collaboration with local foodinspectors who are employed by the Swiss government. In addition, we provide our employees withcourses and training on food safety, when necessary.




Environmental initiatives are developed to yieldcommercial gains and environmental welfare,and include enhancements to our fleet, as wellas energy- and waste-reduction programmes tomake our distribution operations moreenvironmentally friendly.Supply chain optimisation and logistics remain the most significant improvement opportunities in thebusiness and a significant amount of resources and effort have been focused on addressing these. Alldrivers have and continue to receive environmentally friendly driving techniques and we have on-boardmonitoring to measure performance.

Our PET recycling plant is operational and working well while order and pack size optimisation efforts areunderway to reduce waste.

We were the first in Switzerland to use hybrid trucking since 2012, starting with Volvo, and more recentlywe have started using Scania hybrid vehicles. This represents a CO2 emission saving of 13 000 kg perannum and through using a combination of road and rail transport we save a further 45 000 kg per annum.This amounts to a total saving of 58 tons per annum in fleet CO2.

The aim is to continue to rely on latest technologies in the future and thereby make an active contributionto lessening our impact on the environment.


OUR REFLECTION ON THE KING IV™ OUTCOMES

HOW WE CREATE AN ETHICAL CULTUREEthical behaviour, in its simplest terms, is about knowing and doing what is right. At SPAR, westrongly believe that we have an obligation to ourselves as individuals, our organisation, ourcommunity, society and our retailers to develop a coherent ethical system.

The board endeavours to meet the highest ethical standards of business practice and acknowledgesthat ethics are the foundation of, and reason for, corporate governance. The board is responsible forensuring that management actively cultivates a culture of ethical conduct and establishes the valueswe must uphold.

To steer and lead the business in an ethical manner, we have developed a SPAR Code of Ethics. Weenjoy a values-based culture that has entrepreneurship, family values and passion as its core valuesand typically underpins the way we conduct business sustainably on a daily basis. Furthermore, SPARadheres to all the applicable laws, rules, regulations and principles of good corporate governance inour respective territories. The unique blend of our values-based culture with a defined ethicalframework provides a guideline for ethical business choices.

The board and the executive team, which includes those working at the distribution centres, endorsedand has committed ourselves to implementing the SPAR Code of Ethics as the basis for our decision-making and actions. This forms the basis of our ethical culture.

The SPAR Code of Ethics outlines SPAR’s values, including how employees of SPAR are expected toconduct themselves and approach and report situations. SPAR defines ethics as follows: ‘doing theright thing in the best long-term interests of all stakeholders, even when no one is watching’.

The SPAR Code of Ethics has been translated into Afrikaans, isiZulu, isiXhosa and Sesotho to facilitatebroader access to and understanding of its content.

We believe that ethical business dealings and total honesty in all spheres of operations are essentialto the long-term, sustainable success of SPAR’s business.

The code applies to all employees of SPAR. We have also developed a supplier code of conduct thathas been approved by the Social and Ethics Committee and which we plan to roll out in future.Related initiatives include our sustainability survey of SPAR house brand suppliers as well as ourcommitment to the ethical sourcing of products.

SPAR has a whistle-blowing facility that is actively promoted. Statistics and incidents are reported tothe Audit Committee and Social and Ethics Committees.

An Ethics Culture Assessment (ECA) was undertaken this year, the details of which can be found in theSocial and Ethics Report.


https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#ethical

https://investor-relations.spar.co.za/ir2018/governance-approach/social-and-ethics-committee-report/#ECA


Employees are required to report any perceived breaches of the code or any unethical behaviourthrough their management structures or the whistle-blowing facility. The Whistle-blowing Hotline is ananonymous service run by Deloitte & Touche and is wholly independent of SPAR.

The full SPAR Code of Ethics is available here.

Although the membership agreement between the guilds, retailers and SPAR has an ethical element,there is scope to develop a retailer Code of Ethics. TOPS at SPAR belongs to aware.org, a registerednon-profit, public benefit organisation, membership of which entails subscribing to a strict andcomprehensive Code of Commercial Communication that includes stringent rules on advertising,packaging, promotions and media use, and which has been updated and expanded upon on severaloccasions since its inception.

HOW WE ENSURE GOOD PERFORMANCEWe measure SPAR’s overall performance in the context of the external environment, as it isdemonstrated through a wide range of activities, interactions and relationships. Financial performanceis but one aspect of overall performance, in a similar way that financial capital is only one source ofvalue when considering business activities, outputs and outcomes.

Our key facts encompass the financial and non-financial indicators we use to gauge our annualperformance. Our five-year financial review provides a longer-term comparison of key data. Togetherwith our value-added statement, this provides shareholders with historical and comparativeperformance trends related to financial value creation. This includes, for example, employment,dividends paid and share price movements.

These indicators are closely linked to our strategic imperatives, which drive our progress towardsachieving the group’s vision: being the first-choice brands in the communities we serve.

We also recognise that our performance enables our stakeholders – our retailers, employees andsuppliers, in particular – to be sustainable. Where we are unable to mitigate our strategic risks, we arepotentially affecting a wide range of stakeholders who rely on SPAR to provide a market for theirproducts, services and systems to support their retail operations, who depend on SPAR foremployment and who rely on the group to aid empowerment in their communities.

The board considers the group’s performance at the quarterly board meetings, with specific indicatorsmonitored in greater depth by the relevant committees. Where progress is unsatisfactory, actionplans are put in place to ensure recovery and mitigation. Read about our performance for the 2017financial year in the Chief Executive Officer’s report and financial review.

Individual employee performance is structured and rewarded through a performance managementsystem that aligns performance indicators to strategic imperatives, thereby creating a positivecorrelation between individual, team and company performance and remuneration earned. Read moreabout our remuneration philosophy and implementation in the remuneration report.

Retailer performance is supported through financial benchmarking, IT, human resources, marketingand retail operations’ services – all geared towards supporting success and sustainability.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Ethics_Booklet.pdf

https://investor-relations.spar.co.za/ir2018/who-we-are/did-you-know/

https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/five-year-financial-review/

https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/value-added-statement/

https://investor-relations.spar.co.za/ir2018/governance-approach/risk-committee-report/

https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/chief-executive-officers-report/

https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/financial-review/

https://investor-relations.spar.co.za/ir2018/governance-approach/remuneration-committee-report/#philosophy

https://investor-relations.spar.co.za/ir2018/governance-approach/remuneration-committee-report/#implementation


HOW WE ENSURE EFFECTIVE CONTROLSPAR operates according to a voluntary trading model, which creates unique challenges for effectivecontrol, as retailers have the freedom to operate independently under the SPAR brand. Our primaryarea of control extends to operations at the distribution centres, including delivery, with more limitedcontrol in the retail environment. Our retail operations team, in co-operation with the guilds, providesthe necessary structures to facilitate the most appropriate risk mitigation, and financial andreputational controls for retail.

In terms of our distribution centres, subsidiaries and central office functions, we rely on a range ofinternal and external assurance mechanisms in combination with formal policies and frameworks.External mechanisms include, for example, our auditors, sponsors and verification agencies, whileinternal audit and management reviews provide internal control.

Our enterprise risk management (ERM) process approach is set out below and show the steps linkingbusiness processes, risks, controls and auditing to strategic imperatives:

In terms of IT systems, we are in the process of rolling out SAP in South Africa, whereas Ireland andSwitzerland have their own systems. Up to now, the SAP conversion has included general ledger,assets, non-trade debtors, creditors, etc. Logistics and warehouse operations will follow in the nextphase.

Effective control in the IT environment is particularly challenging as the number of cybercrimeincidents continues to increase. We completed an external audit on our system controls this year andare satisfied that the group is well protected against data security breaches.

Read more about effective control in terms of food safety in our relationship with suppliers.

Read more about the Audit Committee’s role here.

https://investor-relations.spar.co.za/ir2018/our-material-relationships/our-relationship-with/#audit

https://investor-relations.spar.co.za/ir2018/governance-approach/audit-committee-report/#role


HOW WE CREATE LEGITIMACYLegitimacy denotes recognition and acknowledgement that can only be earned through the eyes andexperiences of stakeholders. When we are able to create authentic shared value, as per oursustainability pledge, we build our reputation as a good corporate citizen and strengthen the materialrelationships that enable value creation.

We take our responsibility as a corporate citizen seriously, which means that the board continuouslyevaluates the group’s impact on stakeholders and the environment. The Social and Ethics Committeeis mandated to provide guidance on and oversight of SPAR’s activities regarding the environment,consumers, employees, communities and other stakeholders, and to monitor the company’ssustainability and governance performance in this regard. The committee also ensures that theseactivities take place in a compliant and ethical manner that contributes to the welfare of the businessand our stakeholders.

To further expand on the group’s legitimacy, the SPAR guilds also have Social and Ethics Committees:

The SPAR Guild Social and Ethics Committee is a committee of the SPAR Guild board,comprising SPAR Guild distribution centre and retail members who focus on social and ethicsmatters relating to the guild. These include, for example, marketing activities and communityprojects.The Build it Guild of Southern Africa’s Social and Ethics Committee is a committee of the Buildit Guild board, comprising Build it Guild retail members, a Build it wholesale member and theBuild it human resources manager.

These governance structures direct our focus on SPAR’s value creation for stakeholders and serve asa conduit for new and emerging risks as well as stakeholder feedback to other board committees.

Our report on material stakeholder relationships provides information on how we engage with andcreate authentic shared value for stakeholders which, together, builds the brand’s public legitimacy.

We also linked our values to the sustainable development goals (SDG), thereby articulating how wecan support its aims to end poverty, protect the planet and ensure prosperity in the next 15 years.This link ensures that we retain an external and holistic focus and remain aware of our impact onsociety. More detail about our commitment to the SDGs is available here.

https://investor-relations.spar.co.za/ir2018/our-strategy-and-business-model/our-value-creation-contribution/#sustainability


https://investor-relations.spar.co.za/ir2018/our-strategy-and-business-model/our-value-creation-contribution/#sustainability


OUR GOVERNANCE STRUCTURES, COMPOSITION ANDFUNCTIONING

Our governance structures provide oversight ofthe activities of The SPAR Group Ltd and itssubsidiaries in Southern Africa, Ireland, SouthWest England, Switzerland and Sri Lanka.These structures adhere to the requirements of the following:

Companies Act, 71 of 2008, as amendedJSE Listings RequirementsKing IV Report on Corporate Governance™ for South Africa 2016 (King IV™)

KING IV™ INTRODUCTIONWe continue reviewing our governance structures to ensure alignment with King IV™. Our disclosures interms of King IV™ are fully integrated with our reporting elements – we believe this to be the intent of thecode – while also being aligned to the following clusters:

PRINCIPLE CLUSTER MORE DETAIL

Leadership, ethics and corporate citizenship Chairman’s report (including our reflection on the King IV™outcomes)

Strategy, performance and reporting Chief Executive Officer’s report and Our strategy, businessmodel and sustainability

Governing structures and delegation Our governance structures, composition and functioning

Governance functional areas Committee reports

Stakeholder relationships Our material relationships

We use icons throughout this report to indicate evidence of arrangements, focus areas, measurements orfuture priorities per King IV™ principle. In addition to the information contained in this report, a King IV™register is available, summarising the principles and providing stakeholders with links and references insupport of the principles in one place.


https://investor-relations.spar.co.za/ir2018/reports-from-our-leaders/chief-executive-officers-report/



https://investor-relations.spar.co.za/ir2018/governance-approach/governance-structures-composition-functioning/

https://investor-relations.spar.co.za/ir2018/governance-approach/nomination-committee-report/


https://investor-relations.spar.co.za/ir2018/pdf/SPAR_KingIV_2018.pdf



LEADERSHIP TEAMS

INDEPENDENT NON-EXECUTIVE DIRECTORS

MICHAEL JOHN HANKINSON (69)BCom, CA(SA)

Independent non-executive ChairmanChairman of the Nomination CommitteeMember of the Remuneration Committee

Appointed to the board: September 2004

Executive Chairman of Grindrod Ltd.


