Integrated Annual Report 2020 Salient Features

THE SPAR GROUP LTD INTEGRATED ANNUAL REPORT 2020 SALIENT FEATURES

REVIEW OF 2020 +13.5% to As an essential service provider of groceries, our stores traded throughout the lockdown periods brought on by the COVID-19 pandemic R124.3bn Group turnover^ Exceptional financial performance despite the setbacks caused by the pandemic 2019: R109.5bn

Awarded the SPAR licence by SPAR International to operate in Poland +15.6% to Inclusion in the FTSE4Good Index for recognition of ESG practices

Made public commitment to take meaningful action against gender based R3.4bn violence in South Africa Operating profit 2019: R3.0bn Awarded ‘overall winner’ in the ABSA Business Day Supplier Development Awards for the SPAR rural hub programme +8.8% to Commenced an ambitious project for the implementation of SAP as part of the group’s digital transformation journey 1 262.6 cents Awarded the ‘consumer products’ sector Investment Analysts Society award for Normalised diluted headline excellence in communication and financial reporting as a Johannesburg Stock earnings per share (HEPS)# Exchange (JSE)-listed company 2019: 1 160.6 cents

OUTLOOK +21.9% to Against the backdrop of the COVID-19 pandemic, the group continues to prove its resilience. Consumers are opting for their local, conveniently located and trusted community retailer, during this time. This is perfectly aligned with 1 432.4 cents the group’s vision of being the first-choice brand in the communities we serve. Normalised diluted HEPS, excluding Poland SHORT TO MEDIUM TERM 2019: 1 174.7 cents In Southern Africa, an existing weak economy has been severely impacted by the pandemic. The consumer environment is expected to remain constrained, with many South Africans under financial pressure. Despite the second wave of hard lockdown measures in Europe, our businesses there +5.7% to have contingency plans in place to deal with the disruption and have learnt many lessons from the initial lockdowns. In Ireland, the foodservice and hospitality sector will face continued uncertainty, as consumers remain 4 102.2 cents cautious; however, the retail sector is expected to remain strong in the year Net asset value per share ahead. The gradual reopening of the Irish economy is likely to coincide with 2019: 3 879.9 cents the impact of Brexit, which is expected to be disruptive. Our Swiss business is well positioned to maximise the opportunities brought on by shifts in consumer behaviour, new business gained and by the changing dynamics in the marketplace. In Poland, we will concentrate on building relationships +8.1% to and driving loyalty with our SPAR retailers. We are focused on breaking even in this region by December 2021. 865 cents LONG TERM Dividend per share SPAR’s extensive distribution and logistics capability, market-leading brands 2019: 800 cents and overall support of independent retailers, ensure that we remain suitably positioned to deliver exceptional value to consumers. Key leadership changes for the year ahead include Mike Hankinson retiring as chairman, replaced by Graham O’Connor as non-executive director and Chairman and Brett Botten ^ Turnover represents revenue from the sale of merchandise. as Group CEO, to take SPAR to even greater heights as a global # Headline earnings adjusted for fair value adjustments organisation in the long term. and foreign exchange effects on financial liabilities, and business acquisition costs. CONTENTS

About this report 2

About SPAR 7

Investment case 16

Sustainability – My SPAR, Our Tomorrow 20

Our material relationships 22

Chairman’s message 24

Group CEO’s report 26

Group operating environment and context 30

OVERVIEW Responding in a time of crisis 35

Value creating business model 42

Value creation in the context of our strategic approach 46

Our purpose-driven strategy 48

Regional strategic progress 50

Strategic risks and opportunities 55 VALUE CREATION AND STRATEGY

Group FD’s financial review 58

Five year review 66

Value added statement 67

Ratios and statistics 68

Summarised group financial statements 69 FINANCIAL FINANCIAL PERFORMANCE OVERVIEW

Board of directors 92

Our governance system 94

Audit Committee report 98

Nomination Committee report 102

Remuneration Committee report 104

Risk Committee report 120

Social and Ethics Committee report 122 GOVERNANCE

Analysis of ordinary shareholders 124

Notice of annual general meeting 125

Directorate and administration IBC SHAREHOLDER INFORMATION

INTEGRATED ANNUAL REPORT 2020 1 ABOUT THIS

OUR REPORTING APPROACH The 2020 reporting suite consists of the following elements aimed at providers TO HELP YOU NAVIGATE The SPAR Group Ltd (SPAR or the group) of financial capital and available on our is pleased to present its integrated annual THIS REPORT website: report 2020. This year we made some We use symbols and icons to make changes to the reporting suite in an effort Integrated report with our report simple and easy to navigate. to simplify and enhance the presentation governance reports and We have six key stakeholders. In the of relevant information, primarily targeting summarised consolidated context of determining material our shareholders. We also consider the matters and creating value, we have needs of our other key stakeholders – financial statements material relationships with the first our employees, retailers, communities, Full audited annual five key stakeholders: consumers and suppliers – as the foundation of our material relationships. financial statements Year end results announcement The SPAR Group Ltd has seen a great Employees deal of change in the past five years, and presentation expanding its reach into Ireland, Switzerland and more recently, Poland. King IV Report on Corporate Given the substantial changes to our Governance™ for South Retailers business, coupled with the onset of the Africa, 2016 (King IV)1 COVID-19 pandemic, 2020 created an disclosure and reference index opportunity to rethink the way we do things, and this includes the approach Fact sheets with detail and Communities to our reporting, with a more determined data on our distribution focus on environmental, social and governance (ESG) factors. We remain centres, stores, human committed to improving our disclosures capital and trading model Consumers and we welcome feedback. Environmental and social supplementary report OUR REPORTING SUITE Suppliers HAS CHANGED (new for 2020) We combined our previous full online integrated report and abridged print 1 Copyright and trademarks are owned by the report into one concise, but comprehensive, Institute of Directors in South Africa NPC Shareholders integrated annual report as an interactive PDF. and all of its rights are reserved.

We use six capitals as input into our business, to create value.

Financial

Manufactured

Human

Intellectual

Social and relationship

Natural

2 THE SPAR GROUP LTD OVERVIEW

INTEGRATED ANNUAL REPORT 2020 3 About this report (continued)

TO HELP YOU UNDERSTAND OUR BUSINESS When we use these names or labels we mean the following:

The SPAR Group Ltd The SPAR Group Ltd (SPAR) is a wholesale warehousing and distribution business listed on the JSE in the food and drug retail sector. Through its voluntary trading model (see below), it services a variety of store formats that are independently owned. The group holds SPAR licences for and operates mainly in Southern Africa, Ireland (including South West England), Switzerland and Poland. The group also has a joint venture arrangement in Sri Lanka.

SPAR International SPAR International is the world’s leading voluntary food retail chain and the biggest independent supermarket retail network in the world. SPAR International owns the SPAR brand and licences the brand to operators in countries around the world. Read more in the section about SPAR on page 7 and www.spar-international.com.

Voluntary trading model SPAR uses a voluntary trading model which is based on mutually beneficial co-operation between SPAR and its independent retailers. Retailers can use the SPAR brand once they sign a membership agreement with the SPAR Guild, which gives them access to the group’s procurement and distribution expertise and the associated support services the group offers. SPAR does not use a franchise model or operate chain stores. Read more in the fact sheet online.

SPAR Guilds In South Africa, the relationships between SPAR (the wholesaler and distributor of goods and services) and independent retailers of SPAR and Build it stores, are managed through regional Guilds. Read more in the fact sheet online.

Independent retailers SPAR stores are owned and operated by independent retailers. Even though they manage their own stores they are members of the guild and adhere to SPAR’s quality and brand standards.

Corporate stores The group mostly acquires stores as a short-term measure to defend strategically located retail sites, with the intention of selling them on as the opportunity presents itself. Corporate stores are managed by SPAR until their disposal.

House brands SPAR develops products and concepts as part of the independent retailer support offering. All of these in-house developed products and concepts are called house brands and they showcase SPAR’s innovation and quality at competitive prices. This includes brand concepts such as Beantree, Chikka Chicken, SmartChef and SPAR private label.

SPAR private label SPAR-branded products are included in our house brands. These are the products that compete with proprietary brands on shelf.

4 THE SPAR GROUP LTD OVERVIEW

SCOPE AND BOUNDARY OF REPORTING FRAMEWORKS, BOARD RESPONSIBILITY THIS REPORT STANDARDS AND STATEMENT, APPROVAL AND This report presents the integrated GUIDELINES ASSURANCE performance of the group’s operations This integrated report (this report) The board of directors (board) for the period 1 October 2019 to contains information as recommended acknowledges its responsibility for the 30 September 2020. or required by the following: information contained in this report. The Audit Committee reviewed the integrity • International Financial Reporting FINANCIAL REPORTING of this report and recommended it to the Standards (IFRS) BOUNDARY board for approval. To fully appreciate SPAR’s financial • The Companies Act, No. 71 of 2008 reporting boundary, it is important to (as amended) (Companies Act) The board and Audit Committee relied on SPAR’s combined assurance model understand the difference between the • JSE Limited Listings Requirements JSE-listed company, SPAR – primarily a during this process: • King IV wholesale warehousing and distribution • Non-financial information: • Broad-Based Black Economic business – and the operations of our accredited external service providers Empowerment (BBBEE) Codes of independent retailers, who own stores. measured and provided assurance Good Practice of the Department of The group’s financial reporting boundary on selected non-financial metrics Trade, Industry and Competition (dtic) covers the financial results of the former: such as our 2020 BBBEE verification, predominantly wholesale operations in • The International Integrated Reporting independently evaluated by Southern Africa, Ireland and South West Council’s (IIRC) Integrated Reporting mPowerRatings. In addition, Scope 1 England (BWG Foods – 90% owned), Framework and 2 data submitted to the CDP Switzerland (60% owned) and Poland • CDP (previously the Carbon was externally verified for the 2020 (80% owned). Southern Africa includes Disclosure Project) financial year. Management verified wholesale distribution to certain African the processes for collecting and • United Nations (UN) Sustainable countries outside of South Africa. We measuring all non-financial Development Goals (SDGs) also have a presence in Sri Lanka information. through a joint venture agreement. HOW WE DETERMINE • Financial information: PwC has In respect of the notable year-on-year MATERIALITY been the company’s appointed external changes to the group, our financial auditor for three years. Summarised reporting boundary for 2020 includes SPAR is a business built on relationships. group financial statements are available our Polish operations, as well as the Maintaining strong relationships are core on page 69 of this integrated annual purchase of a controlling stake in a to the strength of our business. In the report. PwC has audited and provided strategic supplier of private label products context of creating shared value, material its opinion on the consolidated annual in South Africa, renamed SPAR Encore. matters are the identified matters that financial statements for 2020, available may impact the strength of our five here: https://investor-relations.spar.co.za INTEGRATED REPORTING material relationships – those with our BOUNDARY employees, retailers, consumers, As such, the board is satisfied that this The integrated reporting boundary covers communities and suppliers. We have report provides a fair account of the the group’s operating environments and identified these relationships as being group’s performance, risks, opportunities the strategic risks, opportunities and the foundation of our ability to create and prospects. It also confirms that the outcomes relating to these operating value. This approach to determining report is guided by the Framework, environments, while taking into account materiality was adopted in 2016. Five and approved it for release to stakeholders. all stakeholders. years on, we plan to revisit this approach ahead of our 2021 integrated annual report, with the primary objective of helping to simplify and enhance our value creation story as a business and improve upon our internal integrated Mike Hankinson reporting process. Chairman

Graham O’Connor Group CEO 14 December 2020

INTEGRATED ANNUAL REPORT 2020 5 6 THE SPAR GROUP LTD OVERVIEW ABOUT

OVERVIEW OF SPAR INTERNATIONAL Based in the Netherlands where SPAR originated, SPAR International owns the SPAR brand. The first SPAR store opened in the Netherlands in 1932. It was originally launched as DESPAR, an acronym of a slogan to describe the organisation: Door Eendrachtig Samenwerken Profiteren Allen Regelmatig, which translates into English as: all benefit from joint co-operation. SPAR International allocates SPAR licences per country or region, making it the world’s largest voluntary trade food retail chain, with stores in 48 countries. As part of a global brand, retailers can leverage off international food wholesale, logistics and retail expertise which positions the SPAR brand at the forefront of food retailing globally. The SPAR Group Ltd has grown to represent roughly 18% of SPAR International’s global wholesale turnover. See page 30 for an understanding of our operating environments today. Graham O’Connor, the current Group CEO and chairman-elect of the group chairs the SPAR International board.

Independent 48 wholesalers and retailers countries working together SERVING COMMUNITIES 4.35% AROUND THE Sales growth using constant WORLD annual average exchange rates €37.1bn wholesale turnover

Uniting global partners to be and act BETTER 14m customers per day 13 320 TOGETHER stores

253 distribution centres

INTEGRATED ANNUAL REPORT 2020 7 About SPAR (continued)

OVERVIEW OF OUR GROUP The SPAR Group Ltd has operations in four main territories. SPAR is a warehousing and distribution business striving to provide our independent retailers and their customers with the freshest produce and highest-quality merchandise at competitive prices, every day. We serve a network of independent retailers who trade under our brands and are supplied through our distribution centres on a voluntary basis. The group has expanded significantly in recent years.

BWG Group (Ireland and South West England)

3 33 113 Number of Warehousing space (m2) distribution centres 3 126 1 391 Number of employees Number of retail stores R29.9 billion Turnover

Brands

SPAR Southern Africa

8 305 537 Number of distribution Warehousing space (m2) centres (including one Build it and one S Buys) 4 527 2 414 Number of employees Number of retail stores (including food, liquor, SPAR HQ based building materials and in Pinetown, Durban, pharmaceuticals) South Africa provides centralised services to the distribution centres in South Africa. SPAR in Ireland, R78.6 billion Switzerland and Poland operate as Turnover 1.7% standalone businesses and report 11.0% Poland Switzerland through their own governance Brands structures to the SPAR board.

24.1% Contribution to Ireland group turnover

63.2% South Africa

8 THE SPAR GROUP LTD OVERVIEW

SPAR Poland

2 24 584 Number of Warehousing space (m2) distribution centres 1 083 219 Number of employees Number of retail stores R2.1 billion Turnover

Brands Poland is new to our group for 2020. To understand the opportunity we see in this market see page 18.

SPAR Switzerland

1 33 000 Number of Warehousing space (m2) distribution centres 1 432 333 Number of employees Number of retail stores R13.6 billion Turnover

Brands

SPAR established a joint venture with Ceylon Biscuits Ltd and was granted the SPAR licence to operate in Sri Lanka in 2017. There are currently six stores in operation. The stores continue to set new standards and benchmarks for food retailers in the country. See page 33.

Understanding our distribution network – see page 10 Understanding the store formats available to our independent retailers – see page 12

INTEGRATED ANNUAL REPORT 2020 9 About SPAR (continued)

OUR DISTRIBUTION CENTRES We procure and move goods into stores where they are sold to consumers looking for fresh food, groceries, building materials and liquor. This process relies on our infrastructure: warehouses, distribution centres and relationships.

SOUTHERN AFRICA

SPAR South Africa has six regional distribution Lowveld centres, and the Build it (building material North Rand imports) and S Buys (pharmaceutical) South Rand E distribution centres. Satellite warehousing hubs N reduce transport costs on certain routes. KwaZulu-Natal L Distribution centres serve regions from a Imports warehouse centralised location and usually consist of warehousing, cold storage and packing stations. Eastern Cape Countries services outside South Africa include: Western Cape • South Rand – Lesotho • North Rand – Botswana, Malawi, Zimbabwe • KwaZulu-Natal – Seychelles • Western Cape – Namibia • Lowveld – Mozambique, Eswatini

IRELAND (INCLUDING SOUTH WEST ENGLAND)

In Ireland BWG Group operates the following business divisions: BWG Foods UC; BWG Foods Wholesale Division (including BWG Foodservice); BWG Wines & Spirits; BWG Property (Triode Newhill Management Services); Corrib Foods (acquired business) and Heaney Meats (acquired business). BWG Group is the largest retailer in the Irish convenience retail market by market share. Through its national distribution centre in Kilcarberry, BWG Group supplies the SPAR, EUROSPAR, MACE, Londis and XL brands nationwide. It also owns Ireland’s largest Cash & Carry chain, Value Centre, which has 22 outlets nationwide. It is a regional supplier to the Gala retail brand through the 4 Aces wholesale business in Portlaoise. The wholesale business also comprises BWG Foodservice including Corrib Foods’ Dublin depot in Ballycoolin as well as newly acquired business Heaney Meats. Ballycoolin Portlaoise Dublin In the UK, BWG Group operates the Appleby Westward Group, which serves 306 SPAR stores in the South West of England.

Cullompton Appleby Westward operates a SPAR retail distribution centre Saltash in Saltash, Cornwall, as well as a multi-temperature depot in Cullompton, Devon.

10 THE SPAR GROUP LTD OVERVIEW

Warsaw Poznań POLAND Czeladź

Piotr i Paweł was acquired on 1 October 2019, providing access to distribution centres in Warsaw and Poznań. We secured the SPAR licence for Poland in February 2020. Despite the COVID-19 lockdown restrictions and travel bans, the business has secured a third distribution centre in Czeladź. This distribution network provides an excellent foundation from which to grow the business and scale up in the coming years. Currently the Poznań and Czeladź distribution centres are operational. The Warsaw distribution SWITZERLAND centre will become operational as the business gains scale.

The distribution and logistics centre in St Gallen St Gallen services a range of independent retailers operating under the SPAR, MAXI brand and several other retailers, while our TopCC Cash & Carry business (11 outlets) provides a direct general wholesale supply service to the wider, independent, culinary-focused wholesale grocery market.

Warehousing Cases dispatched Number of Divisional KEY FACTS space m2 (million) stores serviced Managing Director SOUTHERN AFRICA South Rand 66 500 62.4 560 Brett Botten (CEO elect of the group) North Rand 53 317 42.7 417 Desmond Borrageiro Kwazulu-Natal 69 112 55.4 464 Max Oliva Western Cape 40 405 37.8 460 Alison Zweers Eastern Cape 44 485 34.2 302 Angelo Swartz Lowveld 21 416 13.4 211 Martin Webber Build it (imports) 10 000 4.3 392 Rob Lister S Buys 2 295 n/a* n/a* Jeremy Nicol IRELAND BWG Foods 24 000 23.9 1 085 Leo Crawford Appleby Westward Saltash 7 209 7.5 306 Mike Boardman Collumpton 1 904 6.0 306 ] SWITZERLAND St Gallen 33 000 28.0 333 Rob Philipson POLAND Warsaw** 7 206 – – Poznan 15 030 7.5 219 Tomasz Syller Czeladz 8 092 0.3 85

* Nature of pharmaceutical deliveries not comparable ** Not yet operational For more information about our distribution centres please refer to the fact sheet available on our corporate website https://investor-relations.spar.co.za

INTEGRATED ANNUAL REPORT 2020 11 About SPAR (continued)

OUR NETWORK OF RETAIL STORE FORMATS AND CASH & CARRY OUTLETS In each of our geographies, we are the local custodian of the SPAR brand which we promote through our different store formats, house brands and national marketing campaigns.

SOUTHERN AFRICA

Our retailers’ stores are located where people live and are designed around community needs and convenience. They cater for all income groups and offer parking and access to public transport where possible. In South Africa, we offer the following store formats: • SUPERSPAR for competitively priced, • SaveMor for neighbourhood rural one-stop bulk shopping shopping • SPAR for neighbourhood shopping • Build it stores for home building • KWIKSPAR for everyday convenience requirements • SPAR Express for forecourt • Pharmacy at SPAR for prescription convenience medication and other pharmaceutical purchases • TOPS at SPAR for liquor shopping

IRELAND

Our Irish store formats are mostly convenience stores, with the following brands and formats: • EUROSPAR offering competitively •• Value Centre Cash & Carry provides priced, one-stop supermarket a direct general wholesale supply shopping service to the wider, independent retail • SPAR, MACE and Londis focus grocery market and licensed trade on neighbourhood and forecourt convenience shopping • XL provides for smaller-scale convenience

12 THE SPAR GROUP LTD OVERVIEW

SWITZERLAND

Through the national distribution centre, SPAR Switzerland services a range of independent retailers operating under the SPAR and MAXI brand, as well as several other retailers. • SPAR Switzerland comprises local •• TopCC Cash & Carry provides a direct neighbourhood stores with a wide general wholesale supply service to product range, including the on-the-go the hospitality industry convenience format, SPAR Express • MAXI comprises neighbourhood stores providing a limited convenience range of dry and fresh products

POLAND

Poland is new to the group for 2020. Our distribution centres currently service the Piotr i Paweł and SPAR-branded stores: • Piotr i Paweł for competitively priced • SPAR for neighbourhood convenience and bulk shopping needs. These shopping stores are in the process of being •• SPAR Express for forecourt converted into SPAR-branded stores convenience • EUROSPAR offering competitively priced, one-stop supermarket shopping

THE TOTAL NUMBER OF STORES WE SERVE

2020 2019 Southern Africa 2 414 2 349 Ireland and South West England 1 391 1 360 Switzerland 333 322 Poland 219 n/a Total 4 357 4 031

For more information about our store formats please refer to the fact sheet on our corporate website https://investor-relations.spar.co.za

INTEGRATED ANNUAL REPORT 2020 13 About SPAR (continued)

OUR VALUES-DRIVEN CULTURE We are a family of entrepreneurs driven by passion. We encourage entrepreneurship, live our family values and demonstrate passion. The following three values shape our relationships with our independent retailers and form the foundation of our decision-making and strategy. See our purpose-driven strategy on page 48.

Entrepreneurship Family values Passion At the very core of the SPAR model are Encompass that sense of community and Represents the authentic, positive energy, entrepreneurs, our independent SPAR belonging, personal connection, caring for attitude and enthusiasm that permeates our retailers, innovative and agile, with the one another and working together towards organisation, helping to drive the organisation ability to embrace change and capitalise common goals. This includes embracing forwards in line with our purpose – on the opportunities that present changes in the SPAR family and supporting to inspire people to do and be more. themselves. those changes to ensure the health of the We believe that passion is contagious, SPAR brand and our SPAR family at large. creating a virtuous circle, and in doing so, protecting our SPAR family.

For each of the three values, a definition has been developed, behaviours identified and we have determined ways to measure whether we are effectively living these values. These values are our ethical and moral compass and decision-making foundation.

• Creativity and innovation • Creating a sense of belonging in the • Demonstrating unrelenting commitment • Problem-solving SPAR family, particularly with our people to our consumers and retailers, • Taking ownership and responsibility and our retailers suppliers, the SPAR brand, our jobs for outcomes • Supporting and embracing every and teammates • Visionary leadership and the person’s contribution • Displaying authentic, positive energy ability to take calculated risks • Personalising work and business and attitude • Long-term focus versus relationships • Being enthusiastic DEFINING short-term gain • Working together for the greater good of • Wanting to do what you are currently the company, which means putting one’s doing and enjoying it in the process own agenda aside and demonstrating true teamwork, and removing silos

• Appropriate decentralised • Demonstrating empathy • Going the extra mile decision-making • Understanding and embracing diversity • Taking accountability • Courage • Listening with purpose and interest; • Walking the talk, i.e. ‘say what you • Adaptability and flexibility genuine consultation mean and mean what you say’ • Innovation • Investing time in developing people • Owning your opinion • Rule bending and taking • Tolerating self-expression • Being professional challenges head on • Participating and encouraging teamwork • Owning up to mistakes • Resilience • Communicating • Giving credit where credit is due • People involvement in idea • Networking generation and problem-solving

DEMONSTRATING • Speaking up and speaking out respectfully • Acting with integrity • Treating others like you want to be treated

• Group and divisional performance • Productivity, teamwork and empowerment • Think Retail Survey versus objectives of teams • Achievements • Introduction of innovation and • Quality of conversations, i.e. free and • Individual and team ratings, or other continuous improvement into own honest conversations 360 degree-type appraisals job/department • Goal achievement • Employee retention • Employee retention • Employee climate/culture surveys • Public opinion of SPAR people • Adaptability in a changing • Supplier ratings

MEASURING • Pride in wearing our uniforms environment • Retailer surveys • Support for company activities

Our values are integrated into employee onboarding, training interventions and recruitment, as well as employee recognition campaigns. We respect principles aimed at promoting and protecting human rights. These include the Universal Declaration of Human Rights and the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work.

14 THE SPAR GROUP LTD OVERVIEW

OUR PURPOSE IN ACTION: END GENDER BASED VIOLENCE We made a public commitment this year to stand up and help fight to end gender based violence (GBV) in the South African communities we serve. Distribution centres launched initiatives such as self-defence classes, awareness campaigns and workshops, and supported regional community organisations against GBV. In 2020, R2.5 million was donated to charities from funds raised by sales at till points. SPAR supports the Thuthuzela Care Centres which form a critical part of South Africa’s anti-rape strategy, aiming to reduce secondary victimisation and to build cases that are ready for successful prosecution. Support takes the form of food parcels, toys for comfort and protective equipment for centre employees. SPAR also signed a Memorandum of Understanding with LifeLine South Africa, which is responsible for maintaining and running the END-GBV helpline. SPAR is working with LifeLine to upgrade and improve the call centre infrastructure and to provide sufficient numbers of trained, professional counsellors to manage the volume of calls from both GBV perpetrators and survivors. By acting in support of a public issue that is contrary to our values, we demonstrate our commitment to the SPAR values and our purpose – to inspire people to do and be more.

INTEGRATED ANNUAL REPORT 2020 15 SPAR offers sustainable long-term growth opportunities for investors seeking exposure to food retail sectors in Southern Africa, Ireland, Switzerland and Poland. SPAR is listed on the JSE in the food and drug retail sector. Its performance meets the globally recognised ESG inclusion standards of the FTSE4Good Index Series.

WHY INVEST IN SPAR?

Strong operational A differentiated A broad expertise and food retail brand with consumer market – optimised distribution growing private we serve all income infrastructure label loyalty groups everywhere – with unwavering commitment

A network of quality A diversified group International growth relationships that in terms of product potential through a support a sustainable categories and replicated and familiar food system currency earnings trade model

In the context of the global COVID-19 pandemic, the term ‘defensive stock’ takes on new meaning. Being recognised as ‘essential services’ in a time of crisis has given us even greater appreciation for the important role SPAR plays in our societies, helping to feed nations. Our business has provided a safe haven for investors during extraordinary and unprecedented times.

16 THE SPAR GROUP LTD OVERVIEW

• Decentralised management structure with strong managerial teams across all distribution centres and regions • Extensive and specialist operational expertise in managing wholesale supply chains and distribution • Supporting and enabling our independent retailers to focus on what they do best – running their stores and playing an important role in the communities they serve

• Part of a globally recognised differentiated and trusted food retail brand – SPAR, better together • Competitive edge with access to shared learnings from other SPAR countries, our own distribution centres and our own regions, in operational wholesale and retail excellence • Growing range of quality house brand in-store concepts and private label products

• Offering a unique and differentiated model to both traditional franchise and corporate retail models, serving all income groups, through a diverse range of SPAR store formats • Stores owned by entrepreneurs, living within the very communities that they serve • Empowering innovation and agility – supporting and adapting to the needs of our communities

• Our network of relationships is underpinned by a common purpose – to inspire people to do and be more (refer to our purpose-driven strategy on page 48) • Collaboration with material stakeholders to create strong and lasting relationships – building a sustainable food system together (refer to our material relationships on page 22) • Promotors of a nutritious food offering and enablers within a resilient food chain

• Geographically diverse (refer to operating environments on page 30) • Emerging market and developed market exposure • Decreased concentration risk, with exposure to hard currency-based earnings

• Being part of a global organisation and well-known brand in food wholesale and retail continues to present opportunities of growth for the group • SPAR continues to develop a robust track record for international growth through acquisitions and replicating the voluntary trading model in other territories

INTEGRATED ANNUAL REPORT 2020 17 Investment case (continued)

Why Poland? AN OVERVIEW OF In the World Economic Forum’s 2019 Global Competitiveness Report, Poland received INTERNATIONAL EXPANSION a maximum score in the category of macroeconomic stability. While all EU economies IN RECENT YEARS will contract in 2020, Poland is projected to have the shallowest recession. With a Ireland: The group acquired a population of 38 million and a grocery market value of around €65 billion, it saw 80% stake in the BWG Group in GDP growth of 3.9% for 2019. Despite the COVID-19 pandemic, the macroeconomic Ireland in 2014. The Irish opportunity picture is positive with ongoing government fiscal stimulus, a low unemployment rate, presented a business with good and a positive consumption environment. growth prospects and has delivered With the award of the licence to the group within our sights and knowing we would have exceptional value, in partnership with access to independent SPAR retailers on the ground, it was necessary to seek suitable a strong local management team. distribution capabilities to launch our wholesale offering. This is the fundamental reason The negotiations included an exit why the group acquired an 80% stake in Piotr i Paweł. The group paid €1 upon acquisition, plan for the three shareholders while agreeing to settle all debt and provide the necessary working capital for this business (Irish promotors) owning the minority going forward. The remaining 20% is due to be acquired at a future date by a minority stake. Given his extensive operational partner based in Poland. experience in the Irish market, Leo Crawford, the current CEO of Piotr i Paweł is a retail chain of supermarket stores, with a wholesale distribution network. BWG Foods is prepared to assist post It has been undergoing a legally supervised debt restructuring process (similar to South his retirement in 2022 by mentoring African business rescue) since the acquisition. While COVID-19 caused setbacks to the his successor and being available for finalisation of the business rescue, these proceedings have fortunately not impacted counsel if need be. SPAR’s ability to control the relevant activities of the business in the interim. Switzerland: The group acquired a Having gained access to distribution facilities through the Piotr i Paweł acquisition, we 60% stake in the Swiss business in also secured a third distribution centre in Czeladź near Krakow, creating an effective 2016, which at the time was one of distribution network for the onboarding of the existing Piotr i Paweł and SPAR retailers the last remaining large family-owned and providing a good runway of distribution capability as we grow the business. businesses in the Swiss grocery market. The remaining 40% is due The Polish business consists of: to be purchased in 2021 – marking • Three distribution centres – Warsaw, Poznań and Czeladź (with the latter two currently five years since the original acquisition operational) date and in line with the existing • Head office based in Poznań agreement. • 194 SPAR, EUROSPAR and SPAR Express retail stores onboarded for wholesale Poland: The group secured the distribution during April 2020 licence to operate the SPAR brand • 25 Piotr i Paweł branded stores, with plans to convert these to SPAR stores in due course in Poland in February 2020. In recognition of the need to develop Polish grocery retail market – where do we fit in? a distribution network, the group The Polish market is well penetrated by discounters. Some large supermarkets are purchased Piotr i Paweł, a small, but undergoing massive restructuring to reduce their footprint and size of stores. We see an fairly well-known supermarket chain opportunity for SPAR within the supermarket, proximity supermarket and convenience in Poland, which provided access to space. Proximity supermarkets are typically located close to residential areas in small two distribution centres, as well as to large cities. Our point of differentiation from other retailers is our world-class fresh a network of retail stores, which are departments such as bakeries, butcheries, fresh produce and home meal replacement currently being converted to SPAR deli counters. In the convenience space, we see an opportunity for ‘food-to-go’ which we stores and sold to independent believe is under-penetrated at present. As within all of our geographies, the real emphasis retailers. is to be part of the local community, supporting those communities and in turn being Read more about the performance supported by them. of these businesses in the Group FD’s While it is an extremely competitive market, we identified small independent retail financial review on page 58. chains that are looking for a ‘home’. We estimate that there are thousands of Refer to page 30 for information about independents within the traditional market (32% of the market), and herein lies the these operating environments. opportunity for SPAR. In the short to medium term the priorities are to stabilise the business and improve retailer loyalty with the existing onboarded SPAR retailers. In the long term we believe this business has the potential to grow to 500 stores within five years.

18 THE SPAR GROUP LTD OVERVIEW

POLISH GROCERY RETAIL MARKET

MODERN TRADE (68%)

TRADITIONAL MODERN LARGE FORMAT (58%) MODERN SMALL FORMAT (10%) TRADE (32%)

HYPERMARKET SUPERMARKET DISCOUNTER MODERN FORECOURTS (12%) (15%) (31%) CONVENIENCE (7%) RETAILERS (3%)

•• Selling space: •• Selling space: •• Selling space: •• Selling space: •• Grocery retail •• Soft franchises >2 500m2 400 – 2 500m2 400 – 2 500m2 <400m2 and foodservice as well as •• Popularity is •• Smaller •• Limited number •• Modern chains becoming independent decreasing supermarkets are of stock keeping of proximity stores increasingly outlets important for petrol •• Most hypermarket gaining popularity units, primary with relatively wide •• Includes also stations with large brands also focus on private and standardised speciality stores players opening have stores in labels offering i.e. bakeries, dedicated retail supermarket format greengrocers, brands meat shops, etc.

INTEGRATED ANNUAL REPORT 2020 19 We believe that the future of our business and the society within which we exist are The index recognises intertwined. Our sustainability tagline, companies with strong ‘My SPAR, Our Tomorrow’ is a ESG practices measured public commitment to the future of our ENVIRONMENT against global standards. brand and our planet. We base this SPAR received an ESG SPAR’s contribute on SPAR’s values of entrepreneurship, environmental goals rating of 3.1 in 2020. towards the following SDGs: family values and passion, and align our commitment with the UN SDGs as well as the South African government’s SPAR is National Development Plan. included in the FTSE4Good E Index SPAR’s sourcing goals contribute towards Our sustainability policy supports the the following SDGs: SPAR strategy by focusing on six key areas fundamental to the role we play as a food retailer:

Health FOOD WASTE In South Africa SPAR is mapping food waste across the business, including in our stores. We want to divert food waste from landfills and Sourcing address the challenge systemically. In Ireland we support FoodCloud, a social enterprise that redistributes surplus food to a network of charity and community groups. In Switzerland SPAR has a partnership with Community Too Good To Go, a movement against food waste.

Environment OUR PACKAGING APPROACH

Reduce • Remove unnecessary packaging across the value chain Supply chain • Design new products with minimum packaging without losing packaging integrity

Our people Reuse • Design packaging with reuse in mind • Consider existing packaging from a reuse perspective • Drive communication around reuse

SPAR developed science-based Recycle • Design packaging to enable efficient collection and targets which set out Scope 1 and 2 recycling emissions reduction targets by 2050: • Actively integrate highly recycled materials into packaging 59% 41% • Ensure up to date and accurate on-pack recycling for buildings for transport labels on all products

Read more about the initiatives in our environmental and social All distribution centres in South Africa use solar energy. supplementary report here: https://investor-relations.spar.co.za 6.89 MWp 8 042 MWh total installed of energy generated capacity this year

SUSTAINABILITY

20 THE SPAR GROUP LTD OVERVIEW

SOCIAL GOVERNANCE

SPAR’s people goals contribute towards the following SDGs: Read more about the board’s commitment to be the custodian of a sustainable business, its composition and our application of the King IV principles in the governance section on page 94. SSPAR’s sourcing goals contribute towards the following SDGs: G

SPAR’s health goals contribute towards the following SDGs:

WE MAKE A DIFFERENCE FOR TOMORROW • The SPAR rural hub programme is a collaboration between small-scale farmers, communities and retailers to improve food security, affordability and nutrition for rural communities in South Africa •• SPAR Academy of Learning partners with the Wholesale and Retail Sector Education and Training Authority (W&RSETA) to increase skills • SPAR participates in the youth employment services (YES) programme to help address unemployment The SPAR rural hub •• Made public commitment to help end gender based violence in South Africa initiative is evidence of CORPORATE SOCIAL INVESTMENT FOCUS AREAS a purpose-led strategy • Training unemployed youth and supporting communities in combating crime being implemented on • Feeding schemes, food production through income-generating projects the ground. We inspire and educational programmes • Educating communities on health issues such as nutrition, cancer and people to do and be the impact of HIV/Aids through sports and sports-related initiatives more by addressing real • SPAR invested R23.5 million in community projects and COVID-19 South African challenges, support initiatives including food security, CREATING SHARED VALUE nutrition, job creation and • We support local, sustainable and transparent sourcing transformation. • We help new suppliers to obtain food safety certification and develop scale Graham O’Connor, • We are committed to an ethical supply chain Group CEO SPAR is the • 17% of our timber products are sourced from South Africa and all winner of the procured wood is 100% Forest Stewardship Council (FSC) certified ABSA Business • SPAR procures only certified coffee to ensure consumers Day Supplier of a sustainable and ethical coffee value chain Development Award • We source seafood responsibly SPAR is certified as a TOP EMPLOYER in RSA

My SPAR, Our Tomorrow

INTEGRATED ANNUAL REPORT 2020 21 OUR MATERIAL

As a business SPAR prides itself in building long-term and meaningful relationships. We aim to identify, understand and respond to the needs of our stakeholders, as we recognise the important role they play in our overall business ecosystem and in our ability to create sustainable value. The Social and Ethics Committee has oversight of stakeholder engagement and monitors our stakeholder-inclusive approach. Our stakeholder universe includes all stakeholders who could have a material impact on our ability to create value, including governments, unions, media, regulatory bodies and NGOs. Among these, we identified six material relationships and rely on five of these to create value for each other, as well as for our shareholders. These material relationships are discussed below. Our stakeholder environment is ever-changing. Topical issues such as pandemics, climate change, Brexit, poverty, unemployment and political uncertainty challenge the that way we do business together. Our material relationships therefore form the foundation of how we approach material matters for the business. We are becoming more activist in our engagement with stakeholders through public commitments to bring positive and impactful change in society. These include engagements with industry organisations and government to address issues such as gender based violence and the social impact of alcohol. With one of our executives on the board of the Consumer Goods Council of South Africa (CGCSA), we have advocated for sustainable business practices in the retail sector, including food safety and ways to improve the adoption of the SDGs. At the Sustainable Retail Forum, we contributed to issues such as an industrial waste management plan, plastics and plastic on-pack recycling labels.