MARANG MASHOLOGU (42)BCom, CFA Charter

Independent non-executive directorMember of the Audit Committee

Appointed to the board: December 2015

A director and shareholder at Sphere Holdings (Pty) Ltd. Independent non-executive director and AuditCommittee Chairperson of Chubb Insurance South Africa Ltd, the South African subsidiary of Chubb Ltd.Member of the board of trustees of the African Leadership Network. Fellow of the inaugural class of theFinance Leaders Fellowship Program and a member of the Aspen Global Leadership Network.


PHUMLA MNGANGA (50)BA, BEd, MBL, PhD

Independent non-executive directorChairperson of the Social and Ethics CommitteeMember of the Remuneration CommitteeMember of the Nomination Committee

Appointed to the board: January 2006

Managing director of Lehumo Women’s Investment Holdings, Chairperson of the Tolcon Group ofcompanies and Gold Circle Horseracing and Betting. Non-executive director of Crookes Brothers Ltd.


MZIWAKHE PHINDA MADI (54)BProc (Unizul), EDP (HEC – Paris), EDP (Northwestern – Chicago, USA)

Independent non-executive directorMember of the Risk Committee

Appointed to the board: October 2004

Qualified attorney. Chairman and founder of 20-year-old diversified investments company and venturecapital fund, Madi Investments. Non-executive director of Nampak Ltd and the Automobile Associationof South Africa (AA). A founding member and commissioner of South Africa’s Black EconomicEmpowerment Commission. Author of four business books and Professor of Management Practices,University of Johannesburg, School of Management.


HARISH KANTILAL MEHTA (68)BSc (USA), MBA (USA)

Independent non-executive directorChairman of the Remuneration CommitteeMember of the Audit CommitteeMember of the Nomination CommitteeMember of the Risk Committee


Non-executive director of Tiso Blackstar Group, non-executive Chairman of Averda SA (Pty) Ltd,member of the Provincial Board of FNB, non-executive director of Redefine Properties and non-executive Chairman of Cibapac (Pty) Ltd.


ANDREW WALLER (56)CA(SA)

Independent non-executive directorMember of the Audit CommitteeMember of the Risk Committee

Appointed to the board: February 2018

CEO of Grindrod Ltd and non-executive director of Senwes Ltd. Previously partner of Deloitte & Touche.


CHRISTOPHER FRANK WELLS (69)BCom, CA(SA)

Independent non-executive directorChairman of the Audit CommitteeChairman of the Risk CommitteeMember of the Social and Ethics Committee

Appointed to the board: April 2011

Non-executive director of African Oxygen Ltd, director of IFS Mauritius Ltd and CEO of InternationalFacilities Services South Africa (Pty) Ltd.


EXECUTIVE DIRECTORS

GRAHAM OWEN O’CONNOR (62)BCom, CA(SA)

Group Chief Executive OfficerMember of the Risk CommitteeMember of The SPAR Guild of Southern Africa

Appointed to the board: February 2014

Served as group accountant in 1986 and became the Managing Director of the SPAR KwaZulu-Nataldivision in 1987. In 1997, he left the group to start his own industrial catering business and became apartner in five SPAR retail stores. He returned to the group in 2014 as CEO.


WAYNE ALLAN HOOK (62)BCom, CA(SA)

Managing Director Build it DivisionChairman of The Build it Guild of Southern AfricaChairman of The SPAR Guild of Southern Africa’s Social and Ethics CommitteeMember of The SPAR Guild of Southern AfricaMember of the Social and Ethics Committee

Joined the group in 1984

Wayne is the former CEO of the group. He served in financial, information technology and logisticsmanagement positions before being appointed Managing Director of SPAR KwaZulu-Natal division in1997. He assumed the position of New Business and Support Services Director in 2014 and Build itManaging Director in 2017.


MARK WAYNE GODFREY (53)BCom, CA(SA)

Group Financial DirectorMember of the Risk Committee



Mark served in financial management positions in various group operations and was appointed GroupFinancial Director in 2010.


ROELF VENTER (61)BCom (Hons), MBA

Group Retail Operations DirectorChairman of The SPAR Guild of Southern AfricaMember of The SPAR Guild of Southern Africa’s Social and Ethics Committee


Roelf served in various marketing and buying management positions before being appointed ManagingDirector of SPAR West Rand and, subsequently, SPAR South Rand. He was appointed Group MarketingDirector in October 1999 and assumed the position of Retail Operations Director in 2007.


MANDY JANE HOGAN (46)Chartered Secretary ACISAppointed Company Secretary: June 2016


Served in various company secretarial and corporate governance positions at three JSE-listedcompanies over the past 15 years. Mandy served as the Assistant Company Secretary from 2013 to2016 and assumed the position of Company Secretary full-time in 2016.


EXECUTIVE MANAGEMENT

SOUTH AFRICA

GRAHAM OWEN O’CONNOR (62)BCom, CA(SA)

Group Chief Executive OfficerMember of the Risk CommitteeMember of The SPAR Guild of Southern Africa


Graham served as group accountant in 1986 and became the Managing Director of the SPAR KwaZulu-Natal division in 1987. In 1997, he left the group to start his own industrial catering business and became apartner in five SPAR retail stores. He returned to the group in 2014 as CEO.

MARK WAYNE GODFREY (53)BCom, CA(SA)

Group Financial DirectorMember of the Risk Committee


Mark served in financial management positions in various group operations and was appointed GroupFinancial Director in 2010.

LAURENCE BALCOMB (47)BCom, CA(SA)

Finance ExecutiveMember of the Risk Committee


Laurence was the Managing Director of Clientèle General Insurance Ltd and Divisional Director at LibertyGroup, responsible for cost and efficiency improvement initiatives across the South African retail business.He has spent over 16 years in financial services in various senior roles including sales and marketing,finance, operations and strategy.


DESMOND BORRAGEIRO (44)Managing Director SPAR North Rand divisionMember of The SPAR Guild of Southern Africa


Des served in retail operations positions in various group operations before being appointed divisionalRetail Operations Director at SPAR South Rand division. Appointed Managing Director of SPAR North Randdivision in 2012.

BRETT WALKER BOTTEN (54)BCom, CA(SA)

Managing Director SPAR South Rand divisionMember of The SPAR Guild of Southern Africa


Brett has served as Managing Director of SPAR North Rand, SPAR Lowveld and SPAR Eastern Capedivisions. Appointed Managing Director of SPAR South Rand division in 2010.

TREVOR DUNCAN CURRIE (63)Group Logistics Executive


Trevor served in logistics management positions in various group operations before becoming the LogisticsDirector at SPAR Western Cape and SPAR Eastern Cape divisions. Appointed Group Logistics Executive in1999.

WAYNE ALLAN HOOK (62)BCom, CA(SA)

Managing Director Build it DivisionChairman of The Build it Guild of Southern AfricaChairman of The SPAR Guild of Southern Africa’s Social and Ethics CommitteeMember of The SPAR Guild of Southern AfricaMember of the Social and Ethics Committee


Wayne is the former CEO of the group. He served in financial, information technology and logisticsmanagement positions before being appointed Managing Director of SPAR KwaZulu-Natal division in 1997.He assumed the position of New Business and Support Services Director in 2014 and Build it ManagingDirector in 2017.


CONRAD LUKE ISAAC (57)Managing Director SPAR Eastern Cape divisionMember of The SPAR Guild of Southern Africa


Conrad is the previous Human Resources Director of SPAR Eastern Cape division and was appointedManaging Director of SPAR Eastern Cape division in 2006.

KEVIN JAMES O’BRIEN (56)BA, LLB, BSocSc (Hons), Mst (Cantab)

Risk and Sustainability Executive


Kevin served in personnel, human resources and property management positions in various groupoperations and was the former general manager of Capper and Company – a SPAR distribution operation inthe United Kingdom. Kevin served as the Group Company Secretary from 2006 to 2016 and assumed theposition of Risk and Sustainability Executive full-time in 2016.

MAX JAVIER OLIVA (42)BTech, MBA

Managing Director SPAR KwaZulu-Natal divisionMember of The SPAR Guild of Southern Africa


Max joined the group as a management trainee where he served in various logistics roles across threedivisions. He served as the Logistics Director in both the South Rand and KwaZulu-Natal divisions over aperiod of 10 years before being seconded to BWG Foods in 2015 to head up the supply chain function forSPAR in Ireland and South West England. Max was appointed as Managing Director of SPAR KwaZulu-Nataldivision in 2017.

MIKE GRANT PRENTICE (50)BCom, LLB

Group Marketing ExecutiveMember of The SPAR Guild of Southern Africa


Mike served in marketing management positions in various group operations before being appointedMarketing Director of SPAR North Rand division. Appointed Group Marketing Executive in 2007.


MARIO MENEZES SANTANA (45)Managing Director SPAR Western Cape division and NamibiaMember of The SPAR Guild of Southern Africa


Mario served in retail operations positions in various group operations before being appointed ManagingDirector of SPAR North Rand division. Appointed Managing Director of SPAR Western Cape division in 2012.

ENNO PAUL STELMA (57)BCom

Group IT Executive


Enno has served in IT management positions in various group operations. Appointed Group IT Executive in1999.

THULISILE TABUDI (50)PhD

Human Resources Executive


Thuli is the previous Human Resources Director of SPAR South Rand division. Appointed Human ResourcesExecutive in 2007.

ROELF VENTER (61)BCom (Hons), MBA

Group Retail Operations DirectorChairman of The SPAR Guild of Southern AfricaMember of The SPAR Guild of Southern Africa’s Social and Ethics Committee


Roelf served in various marketing and buying management positions before being appointed ManagingDirector of SPAR West Rand and, subsequently, SPAR South Rand. He was appointed Group MarketingDirector in October 1999 and assumed the position of Retail Operations Director in 2007.

ALISON ZWEERS (48)BA (Hons)

Managing Director SPAR Lowveld divisionMember of The SPAR Guild of Southern Africa


Alison held the position of HR Director in the Lowveld Division for seven years prior to being appointed tothe dual portfolio of Human Resources Director for South Rand and Lowveld Divisions. She was appointedManaging Director of SPAR Lowveld in 2016.