Our material stakeholders Why this relationship is important How we engage for positive outcomes

We engage with employees on all aspects of the business to enable them to grow and The strength of our relationships hinge on our employees and their ability to forge, maintain and to inspire our people. In South Africa, each distribution centre has a human resources serve these relationships. Our people form the backbone of the SPAR family. They uphold our department supporting employees and various committees. These include health and Employees values and live our purpose – to inspire people to do and be more. A total of 10 168 permanent safety, shop stewards and values committees, as well as employee wellness clinics. employees work across our corporate offices and distribution centres in South Africa, Ireland, We also support employees on their career paths with training interventions and Switzerland and Poland. leadership development.

Regional and distribution centre management and operations teams engage with retailers to support and grow their businesses. Retailers are members of the regional and national guilds, with representatives who attend regular meetings to give input on marketing, The independent SPAR retailers are our customers and we are here to serve them. By supporting pricing and strategy. Our South African retail operations teams regularly visit stores and Retailers them in developing their businesses through our voluntary trading model and retail and marketing do monthly performance monitoring through tailored service packages. Retailers from support, we will continue to build retailer loyalty. all our territories are invited to the annual SPAR retail convention and participate in ‘Look and Learn’ trips, locally and abroad, to ensure that they remain on top of trends, new offerings and best practice.

We regularly interact with suppliers at distribution centres and satellite warehouses during Our business is supported by a network of suppliers and service providers, from major food deliveries. Our joint business planning sessions target efficiencies in the supply chain, to the producers, to small farmers, to a range of service providers. As we developed our private label benefit of suppliers and SPAR. In South Africa, for example, SPAR buyers typically engage with Suppliers product offering over the past few years, some of our suppliers have become large flourishing suppliers every six weeks, and monthly with larger suppliers. Purchasing managers engage entities through joint collaboration with us. quarterly and the divisional marketing director at least every six months. This ensures an optimised supply chain and a shared understanding of challenges and potential opportunities.

We invite consumers to interact with us through marketing and promotional campaigns to Consumers are the customers of our retailers and remain at the core of our strategy, which puts understand their needs. We do ad hoc customer perception surveys and use social and consumers at the heart. Due to our geographical spread and range of store formats, we service Consumers online channels to build relationships. We ensure that the SPAR brand remains visibility the full spectrum of income groups in all territories. Our stores are conveniently located and meet in local communities as this creates the setting for high levels of consumer engagement. the immediate food and grocery shopping needs of our consumers. In South Africa, we have an in-house customer care line.

SPAR’s business and voluntary trading model is a community-driven model. The nature of our Each SPAR store aims to be at the centre of the community by offering an end-to-end business means that independent retailers are individuals living within and supporting the very product range. We undertake philanthropic activities at retailer level to grow brand loyalty Communities communities that they serve. They support their communities with charitable donations and and play a positive role in the communities we operate in. We invest in community meaningful support, and are further supported by our voluntary trading model, which allows development initiatives at group and distribution levels to address specific social and freedom to support local suppliers of their choice. environmental challenges.

22 THE SPAR GROUP LTD OVERVIEW

We engage with our material stakeholders to create value for them, and ultimately for our shareholders. Shareholder engagement during 2020 included: • Pre-close calls ahead of closed periods, including a voluntary trading update to provide an update to the market on how COVID-19 had impacted the business, which helped manage external expectations, given the uncertainty in the marketplace • Trading update and Annual General Meeting (February) • Interim and full year results announcements and presentations (May and November) • Investor conferences (March, June, November, December) • Ad hoc meetings and calls upon request, outside of closed periods

We have a dedicated investor relations team including the Group CEO, Group FD and head of investor relations to engage with current and potential investors as well as the sell-side analysts on an ongoing basis through the engagements listed above. By keeping our shareholders and analysts informed we build relationships of trust and protect SPAR’s legitimacy and reputation.

Our material stakeholders Why this relationship is important How we engage for positive outcomes

Read more about how we responded to our stakeholders’ needs during COVID-19 in the section on page 35.

INTEGRATED ANNUAL REPORT 2020 23 CHAIRMAN’S

SPAR delivered exceptional results in a year of unpredictable and very demanding conditions for retailers. We were fortunate to be able to operate during lockdown in all our territories, albeit with some limitations such as the ban on sales of alcohol, cigarettes and building materials in South Africa. Most importantly, we were there for our customers and communities.

COVID-19 is a significant challenge for On behalf of the board, I would like to the world and will remain a major risk to thank Graham for his contribution as During this year we have be managed. At SPAR we are committed Group CEO over the past seven years. seen the SPAR culture to be responsible, cautious and to Under his leadership the South African continue safeguarding our employees, business continues to perform strongly and values in action. customers, suppliers and retailers. and he has been instrumental in Strong leadership, During this year we have seen the transforming SPAR into an international SPAR culture and values in action. group. During his tenure, the group has passion and the Strong leadership, passion and the expanded its wholesale operations entrepreneurial spirit entrepreneurial spirit was evident in the through acquisitions in Ireland, Switzerland was evident in the way way our distribution centres, retailers and, more recently, Poland, as well as a and employees responded and adapted joint venture arrangement in Sri Lanka. our distribution centres, their way of working. He is a visionary leader and the group retailers and employees will benefit enormously from his ongoing responded and adapted BOARD CHANGES support as Chairman of the board. their way of working. Shareholders often comment on SPAR’s The board warmly welcomes Brett Botten ability to have multiple and seamless as the new Group CEO with effect from Mike Hankinson, leadership handovers without disrupting 1 March 2021. Having been with SPAR Chairman operations – a seemingly unique for 25 years and with his background capability. as Managing Director of a number of distribution centres, Brett is well placed The series of succession moves over to take SPAR to even further heights the past few years culminate this year as an international group. when Graham O’Connor becomes a non-executive and takes over Chairman of the board upon my retirement at the end of February 2021. He will also continue as chairman of SPAR International. As a board, we recognise that this transition might be perceived as going against prevailing governance principles. However, we debated the advantages and disadvantages, including with major shareholders, and believe that the benefits of Graham leading the board from a position of extensive experience and firm integrity, far outweighs a more independence-orientated solution. Andrew Waller will be lead independent director. Mike Hankinson

24 OVERVIEW

Chris Wells retired as an independent non- APPRECIATION executive director during February 2020. Reflecting on the past 17 years as With his deep insight of the business, Chairman of SPAR is heart-warming. Chris has provided exemplary support The growth trajectory of the group has and input to the Audit Committee and been extraordinary and speaks to the board of directors and we thank him for entrepreneurial values of the business. his nine years of service. The SPAR culture is contagious and inspires the relationships that we have TRANSFORMATION AND been building in the SPAR family over SUSTAINABILITY the years. A highlight for the year was the recognition I have had the pleasure of working that SPAR received at the ABSA Business closely with three Group CEOs: Day Supplier Development Awards. Peter Hughes, Wayne Hook and I remain excited about our SPAR rural Graham O’Connor. They each made huge hub programme and the way in which it strides in growing the group through is developing entrepreneurs and having different periods of the SPAR lifecycle. systemic impact for communities. Key to I want to thank everyone that had a seat the programme’s success is the fact that around our boardroom table during my we are able to provide a market for fresh tenure. I only experienced support, produce to allow small-scale farmers commitment, and a true passion for the to focus on growing their businesses. success of this business from all. This includes our shareholders, employees South Africa needs entrepreneurs, and and the retailers with whom I interacted. though our work to develop previously You all contributed to our success and disadvantaged retailers has been will continue to inspire all of us to do and challenging, we remain committed to be more. the principle. There is nothing like an entrepreneur to bring innovation, jobs and pride into our economy. Our SPAR retailers lead by example. If we can turn more young people into entrepreneurs, South Africa will thrive. Mike Hankinson Chairman LOOKING FORWARD We are cautiously optimistic about the future. Business conditions will not be FAREWELL MESSAGE TO easy anywhere in the world. However, OUR CHAIRMAN SPAR’s results for 2020 proved that our model works, and we believe that the Mike is retiring and steps down as group will soon see positive results for Chairman with effect from the Poland coming through. conclusion of the 2021 AGM. He has been one of the most stable SPAR is becoming an increasingly points of reference for SPAR since complex group with a diversified the group listed on the JSE in footprint. This will require strong 2004 and started its journey of leadership from the board and international expansion in 2014. His management going forward. I believe thoughtful and measured approach we have the best combination of skills, provided the kind of leadership that experience and diversity in place for steered SPAR responsibly through the next phase. many difficult decisions. He was a binding factor for the board, and a deeply valued sounding board for management. We are grateful for his enthusiasm, commitment and many years of service to the group and we wish him all the best for the future.

INTEGRATED ANNUAL REPORT 2020 25 GROUP CEO’S

The group has delivered a superb set of results for the year. Due to the COVID-19 pandemic, consumers spent more time at home, causing a significant increase in home consumption. Our customers have opted for their trusted, local and convenient food retailer during this time of crisis.

A GLOBAL BRAND SUCCESSION PLANNING GROUP PERFORMANCE As a global brand, SPAR is one of the Towards the end of 2019, ten executives The group had an extraordinary year, largest food retailers in the world, with left their roles, with one Managing with turnover increasing by 13.5% to operations in 48 countries. SPAR is an Director electing to become an R124.3 billion and an increase of 15.6.% aspirational brand that continues to attract independent SPAR retailer and nine in operating profit to R3.4 billion. It is independent retailers, globally. Member executives retiring. Of the ten roles, we clear from the group’s excellent results countries continue to share information on made two external appointments. These that SPAR is well placed within the wholesale, logistics and retail excellence. leadership changes had the potential conveniently located retailing space and In the context of the pandemic, we were to cause a lot of disruption; however, that consumers have supported their fortunate to have a head start in the the transition has been seamless. local stores, placing their trust in our brand during these uncertain times. Our learnings shared by SPAR China and It is evident that the SPAR culture South African, Irish and Swiss businesses fellow European SPAR member countries drives our succession process, which have all performed exceptionally well, that were impacted by the pandemic well consistently results in strong performance. despite the pandemic-driven setbacks. before our markets were. Many of the leaders in new positions The acquisitions of the minority interests have been steeped in the business for for both the Irish and Swiss businesses decades. They know SPAR well, live the CULTURE IN A TIME will be completed early in 2021. values and are truly seasoned in their Succession planning for our Irish business OF CRISIS areas of expertise. We combine this with is progressing well. The Polish region Reflecting on the year, I feel proud of what outside appointments that are selected is new to our group this year and has we achieved. Our business culture kept with care and the intent to ensure fit with been loss making in the current year, our teams and ways of working. We are us well positioned to deal with this crisis. which is in line with our plans to open and transparent about our plans SPAR has a special culture. Our people reorganise and restructure the business. have a deep appreciation for our values which means that there is natural of entrepreneurship, family values and progression and widely shared passion. From the onset of the pandemic, accountabilities. we were clear about our key priorities. Firstly, to ensure the safety of our people, retailers, suppliers and consumers. Secondly, to manage the supply chain and keep our retailers’ shelves replenished and thirdly, to continue to support our communities. Our retailers have gone above and beyond in supporting the communities they serve, and we have led and partnered on many initiatives on this front. Our people and our retailers are Graham O’Connor determined and resilient and have all adjusted to a new normal. There has been a remarkable collective effort to get the job done and make things happen and we have learnt a great deal over the past few months. We were well prepared from a digital readiness point of view and continued to make improvements to our systems this year, especially given the need for employees to be working remotely. We have seen a shift in consumer behaviour, and believe that some of this will remain, such as the heightened focus on hygiene and safety.

26 OVERVIEW

SOUTHERN AFRICA Given that it is not an essential service, OPERATIONS our Build it business was severely impacted during the initial lockdown phase In South Africa, our retailers were and was restricted from trading for five swift to implement our recommended weeks. Surprisingly, growth has been COVID-19 protocols. It is a testimony to much stronger than expected post the the resilience of our supply chain and our lockdown, with this business experiencing agility as a business that we managed a growing trend in home improvement and to maintain stock fulfilment rates of over décor sales. The Build it store upgrades 80% during peak crisis times. This was progressed well, with 65 upgrades to the made possible by collaborating with our new branding completed during the suppliers and I am pleased to report that period, which will continue to drive growth. SPAR has been rated number one in this year’s Advantage supplier survey as best Given the trading ban on liquor and food retailer to work with. building materials during the initial lockdown phase, we extended financial We opened 65 net new stores during support to our SPAR and Build it retailers, the year. A total of 310 stores were which assisted our stores in recovering refurbished, including 167 SPAR stores. well, as the economy opened up again. Store upgrades are powerful in driving new business to our stores and we will continue to drive upgrades as a platform EUROPEAN OPERATIONS for organic growth. We continue to work The pandemic had a massive impact closely with our retailers in launching on the hospitality industry globally. In stores that are relevant to the Ireland, BWG Foods has exposure to communities they serve. this industry through our Value Centre Cash & Carry and Foodservice During the lockdown, with only essential businesses, which were both severely services being permitted to operate, impacted. However, our neighbourhood many of the usual advertising mediums retail stores and EUROSPARs have built were not possible and we noticed a consumer confidence during uncertain significant slowdown in competitor times and benefited from being ideally advertising during this time. As a brand located, while possessing credible deeply rooted in our communities, our ranges at good value. With licensed marketing team revisited our pipeline liquor trade closed, our stores performed of advertising campaigns to support strongly in both the liquor and cigarette retailers. We made our campaigns categories. The performance of our retail go further to assist cash-strapped business more than compensated for consumers. We adjusted the tone to one the setbacks to our Value Centre Cash of empathy and understanding. Our & Carry and Foodservice businesses message has been ‘we’re here for you’. during this time. Our private label business continues to Our Swiss business delivered an grow strongly. House brand sales increased exceptional performance. There has 12.1% to R15.0 billion. This contributes been a noticeable shift in consumer 23.9% of our wholesale turnover. Our behaviour brought on by the closure of objective of ‘As good as the best for less’, borders during the initial hard lockdown. is simple, but effective, and consumers see This business delivered sales growth SPAR products as good quality and value of 11.6% in local currency, as consumers for money. chose trusted community-based Our liquor business has been severely stores and convenience over large impacted by the restrictions on trading due supermarkets. With the support of local to the ban on liquor and subsequent restaurants during the summer months, restricted trading hours. Our TOPS at SPAR our TopCC Cash & Carry business has marketing team increased their activity seen good volume growth. The on social media to stay in touch with integration of a group of independent consumers. This drove incredible consumer retail stores, PAM and Edelweiss, is interaction and awareness for the brand progressing well and the conversion of during lockdown. I am also pleased to report these stores to SPAR stores has begun. that TOPS at SPAR won a series of awards Due to its operational excellence, this again this year and continues to be rated as business has managed to cope with South Africa’s number one liquor store. unprecedented levels of demand. We have learnt a great deal from operating in this market for the past four years, which is why the team there was able to maximise this opportunity.

INTEGRATED ANNUAL REPORT 2020 27 Group CEO’s report (continued)

In Poland, we remain excited about the In Ireland, we are focused on the opportunity we see in this market. SPAR integration of Corrib Foods and is well positioned in the supermarket Heaney Meats and to drive the wholesale and convenience space, differentiating opportunity for these businesses, given our offering with world-class fresh the pandemic-driven setbacks in the departments. The real emphasis is to hospitality industry. We will continue be part of the local community, and to to integrate the corporate store support the communities that choose development in South West England. SPAR as their shopping destination We are also involved in ensuring of choice. There are thousands of successful succession planning for traditional trade independents which this business. make up over 30% of the market and In Switzerland, we will build on the herein lies the opportunity for SPAR. momentum gained from new business Operationally, alongside bedding down and maximise on this opportunity going our wholesale and logistics capabilities, forward. We will drive retailer profitability we are driving the SPAR culture, while and will look to restructure our distribution embracing local customs and traditions. model to service the South West, as well We have completed the onboarding of as a new group of independent retailers the existing SPAR retailers and we are who have joined us. focused on driving retailer loyalty. To do In Poland, our number one priority is to this, we strengthened the team with a achieve break even by December 2021. few key appointments made during We will bed down operations, focus on the second half of the financial period. building culture and driving retailer We have made progress with the loyalty. We also see an opportunity to conversion of 32 Piotr i Paweł stores develop our private label offering within and the sale of corporate stores to this market. independent retailers and have Our vision as a business is to be the relaunched the SPAR website to support first-choice brand in the communities we stores with their online offering. We have serve and it is pleasing to see that more accomplished a great deal under the consumers have chosen to support their circumstances, and we have established local, conveniently located and trusted a solid foundation to support our SPAR stores during this time. operations going forward.

LOOKING AHEAD – THANK YOU STRATEGICALLY I would like to express my deep appreciation to the Chairman of the SPAR is currently engaged in the board, Mike Hankinson, for the guidance exploration and build phase of a global and personal support he has given me SAP template. The template will drive over the past seven years. We thank him numerous benefits, improving our overall for his 16 years of service to the group. efficiency as a business, as well as enhanced governance and improved I would also like to extend our thanks to security. This is an ambitious but all our people, suppliers, retailers and necessary project, and we are aware customers who have adapted with us to of the risks involved in deploying such find new ways of operating during these a significant change to our systems. challenging times, especially to all those We have an experienced internal team people working on the front line and who are working closely with SAP serving our communities. Community is SPAR – BRAND ESSENCE consultants to support business growth at the heart of what we do, and we will A few years ago, we declared SPAR to through our digital transformation endeavour to remain immersed within be a purpose-driven organisation. Our journey. Some functions and regions our communities. purpose is to inspire people to do and be of the business are already running more and this has positioned us strongly SAP and will require modernisation in dealing with a crisis. It has also served in respect of aligning the business the business well in achieving our long- for SAP purposes going forward. standing vision to be the first-choice brand In South Africa we are focused on Graham O’Connor in the communities we serve. driving retailer profitability, organic Group CEO During 2020 our executive team hosted a growth through in-store concepts, brand essence workshop. We recognise retail excellence and most importantly, that our brand essence should be a store upgrades. representation of the shared connection between our people, our retailers and our customers. As a team, we defined our brand essence to be ‘It’s personal’, which speaks to our family values and culture of caring.

28 THE SPAR GROUP LTD OVERVIEW

INTEGRATED ANNUAL REPORT 2020 29 GROUP OPERATING ENVIRONMENT AND

The group operates Poland Sri Lanka 14 distribution centres Ireland serving 4 357 stores Switzerland in four regions – Southern Africa, Ireland (including South West England), Switzerland and more recently Poland.

The group also has operations in Southern Africa Sri Lanka through a joint venture arrangement.

ZAR Year-on-year Recognised Part of Turnover contribution to turnover as a brand in the group 2020 turnover 2020 growth in country since since (Rbillion) (%) local currency Southern Africa 1963 1963 78.6 63.2 +9.2% Ireland 1963 2014 29.9 24.1 +6.3% Switzerland 1989 2016 13.6 11.0 +11.6% Poland 1995 2020 2.1 1.7 n/a*

* Poland is new to the group for 2020.

South Africa Ireland Switzerland Poland Population 59.6 million 4.9 million 8.5 million 38.0 million R € CHF zł Currency South African Rand Euro Swiss franc Polish złoty Estimated unemployment 30.1% 7.3% 3.2% 6.1% Estimated GDP decline for 2020 -8.0% -3.0% -5.3% -3.6% CPI food inflation for September 2020 year-on-year +3.9% -1.5% +0.8% +2.8%

Source: STATS SA and TRADING ECONOMICS

All our markets experienced a significant impact, given the outbreak of the COVID-19 pandemic and resultant government-imposed lockdown measures during the year. Almost overnight, consumers changed their eating, shopping, travel and entertainment habits. As a group, we recognise that we are fortunate to be in the business of selling food, when so many businesses have been devastated by this crisis. SPAR’s extensive distribution capability and market-leading brands ensured that its independent retailers remain suitably positioned to deliver exceptional value to consumers through a time of crisis. For more information on COVID-19 and how we responded, please refer to page 35. For financial performance by segment, please refer to the Group FD’s financial review on page 58. For an overview of distribution centres by geography – see page 10. For an overview of store formats by geography – see page 12.

30 THE SPAR GROUP LTD OVERVIEW

Commentary from management in light of COVID-19, which significantly altered our operating environments during 2020:

South Rand benefited from the fact that stores are mainly situated in convenience centres or strip malls, and not in the big shopping centres. Because our stores were easy to get to, and in and out of, Given the closure of Swiss borders and the consumers chose to visit us as opposed to our big associated impact on shopping behaviours within competitors – safety and convenience being the this market, we are fortunate to be one of the few major considerations. We saw a reduction in our businesses that has benefited from the COVID-19 customer count and an increase in basket size. situation. We were able to leverage this into a strong Brett Botten, set of results and not waste the opportunity. Managing Director: South Rand, South Africa Rob Philipson, Chief Executive Officer: SPAR Switzerland Unfortunately, the timing of COVID-19 resulted in a significant delay in the rate of converting Piotr i Paweł stores to SPAR stores and the Our response to the crisis received integration of the SPAR stores from the South much praise from employees, of Poland. Similarly, promotional activities retailers, suppliers, customers and planned for early 2020 had to be moved out. the general business community. It is difficult to calculate the impact thereof, Our communications strategy in but suffice to say, it was significant. particular has been seen as best in class and included an aggressive Tomasz Syller, advertising campaign focusing on Chief Executive Officer: SPAR Poland the heroic efforts of our frontline teams and our retailers. Leo Crawford, Chief Executive Officer: BWG Group

INTEGRATED ANNUAL REPORT 2020 31 Group operating environment and context (continued)

SOUTH AFRICA Surprisingly, Build it sales bounced back The impact of these bans has been fairly strongly once stores reopened in severe. Our retailers have lost more than Even before the arrival of COVID-19, the May, with an initial growing trend in home 30% of their normal trading days during South African operating environment had improvement, given that consumers were the financial year. been strained for some time. Consumers being forced to stay home. Prior to the were already under financial pressure, In terms of product categories, the sale impact of the pandemic, the building political uncertainty remained due to a of cigarettes was banned from 27 March sector in general, had seen a declining lack of reform measures in place and to 17 August, which devastated the sales market for the past 24 months, largely industries were seeing constant performance of this category. Our retailers driven by the state of South Africa’s disruption and loss of business due to were also banned from serving food from economy and the continued oversupply serious electricity constraints, causing their hot deli counters from 27 March until of cement in the market, resulting in low yet another hurdle to economic growth. 28 May. category inflation. In light of the global pandemic, a state of The South African formal food retail TOPS at SPAR: with COVID-19 arriving disaster was declared on 15 March 2020, market is dominated by four key players, towards the end of the first half of our followed by a hard lockdown from including SPAR. SPAR is unique, given financial year, the liquor environment in midnight on 26 March, which meant that its voluntary trading model that supports South Africa has been more competitive only essential services could operate independent retailers. The closure of than any prior year. Without exception our during the lockdown period. This naturally restaurants and take-away outlets for main competitors have all vastly improved included businesses in food retail and extended periods of time meant that their offerings and the high ground that related supply chains. Volumes through more food was being prepared and TOPS at SPAR enjoyed for so many years our distribution centres were boosted by consumed at home. This has significantly has become crowded. Our independent increased buying ahead of the lockdowns. benefited food retailers. We saw increased retailers are required to own a SPAR food For extended periods of time, some of our demand in grocery, personal care and store as a prerequisite for owning a TOPS business units and product offerings were fresh categories. SPAR stores are mostly at SPAR liquor store and our penetration restricted from trading altogether, such as situated in convenience centres and not of TOPS at SPAR stores exceeds 85%, Build it, TOPS at SPAR (liquor), cigarettes in big shopping centres. Because of the having 842 TOPS at SPAR stores as at and our home meal replacement offering, convenient nature and community focus 30 September 2020. The increased store which represents roughly 23% of total of our stores, consumers have continued numbers and improved quality of wholesale turnover based on prior to support SPAR. The huge investment competitor stores has been accompanied year turnover. by our independent retailers over the last by more advertising and more consumer seven to 10 years in the upgrades of their Build it: this business was restricted from awareness of pricing; however, our stores put them in a good position to trading from 27 March to 1 May 2020. promotional campaigns and messaging meet the demands and expectations of This had a material impact on sales and have been well placed to compete and consumers, in terms of product offering, continued to impact our building material we continue to be the number one fresh departments and customer service. supply chain well after the hard lockdown, recognised brand for liquor in South due to cross-province distribution Africa. Our liquor business was restricted limitations still in place and production from trading between 27 March and IRELAND capacity affected by restrictions on 1 June, and again from 12 July until Before COVID-19, the single biggest employees. 17 August. unresolved issue facing the business was the imposing threat of Brexit. The extension of the ‘transition period’ to the end of the 2020 calendar year, has meant that there was no impact during the reporting period. The impact of the pandemic on the Irish economy has been widespread. Business closures and lay-offs have taken place right across the country. The retail, hospitality and construction sectors have been particularly badly affected. The government’s responses on the economic front spanned business and personal financial initiatives. The initial lockdown in March 2020 drove a considerable spike in volumes from the retail estate, but the demand pattern was significantly different from anything previously experienced. According to Kantar, the industry is expected to have had its strongest month on record that month, with unprecedented levels of demand surging to an estimated 27% increase in sales year-on-year.

32 THE SPAR GROUP LTD OVERVIEW

In terms of our operations, we noted the following significant changes: •• Larger EUROSPAR stores and neighbourhood stores experienced a substantial increase in customer footfall and sales, as people sought safe environments to shop within their local community. •• City centre stores experienced a massive decline in footfall and sales, as office workers reverted to working from home, and building sites were closed. •• Petrol forecourt stores were also badly impacted due to the restrictions imposed on travel and the lack of population movement. •• Certain parts of the foodservice and hospitality sectors will not recover to pre-COVID levels and these include travel, workplace, pubs, events and smaller urban outlets, which will result in closures and failures. This will shrink the overall foodservice sector, and will have an impact on our foodservice SRI LANKA business. In December 2016 the group invested in 50% of the equity of SPAR SL (Pvt) Ltd, which is a joint venture based in Sri Lanka. Awarded the licence to operate in Sri Lanka Our retail stores have been well in 2017, the joint venture arrangement exists with Ceylon Biscuits Limited (CBL), positioned within this market to expand a local biscuit and food manufacturer. CBL was founded in the 1960s, employing product ranges and adapt to consumer 5 000 people across diverse operations. It has strong roots in local communities demands and trends, which we believe and a commitment to enhancing food retailing and entrepreneurial opportunities will continue to be a driving force behind in the market, making it an ideal partner for SPAR. growth in the sector. Sri Lanka has a population of 22 million people. The food retail environment is made SWITZERLAND up of formal trade (15%) and informal trade (85%), with many small traders trading on their own and with no real structure and support. While all the stores are currently SPAR Switzerland is a relatively small player corporately owned, our mission is to grow independent retailers enabling them to in the Swiss grocery market, dominated by trade effectively and profitably against the bigger competitors. two major supermarket players. SPAR Switzerland currently holds an estimated Our flagship store was launched on 6 April 2018 on the outskirts of Colombo. 2.4% of the Swiss food retail market. We currently have six stores open, with a further five stores due to be completed in the short term. The sales areas of the stores vary between 50 and 1 000m2. The general and political conditions have changed considerably due to COVID-19. A hard lockdown was initially declared Practically overnight, consumers were doing so. We are also well positioned from 16 March to 16 April, with all stores avoiding large shopping centres and to explore distribution and service permitted to sell only essential items, were frequenting smaller regional and opportunities where retailers have been while restaurants, pubs and schools were neighbourhood stores. As a result of left without a viable supply chain or retail forced to close. Trade restrictions this change, some SPAR locations partner as a result of the crisis. continued up until mid-June. experienced short-term sales increases With the Swiss borders closed, cross- of up to 300% in the busiest weeks. POLAND border shopping was no longer possible. We have also benefited from the Swiss Following the acquisition of a majority Pre-COVID-19, it is estimated that a large government’s drive to ‘support local’ holding in Piotr i Paweł on 1 October 2019, proportion of Swiss consumers would at this time. we expected outstanding licensing and frequently cross the borders to stock up However, with reduced road traffic, legal matters to be resolved within weeks. on food and household items, given the general travel restrictions, and people 2020 was set to be the year in which we strength of the Swiss franc. Given that our working from home, our fuel-centric expanded our network, built supply-chain business in this market has been largely SPAR Express and city-centric SPAR capacity, onboarded and integrated convenience and not supermarket Express format stores saw significant existing SPAR retailers and laid the focused, we have never considered this volume reductions. foundation for our exciting new opportunity phenomenon to be a major threat to in Poland. Unfortunately COVID-19 caused growing our business. However, given the Many retailers in Switzerland have already some significant setbacks and for this general trend towards convenience over commenced large-scale projects for reason we expect to break even six months large supermarkets during this time of redundancies and restructuring. While later than originally guided – that is, we crisis, we have seen considerable levels our good fortune in the market has been now expect this business to break even of increased footfall to our stores. largely circumstantial, we believe we by the end of 2021. Consumers changed their purchase habits have made the most of this opportunity, strongly in favour of local neighbourhood providing an excellent service in our For a better understanding of the stores and we benefited from this due to stores to many new customers and an opportunity in Poland, please refer our positioning within communities. opportunity to retain new business in to page 18.

INTEGRATED ANNUAL REPORT 2020 33 34 THE SPAR GROUP LTD OVERVIEW RESPONDING IN A TIME OF

With the arrival of the COVID-19 pandemic, As an organisation, we are aware of 2020 will be a historically significant year. the important role we play in society. We are acutely aware To date, the virus remains an unresolved We remain committed to supporting our of the important role we challenge, causing tragic loss of life, communities. SPAR’s family values and threatening the elderly and vulnerable culture of caring and community play in society, from those of our societies, and has devastated the underpin everything we do, and in times families who rely on us for livelihoods of so many across the globe. of crisis, these principles truly come to their daily needs to the Across our regions, we were swift in the fore. Read more about our values taking the necessary proactive measures on page 14. entire communities we to safeguard the following key priorities: We thank all our suppliers, retailers, serve. Our SPAR teams The safety of our people, employees and customers who adapted demonstrated how to with us to find new ways of operating retailers, suppliers and during these unprecedented times. successfully deal with an customers For more information on the impact of international crisis this Managing the supply chain the pandemic on our operating year. Their commitment and keeping our retailers’ environments, please refer to page 30. and passion has been shelves replenished humbling. NURTURING OUR MATERIAL Supporting our communities RELATIONSHIPS Graham O’Connor, Group CEO We moved with great urgency to invest The World Health Organisation (WHO) in the safety and cleanliness of our declared the COVID-19 outbreak offices, distribution centres, delivery as a pandemic on 11 March 2020. vehicles and stores, to protect our Subsequent to this announcement, all colleagues and consumers while territories in which the group operates Given the amount of preparation working and shopping. Our retailers experienced lockdown measures required to go into lockdown, our proved their resilience and readiness instituted by their respective geographies saw lockdown measures to adapt in this time of crisis. Our supply governments. These included bans on effective on or around the following chains remained robust and our travel and gatherings, and in South key dates: distribution centres worked tirelessly to Africa also affected the sale of alcohol, ensure that inventory is tightly monitored cigarettes, hot meals and building materials for extended periods. Our food and that our retailers continue to receive Ireland: 12 March 2020 the service they are familiar with. operations were regarded as essential services and continued to operate on that basis. Poland: 13 March 2020

Switzerland: 20 March 2020

South Africa: 26 March 2020

INTEGRATED ANNUAL REPORT 2020 35 Responding in a time of crisis (continued)

The group was swift to appoint a SUPPORTING RETAILERS COVID-19 response team. Risk All of our geographies introduced new management and protocol documents best practice guidance to help retailers for distribution centres and stores included to navigate through these exceptional guidance on cleaning, quarantine and and difficult times: testing. We implemented an employee and store closure COVID-19 tracker and • We provided leadership to retailers on reported to SPAR’s executives and all aspects of dealing with COVID-19: guild directors, as well as the Minister from risk analysis to retail-appropriate of Trade, Industry and Competition. protocols and guidance on changing The general response was to remain regulations. positive and focused, despite initial • We provided store training and apprehension, uncertainty, anxiety ensured continuous communication and the fear of being forced using the principles of the GUEST to close operations. retail services programme to effectively implement measures to PROTECTING EMPLOYEES ensure customer safety and peace •• SPAR protocols for dealing with of mind. COVID-19 were rapidly communicated • We continued to focus on driving via WhatsApp, notice boards, weekly e-learning at retail and were able letters from Managing Directors to launch all our COVID-10 safety and videos. modules via the platform. •• Employees were offered a free flu • A SPAR rapid response team assisted vaccination administered by on-site retailers when infections were nurses. identified, including liaising with the •• Vulnerable employees were identified Department of Employment and and provided with the appropriate care Labour and the Department of Health. and attention, given their vulnerabilities. • The way in which distribution centres •• We moved to a split shift system, and retailers worked together in the staggered canteen times, and appointed crisis strengthened relationships and compliance officers per shift. further deepened trust levels. •• Employees (and unions, where relevant) • BWG Group introduced a number received ample information and of leading new practices, including education around protecting weekly support calls to retailers, themselves. update emails and references to •• Managers were equipped with forms further sources of support. and scripts to prepare them for • Our retail customers recognised the effective COVID-19 conversations with national distribution centre in employees. Kilcarberry for maintaining excellent •• We distributed masks, a cleaning and delivery and service levels. sanitising hamper as well as food • In Switzerland we provided retailers hampers. with protection equipment free of •• The majority of central office and charge and created an employee pool distribution centre administrative to assist retailers with resources in the employees were permitted to work short term. from home. • In Poland, manuals and posters • In Ireland, BWG Group recognised were provided and retailers launched that employees, including those intensive local campaigns about working for retailers in stores, were product availability and opening hours. at the frontline in terms of COVID-19 exposure. We encouraged all employees to use our new online At our South Rand distribution centre support platform, the BWG B-Well in South Africa, we created App. The app is the first service of ‘COVID-19 warriors’: employees its kind on offer in the retail sector recovering from COVID-19 who and includes a confidential freephone participated in a support group number and live chat. It provides and had access to one-on-one COVID-19-related support such as counselling. They also received 24-hour confidential video and online an ‘essentials hamper’ during tools to engage with clinical quarantine. Five COVID-19 warriors psychologists and counselling hosted a webinar sharing their services. It also gives staff access to experiences and educating fellow accredited experts in fitness, nutrition, employees. The South Rand team finance and parenting to help them also opened a mobile clinic to deal cope during the crisis as they continue with COVID-19 cases. to provide an essential service.

36 THE SPAR GROUP LTD OVERVIEW

WORKING CLOSELY WITH SUPPLIERS • As consumers started to stockpile ahead of lockdowns, there were shortages within certain categories for extended periods. • Collaboration between suppliers and buying teams intensified to ensure transparency around stock availability and trade deals. • We implemented interventions to communicate stock availability with retailers, to ensure they were serviced. • Protocols were put in place to restrict direct contact with supplier teams at distribution centres. • We made early account payments to help suppliers continue their operations. • Our suppliers in turn offered assistance to SPAR – in South Africa, suppliers offered credit extensions while our Build it stores were unable to trade due to lockdown regulations. • In Ireland, BWG Group worked with suppliers to address issues of commodity supply, as the risk of disruption due to virus incidences at processing and manufacturing premises remained high. • In Switzerland we transitioned to a multiple supplier strategy to ensure the continued availability of goods. • In Poland supplier deliveries and meetings continued in respect of onboarding and servicing local retailers, and building relationships with suppliers during the launch phase of this business.

CARING FOR OUR COMMUNITIES • SPAR also funded five mobile testing • BWG Group supported people working • Distribution centres, retailers and units for hotspot areas to enable in COVID-19 testing centres with care consumers pulled together to support quick testing. package deliveries of water, fruit and the most vulnerable within our • SPAR partnered with the Department confectionery. communities. of Social Development and the • By providing transport and storage • COVID-19 highlighted unemployment CGCSA to provide food parcels solutions to FoodCloud, we assisted and food insecurity. SPAR responded to vulnerable families. in distributing surplus food to charities by donating food hampers in –– Provided 8 000 food parcels per across Ireland. partnership with non-governmental month for three months, across • In Poland we delivered free baked organisations (NGOs), discounting our regions in South Africa. These goods to hospitals, police stations food and making donations. parcels were agreed on with the and fire departments. • SPAR South Africa also launched the Department of Social Development Get Real COVID-19 egg challenge, and contained food that was which resulted in the donation of an nutritious, as well as other basic estimated R5.0 million worth of eggs necessities. and other food items by consumers –– Each food parcel was valued at R526 placing these products in trolleys at (excl. VAT) – a total of R4.2 million per entrances to our stores. Our retailers month and R12.6 million for the three distributed these goods within their month period. local communities. –– The parcels were delivered to regional Community Nutrition and Development Centres and then delivered to the identified vulnerable families.