S BUYSJEREMY COLIN HOWARD NICOL (58)MBBCh (Wits), MPhil Sports Medicine (UCT)

Chief Executive Officer

Jeremy practised as a general practitioner and sports physician, before moving into commerce in 1999.Working for the Virgin Group from 2001 to 2007, he played a key role in setting up Virgin Healthmiles inthe US (now Virgin Pulse). Returning to SA, he joined IMS Health in 2008 (now IQVIA) to run their SouthAfrican business and immerse himself in the pharmaceutical industry. He has served as CEO of the S BuysGroup from 2010, with particular focus on business development across the wholesaler and specialisedpharmacy divisions.

IRELAND

LEO CRAWFORD (59)Group Chief Executive

Chairman: SPAR Ireland and Group Chief Executive: BWG Group

Leo joined BWG Foods in 1996 as Managing Director and was appointed Chief Executive of BWG Group in1999. He was appointed to the SPAR International Board in 2001 and was elected President of SPARInternational in 2005 – the first ever Irish person to be elected President of SPAR International.

From June 2010 to June 2011 Leo served as President of IBEC (Irish Business and EmployersConfederation).

JOHN CLOHISEY (66)Group Property Director

John is Group Property Director of the BWG Group and Managing Director of Triode Newhill ManagementServices, which operates over 100 company-owned stores. John is a member of the InterSPAR ExecutiveCommittee of SPAR International. John, an accountant, has been in the retail trade for over 30 years.

JOHN O’DONNELL (64)Group Finance Director

John joined BWG as Group Finance Director in September 2002. Previously John worked for LarryGoodman’s meat processing business for 19 years. He was initially involved with acquisitions in Ireland,the UK and overseas and was closely involved with the formation of Food Industries Plc. which was floatedon the Irish Stock Exchange in 1998. John was appointed Group Finance Director to Irish Food ProcessorsLtd, a position he had held since 1991.

SWITZERLAND

ROBERT GRANT PHILIPSON (50)Chief Executive Officer SPAR Switzerland and Chairman SPAR Sri Lanka



Rob served in retail operations positions in various group operations before being appointed divisionalRetail Operations Director at SPAR KwaZulu-Natal division. Appointed Managing Director of SPAR KwaZulu-Natal in 2006 and as Chief Executive Officer of SPAR Switzerland and Chairman of SPAR Sri Lanka in 2017.


OUR GOVERNANCE ECOSYSTEM

The board is the custodian of corporategovernance and plays a prominent role in thestrategic development, risk management andsustainability processes of the group.Our governance ecosystem extends beyond the listed entity to include areas of influence that are materialto the sustainability of the group.

The group is a member of SPAR International, which grants licences to countries to use the SPAR Brand.Our CEO, Graham O’Connor, was elected as president of SPAR International in 2016. As a licence holder for10 countries, SPAR is an active participant in the international network’s governance structures, which arebuilt on a guild system of retailers and wholesalers working in partnership on a regional, national andinternational level.

Not all SPAR countries use the guild model. In South Africa, The SPAR Guild of Southern Africa and TheBuild it Guild of Southern Africa are both non-profit companies governing the mutual interests of SPAR andits retailers. Each has a Social and Ethics Committee as part of its governance structure. Read more aboutthe guilds here.

Multiple cross-memberships of executives and directors between the guilds, the board and its committeesensure information flow to support effective control and sustainable performance.

BOARD COMPOSITIONThe board is constituted in a way that balances the requirement for effective meetings with activeparticipation from each board member – against the need for balanced committee membership, skills,diversity and independence. The Nomination Committee is ultimately responsible for providing direction inthis regard and for ensuring that the board has access to the appropriate leadership talent.

See below for a summary of our diversity aspects and read the board member profiles here.

https://investor-relations.spar.co.za/ir2018/who-we-are/spar-international-guilds-voluntary-trading/#guilds

https://investor-relations.spar.co.za/ir2018/governance-approach/leadership-teams/


Black as defined by the Black Economic Empowerment Act of 2003

Read more about the process governing board and committee composition in the Nomination Committeereport.

EFFECTIVE MEETINGSWe value independent judgement and require that each board member prepare, participate and contributeat each meeting, in addition to informal discussions and interaction with the Chairman related to the SPARbusiness. The board meets formally four times a year.

To further improve non-executive directors’ understanding of the company’s operating divisions, a boardmeeting is held at least once a year at a distribution centre. The meeting held on 7 August 2018 took placeat the Kwa-Zulu Natal distribution centre.




Member Status 14 Nov 2017 7 Feb 2018 29 May 2018 7 Aug 2018Mike Hankinson (Chairman) Independent non-executive ✓ ✓ ✓ ✓Graham O’Connor Chief Executive Officer ✓ ✓ ✓ ✓Mark Godfrey Group Financial Director ✓ ✓ ✓ ✓Wayne Hook Managing Director Build it Division ✓ ✓ ✓ ✓Phinda Madi Independent non-executive ✓ A ✓ ✓Marang Mashologu Independent non-executive ✓ ✓ ✓ ✓Phumla Mnganga Independent non-executive ✓ ✓ ✓ ✓Harish Mehta Independent non-executive ✓ ✓ ✓ ✓Roelf Venter Group Retail Operations Director ✓ ✓ ✓ ✓Andrew Waller Independent non-executive n/a ✓ ✓ ✓Chris Wells Independent non-executive ✓ ✓ ✓ ✓

A – Apology

ROLES AND RESPONSIBILITIESThe board has mandated its four committees with very specific functions and responsibilities, which areset out in each committee report. The three executive committees have the following responsibilities:

The SPAR Executive Committee is responsible for implementing the company’s strategy andmanaging the operational activities of the group. The committee holds at least seven meetingsannually and is chaired by the CEO. During the 2018 financial year the committee reviewed,among other things, the risk management plan, strategy action plan, transformation plan,succession plan, IT projects and capex, budget and finances.

The BWG Group Executive Committee is responsible for implementing its strategy and managingits operational activities. The committee holds at least 12 meetings annually and is chaired bythe CEO, Leo Crawford.

The SPAR Switzerland Executive Committee is responsible for the implementation of thecompany’s strategy in Switzerland and management of operational activities. The committeeholds at least four meetings annually and is chaired by Rob Philipson.

The membership, qualifications and experience of the Executive Committee members are provided here.

https://investor-relations.spar.co.za/ir2018/governance-approach/leadership-teams/#exec-man


The different governance bodies are all governed by a delegation of authority framework, which isreviewed annually and sets out the matters reserved for determination by shareholders, the board, andthose matters delegated to management and the Executive Committees.

The general powers of the board are conferred in the company’s Memorandum of Incorporation (MOI) andboard charter. The board charter sets out the powers and authority of the board and provides a clear andconcise overview of the roles and responsibilities of the board members. The board charter is reviewedannually and is aligned with King IVTM recommendations. It was approved by the board on 7 August 2018.We are satisfied that the board complied with its responsibilities for the year ended 30 September 2018.

We are further satisfied that the governance structures are appropriate, and that the authority frameworkprovides clarity and contributes to effective control and performance.

THE CEO OF THE GROUPThe CEO is accountable to the board for the daily management of the company and co-ordinates theimplementation of board policy and strategy through the Executive Committees. The CEO’s responsibilitiesinclude, among other things, ensuring that the company conducts its affairs within the rule of law andabides by SPAR’s Code of Ethics, keeps the board informed of all its major business proposals anddevelopments by way of specific reports, within limits set by the board.

THE SECRETARY FOR THE GROUPOur Company Secretary is a competent and suitably qualified and experienced employee who is able toprovide the board with the requisite support for its efficient functioning and the discharge of its duties.Read the Company Secretary’s profile here. She contracts with the necessary service providers to providespecialist input or guidance on board matters, including, for example, PwC, EOH Legal Services, theChartered Secretaries South Africa, Garlicke & Bousfield, the Ethics Institute the Institute of DirectorsSouthern Africa, and the company’s JSE sponsors. We believe these arrangements are effective andappropriate for the efficient functioning of the board.

SUMMARY OF DISCLOSURE STATEMENTSSPAR made no contributions to political parties in any of the territories in which it operates. The Group hasmade a commitment to contribute R10 million to the SA SME Fund (the South African CEO Initiative).


NOMINATION COMMITTEE REPORT

The Nomination Committee (the committee)presents the following report for the 2018financial year.

COMMITTEE GOVERNANCECOMPOSITIONThe members of the committee for the 2018 financial year were independent non-executive directors,Mike Hankinson (Chairman), Harish Mehta and Phumla Mnganga. Their qualifications and experience areavailable here.

MEETINGSThe CEO attends meetings by standing invitation to make proposals and provide such information as thecommittee may require.

The committee met six times during the 2018 financial year. Members’ attendance at meetings was asfollows:

Attendance

Member Status 14 Nov 2017 6 Feb 2018 7 Aug 2018 7 Sep 2018 8 Oct 2018 1 Nov 2018Mike Hankinson (Chairman) Independent non-

executive ✓ ✓ ✓ ✓ ✓ ✓Harish Mehta Independent non-

executive ✓ ✓ ✓ ✓ ✓ ✓Phumla Mnganga Independent non-

executive ✓ ✓ ✓ ✓ ✓ ✓

Members’ attendance was 100%.

TERMS OF REFERENCEThe committee executes its responsibilities in accordance with a formal terms of reference, which isreviewed annually and is aligned with the King IV™ recommendations. No changes were made to theterms of reference since its last review in 2017.

The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference.A copy of the committee’s terms of reference and work plan can be found here.


https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Nomination_committee_Terms_of_reference_201808.pdf


ROLE AND RESPONSIBILITIESThe board has allocated the oversight of the process for nominating and electing members of the board,succession planning in respect of board members and the evaluation of the performance of the board, itscommittees and individual members to the committee. The committee oversees:

the composition of the board and its committees by setting criteria for board positions, identifyingcandidates and making recommendations to the board on appointments – in doing so taking intoconsideration the board’s structure, size, diversity, demographics and balance between executiveand non-executive directors;succession planning for the Chairman, board members and the CEO, which includes theidentification, mentorship and development of future candidates;the induction of new directors and the ongoing training and professional development of boardmembers, as and when required;the effectiveness and ultimately the performance of the board, its committees and individualmembers; andthe evaluation of independence process.

Details of the committee’s duties are contained in its terms of reference.

The effectiveness of the committee is assessed by way of self-evaluation review every two years and willbe performed again in 2019.

KEY FOCUS AREASIn addition to the key focus areas detailed below, the committee received feedback on the followingmatters during the 2018 financial year:

the succession of non-executive directors, executive directors and executive management; andKing IV™ and its recommendations.

BOARD AND COMMITTEE COMPOSITIONA board appointment policy is in place, was amended in line with King IV™ and approved by the board on14 November 2017. The policy sets out the formal, rigorous and transparent procedure for theappointment of new members to the board and its committees. In addition, the role and responsibilities ofthe Chairman, the induction of new directors and the appointment letter for new non-executive directorswere aligned with King IV™ and approved by the board on 14 November 2017.