INTEGRATED ANNUAL REPORT 2020 37 Responding in a time of crisis (continued)

GROWING TREND TOWARDS ONLINE SHOPPING DURING THE PANDEMIC The pandemic accelerated the move towards a more digital world and this includes online shopping. As mentioned alongside, our retailers were quick to create homespun solutions. SPAR developed a formal solution based on a world-class platform. It is a robust system that integrates well with the SPAR backend and was piloted successfully at several corporate and retail stores. In Ireland, our SPAR, EUROSPAR, MACE, Londis and XL retailers responded by focusing on immediate customer and employee needs and fulfilling them in new and innovative ways, through e-commerce, home delivery services or special provisions. Some of our stores in this market produced personalised store-specific customer safety information videos for their social media platforms, with more than one million views PROVIDING A SAFE SPACE Our retailers were guided by SPAR being recorded. FOR CONSUMERS protocols to ensure consistency across BWG Foods has been first to the COVID-19 changed patterns of buying our store portfolios. The majority of Irish market with its pilot mobile scan and consumption. Most notably, the shift stores focused on mitigating their and go scheme. This technology to home consumption of both food and business interruption risk by splitting and enables customers to scan and pay alcohol is likely to continue, although isolating their store teams and reducing for items via their smartphones and is there will be some shift back to trading hours. Our retailers reacted able to integrate with retailers’ existing restaurants and eating out as the swiftly and appropriately and our focus IT systems, without any additional hospitality sector recovers. was placed on providing accurate and hardware required. timely information in line with government Consumers adapted swiftly to lockdown, regulation. In Switzerland, our corporate stores using SPAR stores as their convenient created free home delivery for local choice to shop. As a trusted brand, In an effort to avoid large crowds and vulnerable and elderly consumers there was an assumption that SPAR minimise shopping time, consumers by partnering with a local platform would react quickly to ensure all health chose convenience over large that provides support services to and safety protocols were adhered to, supermarkets or mall-based stores. vulnerable people to execute the to ensure a safe shopping environment. Some consumers also shifted towards service. We also arranged for Consumers placed their trust in SPAR online shopping to avoid stores volunteers to assist people with their to provide information and updates, altogether. In response to this trend, grocery shopping. We are also as and when regulations and retailers were quick to adapt and offer developing a centralised online requirements changed. simple solutions such as over-the-phone, platform with a convenience focus. WhatsApp or email orders, offering We do not anticipate that it will Our independent retailers interact delivery and/or click and collect options. become a significant volume driver, directly with consumers and the onus given our fresh and convenience- was on them to implement the increased driven retail model in this market. level of hygiene and human protection within their stores, including regular Although we had an existing sanitisation of their stores, sanitisation e-commerce platform in Poland, of trolleys, wearing of masks and it was necessary to launch and protection at till points. introduce new initiatives due to restrictions imposed on courier companies at this time. We launched SPAR Drive, a click-and-collect initiative with shopping delivered to customers’ cars. We also introduced Coolomat, an initiative that allows customers to receiving their shopping at a chilled automatic redemption machine in the parking lot. We plan to develop and expand these online solutions to include loyalty-based retailing.

38 THE SPAR GROUP LTD OVERVIEW

COMMUNICATING WITH LOYAL CONSUMERS The ban on liquor trading for extended periods in South Africa severely impacted our business. The moment our TOPS at SPAR marketing team adjusted their strategy to measure the sentiment of our consumer audience during lockdown, using social media platforms, consumer engagement escalated. Once we came out of the initial hard lockdown in early June, with our stores being able to trade, TOPS at SPAR was quickly recognised as the number one household name for liquor in South Africa on social media platforms – South Africa’s Responsible Fun Friend. During this time we invested substantially in marketing communications that delivered a responsible ‘shopping behaviour’ message to consumers using social media, radio and TV channels.

INTEGRATED ANNUAL REPORT 2020 39 Responding in a time of crisis (continued)

Although the nuances of changes in shopping behaviours differ per region and market, we summarised some of the main shifts below:

Working from home and increasing Global unemployment is impacting disposable income and causing severe unemployment financial strain. On average, consumers are careful about how they spend their money and opt for necessities rather than luxuries. They are even more proactive about financial planning and security for the future. At-home working and consumption will remain at higher levels than before. Initiatives relating to employees and charitable causes were a standout driver of positive sentiment during the lockdown, reflecting consumers’ compassion during these challenging times.

A different shopping list As consumers choose to stay and work at home due to COVID-19, their shopping and socialising options changed buying decisions: • Fresh food and staples, frozen or canned food, snacks, health products or supplements and home care and cleaning products performed well • Baking saw the biggest volume increases in the food categories

Social distancing and sanitation Consumers developed and are likely to retain a high awareness of hygiene and sanitation in stores. Retailers need to ensure continued visible health and safety measures to make shoppers feel comfortable.

Supply chains and stockpiling At the start of the outbreak, consumers stocked up on supplies that were perceived to be essential, while switching to cheaper brands to balance the increased basket size with available funds and/or trying alternative brands due to out of stocks. This created an opportunity for many consumers to try SPAR’s private label offering. Consumers continued their preference for bulk buying – in South Africa the bans on alcohol contributed to this, as consumers felt the need to be prepared for any changes in lockdown regulations. Grocery retailers had to deal with significant out of stock situations. The ability to predict and manage demand has never been more important. Retailers are also adapting to the fact that traditional demand spikes due to holidays, vacations and celebratory events are likely to remain subdued. Supply chain disruption favoured a shift to local suppliers, boosted by patriotism and community support initiatives.

Online and pre-ordering Some consumers are spending less time in stores and more online; however, online challenges in terms of availability, range and delivery remain. Retailers responded by investing in e-commerce, optimising their systems and setups for pre-purchase and store pickups.

40 THE SPAR GROUP LTD OVERVIEW

SOME INSIGHTS SHARED BY SPAR EXECUTIVES

Consumers’ reaction to the initial lockdowns was to use our stores as a place to escape to while meeting their basic requirements. South African consumers are resilient and adapted to the situation swiftly. It was clear, however, that they relied on us to provide information and updates and this amplified the need for us to ensure we had all the correct information on regulations available. Brett Botten, Due to consumers’ increased hygiene requirements Managing Director: South Rand, South Africa there was a clear trend towards contactless interfaces at point of sale in Switzerland. A strong trend of national cohesion and patriotism also developed in Switzerland. Customers are buying local products more consciously Our communities were very supportive of their local and above all regional or Swiss products. SPAR. They appreciated our care for staff and consumer Rob Philipson, safety and hygiene. They also acknowledged SPAR for Chief Executive Officer: SPAR Switzerland continuing with discounts and promotions throughout the lockdown period and acknowledged our community support in the form of stock donations. Certain stores experienced exceptional growth due to consumers In KwaZulu-Natal consumers changed their working in other provinces returning to their homes shopping behaviour to frequent community for the lockdown period. stores where they feel safe in their shopping experience. We focused on converting loyal Martin Webber, daily shoppers to also shop with SPAR at Managing Director: Lowveld, South Africa month-end. We saw strong performance in dry grocery and perishables. Max Oliva, In the Western Cape our SPAR stores are well Managing Director: KwaZulu-Natal, South Africa positioned within the communities they serve and we benefited from their support as movement was restricted. However, our stores along the West and South coastlines were impacted by the loss The Eastern Cape experienced lower customer of tourism. We realised that staying in touch with numbers but growing basket sizes, the latter more than consumers is extremely important and our retailers compensating for the loss in footfall. The economic have done a great job using SPAR Text Me and effects of the lockdown exposed the vast inequalities social platforms. As consumers opted to make less between suburban and non-suburban customers. frequent trips, basket sizes increased. There has also This divide is evident in the disproportionate ability of been an increase in the propensity to switch brands customers in the former to access cash in the short resulting in a great uptake in private label. term to participate in the economy in the midst of the crisis. Customers have become more aware and more Alison Zweers, Managing Director: Western Cape, South Africa demanding about the health benefits and costs of their food choices. This will remain prevalent and drive healthy eating as a trend in food retail. Angelo Swartz, In line with the growing international trend of health Managing Director: Eastern Cape, South Africa and wellbeing, North Rand identified and implemented an extended range of SPAR Natural in stores. We saw consumer shopping patterns shift from the small daily shop to larger weekly or monthly shopping. Consumers are also The key to retail grocery stores remaining more focused on health and safety and prefer packaged open to service their local communities is that fresh product to the loose served product. The ranges in employees and customers alike are protected the home meal replacement sections of our stores have and feel safe while they work and shop. It is also been adapted to accommodate these shifts. likely that measures like hand sanitising units are Des Borrageiro, probably going to be part of a store’s permanent Managing Director: North Rand, South Africa infrastructure for the foreseeable future. Leo Crawford, Chief Executive Officer: BWG Foods, Ireland

INTEGRATED ANNUAL REPORT 2020 41 VALUE CREATING

Our value creating business model gives meaning to what we do. Our business draws on six capitals inputs. Through our core business activities, we convert these inputs to outputs for our independent retailers, as well as by-products and waste. When successfully executed, our business activities and outputs lead to outcomes effecting our six capitals inputs, creating a virtuous circle and sustainable value for shareholders and all of our stakeholders over the short, medium and long term.

OUR PURPOSE INPUTS to inspire people to do and be more Financial capital Financial capital represents funding received from equity and debt providers as well as financial resources available to the group. Financial capital is used to procure goods and services, pay salaries and taxes, develop new products, invest in systems, OUR VISION facilities, operations and equipment, and to pay our funders and shareholders. 1st choice brand in the communities Equity of Long-term borrowings of Net cash balance of we serve ES R7.9 billion R6.7 billion R723.1 million ICI OL IPS P SH & ON RK TI Manufactured capital O A W EL Manufactured capital includes the infrastructure for our wholesale and logistics E R business to be able to service our independent retailers. This includes our head M L A IA offices, distributions centres (with cooling facilities, recycling and reclamation plants), R R E warehouses, trucks, forklifts and information technology systems. It also includes the F T independent retailer store network which we have helped expand. E A CORE BUSINESS C M N 4 357 15 Four Logistics A G ACTIVITIES stores distribution centres support offices fleet N IN R T E R V O Human capital O P G P We use the skills, capabilities and passion of employees and management teams U across all our regions to execute business activities and build relationships with our S Procurement key stakeholders. We rely on our board to hold executive management accountable Our relationship with suppliers, joint planning for day-to-day running of the business and the implementation of its strategy. We meetings and investment in research and new rely on our employees to drive the culture of our business. product development enable SPAR to offer retailers a full range of competitively priced fresh Training and Purpose Excellent and dry goods to sell. We ensure sustainable leadership supply through an optimised value chain that 10 168 and succession programmes employees* values planning protects our margins. Most of our procurement through the SPAR driven culture in place happens at distribution centre level. Academy of Learning A rea s of w a Intellectual capital s t e

This capital focuses on our accumulated knowledge, guild structures (where a margin loss, food n d

applicable), systems, processes, policies and manuals, intellectual property such v and packaging waste a

l u

as our numerous house brands and retailer in-store concepts, as well as the e

and out of stock e r

SPAR brand and all the brands associated with our group. o s

situations. i o

This capital informs our values and culture, board and governance structures, a

category management capability and joint business planning with suppliers. m

n a g

We use this capital to support our retailers via promotions and marketing e campaigns, pricing strategies and retailer conferences. Retailer support and Social and relationship capital marketing We use our ability to create and sustain relationships with material stakeholders to We support retailers through create an environment in which to perform our business activities, to partner for shared marketing, promotions, human value creation (read more on page 21) and to ensure a sustainable food network. resource and systems support, and Procuring goods training initiatives. Retailers participate 7 million 75% – 80% Areas in working sessions around cash of w SPAR rewards SPAR food retailer and services from E as M te flow and retail profitability to a customers in loyalty rate hundreds of suppliers n P d ensure the sustainability of v South Africa in South Africa across the group L a lu O their stores. e

Y e margin loss, out of r Through our rural hub programme, collaborating between small-scale farmers, o E s

stock situations, i E o

communities and retailers to improve food security, affordability and nutrition for n

S packaging waste, water, t

rural communities in South Africa. t

emissions and energy. w

Strong platforms in place for effective stakeholder engagement, including with our m

a g shareholders. e S IE IT N Natural capital R U E M We use this capital as input for the products we distribute and sell, our properties TA M I O and the water and energy we use in our operations (including electricity, diesel, fuel LE C and gas). R S

* Note: This number excludes the thousands of independent retailers and their employees S across all our regions – all part of the wider SPAR family and our value creation chain. ER S UM UP NS PLIE CO For more information about SPAR and our values, please refer to pages 7 – 15. RS

42 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY

OUTPUTS The external environment represents all outside influences that could impact our operations across our regions and geographies. It includes Outputs represent the direct products and services the micro and macro environments in which we operate. generated through our business activities in supporting our independent retailers, who sell goods to For more information about our operating environments please refer to consumers and support their communities. page 30. Examples of products we source from our suppliers for our independent retailers include: Competitively priced fresh produce, dry goods and a range of house brands, including SPAR private label, EXAMPLES OF OUTCOMES enabling these small business owners (our independent retailers) to compete within their local markets. Financial capital Examples of services we provide for our +13.5% +15.6% +8.8% +8.1% independent retailers include: turnover operating growth in normalised dividend World-class distribution and retail operational support growth profit growth diluted HEPS* growth services, and promotional and marketing support.

Manufactured capital

R2 billion of Three new distribution centres ES capital expenditure in Poland (two operational) ICI OL IPS P SH 326 434 12.5% increase & ON RK TI new stores store upgrades in warehousing space O A W EL E R M L A IA Human capital R R E F T E A 23.9% increase in employees Certified as a top employer C M from 8 206 to 10 168 in South Africa N A G N IN Brett Botten has been appointed as Group CEO with effect from 1 March 2021. Brett has R T been with the business for 25 years. He has extensive operational experience, a financial E R background, and a deep appreciation for SPAR’s culture and its values. We believe it is V O osion th P e er at we this culture that attracts like-minded people and retains talent for long periods of time. O valu m P d an G an ag e e U st a S w f o food and packaging Intellectual capital s a e waste, damaged +14.1% private label wholesale turnover growth in South Africa. The acquisition of a share r A goods and pilferage, in SPAR Encore strengthened our intellectual capital vested in the development of private waste water and label and helped to secure an important part of our supply chain. emissions. Warehousing During 2020 our executive team hosted a ‘brand essence’ workshop. SPAR’s brand We use technology and essence, ‘It’s personal’ will be used to support marketing, advertising and promotions. analytics to create infrastructure Continued roll out of successful in-store concepts in South Africa. and facilities that optimise the quality and availability of products. Our distribution centres and warehouses Social and relationship capital are strategically located to facilitate Our stores have provided a safe haven for customers during a time of crisis – COVID-19. imports and optimise inventory Communities relied on their neighbourhood stores to shop for essential goods in a safe, and picking/loading efficiency. hygienic, clean and friendly environment. R5 million in food items delivered Level six BBBEE to those in need through in South Africa Get Real COVID-19 egg challenge

Gender based violence campaign Rated #1 retailer in launched – R2.5 million donated Advantage Group’s 2020 FMCG to GBV charities from funds d value erosion an tha Retailer Benchmark Set ste t w raised at till points a e f w m o a s n a a R45.8 million in COVID-19 related e g r e R23.5 million A expenditure to protect employees corporate social investment fuel inefficiency, and assist social initiatives such spend in South Africa Distribution damaged goods and as testing stations To get the right products to our emissions. Continued development of our SPAR rural hub programme, which received public retailers at the right time we ensure recognition this year, winning two awards at the ABSA Business Day Supplier Development E load optimisation, effective routing M Awards (read more in our environmental and social supplementary report online). solutions and manage our fleet through P L driver management and fuel saving SPAR has a long-standing relationship supporting South Africa’s national netball team, O Y initiatives. Our transport partnerships nicknamed the SPAR Proteas – representing South Africa in women’s international netball. E provide access to a national system E S linking us to suppliers. We ensure the value of every truck on the road is Natural capital as high as possible. 15 748 tonnes recycled through 80 478 tonnes S distribution centres in South Africa CO e total footprint Scope 1 and 2 IE 2 IT N 8 042MWh of energy generated Build it procured wood is 100% Forest R U E M by distribution centres in RSA Stewardship Council (FSC) certified TA M I O LE C During 2020 we improved disclosure of SPAR’s environmental practices in South Africa R S through the CDP water security, CDP climate change and CDP forests submissions. We are finding solutions for food waste, and all distribution centres have comprehensive

recycling programmes for plastic and cardboard. Energy consumption is being tracked at S our distribution centres, with all centres now using renewable energy through solar panels. ER S UM UP NS PLIE CO RS For more information about our strategic risk and opportunities, please refer to page 55

INTEGRATED ANNUAL REPORT 2020 43 Value creating business model (continued)

EXAMPLES OF OUR CAPITAL TRADE OFFS

Financial capital The board elected to declare an interim dividend, which went against the trend among retail companies at that point in time, given the levels of uncertainty around COVID-19. Some investors expressed concern around the board’s decision to do so, at a time when most companies were electing to preserve cash, while some shareholders were appreciative of the dividend declared.

Financial capital Social and relationship capital

short term long-term

Manufactured capital Investment in the Polish business is creating short to medium-term losses for the business as we develop the opportunity in this market. This investment unlocks the potential for long-term value creation and growth.

Manufactured capital Financial capital

short to medium term long term

Human capital In South Africa TOPS at SPAR and Build it were severely impacted by closures due to lockdown regulations. Despite the loss of turnover (these businesses represent c.20% of our South African business), SPAR chose not to reduce the salaries of our liquor and Build it employees at this time, given that the food business was for the most part fully operational as an essential service. This was in line with our values, culture and intent to build long-term employee loyalty rather than achieving short-term gains.

Human capital Social and Financial capital relationship capital

short term long-term

Intellectual capital Our house brands and in-store concepts require significant financial capital input, however they are helping to drive organic growth for our retailers and form part of our overall retail support offering. Helping our retailers build better businesses, builds their trust in us and can lead to increased retailer loyalty: a virtuous circle. Intellectual Financial capital Social and capital relationship capital

short term medium to long term

Social and relationship capital During 2020, SPAR launched its gender based violence (GBV) campaign in South Africa. GBV is a deeply concerning social issue in South Africa and as a responsible corporate citizen, we are choosing to play an active role in the fight to end GBV (read more about GBV on page 15). The campaign required financial capital to create awareness at our distribution centres and stores; however, we believe it is the right thing to do for our employees and communities.

Social and Financial capital Human capital Intellectual relationship capital capital

short term

Natural capital Becoming energy efficient and environmentally friendly requires financial investment in the short term; however, it can lead to long-term savings and will help preserve natural capital. It creates goodwill with material stakeholders, which is in line with how we do business.

Financial capital Natural capital preservation short term long-term

Social and Intellectual capital relationship capital

44 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY

INTEGRATED ANNUAL REPORT 2020 45 VALUE CREATION IN THE CONTEXT OF OUR

SPAR’s values, culture and mindset drive a business model that creates positive outcomes for our stakeholders. By working towards these outcomes, we align our efforts, decisions and resource allocation for impact over the long term.

Further to our value creating business model, our value creation is linked to our strategy for the group – see strategy on page 48.

The three objectives or outcomes inherent within our group strategy and approach are:

Sustainable Loved and respected Nutritious and stakeholder value as a brand affordable food

• SPAR stakeholders benefit • The SPAR brand has a • Consumers have access to from being part of the strong emotional connection nutritious food at affordable SPAR family with stakeholders and competitive prices • Interests of stakeholders are • We are respected for the • Nutritional needs are being well balanced to ensure the difference we make in South met as a result of SPAR’s entire system is sustainable Africa and our communities work in this space (especially in the long term • We are respected for our in South Africa, where this is • ‘Value’ refers to the broad strong ethics most needed, given the level of cash-strapped consumers) range of benefits we deliver • Stakeholders want to be to all our stakeholders, due and enjoy being associated • We make a positive impact to our business activities and with SPAR on the health of consumers, the actions we have taken to especially in areas related to produce positive outcomes healthier eating habits using the six capital inputs listed on page 42.

46 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY

INTEGRATED ANNUAL REPORT 2020 47 OUR PURPOSE-DRIVEN

By living our values of entrepreneurship, family values and passion, we remain true to our purpose: to inspire people to do and be more.

In recent years, we developed a The SPAR board is the custodian of the purpose-driven strategy in line with group’s strategy. Regular updates on One of the biggest shifts our values, to achieve our strategic progress allow the board to provide that happened this year outcomes, thereby creating value for oversight and monitor implementation. all stakeholders. The board and executive team apply the was the way in which following principles when considering Although the strategy was developed in people now understand our strategy: the context of the South African market, how the various parts the principle of a purpose-driven • Work towards outcomes, not strategic approach and the three milestones of the strategy impact strategic outcomes apply to the group • Agile – think and act quickly, fail fast, each other. Taking an as a whole. Our values help create our course correct integrated view of strategy purpose – essentially helping to develop • Integrate risk thinking into ways of and maintain SPAR’s special culture, has changed how we working which we believe is key to the overall manage the business: • Apply systemic thinking performance of the business and strategy is now embedded something we have been focused on • Inclusive communication is critical in all of our markets. Our goal is to in our thinking through a establish a culture as we know it, while common purpose. embracing local customs and traditions of the markets we find ourselves in. Kevin O’Brien, Risk and Sustainability Executive

IMPLEMENTING SUSTAINABLE CHANGE THROUGH OUR PURPOSE-DRIVEN STRATEGY SPAR South Africa was recently awarded the Rural and Township Development Award at the 2020 ABSA Business Day Supplier Development Awards in South Africa, and also claimed the prize of Overall Winner for its SPAR rural hub programme. The SPAR rural hub programme is a collaboration between small-scale farmers, communities and retailers to improve food security, affordability and nutrition for rural communities in South Africa. Cost efficient and environmentally responsible, the hub contributes towards job creation, income generation, infrastructure development, skills transfer and empowerment, while creating a food system that provides affordable, nutritious, fresh produce. When assessing entries for the Rural and Township Development Award, the judges felt that the SPAR rural hub model was intentionally focused on rural community development and was different to other programmes in that it addresses a systemic issue such as food security. They were further impressed by the transformational aspect of the programme targeted at an impoverished sector of society. The shortening of the supply chain by providing a localised distribution platform was further viewed positively. SPAR South Africa was also awarded the Overall Winner Award for its rural hub programme, and recognised for sticking true to its purpose: ‘to inspire people to The SPAR rural hub do and be more’. The judges were particularly impressed by SPAR South Africa’s recognition of the transformative potential of ‘purpose’ and their efforts to position initiative is evidence of this focus to achieve greater integration. a purpose-led strategy The investment made in the rural hub programme, the willingness to develop suppliers being implemented on and working with competitors to ensure small-scale suppliers become GLOBALG.A.P accredited was commended. SPAR South Africa’s commitment to collaborative action the ground. We inspire through partnership was evident in the outcomes and outputs created by successful people to do and be long-term supplier development. more by addressing real A partnership with scientific institutions, nutrition experts, and other local and South African challenges, international organisations was instrumental in SPAR South Africa’s introduction of the SPAR rural hub programme – which included support from the Global Alliance for the including food security, Improvement of Nutrition. nutrition, job creation and For more information about our SPAR rural hub programme please refer to our transformation. environmental and social supplementary report online. Graham O’Connor, Group CEO

48 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY

OUR PURPOSE To inspire people to do and be more

OUR VISION To be the first-choice brand in the communities we serve

OUR VALUES

Entrepreneurship Family values Passion

OUR THREE STRATEGIC OUTCOMES

Sustainable Loved and Affordable stakeholder respected as and nutritious value a brand food

OUR STRATEGIC FOCUS AREAS

• SPAR employees Embed Build our • Retailers diversity and brand in hearts • Suppliers transformation and minds

Provide • Brand essence • House brands nutritious and • Rewards affordable • Marketing, advertising food and promotions Put consumers at our heart • Fresh • Supply chain efficiency/resilience • Informal food economy • Nutrition • Understand needs Drive our • Our offerings to consumers future voluntary • Innovation and new business trading model • Digitalisation Grow and • Culture inspire • Organisation of the future • Relationships our people • Talent management • Our offering to retail • Standards and rules

INTEGRATED ANNUAL REPORT 2020 49 REGIONAL STRATEGIC

The following section highlights areas of focus for each of our main regions, together with an update on progress made during the year.

SOUTHERN AFRICA

Strategic focus areas Progress in 2020

Talent management focused on the assessment of current and potential candidates and identifying Grow and inspire individuals to fast track and develop. We reviewed group structures based on what we learnt during our people COVID-19 and evaluated the future format of critical roles. We conducted a culture and inclusion survey and are working on a group and divisional culture change rollout plan.

Fourteen supply chain optimisation and collaboration projects are being tracked. We defined what we mean by ‘excellence in Fresh’ and accordingly identified equipment and preferred suppliers. Based on our definition, we are assessing our product range, sourcing and route to market. We Provide nutritious and also defined ‘health’ and ‘nutrition’. All house brands and Freshline products that can be classified affordable food as healthy were categorised and sent to distribution centres for reference. We also held workshops to better understand the system of trading in the informal market. We are identifying key criteria for wholesale and retail to effectively enter and expand in this market.

We are finalising bank funding schemes and other support mechanisms to attract and assist small business owners in disadvantaged communities. We also identified organisations where we need membership to be able to build networks in the right communities. All existing retailers will have their Embed diversity and BBBEE scorecards completed by the end of March 2021. transformation In terms of employee transformation, we completed a talent management and succession review focused on employment equity and female candidates and identified positions which should be targeted.

We agreed on our brand essence. Through common understanding of what our brand stands for, Build our brand in we can now plan to embed it and link it to our marketing plans. hearts and minds We also decided to prioritise customer engagement rather than focusing solely on our rewards strategy.

The guilds’ Memorandum of Incorporation and member agreements have been unchanged for many years. Within a dynamic retail world, there are areas that we are working on to update or expand, Drive our future voluntary with focus on retailer profitability and returns, store standards, loyalty and store footprint protection. trading model We are also improving the segmentation of services to retailers based on their size and unique requirements. We are working on building a model to offer a bouquet of services, for example human resources and financial support services.

We are creating awareness of consumer segments based on demographic profiles, life stages and circumstances, influences, mindsets and significant tensions in consumers’ lives. This helps us Put consumers at develop a common language around consumers for use across the business. It also assists in our heart understanding the common themes that will allow us to uniquely think about, talk to and innovate for our consumers.

50 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY

IRELAND

STRATEGIC PLAN 2016 – 2021

Strategic focus areas Progress in 2020

We continue to review the BWG Group supply chain to stress test distribution and minimise costs. Optimisation plans for the distribution centres Distribution assess capacity, productivity and service levels to improve capacity management and reduce working capital. Our transport optimisation plan focuses on refining asset use and reducing costs.

2020 delivered the greatest single period of progress in IT across BWG Group and its retail customers. The COVID-19 pandemic has been a catalyst for online retail and remote working, including video conferencing and new ways of working. This is supported by an e-commerce Information technology (IT) strategy to address online, mobile and integrated solutions. Our IT plan continues to focus on more efficient and lower-cost infrastructure upgrades, standardisation and redesign. Further imperatives include software consolidation, social media and business intelligence capabilities.

The acquisition plan is based on growth aspirations, shareholder support from the group and management expertise. Targets were identified and Acquisitions explored to retain strategic retail business. A further imperative is retaining and developing strategic categories.

We continue to refine the management structure based on succession planning and talent requirements. Further focus areas include the People e-learning academy, strengthening the company culture through feedback programmes, and training to ensure greater productivity and efficiency.

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

Our focus is on developing a multibrand strategy for different store formats and to drive SPAR as the leader in the convenience market over the long term. Retail The plan also addresses the EUROSPAR brand strategy imperative and considers innovation to grow margins.

INTEGRATED ANNUAL REPORT 2020 51 Regional strategic progress (continued)

IRELAND (continued)

STRATEGIC PLAN 2016 – 2021 Priorities during 2020 Progress made

Although the UK left the EU on 1 January 2020, the extension of the ‘transition period’ to the end Mitigating the ongoing Brexit of the 2020 calendar year has meant that there has been no impact in the current financial year. risk to the business The implications of a ‘no deal’ scenario remain stark for the UK and the EU, and Ireland would be severely impacted.

The impact of COVID-19 had a polarising effect on the topline sales of most stores. Neighbourhood stores and local supermarket stores such as EUROSPAR have been clear Continuing like-for-like beneficiaries of the COVID-19 pandemic, with substantial increases in sales. topline growth City centre, business park locations and forecourt operations have been particularly hard hit by the pandemic and experienced substantial declines in sales. However, as travel restrictions eased towards the end of the financial year, these stores started to see growth.

As mentioned, there has been a significant shift in sales dynamics, which has impacted both topline sales and margins at retail: • The collapse of the retail foodservice business which delivers high margins to retailers • The increase in low margin sales of tobacco has been significant • The combined increase in alcohol sales and the reduction in promotional activity (due to product availability) has been a positive for retailers • Through the careful management of their businesses, including trimming employment and labour costs and benefiting from government financial support, the majority of stores remained profitable The BWG Foods Trade Show activity is noteworthy in terms of supporting sales and retailer margin and Continuing to support profitability. This is usually the biggest retailer event in the country; however, under COVID-19 restrictions, retailers to achieve it became a series of online events, whereby BWG Foods hosted live presentations on a bespoke topline growth and platform which enabled employees, retailers and suppliers to interact through web chat. The show profitability growth proved an enormous success with both retail customers and suppliers, and the total order value grew by c.11% versus the prior year when this was held as a physical trade show. This has effectively delivered supplier-funded offers to retailers which have helped to underpin the retailer profitability. A significant spike in demand was driven by a decision to source and supply horticulture to retail customers, effectively filling a gap in the market, given that garden centres were not allowed to open in the early weeks of the pandemic. The sale of bedding plants and flowers was new business to retailers and was effective in many cases in attracting new customers to stores. The Fresh Food support team developed a series of core range solutions videos for retailers. This series of short how to courses and demonstration videos have been specially designed to maximise and deliver retailer margin in the important area of fresh food.

Preparing for and mitigating the risks associated with the There has been a significant programme of activity to prepare stores for the new alcohol legislation changes in legislation on which took effect from November 2020. alcohol which are anticipated to take effect in 2020

Notwithstanding the impact of the COVID-19 pandemic, work on strategy development for retail brands Londis and MACE continued apace. The Londis Conference was held in October 2019 and was a key vehicle in communicating the new Continued focus on the retail retail strategy to the Londis retail network. strategy work to differentiate and grow our brands Unfortunately the cancellation of the MACE Conference event limited our ability to communicate the changes in one large briefing, but this has not impacted the development of the strategy work. The communication of the new strategy has been undertaken via online communications tools to ensure that the messages are widely shared.

Continue rolling out the The SPAR strategy has been well received by retail customers, but the rollout to new stores has been new SPAR retail strategy impacted somewhat by COVID-19. Compliance with new rules governing trading, and the protection and delivering best-in-class of employees and customers were prioritised. convenience stores

Continued focus on delivering topline and The foodservice business has been particularly hard hit by the COVID-19 pandemic. Please refer to profitability growth for Continuing like-for-like topline growth above. BWG Foodservice

52 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY

SWITZERLAND

Strategic focus areas Progress in 2020

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

We focus on supply chain optimisation through supplier engagement and relationships to reduce World-class supply chain costs and increase quality. This includes logistics efficiencies and productivity improvements.

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

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

Loved/trusted/believable We focus on targeted sales and marketing activities, including our SPAR Friends rewards brand programme.

We focus on expanding our footprint through new sites and stores, and through the use of New business growth technology.

Priorities during 2020 Progress made

The closure of unprofitable stores is complete, other than two stores which will remain a challenge in the short term due to leasing and legal commitments in respect of these stores. Topline growth Due to COVID-19 and the delay on overall business development, including planning permissions and approvals, not all acquisitions, conversions and refurbishment projects progressed according to plan. These are now scheduled for the next year.

Retail profitability has continued a trend of steady improvement over the past three years. This year Retail profitability was bolstered by the improved fresh offering and sales growth.

Margins were managed well, with a reduction in marketing activity contributing to increased gross margins. We expect sustained benefits from the strategic buying and cost saving initiatives we Operating expenses and have in place. margin management Operating expenses were managed extremely well considering the COVID-19 impact of elevated labour costs to cope with increased volumes and consequent overtime.

2020 was an abnormal year by all accounts. At the onset of COVID-19 and the initial lockdown Stockholding in March the purchasing team had to disregard normalised stock levels, as the priority shifted to availability.

INTEGRATED ANNUAL REPORT 2020 53 Regional strategic progress (continued)

POLAND

Strategic focus areas Progress in 2020

• Concentrate on the core business by providing a one-stop distribution system and expanding our partnership chain Distribution • Increase wholesale margin and reduce delivery costs • Use category management to improve cash flow and increase sales

• Integrate and align systems across retail and distribution centres to facilitate retail ordering, Information technology (IT) expand e-commerce capacity and evolve towards the introduction of SAP software in 2022 • Improve systems capacity to provide more efficient financial reporting

We hosted a workshop on negotiation skills, offered individual leadership coaching, as well as customer service excellence training for store employees. Given that this business is new to the People group, we also hosted coaching sessions with corporate store managers to highlight the importance and increase the understanding of the SPAR values of entrepreneurship, family values and passion.

• Strengthen co-operation with independent partners and increase purchasing loyalty • Reduce the number of corporate stores by selling them to independent partners Retail • Expand our retail business by increasing the number of new and converted EUROSPAR, SPAR and SPAR Express stores and by launching new formats and concepts such as TOPS at SPAR and Beantree

PRIORITIES FOR 2021 AT A GLANCE The COVID-19 pandemic has shifted consumers away from larger supermarkets and malls, in favour of convenience shopping. The priority across all of our markets for 2021 is in line with our vision – to focus on being the first-choice brand in the communities we serve.

Southern Africa Ireland Switzerland Poland

• Driving retailer profitability • Complete integration of • Build on the momentum • Achieve breakeven • Driving organic growth Corrib Food Products and gained from new business • Bed down business operations Heaney Meats and drive and maximise on opportunity through in-store concepts, • SPAR values implementation wholesale opportunity retail excellence and • Drive retailer profitability and building culture upgrades • Integrate corporate store • Distribution centre model • Strengthen relationship with development in South West • Retailer support with online restructuring to service independent retailers and England the South West and drive loyalty • Ensure successful new contract • Development of private label succession planning • Development of private offering implementation label offering • Drive online offering

54 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY STRATEGIC RISKS AND

The successful implementation of our strategy relies on the effective mitigation of strategic risks, while identifying potential new opportunities. The board provides integrated oversight based on the inextricable link between strategy, risk, sustainability and performance management. Through a set of governance structures, policies and the enterprise risk management processes, we are able to mitigate risk and support SPAR in being ethical and a good corporate citizen. In reviewing our strategic risks, executives are embracing the process as an indicator of where the market is headed and where the next opportunities may lie. We regard strategic risks as those that threaten to disrupt the assumptions at the core of our strategy and our ability to create value over the long term. We also link these strategic risks to operational risks and assess their likelihood and potential impact on SPAR.

Rank Strategic risk Related operational risk Risk management and opportunities

Insufficient ability to IT systems failures can cause significant Towards the end of the 2019 financial year, the 1 manage cyber threats business interruption whereas theft of group appointed a new IT executive who has led and secure data, data or acts of sabotage can lead to data his department in implementing significant change causing disruption and loss or system downtime. This risk includes in digital transformation. COVID-19 has helped to reputational harm infiltration of software and/or viruses accelerate some of this change, given the shift compromising system security, operations towards remote working by support staff. and key data. Incident management and risk security projects were implemented relating to business continuity and service disruption. Significant investments were made in cyber security monitoring software which is used to monitor and detect cyber threats.

Fluctuations and Currency value fluctuations can have a As international expansion has the potential to 2 changes in political, significant impact on earnings. Political place the group under pressure, the board insisted regulatory or currency instability and regulatory changes might on appropriate due diligence for all new markets aspects of international hinder our ability to conduct business entered over the past five years. All of our business concerns as usual. In international markets, this European economies have been identified as lead to a decrease in might limit our ability to maintain business stable and well-regulated. group profitability and governance processes. We pursue opportunities that offer the potential for growth, be it acquisitional, identifying gaps in the market and/or in building scale and growing market share. A very real opportunity exists abroad, given the international reach and aspirational value that the SPAR brand offers.

Inability to leverage Ageing and legacy IT systems, including Major SAP programme hardware upgrades and 3 data and new the lack of a formal integrated human the introduction of Model Company standard technology, resulting resource system, result in fragmented processes and procedures are being implemented in losing business to information which wastes time and causes to manage the risks associated with system competition inaccuracies or errors. The lack of a changes and to allow for improved efficiencies groupwide supplier database and standard as a business. supplier vetting process leads to suboptimal supplier relationships and increased costs. We also depend on external service providers to perform critical business functions.

INTEGRATED ANNUAL REPORT 2020 55 Strategic risks and opportunities (continued)

Rank Strategic risk Related operational risk Risk management and opportunities

Inability to address The failure of our financial model to provide We focus on ways to leverage the strength of our 4 and deal with business retailer profitability, especially with major voluntary trading model and to ensure that our sustainability customer groups, can jeopardise SPAR’s wholesale business continues to take advantage of challenges, leading sustainability and limit our ability to attract innovation in the supply chain. to the business not new retailers. SPAR has a dedicated Risk and Sustainability being rated as a The inability to deal with the impact of Executive, who has a team focused on navigating going concern climate change or societal issues, as well the business towards implementing sustainable as long-lasting inadequate or non-existent societal and environmental impact for the long term. access to basic utility services, can lead Read more about these initiatives in our environmental to financial loss. and social supplementary report online.

Inability to identify, If SPAR leadership is unable to drive the The group’s approach to transformation is in 5 acquire, foster and SPAR culture, this can result in apathy of line with its family values of caring for one another, retain the right talent employees and poor performance. Lack working towards common goals and embracing to achieve strategic of transformation can negatively impact change. and transformation the business and lead to inability to attract The group continues to invest in ongoing training objectives, leading to previously disadvantaged retailers. If and education. Key to Spar’s ongoing BBBEE a decrease in market retailers do not adhere to or implement progress is the significant investment it makes leadership group initiatives, this can damage the brand. towards skills development. The development of previously disadvantaged retailers can lead to greater opportunities in the informal market both for the group as well as for communities, through job creation.