The committee proposed changes to the Risk Committee and Social and Ethics Committee members, inline with King IV™, to only comprise executive and non-executive directors (as the case may be).


DIVERSITYThe committee amended the company’s gender diversity policy to include a policy on race diversity andrenamed it the board diversity policy. The voluntary targets in terms of this policy are a minimum of threeblack people (as defined by the Black Economic Empowerment Act of 2003) and two females. At the dateof this report, the board comprised four black people, two of whom are female. The amended policy wasapproved by the board on 7 August 2018.

A copy of the board diversity policy is available here.

The board believes in gender diversity on boards and joined the 30% Club Southern Africa in September2018. The 30% Club is an international campaign launched in the United Kingdom in 2010 and extended toSouth Africa in 2013. Its aim is to develop a diverse pool of talent for all businesses through the efforts ofrespective Chairman and CEO members and runs a number of very specific and targeted initiatives thatlook to broaden the pipeline of women at all levels, from “schoolroom to boardroom”.

ROTATION OF NON-EXECUTIVE DIRECTORSMike Hankinson, Phinda Madi and Marang Mashologu retire in accordance with the company’s MOI. Beingeligible, Mike Hankinson and Marang Mashologu offer themselves for re-election. Phinda Madi has informedthe board that he would not offer himself for re-election and will accordingly retire as a director of thecompany at the 2019 annual general meeting (AGM).

In terms of the company’s board appointment policy, the mandatory age limit for non-executive directorsis 70 years and, accordingly, Mike Hankinson will be turning 70 in the 2019 financial year and will retirebefore the 2020 AGM.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Board_Diversity_Policy_201808.pdf


The independence and performance of Mike Hankinson and Marang Mashologu were assessed and, basedon the results of the assessment which was accepted by the board, the board recommends toshareholders that Marang Mashologu and Mike Hankinson be re-elected as independent non-executivedirectors of the board. The independence assessment is based on whether the director has no interest,position, association or relationship which, when judged from the perspective of a reasonable and informedthird party, is likely to influence unduly or cause bias in the decision-making in the best interest of thecompany.

ASSESSMENT OF THE INDEPENDENCE OF DIRECTORS WHOHAVE SERVED ON THE BOARD FOR MORE THAN NINE YEARSThe board agreed that the internally facilitated independence assessments would be conducted annuallyby the committee for each non-executive director who has served on the board beyond nine years, andthat an externally facilitated, independent assessment would be conducted every three years.

An internally facilitated independence assessment of Phumla Mnganga, Mike Hankinson, Harish Mehta andPhinda Madi was undertaken during the 2018 financial year and there was nothing to indicate that thenamed directors were not independent, despite their tenure on the company’s board.

The last externally facilitated independence assessment was conducted in 2017 and will again beconducted in 2020.

SUCCESSION PLANNINGThe average age of the board is 58, therefore succession planning was a key focus area for the boardduring the 2018 financial year and will continue to be a focus area into the 2019 financial year to ensurethat key skills are retained following the retirement of the said directors. The board seeks to balance freshperspectives from newer directors with the experience and knowledge of those directors with longertenures. The average tenure of the board is 11 years.

PERFORMANCE EVALUATIONSThe board agreed that the performance evaluation process will not be externally facilitated and thatinternal evaluation questionnaires will be completed biannually in respect of the following areas:

the effectiveness of the board’s composition, governance processes and procedures;the effectiveness of the board’s committees in discharging their respective mandates;the effectiveness of the executive directors; andthe effectiveness and contributions of each of the directors.


The last evaluation in respect of the above areas was conducted in 2017 and, accordingly, the nextperformance evaluation process will be undertaken in 2019.

The committee assessed the performance of the CEO against agreed performance measures and targetsand was satisfied with his performance.

Thank you to the members of the committee for their dedicated and constructive contributions to thefunctioning of the committee.

Mike HankinsonChairman of the Nomination Committee13 November 2018


RISK COMMITTEE REPORT

The Risk Committee (the committee) presentsthe following report for the 2018 financial year.

COMMITTEE GOVERNANCECOMPOSITIONThe members of the committee for the 2018 financial year were independent non-executive directors,Chris Wells (Chairman), Phinda Madi, Harish Mehta and Andrew Waller and executive directors GrahamO’Connor and Mark Godfrey. Their qualifications and experience are available here.

Andrew Waller was appointed to the committee on the recommendation of the Nomination Committee on7 February 2018.

MEETINGSPermanent invitees at committee meetings are the Group Risk and Sustainability Executive, the GroupLogistics Executive, the Group IT Executive, the Group Internal Audit Manager, the external auditor and theCompany Secretary (who acts as the secretary of the committee).

The committee met twice during the 2018 financial year. Members’ attendance was as follows:

Attendance

Member Status 6 Feb 2018 6 Aug 2018Chris Wells (Chairman) Independent non-executive ✓ ✓Mark Godfrey Group Financial Director ✓ ✓Phinda Madi Independent non-executive ✓^ ✓Harish Mehta Independent non-executive ✓ ✓Graham O’Connor Group Chief Executive Officer ✓ ✓Andrew Waller Independent non-executive n/a ✓


^ via teleconference




The committee received assurance on all relevant matters in its terms of reference from the followingcommittees during the 2018 financial year:

Audit CommitteeSocial and Ethics Committee

The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference.

A copy of the committee’s terms of reference and work plan can be found here.

ROLE AND RESPONSIBILITIESThe board has allocated the oversight of risk governance, technology and information governance andcompliance governance to the committee.

The committee oversees the company’s risk management, IT and compliance processes to ensure thatmanagement identifies potential risks in these areas which may affect the company or its operations. Itimplements effective policies and plans to mitigate any risks, enhance the company’s ability to achieve itsstrategic objectives, and support the company in being ethical and a good corporate citizen.


The effectiveness of the committee is assessed by way of a self-evaluation review every two years and willbe performed again in 2019.

KEY FOCUS AREASIn addition to the key activities detailed below, the committee received feedback from management on thegroup’s insurance, operational risk matters (logistic risks, human resource risks, food safety risks, climatechange risks and financial risks) and the risk management process undertaken in SPAR Ireland and SPARSwitzerland.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Risk_committee_Terms_of_reference_201808.pdf


RISK GOVERNANCEKevin O’Brien is the Group Risk and Sustainability Executive and is responsible, together with executivemanagement, for the implementation and execution of the risk management process. An Enterprise RiskManagement (ERM) policy and framework is in place and was reviewed during the 2018 financial year. Inkeeping with the King IV™ recommendation of providing a combined assurance policy and framework, thecommittee considered such a policy and framework and approved same at its August 2018 meeting.

Internal audit provides the committee assurance as to whether risk management processes within thegroup are adequate and effective, and makes recommendations on areas where the SPAR riskmanagement processes could be improved.

FOCUS AREAS FOR THE 2019 FINANCIAL YEAR WILL BE TO:constitute a Combined Assurance Forum to monitor the implementation of the combined assurancepolicy and framework and report on its progress at Risk Committee meetings; and

monitor managements progress on the identification of any new strategic and operational risksidentified in terms of the implementation of SPAR South Africa’s reviewed strategic plan.

IT GOVERNANCEEnno Stelma is the Group IT Executive and is responsible, together with executive management, for theimplementation and execution of effective technology and information management. An IT strategy andgovernance framework is in place and was reviewed during the 2018 financial year.

The second phase of the SAP programme is well underway. This phase completes the finance area with theintroduction of accounts payable and accounts receivable. Roll-out of this phase will start in 2019.Preparation for the third and last phase has started. This phase will cover merchandising, replenishmentand logistics.

Significant investment was made in advanced firewall technology to keep abreast with developments inthe cybercrime area.

Downtime reports were carefully considered at every committee meeting and nothing of significanceoccurred during the 2018 financial year.

The IT audit report compiled by PwC was reviewed by the committee during the 2018 financial year withno major issues identified.


COMPLIANCE GOVERNANCEMandy Hogan is the Company Secretary and is responsible, together with executive management, for theimplementation and execution of effective compliance management. A compliance policy is in place andwill be expanded on during the 2019 financial year to include a formal system to help the companymaintain compliance in all areas of its operation. The system will focus on upholding polices andprocedures that prevent the company and employees from breaking laws and regulations.

Thank you to the members of the committee for their dedicated and constructive contributions to itsfunctioning.

Chris WellsChairman of the Risk Committee13 November 2018


SOCIAL AND ETHICS COMMITTEE REPORT

The Social and Ethics committee (thecommittee) presents the following report toshareholders for the 2018 financial year, inaccordance with the requirements of theCompanies Act, 71 of 2008, as amended(Companies Act).

COMMITTEE GOVERNANCECOMPOSITIONThe members of the committee for the 2018 financial year were independent non-executive directorsPhumla Mnganga (Chairperson) and Chris Wells, and executive director Wayne Hook. Their qualificationsand experience are available here.

MEETINGSPermanent invitees at committee meetings are the Chairman of the board, the CEO, the Group Risk andSustainability Executive, the Group Human Resources Executive and the Company Secretary (who acts asthe secretary of the committee).



The committee met twice during the 2018 financial year. Members’ attendance at meeting was as follows:

Attendance

Member Status 13 Nov 2017 28 May 2018Phumla Mnganga (Chairperson) Independent non-executive ✓ ✓Wayne Hook Managing Director Build it Division ✓ ✓Chris Wells Independent non-executive ✓ ✓



The committee received assurance on all relevant matters in its terms of reference from the followingcommittees during the 2018 financial year:

Audit CommitteeRisk Committee

The SPAR Guild of Southern Africa Social and Ethics CommitteeThe Build it Guild of Southern Africa Social and Ethics Committee

The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of referenceand has performed its statutory duties, as set out in the Companies Regulations.

A copy of the committee’s terms of reference is available here.

ROLE AND RESPONSIBILITIESThe board has allocated the oversight of organisational ethics, responsible corporate citizenship,sustainable development and stakeholder relationships to the committee.

The committee oversees the company’s social and organisational activities relating to the environmentand its stakeholders. It monitors the company’s sustainability performance to ensure that the company’sethics support its culture, it is seen as a responsible citizen, and that there is a balance between thecompany and the needs, interests and expectations of all stakeholders.



https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Social_Ethichs_committee_Terms_of_reference_201808.pdf


KEY FOCUS AREASORGANISATIONAL ETHICSEthics within the company is addressed through SPAR’s Code of Ethics. The code applies to all thecompany’s employees and directors. Ethics at SPAR is simply ‘the way we do things here’ and are definedas: ‘Doing the right thing in the best long-term interest of all stakeholders, even when no one is watching.’

The company encourages employees and other stakeholders to disclose serious impropriety or improperconduct. SPAR subscribes to Deloitte’s Tip-offs Anonymous, which is an independent hotline that enablesemployees to report illegal actions and ethical misconduct confidentially. During the 2018 financial year,12 reports (2017: three) were received, all of which were investigated and addressed satisfactory byinternal audit and management. Disciplinary action was taken where employees were found to havetransgressed and corrective actions have been implemented where necessary to improve controls andprevent recurrence of the incidents. Of the twelve reports received none were found to be of materialsubstance.