Inability to meet The lack of appropriate digitalised offerings The nature of the group’s operations encourages 6 changing consumer to consumers can result in a decrease in innovation and agility, working in partnerships with needs in all aspects, market share. Poor buying procedures or independent retailers to respond and adapt to resulting in a decline a failure to recognise changing product changing consumer needs. Independent retailers in business and loss demand can result in lost sales or are quick to respond to the needs of consumers of market share unnecessarily high stock levels. within their communities. The group has built strong relationships with its suppliers to manage stock levels appropriately and to keep retailers’ shelves replenished. The group has developed an impressive and innovative private label product offering, which means less reliance on suppliers of proprietary brands.

Inability to react We are at risk of unreasonable or The group, through the Group CEO and other 7 timeously to regulatory unworkable new regulations if we do executives, engage regularly with industry bodies and political changes, not engage with industry bodies and like the CGCSA, Business Unity South Africa leading to sanctions government. (BUSA) and the Payments Association of South and loss of business Africa (PASA) to provide input into draft legislation and regulations. During the COVID-19 pandemic, the Group CEO and other group executives had increased interaction with government directly and through NEDLAC.

Loss of business as a Macroeconomic factors can cause a decline The group has a dedicated Risk and Sustainability 8 result of our inability to in business. If our business continuity plan is Executive and team to manage the group’s response respond to a national not consistently maintained across all areas to disasters. This team were quick to respond to disaster or business of the business, this can lead to a lack of the outbreak of the COVID-19 pandemic earlier in crisis due to a lack preparedness in an emergency. National the year. of scenario planning, crises impact our ability to implement our The group has focused on building its business non-existent strategy or conduct business as usual. upon the foundation of material relationships, contingency plans and which create stability within the value chain and poor response time enhance the ability of the group to respond appropriately and effectively in the time of a crisis.

56 THE SPAR GROUP LTD VALUE CREATION AND STRATEGY

Rank Strategic risk Related operational risk Risk management and opportunities

Lack of appropriate If we are not able to compete with informal SPAR stores are usually run and owned by someone 9 business model for traders, customers can shop elsewhere, who is part of the community, which helps minimise the informal market, leading to a decline in market share. the risk associated with the lack of community buy-in. which becomes Inconsiderate expansion of SPAR outlets The expansion of SPAR into rural areas has been dominated by informal into informal settlements can cause beneficial for consumers in these areas – providing entrepreneurs and resentment and lack of community buy-in. groceries at lower prices, better quality, vastly SPAR loses its improved shopping environments and access to community touch other services such as electricity.

Lack of investment If we do not plan for and take decisions to The group provides products and services to 10 in future thinking/ create the group of the future, we can lose entrepreneurs – our independent retailers. SPAR scanning leads to talented employees and be seen as out stores are owner managed and run. One of the the group becoming of touch with market trends. Our rewards major advantages of SPAR’s business model is its reactive to change offering can be seen as not adding value. ability to react quickly to consumer behaviour and demands. The group is entrepreneurial by nature and encourages visionary leadership. The group has a number of programmes in place to nurture and develop employees, namely the executive leadership development programme, future leaders programme, management growth programme and SPAR leadership development programme.

INTEGRATED ANNUAL REPORT 2020 57 GROUP FD’S FINANCIAL

SALIENT FEATURES Year ended Year ended % Rmillion 30 Sep 2020 30 Sep 2019 Change

Turnover1 124 277.4 109 477.1 13.5 Operating profit 3 442.6 2 978.9 15.6 Earnings per share (cents) 1 078.7 1 124.1 (4.0) Headline earnings per share (cents) 1 135.3 1 129.1 0.5 Normalised diluted headline earnings per share (cents)2 1 262.6 1 160.6 8.8 Dividend per share (cents) 865.0 800.0 8.1 Net asset value per share (cents) 4 102.2 3 879.9 5.7

IMPACT OF POLISH LOSSES % Rmillion 2020 2019 Change

Headline earnings 2 183.6 2 173.0 0.5 Adjusted for fair value adjustment to, and foreign exchange effects on financial liabilities, and business acquisition costs 253.1 71.6 253.5 Normalised headline earnings² 2 436.7 2 244.6 8.6 Adjusted for Polish reported headline loss for the period attributable to ordinary shareholders 327.7 27.3 1100.4 Normalised headline earnings excluding Polish result² 2 764.4 2 271.9 21.7

Diluted weighted average number of ordinary shares net of treasury shares (000) 192 986 193 400 (0.2) Normalised diluted headline earnings per share (cents)² 1 262.6 1 160.6 8.8 Normalised diluted headline earnings per share excluding Polish result (cents)² 1 432.4 1 174.7 21.9

This financial information is the responsibility of the directors and has been prepared for illustrative purposes only and because of its nature, it may not fairly present the group’s financial position and results of operations. The table above has been provided to help shareholders understand the impact of the newly acquired Polish business on normalised earnings, for the year ended 30 September 2020. 1 Turnover represents revenue from the sale of merchandise. 2 Diluted headline earnings adjusted for fair value adjustments to, and foreign exchange effects on financial liabilities, and business acquisition costs.

Mark Godfrey

58 FINANCIAL PERFORMANCE OVERVIEW

PERFORMANCE OVERVIEW •• The BWG Group in Ireland delivered a remarkable result, with sales growth The SPAR group has delivered an across all retail brands more than extraordinary performance for the year compensating for the Value Centre ended 30 September 2020. Group Cash & Carry and BWG Foodservice turnover increased by 13.5% to businesses, which have been severely R124.3 billion, as consumers supported impacted by the COVID-19 restrictions our local, convenient, and trusted in the hospitality industry. The retailers during this time of crisis. EUROSPAR format, which offers Profitability was positively impacted by convenience and a comprehensive a change in sales mix as increased range of groceries, has been the home consumption drove higher-margin outlier performer with sales growth of grocery and fresh categories. Despite 11.5% in local currency. The majority the impact of the expected losses in of the retail brands in this market are Poland, group normalised diluted ideally located neighbourhood stores headline earnings per share increased and have performed strongly. The by 8.8%. The board carefully considered retail network of this business is now the business outlook and declared a 1 391 stores, boosted by the acquisition final dividend of 665 cents per share. of corporate retail stores in South •• SPAR Southern Africa contributed West England. growth in wholesale turnover of 5.8% •• SPAR Switzerland has performed to R78.6 billion. Our core food business exceptionally well with turnover increased sales by 9.2%, supported increasing by 11.6% in CHF terms. by strong demand for groceries. This business has seized the During this period, internally measured opportunity of changing consumer wholesale food inflation has risen to behaviour, largely influenced by the 3.9%. TOPS at SPAR liquor business closure of Swiss borders during the lost almost a third of its total trading initial lockdown, with locals shopping days due to the restrictions on the sale closer to home and opting for trusted of liquor, with wholesale turnover for community-based stores over large the year decreasing by 15.8%. Despite supermarkets. Our TopCC Cash & trading restrictions on building Carry business, which caters largely materials during the initial five weeks to the hospitality industry, has been of lockdown, Build it delivered a boosted by Swiss support of local resilient performance in a weak sector, restaurants during the summer with wholesale turnover 0.9% down. months. SPAR Switzerland’s total During the period, the total Southern store network has grown to 333 stores African store network grew to during the period. 2 414 stores, with 65 net new stores •• The COVID-19 pandemic has been opened across all brands. The group disruptive to our plans and has completed 310 store upgrades, delayed progress in the Polish market. against 298 upgrades in the Given the level of development and comparable period. reorganisation required in year one of operations, this business has been most vulnerable to the impact of lockdown restrictions. Despite the setbacks, good progress has nevertheless been made and this region contributed R2.1 billion towards group turnover for the period. The store network stands at 219 stores, including 25 existing Piotr i Paweł stores still to be converted to SPAR stores.

INTEGRATED ANNUAL REPORT 2020 59 Group FD’s financial review (continued)

GROUP FINANCIAL REVIEW Southern The SPAR Rmillion Africa Ireland Switzerland Poland Group Ltd

Income statement Turnover* 78 605.4 29 896.7 13 641.9 2 133.4 124 277.4 Gross profit 7 796.9 3 994.5 2 515.4 473.1 14 779.9 Operating profit 2 573.6 978.2 361.5 (470.7) 3 442.6 Profit before taxation 2 299.2 651.7 296.6 (551.1) 2 696.4 Financial position Total assets 24 136.1 16 466.9 9 402.2 2 733.4 52 738.6 Total liabilities 18 762.5 14 496.8 8 279.0 3 310.6 44 848.9

* Turnover represents revenue from the sale of merchandise.

Turnover for the group increased by 13.5% Operating expenses increased Profit after tax declined 9.6% to to R124.3 billion (2019: R109.5 billion), with significantly year-on-year by 27.2% to R2.0 billion (2019: R2.2 billion). For the 36.8% (2019: 32.1%) of total turnover R13.9 billion (2019: R10.9 billion). The financial period, the group’s effective tax generated in foreign currency. Following implementation of IFRS 16 reduced rate increased by 5.3% from 22.2% to the declaration of COVID-19 as a global operating expenses by R79.5 million, 27.5%. The largest contributors to this pandemic, given that the group is an with net rental expenses of R1 131.6 million increase were caused by the fair valuation essential services provider in groceries, being replaced by the depreciation of the financial liability relating to the it has traded throughout the regional charge on right-of-use assets of future acquisition of the minority interest lockdowns, which began towards the end R1 052.1 million. The newly acquired in BWG Foods, as mentioned above. In of the first half of the financial year. The business operations in Poland the prior year there was a reduction in the Polish operations were acquired during contributed significantly towards the federal tax rate in Switzerland of 3.5%, the year and have contributed increase in group operating expenses. which resulted in a benefit of 1.9% to the R2.1 billion for the period. The existing Excluding the impact of Polish operating group effective tax rate in the prior year. group regions have all seen strong expenses, group operating expenses Tax losses and timing differences not turnover growth, despite pandemic-related increased by 18.3%. South African being provided for, the majority of which trading restrictions on certain categories in business reported an increase in related to Poland, have resulted in a 1.6% South Africa, as well as a decline in BWG operating expenses of 16.5%. The increase to the overall increase in the Foodservice business in Ireland, where newly acquired SPAR Encore business effective tax rate. this business caters to the hospitality contributed 5.6% to this overall increase. Headline earnings per share industry. The strong turnover performance Excluding SPAR Encore and S Buys, increased by 0.5% to 1 135.3 cents of groceries due to increased home operating expenses for Southern Africa (2019: 1 129.1 cents). Normalised diluted consumption during this time of crisis increased by 11.0%. Employee costs headline earnings per share increased has helped compensate for the decline increased by 14.0%, which includes by 8.8% to 1 262.6 (2019: 1 160.6 cents). in other business units. Switzerland saw a significant proportion of COVID-19 Excluding the losses in Poland, an exceptional increase in turnover to related employee costs, such as normalised diluted headline earnings per R13.6 billion, contributing 11.0% transportation costs for employees to share increased 21.9% year-on-year. (2019: 9.5%) towards group turnover. and from the distribution centres. The For more information on turnover by total estimated costs associated with Having declared a conservative interim region, please refer to the geographical COVID-19 for South Africa amount to dividend of 200 cents per share, given review on page 61. R45.8 million. With employees working the levels of uncertainty associated with remotely due to the pandemic, IT-related the pandemic at that point in time, a final Gross margin for the group has expenditure increased significantly. dividend of 665 cents has been declared increased to 11.9%, up from 10.7% in the In EUR terms, operating expenses taking the total dividend to 865 cents prior year, boosted by demand for higher for the BWG Foods business were well (2019: 800 cents) per share for the year, margin fresh and dry grocery categories managed, increasing by 3.6% year-on- an increase of 8.1% year-on-year. across all regions. In South Africa lower year. In Switzerland, operating expenses margin liquor and building materials were well contained to an increase of categories saw restricted periods of trade 4.6% in CHF terms. and were therefore less dilutionary during the period. The acquisition of SPAR Profit before tax has declined by Encore was also margin enhancing, 3.1% to R2.7 billion (2019: R2.8 billion). as this business traded at a gross profit Profit before tax was impacted by the margin of 15.0%. BWG Foods and adjustments arising on the fair valuation Switzerland both operate in the of the liability to purchase the minority higher-margin convenience sector, interest in BWG Foods, to the value reporting gross margins of 13.4% of R327.8 million. The adoption of (2019: 13.0%) and 18.4% (2019: 17.6%) IFRS 16 resulted in net finance costs of respectively. BWG Foods acquired R227.0 million recognised in the current Heaney Meats and a group of corporate year. The adoption of IFRS 16 has stores in South West England during the resulted in a net negative impact of year, all of which were gross profit margin R147.5 million to profit before tax. Profit enhancing. Poland has a group of before tax was fundamentally impacted corporate stores which trade at higher by the Polish losses. Excluding the impact gross margins than wholesale operations, of Polish losses, group profit before which also contributed positively towards tax increased by 15.5%. gross margin for the group.

60 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

GROUP FINANCIAL REVIEW: CASH FLOW

Rmillion 698.5 52.4 2 228.1 (339.9) (687) (859.6) 3 442.5 649.5 45.1 (1 378.1) 25.0 722.9 (1 547.6) 270.2 (197.3) (67) (103.3) 668.9 (1 298.1) (681.6) (67.4) (884.4) activities equipment Loans and Acquisition Exercise of translation borrowings investments Taxation paid Settlement of share options of businesses Exchange rate Lease receipts Dividends paid Other investing ﬁnancial liability Operating proﬁt Non-cash items Closing balance Net interest paid Net movement – Lease payments Loss on disposal Opening balances Share repurchases Net working capital Capital expenditure of property, plant and

GEOGRAPHICAL REVIEW SPAR SOUTHERN AFRICA The turnover of SPAR Southern Africa increased 5.8% to R78.6 billion (2019: R74.3 billion), reflecting the impact of the sales restriction on liquor, cigarette, home meal replacement and building material categories during lockdown and selected continued trading restrictions on certain categories thereafter. Case volumes (excluding Build it) through the seven distribution centres increased by 0.9% to 246.0 million (2019: 243.9 million) cases. Although we saw large volume increases for groceries and health and beauty categories, these volumes were largely offset by the loss of liquor and cigarette sales due to the trading ban on these categories. Combined food and liquor wholesale turnover growth was recorded at 6.2% and should be viewed against internally calculated food inflation of 3.9%. This inflation measure has decreased from 4.1% measured at half year and the 3.1% reported in 2019. SPAR (core food business) saw wholesale turnover growth of 9.2% to R62.9 billion (2019: R57.6 billion), driven by changed patterns of consumer buying in favour of local, convenient and trusted retailers, as well as increased home consumption, brought on by the pandemic. At a retail level, turnover increased 8.5% to R91.2 billion (2019: R84.1 billion) and recorded like-for-like retail sales growth of 7.3%. House brands, including SPAR private label products have performed strongly. During the pandemic, out of stocks and reduced ranges from suppliers presented an opportunity for a new audience to try SPAR private label products. Our strategy of ‘as good as the best for less’, is simple, but effective, and these products offer good quality and value for money for consumers. Private label wholesale sales increased 14.1% to R10.5 billion, representing 16.7% of core SPAR turnover. Total turnover for all house brands increased 12.1% to R15.0 billion, representing almost 24% of core turnover. The group remains focused on driving organic retail growth through store upgrades, which include the integration of successful in-store concepts such as Chicken Chikka deli counters. During the period, 167 (2019: 181) SPAR stores were refurbished, a real achievement, given the level of disruption caused to non-essential service providers during the lockdown. Total retail space increased by 1.0% (2019: 2.0%). The current year store openings were impacted by the lockdowns which restricted many service providers from operating during this time. Store numbers increased by 15 SPAR stores across the various formats, raising the total SPAR store numbers to 975.

INTEGRATED ANNUAL REPORT 2020 61 Group FD’s financial review (continued)

TOPS at SPAR has been severely All retail brands including, EUROSPAR, SPAR POLAND impacted by the trading restrictions on SPAR, Londis, MACE, XL and Gala saw Piotr i Paweł, a retail chain of the sale of liquor during and post the strong retail turnover growth, as supermarket stores, together with a lockdown in South Africa. Wholesale consumers chose to support their local wholesale distribution network in Poland, turnover for this business declined by convenience stores during this time of was acquired effective 1 October 2019. 15.8% to R6.4 billion (2019: R7.6 billion). crisis. In EUR terms, the existing BWG This business is in the process of being Our retailers saw sales decline of 17.8% Foods business contributed turnover legally restructured and is nearing to R10.5 billion (2019: R12.8 billion), with growth of 3.4%. The acquisitions of completion of these proceedings. The like-for-like sales declining by 19.7%. Heaney Meats and corporate stores in proceedings were delayed significantly During the period, the TOPS at SPAR South West England during the year, due to the lockdown measures in store network increased by 20 stores on contributed net growth of 2.2% towards Poland, which suspended all court a net basis to 842 stores, while 70 stores turnover. The depreciation of the rand activity and prevented the settlement of were revamped. Total retail space for this over the reporting period, contributed the matter. Mall-based stores have been format increased by 3.6% (2019: 6.7%). 14.6% and resulted in revenue growth of impacted by reduced footfall in malls due 20.4% to R29.9 billion (2019: R24.8 billion). Build it’s wholesale turnover growth to the pandemic. Despite the setbacks Operating profit increased 42.6% to declined slightly by 0.9% to R7 965.0 million brought on by the pandemic, the group R978.2 million (2019: R686.1 million), (2019: R8 035.1 million) which is an has made significant progress in this benefiting from the weakening of the excellent performance under the region. The SPAR licence to trade in rand. The retail network of this business circumstances, and given the weakness Poland was officially transferred to the is now 1 391 stores, boosted by the of the sector in the first half. This business group in February 2020. In addition to acquisition of corporate retail stores in made an impressive recovery after the acquiring access to two Piotr i Paweł South West England. initial trading restriction of five weeks, distribution centres, a third distribution centre has been secured, creating an from late March to June, largely driven by SPAR SWITZERLAND home improvements during the second effective distribution base for Piotr i Paweł This business has reported an half, with consumers spending more time and SPAR stores nationwide. The existing extraordinary set of results for the period. at home due to the pandemic. Build it’s SPAR retailers were effectively onboarded In CHF terms, this business reported an house brand and imports have made a during the second half of the year. The increase in turnover of 11.6% and an strong recovery post lockdown. At year Polish business generated R2.1 billion of increase in operating profit of 267.8% end, Build it’s store network totalled turnover, contributing 1.7% towards total year-on-year. Reported turnover 392 stores. Given how successful the turnover for the period. Gross margins at increased to R13.6 billion, up 31.7% on upgrade programme has been in driving 22.2% are stronger than other regions, the prior year (2019: R10.4 billion) and new business to existing stores, a total of due to greater exposure to retail in the operating profit increased 334.0% to 65 stores were upgraded during the year. existing Polish business. The reported R361.5 million (2019: R83.3 million). operating loss of R470.7 million was The Pharmacy at SPAR business Operating expenditure has been well negatively impacted by non-operational developed 12 new stores during the year, managed and contained at a 4.6% costs, including foreign exchange losses increasing the total number of pharmacy increase in local currency. Shopping in on euro-based loan and lease agreements stores to 132 stores. This business neighbouring countries, where groceries of R62.0 million, as well as provisions reported an increase in turnover of 3.6% and other products are cheaper than and depreciation recognised on the to R1 072.8 million. Progress has been in Switzerland has for some time adoption of IFRS 9 and IFRS 16. At the made across range, pricing and been normal behaviour among Swiss end of the period, there were 219 stores promotions in respect of the front-of-shop consumers. However, with the closure in Poland consisting of 194 SPAR stores offering. The profitability of this business of borders earlier in the year due to the and 25 existing Piotr i Paweł stores continues to be negatively impacted by lockdown, many consumers were forced which are due to be converted to increased distribution costs, due to to shop at home. In addition consumers SPAR stores in the future. lack of economies of scale, nevertheless opted for local and convenient stores operating profit improved on the during this time, over large supermarkets. prior year. This has resulted in a twofold increase in levels of footfall to our convenience BWG GROUP (IRELAND AND stores, attracting an entire new group of SOUTH WEST ENGLAND) consumers. Our TopCC Cash & Carry The BWG Group delivered a remarkable business, which caters to the hospitality performance with reported euro- industry has benefited from restaurants denominated turnover growth of 6.3% being open during the summer months to €1.6 billion (2019: €1.5 billion). The as many Swiss stayed home for their COVID-19 restrictions had a severe vacations. SPAR Switzerland launched impact on the performance of the 11 new stores during the year. At the end hospitality industry in Ireland, which of the year there were 333 (2019: 322) impacted the Value Centre Cash & Carry corporate and independent retailers and BWG Foodservice businesses. serviced. However, the convenience store network (excluding larger city centre and petrol forecourt stores, impacted by consumer behaviour changes brought on by the pandemic) experienced excellent sales growth, more than compensating for the weak performance of business units negatively impacted by the pandemic.