A Spar Code of Ethics template for all offshore subsidiaries was circulated to the management of thosesubsidiaries, to be used as the basis for drafting their respective Code of Ethics policies.

An Ethics Culture Assessment was undertaken at the end of the 2018 financial year by the Ethics Instituteand the outcome of the assessment will be disclosed in the 2019 integrated report.

During the 2018 financial year:

SPAR’s anti-bribery and corruption policy was adopted and implemented within the South Africandivisions. This policy expresses SPAR’s stance against all forms of bribery, corruption, unethical orunlawful conduct, or any other business activities that violate the values or spirit of human rightsand good governance and is applicable to all employees and directors.SPAR’s whistle-blowing policy was adopted and implemented within the South African divisions.This policy encourages employees and other stakeholders to disclose serious impropriety orimproper conduct, and to assist in establishing a culture of disclosure, within which all stakeholderscan responsibly and confidentially disclose information about serious impropriety or improperconduct.


CORPORATE CITIZENSHIPDuring the 2018 financial year, the committee received feedback from management on the followingmatters:

the sustainable development goals and the National Development Plan;the climate disclosure report results for 2017, as well as internal carbon pricing;recyclable plastic bags, paper bags and plastic alternatives;Transparency in Action and the sustainable procurement of eggs;SPAR’s emerging farmer development programme and its rural hub businesses;the RASET alignment initiative, in conjunction with the KwaZulu-Natal Provincial Government;SPAR’s participation in sustainability week, which was held at the CSIR International ConventionCentre during June 2018;

SPAR’s water security assessment;various community awareness initiatives such as the Vuka Khumluma Programme, SPAR’spartnership with Unilever and the Department of Basic Education;compliance with the International Codes of Best Practice;SPAR’s BBBEE scorecard rating;SPAR’s R20 million contribution to support Government’s Youth Employment Services (YES)programme;wage negotiations; andchallenges faced in 2018 in the human resources area.

Detailed feedback on a number of the above-mentioned matters can be found here.

The Sustainable Seafood Procurement policy was reviewed and approved by the board during the 2018financial year. This policy outlines SPAR’s requirements on sustainable sourcing, product criteria, productquality and food safety, traceability, communication by retailers and suppliers to consumers, labelling,training and education.

STAKEHOLDER RELATIONSHIPSDuring the 2018 financial year, a comprehensive review of the company’s South African strategy wasconducted. This review resulted in a refocus on the content of the discussions undertaken with the variousstakeholders. The Joint Business Planning forums continue to function well, and a start has been made toconsider more strategic alignments with suppliers in these forums. Collaboration with Government in valuechain activities have also commenced with a view to consider the way in which a greater impact can bemade through these value chains by collaboration between stakeholders.



FOCUS AREAS FOR 2019 FINANCIAL YEAR WILL BE:ORGANISATIONAL ETHICS

Expand the Anti-bribery and Corruption policy and make it applicable to all our suppliers, serviceproviders, consultants, agents and any third party authorised to act on our behalf.A review of the following policies:

SPAR’s Code of ConductSuppliers CodeEmployment Equity Policy

CORPORATE CITIZENSHIP

A review of the following policies:Social Media PoliciesSafety, Health and Environmental PolicySustainability Policy

STAKEHOLDER ENGAGEMENT

A review of the Stakeholder Relationship Policy and Framework

Thank you to the members of the committee for their commitment, passion and constructive contributionsto the functioning of the committee.

Phumla MngangaChairperson of the Social and Ethics Committee13 November 2018


REMUNERATION COMMITTEE REPORT

The Remuneration Committee (the committee)presents the following report for the 2018financial year.This report sets out the committee’s governance and the company’s remuneration policy, which is dividedinto four sections.

Section 1 – Committee governance

Section 2 – Background statement

Section 3 – 2018 Remuneration policy

Section 4 – Implementation report

SECTION 1 – COMMITTEE GOVERNANCECOMPOSITIONThe members of the committee for the 2018 financial year were independent non-executive directorsHarish Mehta (Chairman), Mike Hankinson and Phumla Mnganga, all of whom are independent non-executive directors. Their qualifications and experience are available here.

MEETINGSThe CEO attends meetings by standing invitation to make proposals and provide such information as thecommittee may require.

The committee met three times during the 2018 financial year. Members’ attendance at meetings was asfollows:

Attendance

Member Status 14 Nov 2017 6 Feb 2018 7 Aug 2018Harish Mehta(Chairman) Independent non-executive ✓ ✓ ✓

Mike Hankinson Independent non-executive ✓ ✓ ✓Phumla Mnganga Independent non-executive ✓ ✓ ✓Members’ attendance was 100%.



TERMS OF REFERENCEThe committee executes its responsibilities in accordance with a formal terms of reference and work plan,which is reviewed annually and aligned with the King IV™ recommendations. No changes were made tothe terms of reference since its last review in 2017.


A copy of the committee’s terms of reference can be found here.

SECTION 2 – BACKGROUND STATEMENTDear shareholders,

As members of the committee, our focus is to ensure that the company remunerates fairly, responsiblyand transparently and in doing so annually reviews the company remuneration policy to ensure that itpromotes the achievement of strategic objectives and encourages individual performance.

This report outlines the background, philosophy, policy and implementation details of the remuneration ofnon-executive directors, executive directors and all employees of the company.

The committee makes annual use of PricewaterhouseCoopers’ (PwC) executive and non-executiveremuneration reports to provide insight into current remuneration practices and trends. This year thecommittee consulted with PwC to assist them with a benchmarking exercise of salaries, including lookingat short-term and long-term incentives in order to ensure that the remuneration of executive managementis fair and responsible in the context of overall employee remuneration.

Following the engagement with PwC:

the committee remained satisfied that the current short-term and long-term incentive schemeswere appropriate; andthe benchmarking exercise revealed that executive guaranteed salary packages wereapproximately 20% below the market average.

The committee was satisfied that PwC was independent and objective with their advice.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Reumeration_committee_Terms_of_reference_201808.pdf


During the 2018 financial year, the committee:

reviewed the company’s remuneration policy and implementation report for approval by the board,which will be put to a non-binding vote by shareholders at the 2019 annual general meeting (AGM).In the event that the remuneration policy and/or the implementation report is voted against by 25%or more of the voting rights exercised, management will engage with those shareholders to get anunderstanding of the reasons why and amend the remuneration policy and/or the implementationreport to address any shortcomings, if necessary;reviewed and approved the executive directors’ and executive committee members’ remuneration,performance and incentives bonuses;approved the annual award of shares in terms of the group’s long-term conditional share plan,details of which are below;approved the salary mandate to be implemented for the group’s employees;considered the fees payable to non-executive directors for approval by shareholders, details ofwhich are below; andreviewed the King IV™ recommendations.

Executive management formally engaged with a number of the company’s top shareholders regarding thecompany’s remuneration policy before its 2018 AGM and were pleased with the 95.66% (2017: 94.49%)vote in favour of the remuneration policy and the 89.97% vote in favour of the implementation report.

No changes were made to the remuneration policy during the year under review. The committee issatisfied that remuneration in all forms accruing to employees at all levels is market-related and equitablyawarded. In addition, the committee believes that the remuneration policy encompasses the objectives setout in the company’s remuneration philosophy.

Thank you to the members of the committee for their dedication and constructive contributions to thefunctioning of the committee.

Harish MehtaChairman of the Remuneration Committee13 November 2018

SECTION 3 – 2018 REMUNERATION POLICYREMUNERATION PHILOSOPHYSPAR’s employees are pivotal in meeting its strategic objectives in that SPAR is committed to paying fair,competitive and market-related remuneration to ensure that the company is able to attract and retain top-quality and talented employees. Our remuneration policy therefore seeks to:

position the remuneration levels appropriately and competitively in comparison with the labourmarket; andacknowledge the contribution of individual employees by rewarding them for the successfulachievement of company goals and objectives.


Apart from fixed remuneration, an element of variable remuneration that is aligned to value creation in theform of short and longer-term incentive schemes is also catered for and linked to the achievement andperformance of specified targets and objectives, with payment being made from increased returns. Thisalso assists in attracting and retaining key employees.

PROCESS TO DETERMINE REMUNERATIONSPAR strives to ensure that remuneration is free of unfair discrimination. Fair differentiation based onperformance and skills shortage is applied. The company takes cognisance of its external environmentthrough an understanding of national remuneration trends and by regular benchmarking againstcomparable companies.

SPAR uses remuneration surveys conducted by reputable salary survey companies that have sufficientsample sizes and spread of positions, and an adequate representation in relevant industries comparable toSPAR. Salary scales provide remuneration guidelines based on the Paterson grading system and areinformed by market comparisons. The company strives to remunerate key positions and those positionswhere there is a shortage of skills (as defined annually) on at least the 75th percentile of the market, andthe rest of the positions on at least the 50th percentile of the market.

The use of a performance management system also ensures that there is a positive correlation betweenindividual and team performance and remuneration earned. Management is responsible for managingremuneration and thus supporting the long-term sustainability of the company.

The committee is responsible for approving salary increases for executive directors and the executivecommittee. The CEO, together with the executive committee, is responsible for all employees below EUgrade. The overall percentage increase for employees below EU grade is authorised by the committee.Salary increases are implemented:

on 1 January each year for all employees graded DU band and below who are not members of thebargaining unit;on 1 October each year for employees graded EL band and above; andas per collective agreements with the union(s) for employees in the bargaining unit.

REMUNERATION STRUCTURESPAR’s remuneration structure consists of both guaranteed and variable remuneration. SPAR uses thePaterson grading methodology, which works as follows:

F Chief Executive OfficerEL and EU ExecutivesDU High-level specialists/middle to high managementD ManagementCU Lower-middle managementC High-level skilled/clerical/supervisoryB ClericalA Low-level skilled


GUARANTEED REMUNERATION AND BENEFITSNon-management (A to C band) and management employees (D to EL band)remunerationSalary and subsidised benefits (retirement and medical) form the guaranteed component of employees’remuneration. The components are as follows:

Bands A to C receive a monthly salary and a guaranteed 13th cheque.Bands D and above receive a monthly salary.Other pensionable remuneration applicable to bands D and above includes a car allowance, vehicleinsurance and fuel, which are paid by the company.From date of engagement, permanent employees at all levels become members of one of theavailable retirement funds, namely:

The Old Mutual SuperFund Pension Fund: The SPAR Group Ltd Defined Contribution PensionFund,The Old Mutual SuperFund Provident Fund: The SPAR Group Ltd Staff Provident Fund, andThe Old Mutual SuperFund Provident Fund: The SPAR Group Management Provident Fund.

Membership of a medical aid scheme is not compulsory, but those who wish to become memberscan choose from several medical aid schemes available. The Tiger Brands Medical Scheme is agroup scheme, while a number of other low-cost medical aids have been negotiated at distributioncentre level.Other variable remuneration, such as allowances, is paid, where applicable, and in accordance withthe legislation and collective agreements entered into with the union(s) or workers’ committees.Non-financial benefits include subsidised canteen meals, access to a clinic, uniforms and trainingand development.

Executive remuneration (EU to F band)The executive directors are full-time employees of the company and, as such, each has an employmentagreement, in accordance with the company’s standard conditions of service, but with a notice period oftwo months (versus one month for other employees) and more comprehensive confidentialityundertakings. The CEO has a notice period of three months.

Executive directors receive a monthly salary and benefits based on the role of each executive and his orher performance and contribution to the group’s overall results, including other pensionable remunerationapplicable to band EU and above, such as car allowance, vehicle insurance and fuel, which is paid by thecompany.

Details of the executive directors’ remuneration are available on below.

Non-executive directors’ remunerationNon-executive directors are not full-time employees of the company and, as such, each has a contract forservices and not a contract of employment.

Non-executive directors’ remuneration consists of a guaranteed basic fee and is not linked to the financialperformance of the group, nor do they receive share options or bonuses.


Management recommends non-executive directors’ fees, based on industry benchmarks, to the committeefor onward recommendation to and approval by the board who in turn recommends the fees toshareholders for approval in accordance with the Companies Act. Non-executive remuneration increasesare implemented on 1 March each year and their proposed fees for the period 1 March 2019 to29 February 2020 are available here.

VARIABLE PAYShort-term incentivesThe short-term incentive scheme is solely at the discretion of the company and can be changed orwithdrawn at any time. Short-term incentives are only paid to individuals who are in the employ of thecompany at the end of the financial year.

The main purpose of this incentive scheme is to support a performance culture and to reward employeesfor achieving good annual financial results when compared with predetermined targets. Performancebonuses are based on the achievement of financial, individual and transformation objectives approved bythe committee.

Non-management employees (A to C band)Non-management employees are entitled to a performance bonus of up to 50% of a month’s salary or partthereof, based on the achievement of set targets. The targets are based on key issues in the business planand are mainly financial targets.

Management employees (D band and above)The maximum incentive bonus that may be earned is as follows:

Paterson grade% of basic

annual salaryBonus split

financial:functionalF 100 75:25EU 100 75:25EL 60 60:40DU 30 30:70DL 15 30:70

The financial component of the short-term incentive for divisional managers is based on a targeteddivisional profit before tax growth on the previous year. For central office managers, short-term incentivesare based on the group’s profit after tax growth on the previous year.

The functional component comprises objectives that include corporate objectives (for example,transformation) and individual objectives, which are specific to a manager’s sphere of influence. Theattainment of these targets contributes to the achievement of the company’s strategic objectives, whichare aligned to the delivery of sustained shareholder value. The principle of paying for performance is a keyfactor underpinning the short-term incentive, and any variable payments are directly aligned toperformance outcomes. Achieving these objectives will result in a bonus payout subject to theachievement of a minimum profit level of no less than the profit level achieved in the previous year.

The short-term incentive bonus is capped at 100% of annual salary for executive directors and seniorgeneral management.

https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Abridged_IR_12426_WEB.pdf#page=95


For the executive directors, the breakdown of the targets, relative bonus caps as a percentage of annualsalary and the average payout for the 2018 financial year, were as follows:

Bonus cap(% of annual

salary)

Executivedirectors’

averageperformanceachievement

%Group financial results 75 75.0Transformation targets 10 55.2Key performance objectives 15 82.1Total 100 68.5

Long-term incentivesShare Option Plan (SOP) (2004)The last options were allocated on 7 February 2014 and remaining participants have 10 years from date ofissue to exercise their option rights. No further share option allocations can be made in this scheme. Thereare no performance criteria in this scheme and as the scheme is now closed, none can be introduced.

Options previously granted to executive directors, options exercised during the year under review andunexercised options as at 30 September 2018 are provided in the implementation report below.

Conditional Share Plan (CSP)The CSP provides a mechanism that enables the company to provide key employees with the opportunityto receive shares in the company based on personal or group performance. The primary intent is to makeperformance-related awards under the CSP through an award of shares that are subject to appropriateperformance conditions. An award of restricted shares may be made in exceptional circumstances toaddress serious retention risks or to compensate prospective employees for the loss of long-term incentiveawards with their existing employer.

The CSP is differentiated from the SOP in that it has performance conditions governing the vesting ofawards. In addition, whereas the SOP is generally settled by the issue of shares, the CSP is intended to besettled by a market purchase of shares and will, therefore, not cause dilution to shareholders.


Salient features of the CSP are as follows:

DETAILS CONDITIONAL SHARE PLANDescription Under the CSP, participants receive a conditional right to receive a share

in the company on the vesting date if certain conditions are met.Participants will only become shareholders to the extent that vestingoccurs on the vesting date and will have no shareholder rights prior tothis date.

Company limit The cumulative aggregate number of shares that may be allocated underthe CSP shall not exceed 5 200 000 shares (approximately 3% of issuedshare capital). This limit excludes share purchases in the market andshares forfeited.The aggregate number of restricted shares that may be allocated underthe CSP may not exceed 1 300 000 shares.

Individual limit The cumulative aggregate number of shares that may be allocated to anyone individual may not exceed 570 000 shares (approximately 0.33% ofissued share capital).

Settlement method The intention of the company is to settle all CSP awards from a marketpurchase of shares; however, the rules of the CSP allow for settlement inany of the following ways:• Market purchase of shares• Issue of shares• Use of treasury shares

Termination of employment Bad leavers will forfeit all awards on the date of termination ofemployment. In the case of good leavers, a pro rata portion of allunvested awards will vest. The pro rata portion will reflect the number ofmonths served since the award date and the extent to which theperformance conditions (if any) have been met. The balance of theawards will lapse.

Allocation methodology The CSP will be used for annual allocations. The company will defineannual allocation levels expressed as a percentage of gross annual basicsalary. In defining these levels, the company will endeavour to maintainthe fair value that participants would have maintained under the SOP.To this end, new allocation levels that may be made on an annual basis(expressed as a percentage of gross annual basic salary) areapproximately:• CEO: 60%• Executive committee members: 50%• Senior managers: 35%

Grant price Not applicableVesting/employment period Three years for annual award of performance shares and in equal parts

after years three, four and five for restricted shares.

The performance conditions applicable to an award of shares are set annually by the committee, in broadconsultation with shareholders. The performance conditions will be measured over a performance period ofthree years, which is aligned with the financial years of the company.


The table below shows the three performance conditions along with their definitions and the proportion ofthe total number of shares awarded to which the performance conditions relate. In addition, the tableshows the Threshold, On-target and Stretch target conditions which represent the levels of achievementrequired for certain portions of the performance shares related to that particular performance condition tovest.

PERFORMANCE CONDITION DEFINED AS DETAIL WEIGHTING THRESHOLD ON-TARGET STRETCHReturn on net assets (RONA) Operating profit expressed as a

percentage of the net closing assetvalue at the relevant year-end.

The average RONA over theperformance period will becompared to the targets set outherewith.

30% 80% of theon-target

AverageRONA as pertheoperatingbudgetsapproved bythe board.

120% of theon-target

Growth in headline earnings pershare (HEPS)

Headline earnings divided by theweighted average number ofordinary shares (net of treasuryshares) in issue during the relevantfinancial year. Headline earningsconsist of the earnings attributableto ordinary shareholders, excludingnon-trading and capital items.

Growth in HEPS will be calculatedas the growth between the baseyear and the last year in theperformance period.

50% CPI growthover theperformanceperiod

GrowthbetweenHEPS as pertheoperatingbudgetapproved bythe boardfor the lastyear in theperformanceperiod andthe baseyear HEPS.

Target plus9% over theperformanceperiod

Total shareholder return (TSR)relative to a peer group

The TSR will be measured as thecompound annual growth rate(CAGR) in the TSR index for thecompany and the peer companiesover the performance period afterholding the shares and reinvestingthe dividends over the performanceperiod.

To remove vagaries in the market,the CAGR in TSR calculation is to besmoothed by using the averageTSR index for the 20 business daysup to and including the start of theperformance period and 20business days up to and includingthe end of the performance period.The peer group will constitutesuitably constructed andappropriate peer companies.

20% 80% of on-target

Weightedaverage TSRof peergroup

120% of on-target

Threshold performance will act as a ‘gatekeeper’ and will represent the minimum performance that isrequired before performance shares vest. On-target performance relates to good, but sufficientlystretching performance, and stretch performance relates to exceptional performance in the context of theprevailing business environment. The portion of the performance shares that will vest at each target willbe as follows:

VESTING PERCENTAGEThreshold 30% of the award of performance shares will vest for

performance at threshold. None of the performance shareswill vest for performance below threshold.

On-target 65% of the award of performance shares will vest forperformance on-target.

Stretch 100% of the award of performance shares will vest forperformance at stretch.

Linear vesting will apply for performance between threshold and on-target or between on-target andstretch performance. The conditions of the CSP will continue to be reviewed in line with best practice.


The remuneration committee supports shareholding by its top executives and believes this re-enforcesshareholder alignment post the vesting of long-term incentives. To this end, senior executives can elect tosubject CSP shares that are coming up for vesting for a further agreed holding period during which timesuch shares cannot be disposed of. The remuneration committee is in the process of approving a formalminimum shareholding requirement policy that will contain targeted shareholding to be achieved by seniorexecutives.

PERFORMANCE CONDITIONS, TARGETS, INFORMATION AND ALLOCATIONSThe interim measures against the targets for the unvested awards issued in 2015, 2016 and 2017 aresummarised in the table below. The HEPS growth and average annual RONA projections over theappropriate performance periods for each applicable grant has been calculated using historical andforecast HEPS values.

Description2015Grant

2016Grant

2017Grant

Vesting date 09.02.2019 07.02.2020 07.02.2021Performance period 01.10.2015 to

30.09.201801.10.2016 to

30.09.201901.10.2017 to

30.09.2020 Total number of units remaining 304 600 228 100 307 100Projected HEPS growth over performance period 22.3% 23.9% 40.3%HEPS target 30.0% 30.0% 27.5%Vesting percentage 44.6% 50.3% 100.0% Projected average annual RONA over performanceperiod 41.7% 40.4% 41.7%RONA target 45.0% 40.0% 40.0%Vesting percentage 52.1% 66.9% 72.3%

The measure of TSR will be the TSR of SPAR relative to the weighted average TSR of the six selected peergroup companies.

On 7 February 2018, the committee awarded 307 100 performance shares (2017 grant) and 101 100restricted (retention shares) (2017 grant) to executives and senior managers. This was the first award ofrestricted shares to key, selected employees. The vesting date of the performance shares award is 7February 2021 and the vesting dates of the retention shares are 7 February 2021, 7 February 2022 and 7February 2023. Details of CSP awards to executive directors are provided in the implementation reportbelow.


On 17 February 2018 the first tranche of CSP awards issued in November 2014 vested. The finalperformance conditions for the grant were measured and externally verified by Deloitte. The results of thecalculation of the actual vesting percentage were as follows:

HEPS growth 51.1%RONA growth 53.2%ITSR 100.0%Final vesting 61.5%

Of the total number of awards remaining at the measurement date, 297 791 vested. These awards weresettled by a market purchase of shares.

SECTION 4 – IMPLEMENTATION REPORTThe implementation report contains the detailed information and figures pertaining to the application ofthe remuneration policy in relation to executive and non-executive directors.

DIRECTORS’ REMUNERATION AND INTEREST REPORT

R’000 Salary

Per-formance

relatedbonus(2)

Retirementfundingcontri-

butions

Travelallowanceand otherbenefits(1)

Shareoptiongains Total

Emoluments2018ExecutivedirectorsGOO’Connor 5 850 4 374 687 468 11 379

WA Hook 3 407 1 747 425 474 14 037 20 090MW Godfrey 4 042 3 022 481 476 1 589 9 610R Venter 3 063 2 236 384 1 360 2 694 9 737Totalemoluments 16 362 11 379 1 977 2 778 18 320 50 816


2017Executive directorsGO O’Connor 5 053 1 582 599 429 7 663WA Hook 3 407 1 296 423 463 22 620 28 209MW Godfrey 3 302 1 001 397 437 3 735 8 871R Venter 2 889 847 362 466 4 564Total emoluments 14 651 4 725 1 781 1 795 26 355 49 307(1) Other benefits include medical aid contributions and a long service award.(2) The performance related bonuses relate to amounts earned in current year.

In addition to an annual inflation adjustment, the committee recommended and the board approvedadditional salary increases for GO O’Connor and MW Godfrey following the market benchmarking exerciseto ensure their guaranteed earnings remained appropriately aligned with industry norms.

GroupR’000 2018 2017Fees for services as non-executive directors

MJ Hankinson (Chairman)bc 1 319 1 210

MP Madic 498 456

M Mashologua 515 475

HK Mehtaabc 805 715

P Mngangabd 704 563CF Wellsacd 952 775

AG Wallerc 358

Total fees 5 151 4 194a Member of Audit Committee.b Member of Remuneration and Nominations Committee.c Member of Risk Committee.d Member of Social and Ethics Committee.


Number of shares 2018 2017Directors’ interests in the share capital of the companyExecutive directorsGO O’Connor – direct beneficial holding 22 986 300WA Hook – direct beneficial holding 74 110 25 500MW Godfrey – direct beneficial holding 13 530R Venter – director beneficial holding 13 530Non-executive directorsMJ Hankinson – held by associates 2 800 2 800HK Mehta – direct beneficial holding 2 000 2 000HK Mehta – indirect beneficial holding 10 000 10 000CF Wells – direct beneficial 1 100 1 100AG Waller – direct beneficial 3 200

As at the date of this report the directors’ interests in the share capital of the company remainedunchanged.

DECLARATION OF DISCLOSUREOther than that, disclosed above and below, no consideration was paid to, or by any third party, or by thecompany itself, in respect of the services of the company’s directors, as directors of the company, duringthe year ended 30 September 2018.

DIRECTORS’ SHARE SCHEME INTERESTSThe group’s option scheme (SOP) provides the right to the option holder to purchase shares in thecompany at the option price. On election by option holders, one third of the options granted vests afterthree years, with a further third vesting on the expiry of years four and five respectively. Option holdershave 10 years from the date of issue to exercise their option rights.

OPTIONS HELD OVER SHARES IN THE SPAR GROUP LTD

Number of options held

Executive directors

Date ofoptionissue

OptionpriceRand 2018 2017

GO O’Connor 07/02/2014 124.22 50 000 50 000

Total 50 000 50 000

WA Hook 11/11/2008 50.23 100 000

10/11/2009 66.42 50 000 50 000


08/12/2010 99.91 50 000 50 000

08/11/2011 96.46 55 000 55 000

13/11/2012 122.81 60 000 60 000

Total 215 000 315 000

R Venter 08/12/2010 99.91 23 200

08/11/2011 96.46 11 800 11 800

13/11/2012 122.81 30 000 30 000

12/11/2013 126.43 30 000 30 000

Total 71 800 95 000

MW Godfrey 11/11/2008 50.23 12 000

10/11/2009 66.42 12 000 12 000

08/12/2010 99.91 25 000 25 000

08/11/2011 96.46 35 000 35 000

13/11/2012 122.81 30 000 30 000

12/11/2013 126.43 30 000 30 000

Total 132 000 144 000Total directors share scheme interests 468 800 604 000

Options exercised

Date ofoptions

exercised

Number ofoptions

exercised Rand

Marketprice onexercise

GainR’000

WA Hook 20/09/2018 60 000 50.23 190.60 8 422WA Hook 25/09/2018 40 000 50.23 190.60 5 615R Venter 16/02/2018 23 200 99.91 216.01 2 694MW Godfrey 28/09/2018 12 000 50.23 182.60 1 589


SHARES HELD BY PARTICIPANTS IN TERMS OF THE CSPIn terms of the CSP, the group has granted shares to executives, senior management and key talentspecifically identified in the form of performance share awards. These shares vest over a period of threeyears subject to performance conditions at year-end. No exercise price is allocated to these awards.

AWARDS TO PARTICIPANTS IN TERMS OF THE CSP ARE AS FOLLOWS:

Number of shares

Award

date

Shareprice

on dateof

grantRand 2018 2017

Executive Directors

GO O’Connor 17/02/2015 R133.61 36 665

GO O’Connor 09/02/2016 R195.38 20 000 20 000

GO O’Connor 07/02/2017 R175.10 14 600 14 600

GO O’Connor 07/02/2018 R170.70 30 700

WA Hook 17/02/2015 R133.61 14 000

WA Hook 09/02/2016 R195.38 7 500 7 500

WA Hook 07/02/2017 R175.10 7 500 7 500

WA Hook 07/02/2018 R170.70 13 000

R Venter 17/02/2015 R133.61 22 000

R Venter 09/02/2016 R195.38 9 600 9 600

R Venter 07/02/2017 R175.10 7 500 7 500

R Venter 07/02/2018 R170.70 15 000

MW Godfrey 17/02/2015 R133.61 22 000

MW Godfrey 09/02/2016 R195.38 11 000 11 000


MW Godfrey 07/02/2017 R175.10 9 000 9 000

MW Godfrey 07/02/2018 R170.70 17 500

162 900 181 365

In line with the remuneration committee’s view that senior executives should be exposed to the shareprice post the vesting of their long-term incentives, the following executives have elected to subject theirCSP shares to a further agreed upon holding of 3 years.

CSP AWARDS VESTED

Award

date

Totalnumbergranted

%vested

Totalvested

Executive Directors

GO O’Connor 17/02/2015 36 665 61.5 22 548

WA Hook 17/02/2015 14 000 61.5 8 610

R Venter 17/02/2015 22 000 61.5 13 530

MW Godfrey 17/02/2015 22 000 61.5 13 530

94 665 58 218


AUDIT COMMITTEE REPORT

The Audit Committee (the committee) presentsthe following report pursuant to therequirements of section 94(7)(f) of theCompanies Act, 71 of 2008, as amended (theCompanies Act) to shareholders for the 2018financial year.

COMMITTEE GOVERNANCEThe committee has specific statutory responsibilities to the shareholders of the company in terms of theCompanies Act and assists the board by advising and making recommendations on financial reporting,internal financial controls, internal and external audit functions and regulatory compliance.

COMPOSITIONMembers are appointed by shareholders on the recommendation of the Nomination Committee and theboard. Shareholders will again be requested to approve the appointment of the committee members forthe 2019 financial year at the company’s AGM to be held on Tuesday, 12 February 2019.

The members of the committee for the 2018 financial year were independent non-executive directors,Chris Wells (Chairman), Marang Mashologu and Harish Mehta. Andrew Waller who was appointed to theBoard on 7 February 2018 attended meetings by invitation in his capacity as an independent non-executive director.

The Nomination Committee and the board have nominated for re-election at the 2019 AGM, Chris Wells(Chairman), Marang Mashologu and Harish Mehta and for election Andrew Waller as members of thecommittee. Their qualifications and experience are available here.

MEETINGSPermanent invitees at committee meetings are the CEO, the Group Financial Director, the Group InternalAudit Manager, the external auditors and the Company Secretary (who acts as the secretary of thecommittee).



The committee met three times during the 2018 financial year. Members’ attendance at meetings was asfollows:

Attendance

Member Status 13 Nov 2017 28 May 2018 6 Aug 2018Chris Wells(Chairman) Independent non-executive ✓ ✓ ✓

Harish Mehta Independent non-executive ✓ ✓ ✓Marang Mashologu Independent non-executive ✓ ✓ ✓



A copy of the committee’s terms of reference and work plan is available here.

The committee received assurance on all relevant matters within its terms of reference from the followingcommittees during the 2018 financial year:

Risk CommitteeSocial and Ethics Committee


ROLE AND RESPONSIBILITIESThe committee has an independent role with accountability to both the board and shareholders. Thecommittee’s responsibilities include the statutory duties prescribed by the Companies Act, requirements ofthe JSE Listings requirements, activities recommended by King IV™, as well as responsibilities assigned toit by the board.



https://investor-relations.spar.co.za/ir2018/pdf/SPAR_Audit_committee_Terms_of_reference_201808.pdf


KEY FOCUS AREASIn addition to the key areas of focus detailed below, the committee, during the 2018 financial year,reviewed the:

unaudited interim results report and associated reports and announcements;summarised information issued to shareholders;appropriateness of the accounting policies, disclosure policies and the effectiveness of internalcontrols;disclosure of sustainability issues to ensure that they were reliable and did not conflict with thefinancial information;changes to the JSE Listings Requirements which pertain to the committee’s responsibilities;JSE proactive monitoring of financial statements report;company’s banking facilities;2019 budget guidelines and assumptions;King IV™ recommendations;property lease arrangements entered into by the company;policies which fall under the committee’s control and oversight. The group’s delegation of authoritypolicy, fraud prevention policy and whistle-blowing policy were reviewed and recommended to theboard for approval. In line with King IV™ requirements, management is in the process of drafting atax policy, which will be presented to the board for approval;external auditor’s audit report and key audit matters;internal auditor’s report and key audit matters and findings; andwhistle-blowing complaints.

Significant mattersKey audit matters identified by the external auditors are included in the annual financial statements. Thesematters have been discussed and agreed with management and were presented to the committee.

Annual Financial StatementsThe committee reviewed the annual financial statements for the year ended 30 September 2018 and is ofthe view that in all material aspects, they comply with the relevant provision of IFRS and the CompaniesAct. The committee also reviewed the integrity of the 2018 Integrated Annual Report and recommendedboth to the board for approval. The board subsequently approved the annual financial statements and2018 Integrated Annual Report, which will be open for discussion at the 2019 annual general meeting.

Going Concern StatusThe committee reviewed the solvency and liquidity assessment as part of the going concern status of thecompany and based on this detailed review, recommended to the board that the company adopt the goingconcern concept in preparation of the financial statements.

EXTERNAL AUDITThe committee has primary responsibility for overseeing the relationship with, and the performance of, theexternal auditor, including making recommendations on their re-appointment and assessing theirindependence, as set out in section 94(8) of the Companies Act.



As a result of the proposed implementation of an audit firm rotation process and following an extensivetender process undertaken by the committee in 2017, PwC was appointed by shareholders as thecompany’s external auditor at the 2018 AGM in place of Deloitte & Touche.

In the execution of its statutory duties and based on the processes followed and assurances received, thecommittee:

has assessed the suitability for appointment of the external auditor and designated audit partner inaccordance with the appropriate audit quality indicators and their independence against the criteriaspecified by the Independent Regulatory Board for Auditors, the South African Institute of CharteredAccountants and international regulatory bodies and JSE Listings Requirements;has no concerns regarding the external auditor’s performance or independence and accordinglyrecommended to the board, the re-election of PwC as external auditor and Sharalene Randelhoff asthe designated audit partner for the 2019 financial year. PwC has been the company’s externalauditor for one year and is required to rotate the designated audit partner every five years.Accordingly, Sharalene Randelhoff will be required to rotate as the designated audit partner in2023.determined the terms of engagement and fees paid to PwC as disclosed in note 3 of the annualfinancial statements; anddetermined the nature and extent of the non-audit services that PwC provide to the company asdisclosed in note 3 of the annual financial statements.

The Chairman met with the external auditor without management present to facilitate an exchange ofviews and concerns that may not be appropriate for discussion in an open forum, with no concerns raised.

Non-audit services policyExternal auditors may only be considered as a supplier of such services where there is no alternativesupplier for these services, there is no other commercially viable alternative or the non-audit services arerelated to and would add value to the external audit.

INTERNAL AUDITThe company has an internal audit department consisting of three permanent employees. The internalaudit function is independent and has the necessary standing and authority to enable it to discharge itsduties. The Group Internal Audit Manager, Samesh Naidoo, and the Chairman of the committee meet on aregular basis to discuss internal audit’s performance and any concerns.




During the 2018 financial year, the committee:

approved the internal audit plan and any variations thereof;reviewed and recommended to the board for approval the internal audit charter. No changes weremade to the internal audit charter since its last review in 2017;satisfied itself that the Group Internal Audit Manager is competent and possesses the appropriateexpertise and experience to act in this capacity;confirmed that the company’s internal audit function met its objectives and that adequateprocedures were in place to ensure that the company complies with its legal, regulatory and otherresponsibilities; andensured that appropriate financial reporting procedures exist and were working.

The committee is of the opinion that the company’s system of internal controls and risk management iseffective and that the internal financial controls form a sound basis for the preparation of reliable financialstatements. This opinion is based on the results of the formal documented review of the company’s systemof internal controls and risk management – including the design, implementation and effectiveness ofinternal financial controls conducted by the internal audit function during the 2018 financial year – andconsidering information and explanations given by management and discussions with the external auditoron the results of the external audit, assessed by the committee. The committee’s opinion is supported bythe board.

GROUP FINANCIAL DIRECTOR AND FINANCE FUNCTIONThe committee is satisfied that Mark Godfrey has the appropriate expertise and experience to meet theresponsibilities of his appointed position as the Group Financial Director. His qualifications and experienceare available here.

The committee considered the appropriateness of the expertise and adequacy of resources of the financefunction and was satisfied with the experience of the senior members of management responsible for thegroup function.

During the 2018 financial year, the company appointed Laurence Balcomb as the Finance Executiveresponsible for overseeing the financial management of the South African business.

RISK MANAGEMENTThe board has allocated the oversight of risk governance, technology and information governance andcompliance governance to the Risk Committee. Chris Wells, the chairman of this committee, is also theChairman of the Risk Committee and ensures that information relevant to the Risk Committee istransferred and shared regularly with this committee.



The committee accordingly fulfils an overview role regarding financial reporting risks, internal financialcontrols, taxation risks, compliance and regulatory risks, risk appetite and tolerance, fraud risk (as itrelates to financial reporting) and information technology risk (as it relates to financial reporting), andbased on the processes and assurances obtained, the committee is satisfied that these areas have beenappropriately addressed.

COMBINED ASSURANCEThe integrated assurance policy and framework was reviewed and approved by the board on 7 August2018 and is in the process of being implemented. The implementation of the framework will help supportcorporate governance guidelines to provide appropriate assurance and, in addition, evidence ofintegrated/combined assurance.

Thank you to the members of the committee, internal audit and external audit for their dedicated andconstructive contributions to the functioning of the committee.

Chris WellsChairman of the Audit Committee13 November 2018


OUR REPORTING APPROACH

We want to continuously improve and tailor ourreporting to what you want to know aboutSPAR’s performance and prospects, includingwhat we do to make this business sustainable.We want this report to reflect our values of entrepreneurship, family values and passion. Please let usknow if we have achieved this – and if there is any further information that we can provide you with. Youwill find our contact details here and are invited to complete a survey here.

The 2018 SPAR integrated report takes a digital approach: we are moving away from providingstakeholders with a printed report. For those who still prefer a more conventional report, we offer anabridged report in print and pdf format. You are still able to download a full report in pdf format by usingthe ‘create your own report’ function on this website.

We have transitioned to digital reporting to increase access, usability and transparency. We use our digitalplatform to provide stakeholders with a broad understanding of the group’s past performance in thecontext of the external environment, demonstrated through a wide range of activities, interactions andrelationships. This should enable you to gauge the prospects and future trajectory of SPAR’s value creationabilities.

THE SCOPE AND BOUNDARY OF THIS REPORTThis report covers the activities of The SPAR Group Ltd (SPAR or the group) from 1 October 2017 to 30September 2018. Financial and non-financial information was provided for the Southern African, Irish andSwiss operations, with as much comparability as possible. As BWG Group and SPAR Switzerland are furtherintegrated into the group, the extent and depth of non-financial reporting will improve.

It is important to distinguish between the JSE-listed company, SPAR – primarily a warehousing anddistribution business – and the operations of our independent retailers, who own stores under SPAR brandsand are governed by the SPAR and Build it guilds. Both guilds are non-profit companies. We explain SPARInternational, the guilds and the voluntary trading model here.

Please note that we acquired the S Buys pharmaceutical wholesale business with effect from 1 October2017. The additional revenue and profit is therefore recognised for the first time in this period and affectsthe comparability of historical information in this report.

http://investor-relations.spar.co.za/contact-us/

http://investor-relations.spar.co.za/contact-us/



THE REPORTING FRAMEWORKS AND GUIDELINES THATWE USEDWe determined the content of this report by considering previous reports, as well as the followingframeworks and regulations for financial and non-financial reporting:

International Financial Reporting Standards (IFRS)The Companies Act, No. 71 of 2008, as amendedJSE Listings RequirementsThe Global Reporting Initiative’s (GRI) StandardsKing IV Report on Corporate Governance™ (King IV™) 1

Broad-Based Black Economic Empowerment (BBBEE) Codes of Good Practice of the Department ofTrade and Industry (DTI)The International Integrated Reporting Council’s <IR> FrameworkThe CDP

1 Copyright and trademarks are owned by the Institute of Directors in Southern Africa NPC and all itsrights are reserved.

HOW WE DETERMINED MATERIALITYSince first establishing material matters for reporting purposes in 2014, our determination process hasevolved and matured in appreciating the importance of relationships relating to SPAR’s business model –and how these drive growth. We therefore report in detail about five material relationships: with suppliers,employees, retailers, consumers and communities.

To improve our reporting on the economic, environmental and social impact of SPAR’s operations, thegroup adopted the GRI Standards as a sustainability reporting framework in 2016.


IDENTIFICATIONSPAR hosted an externally facilitated workshop that included representation from internal specialistdisciplines, management and executives. Taking into account industry risks and opportunities, aswell as SPAR’s strategy, key activities and material relationships, the team selected the GRIAspects (now material topics) with the most substantive economic, environmental and socialimpact.

PERFORMANCEThese topics have been included in this report, and the impact, performance and managementapproach for each has been discussed.

VALIDATIONTo ensure stakeholder inclusiveness, SPAR ran a short, focused engagement process to test therobustness of our chosen material Aspects with a range of the group’s material stakeholders. Thisenabled us to check whether our internal perceptions align with external expectations.

The full process was not repeated in 2017 or 2018. According to the board, the topics remained materialand are reported consistently with disclosures in 2016.

HOW WE APPROACH THE SIX CAPITALSWe use the <IR> Framework as a reporting guideline and agree with the use of the six capitals to ensureholistic, balanced reporting that considers more than just the creation of financial capital. We recognisethat we use, transform, deplete, and renew these capitals in our business activities.

Although we have elected to not structure or report according to the definition of the six capitals explicitly,references to and detailed explanations of the resources and relationships that we affect – along with theirinterconnectedness and dependencies – are included in the section on our strategy and business model.

https://investor-relations.spar.co.za/ir2018/our-strategy-and-business-model/our-new-supermarket-strategy-for-south-africa/


KING IV™ REFERENCESWe explain how we apply the principles of King IVTM in three specific ways:

Our governance report addresses the principles in detail and contains the relevant disclosures1.as required by King IVTM.Our online King IVTM register contains references/links to the detail disclosures on the website2.and in the abridged report and a brief statement on how we apply each principle. This providesour readers with a quick overview in one document.Throughout this digital report we use icons to inform readers that we provide evidence of our3.implementation or arrangements according to specific principles in that section. Each iconshows the number and definition of the relevant principle for ease of use.

FORWARD-LOOKING STATEMENTSCertain statements in this integrated report may constitute ‘forward-looking statements’. Such statementsinvolve known and unknown risks, uncertainties and other factors that could cause the actual results,performance or achievements of the group to be materially different from the future results, performanceor achievements expressed or implied by such statements.

SPAR undertakes no obligation to update publicly or release any revisions to these statements that reflectevents or circumstances after the date of this report, or to reflect the occurrence of anticipated events.

ASSURANCEFinancial information contained in this report was independently audited by PricewaterhouseCoopers Inc.and external assurance was sought on non-financial data. This includes the group’s 2018 BBBEEverification, which was evaluated independently by mPowerRatings. In addition, Scope 1 and 2 datasubmitted to the CDP (previously the Carbon Disclosure Project) was externally verified for the 2016/2017financial year.

An integrated assurance framework is still in development and will be rolled out in the 2019 financial year.

BOARD RESPONSIBILITY STATEMENTThe SPAR board applied its collective mind to the contents of the report and is satisfied that it provides afair account of the business’s performance, risks, opportunities and prospects. The board confirms that thereport was prepared according to the <IR> Framework and addresses the related reporting elements andprinciples. The board acknowledges its responsibility for the information contained in this report and hasauthorised it for release to stakeholders.

https://investor-relations.spar.co.za/ir2018/governance-approach/governance-structures-composition-functioning/





Mike HankinsonChairman13 November 2018

Graham O’ConnorChief executive Officer13 November 2018

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