62 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

CURRENCY MOVEMENTS OVER THE COURSE OF THE REPORTING PERIOD

E October – September

Oct Dec ar Jun Sep

RAR FAR

Ireland (€) Switzerland (CHF) 2020 2019 2020 2019

Year end rate 19.65 16.51 18.16 15.18 Average rate 18.31 16.17 17.01 14.42

BORROWINGS At year end the group had external banking facilities in South Africa totalling R5.2 billion (2019: R3.6 billion) of which R0.8 billion (2019: R2.0 billion) was drawn down. Committed facilities totalled R4.0 billion while the group had access to R1.2 billion of uncommitted facilities. The BWG Group has access to €135.0 million of revolving credit and overdraft facilities. SPAR Switzerland has confirmed credit lines and facilities of CHF64.0 million. SPAR Poland has confirmed credit lines and overdraft facilities of €20 million. The increase in net borrowings from the prior year was largely the result of a) funding raised to settle a portion of the minority interest in the BWG Group and b) funding raised for financing our business Poland.

The net borrowing position at year end:

Rmillion 2020 2019

Long-term borrowings 6 693.1 4 635.3 Current portion of long-term borrowings 362.8 529.5 Bank overdraft 1 210.4 1 553.7 Total borrowings 8 266.3 6 718.5 Less: cash and cash equivalents (1 670.7) (1 250.9) Net borrowings 6 595.6 5 467.6 Increase in funding 1 128.0 2 426.4

INTEGRATED ANNUAL REPORT 2020 63 Group FD’s financial review (continued)

CAPITAL COMMITMENTS A summary of the group’s approved capital commitments as at 30 September 2020 is set out below:

2020 2019 Approved not Approved not Rmillion Contracted contracted Total Contracted contracted Total

Southern Africa 355.6 419.6 775.2 193.4 22.2 215.6 Ireland 20.2 96.3 116.4 46.6 69.5 115.9 Switzerland 289.5 289.5 18.2 18.2 Poland – 316.4 316.4 Total 665.3 832.3 1 497.5 258.2 91.7 349.7

FINANCIAL RISK ACCOUNTING POLICIES GOING CONCERN STATUS MANAGEMENT The consolidated annual financial The board has formally considered the The identification of sustainability and statements have been prepared in going concern assertion of the group financial risks for the group forms part of accordance with IFRS, the SAICA and is of the opinion that it remains the enterprise risk management (ERM) Financial Reporting Guides, Financial appropriate for the 2020 financial year. process. During the course of the year Reporting Pronouncements, the this was again updated by management Companies Act, No 71 of 2008, as and these risks were reviewed by the amended and the Listing Requirements internal audit team. The group is typically of the JSE Limited. exposed to inflation, interest rate, The group has considered and adopted Mark Godfrey liquidity and credit risks, the latter all applicable new standards, Group FD specifically impacting trade receivables. interpretations and amendments to No additional risks were identified and existing standards that are effective at 14 December 2020 management are satisfied that these year-end. During the current year, the risks are being continuously and group implemented the IFRS 16: Leases proactively managed. standard which has had a material impact on the reported financial position and trading results for the year. Refer to note 1 in the 2020 consolidated annual financial statements for further detail – https://investor-relations.spar.co.za

64 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

INTEGRATED ANNUAL REPORT 2020 65 FIVE YEAR

Rmillion 2020 2019 2018 2017 2016

CONDENSED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue – sale of merchandise 124 277 109 477 101 018 97 209 92 227 Operating profit 3 443 2 979 2 779 2 576 2 577 Other non-operating items (279) (28) (144) (55) (25) Finance income 618 186 169 194 99 Finance costs (1 023) (344) (193) (241) (217) Finance costs including foreign exchange gains and losses – – (137) Share of equity-accounted associate (losses)/profit (63) (11) (10) (8) 5 Profit before taxation 2 696 2 782 2 464 2 466 2 439 Taxation (740) (618) (637) (645) (624)

Profit after taxation 1 956 2 164 1 827 1 821 1 815 Remeasurement of retirement funds net of tax 164 (395) 131 364 (190) Remeasurement of post-retirement medical aid net of tax 15 (2) – 8 (6) Gain/(loss) on cash flow hedge net of tax 3 – 1 (4) (28) Exchange differences from translation of foreign operations 295 76 132 42 (29) Total comprehensive income 2 433 1 843 2 091 2 231 1 562

CONDENSED STATEMENTS OF FINANCIAL POSITION Assets Property, plant and equipment 8 725 7 184 6 652 6 277 6 160 Right-of-use assets 6 606 Finance lease receivable 4 713 Goodwill and intangible assets 6 983 5 064 4 752 4 439 4 008 Loans and investments 1 120 1 620 1 454 1 094 831 Operating lease receivables 6 269 208 125 101 Deferred taxation asset 223 75 14 21 37 Current assets 24 324 19 767 18 166 16 880 16 807 Assets classified as held for sale 39 74 10 141 161 Total assets 52 739 34 053 31 256 28 977 28 105

Equity and liabilities Capital and reserves 7 890 7 467 7 110 6 560 5 628 Deferred taxation liability 278 297 413 361 291 Post-employment benefit obligations 1 270 1 268 788 940 1 392 Financial liability 50 1 521 2 043 1 700 1 568 Long-term borrowings 6 896 5 009 4 531 4 686 4 700 Provisions – 8 29 42 59 Other non-current financial liabilities – 3 3 5 – Operating lease payable – 299 231 142 116 Finance lease payable 11 200 Current liabilities 25 155 18 181 16 108 14 541 14 351 Total equity and liabilities 52 739 34 053 31 256 28 977 28 105

CONDENSED STATEMENTS OF CASH FLOWS Cash flows from operating activities before dividends 5 221 1 127 3 334 2 663 2 700 Dividends paid (1 378) (1 431) (1 358) (1 252) (1 153) Cash flows from investing activities (1 502) (1 943) (1 453) (1 496) (1 614) Cash flows from financing activities (1 821) 558 (428) 4 1 667

Net movement in cash and cash equivalents 520 (1 689) 95 (81) 1 600

66 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW VALUE ADDED

2020 % 2019 % Rmillion of revenue % Rmillion of revenue %

Revenue 124 277 109 477 Less: Net cost of product and services 114 103 100 967 Value added 10 174 8 510 Add: Income from investments and associates 116 175 Wealth created 10 290 8.30 100.0 8 685 7.90 100.0 Applied to: Employees Salaries, wages and other benefits 6 279 61.0 4 888 56.3 Providers of capital 1 650 16.0 1 692 19.5 Interest on borrowings 272 2.6 261 3.0 Dividends to ordinary shareholders 1 378 13.4 1 431 16.5 Taxation 740 7.2 618 7.1 Replacement of assets 924 9.0 754 8.7 Retained in the group 697 6.8 733 8.4 Wealth distributed 10 290 100.0 8 685 100.0

6.8% 8.4% 9.0% 8.7%

7.2% 7.1%

2020 2019

56.3% 13.4% 61.0% 16.5%

2.6% 3.0%

Salaries, wages and other beneﬁts Interest on borrowings Dividends to ordinary shareholders Taxation Replacement of assets Retained in the group

INTEGRATED ANNUAL REPORT 2020 67 RATIOS AND

2020 2019 2018 2017 2016 2015

SHARE PERFORMANCE Number of ordinary shares (net of treasury shares) millions 192.5 192.5 192.5 192.5 192.5 173.1 Headline earnings per share cents 1 135.3 1 129.1 965.7 952.8 1 020.0 835.5 Normalised headline earnings per share cents 1 266.9 1 166.3 1 063.2 976.0 1 033.0 940.0 Dividends per share cents 855.0 800.0 729.0 675.0 665.0 632.0 Dividend cover multiple 1.33 1.41 1.32 1.41 1.53 1.45 Net asset value per share cents 4 102.2 3 879.9 3 692.2 3 407.0 3 131.7 1 922.6 COMPREHENSIVE INCOME INFORMATION Gross margin % 11.9 10.7 10.7 10.7 9.3 8.7 Operating profit margin % 2.8 2.7 2.8 2.7 2.8 3.1 Headline earnings Rmillion 2 183.6 2 173.0 1 859.6 1 834.7 1 832.9 1 446.3 SOLVENCY AND LIQUIDITY Return on equity % 27.0 29.7 26.7 29.9 40.5 44.7 Return on net assets % 43.6 39.9 39.3 39.3 45.8 68.9 EMPLOYEE STATISTICS Number of corporate office and distribution centre employees at year end 10 168 8 206 7 204 6 786 6 387 4 724 STOCK EXCHANGE STATISTICS Market price per share – at year end cents 18 965 19 101 18 413 16 708 19 222 18 500 – highest cents 21 622 21 072 22 700 20 499 21 971 20 617 – lowest cents 15 562 16 418 16 553 15 018 16 161 12 142 Number of share transactions 1 168 151 954 287 559 330 542 335 499 716 399 399 Number of shares traded millions 231.8 189.2 145.5 203.8 178.2 132.7 Number of shares traded as a percentage of total issued shares % 120.4 98.3 75.5 105.8 92.6 76.7 Value of shares traded Rmillion 42 204.0 35 956.0 35 454.1 35 789.6 34 793.2 23 190.3 Earnings yield at year end % 6.0 6.1 5.8 5.8 5.4 5.1 Dividend yield at year end % 4.5 4.2 4.0 4.0 3.5 3.4 Price earnings ratio at year end multiple 16.7 16.4 17.3 17.1 18.6 19.7 Market capitalisation at year end net of treasury shares Rmillion 36 509 36 765 35 454 32 164 37 004 32 027 Market capitalisation to shareholders’ equity at year end multiple 4.6 4.9 5.0 4.9 6.6 9.6

68 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW SUMMARISED GROUP FINANCIAL

DIRECTORS’ APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS

The directors of the company are responsible for the maintenance of adequate accounting records and the preparation and integrity of the financial statements and related information. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act of South Africa. The group’s independent external auditors, PricewaterhouseCoopers Inc., have audited the financial statements and their unmodified report is enclosed. The directors are also responsible for the systems of internal control. These controls are designed to provide reasonable but not absolute assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability of the assets, to record all liabilities, and to prevent and detect material misstatement and loss. The systems are implemented and monitored by suitably trained personnel with appropriate segregation of authority and duties. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. In preparing the financial statements, the company and group have used appropriate accounting policies, supported by reasonable judgements and estimates, and have complied with all applicable accounting standards. The directors are of the opinion that the financial statements fairly present the financial position of the company and the group as at 30 September 2020 and the results of their operations and cash flows for the year under review. The annual financial statements are prepared on the going concern basis. Nothing has come to the attention of the directors to indicate that the company or the group will not remain a going concern for the foreseeable future. The annual financial statements were approved by the board of directors on 14 December 2020 and are signed on its behalf by:

MJ Hankinson GO O’Connor Chairman Group CEO 14 December 2020

CERTIFICATE BY THE COMPANY SECRETARY

I certify that, in respect of the reporting period, the company has, to the best of my knowledge and belief, lodged with the Companies and Intellectual Property Commission (CIPC) all returns and notices required of a public company in terms of the Companies Act and that all such returns appear to be true, correct and up to date.

MJ Hogan Company Secretary 14 December 2020

PREPARATION AND PRESENTATION OF SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

The preparation of the Summary Consolidated Financial Statements was supervised by the Group FD of The Spar Group Ltd, Mark Godfrey. The full set of annual financial statements are published on our website, or can be requested from our Company Secretary. This summarised report is extracted from audited information, but is not itself audited. The annual financial statements were audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audited annual financial statements and the auditor’s report thereon are available for inspection at the company’s registered office.

INTEGRATED ANNUAL REPORT 2020 69 DIRECTORS’ REPORT

The directors of the company have the pleasure in submitting their report on the audited annual financial statements of the company for the year ended 30 September 2020.

NATURE OF BUSINESS SPAR is a warehousing and distribution business listed on the JSE in the Food and Drug Retailers sector. The group owns several country licences for the SPAR retail brand, which is used by a network of independent retailers who trade under our brand and are supplied on a voluntary basis through our distribution centres. There were no material changes to the nature of the group’s business for the 2020 financial year.

DIRECTORATE AND COMPANY SECRETARY The names of the directors and Company Secretary in office at 30 September 2020 are set out on page 92. Mr Mike Hankinson, the Chairman of the board, will be retiring at the AGM that will be held in 2021. Brett Botten, the current Managing Director of SPAR South Rand will be appointed as the Group CEO, Graham O’Connor will be appointed as a non-executive director and Chairman of the board subject to shareholder approval at the AGM, and Mr Andrew Waller, an independent non-executive director, as the Lead Independent Director of the board with effect from 1 March 2021. Mandy Hogan has resigned as the Company Secretary with effect from 31 December 2020. Particulars relating to the directors’ remuneration and interests and directors’ share scheme interests are set out on page 114.

CORPORATE GOVERNANCE The directors are the custodians of corporate governance and subscribe to King IV. Refer to our governance structures, composition and functioning in the integrated annual report. Committee reports are disclosed as follows: • Audit Committee report – pages 98 to 101 • Nomination Committee report – pages 102 to 103 • Remuneration Committee report – pages 104 to 118 • Risk Committee report – pages 120 to 121 • Social and Ethics Committee report – pages 122 to 123 The directors are not aware of any material non-compliance with statutory or regulatory requirements. The directors confirm that the company is (i) in compliance with the provisions of the Companies Act, and the relevant laws governing its establishment, specifically relating to its incorporation; and (ii) operating in conformity with its Memorandum Of Incorporation.

FINANCIAL RESULTS The results for the period are detailed in the annual financial statements that follow.

GOING CONCERN The directors believe that the company has adequate financial resources to continue in operation for the foreseeable future and accordingly the consolidated annual financial statements have been prepared on a going concern basis. The directors have satisfied themselves that the company is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. The directors are not aware of any new material changes that may adversely impact the company.

STATED CAPITAL Details of the authorised and issued share capital of the company and the movements during the period are disclosed in note 25 of the annual financial statements. Details of the treasury shares of the company are disclosed in note 26 of the annual financial statements.

70 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

DIVIDENDS It is company policy to make two dividend payments each year, an interim payment in May and a final payment in December. An interim dividend of 200.0 cents per share (2019: 284.0 cents per share) was declared on 21 May 2020 and paid on 15 June 2020. A final dividend of 665.0 cents per share (2019: 516.0 cents) has been declared on 18 November 2020 and payable on 14 December 2020. The salient dates for the payment of the final dividend are: Last day to trade cum-dividend Tuesday, 8 December 2020 Shares to commence trading ex-dividend Wednesday, 9 December 2020 Record date Friday, 11 December 2020 Payment of dividend Monday, 14 December 2020 Shareholders will not be permitted to dematerialise or rematerialise their shares between Wednesday, 9 December 2020 and Friday, 11 December 2020, both days inclusive.

SHARE SCHEME Particulars relating to the company’s share-based payments are set out in note 38 of the audited annual financial statements, which are available online.

SUBSIDIARIES The interest of the company in the aggregate net profit/loss after taxation of subsidiaries was a profit of R504.7 million (2019: profit of R591.3 million). Details of the company’s principal subsidiaries are set out in note 14 of the audited annual financial statements, which are available online.

SPECIAL RESOLUTIONS The company passed the following special resolutions at the annual general meeting held on 11 February 2020: • Special resolution number 1 – Financial assistance to related or inter-related companies • Special resolution number 2 – Non-executive directors’ fees

LITIGATION STATEMENT The company becomes involved from time to time in various claims and litigation proceedings incidental to the ordinary course of business. The directors are not aware of any existing, pending or threatened litigation proceedings which may have a material effect on the financial position of the company, other than SPAR’s litigation with the Giannacopoulos group of stores which continues. SPAR continues to engage with the Competition Commission regarding their Grocery Retail Sector Market Inquiry particularly dealing with issues of exclusivity and suppliers.

SUBSEQUENT EVENTS Matters or circumstances arising since the end of the 2020 financial year, which have or may significantly affect the financial position of the company or the results of its operations are disclosed in note 42 of the audited annual financial statements, which are available online.

INTEGRATED ANNUAL REPORT 2020 71 SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Year ended September % Rmillion Change 2020 2019

Revenue – sale of merchandise 13.5 124 277.4 109 477.1 Cost of sales (109 497.5) (97 817.2) Gross profit 14 779.9 11 659.9 Revenue other 2 366.9 2 106.6 Other income 208.7 151.8 Operating expenses* 27.2 (13 912.9) (10 939.4) Operating profit 15.6 3 442.6 2 978.9 Other non-operating items (278.7) (28.1) Finance income* 618.2 185.5 Finance costs* (1 022.5) (343.9) Share of equity-accounted associate losses (63.2) (10.6) Profit before taxation (3.1) 2 696.4 2 781.8 Taxation* (740.2) (618.4) Profit after taxation 1 956.2 2 163.4 Attributable to: Equity holders of the company 2 074.7 2 163.4 Non-controlling interests (118.5)

Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Remeasurement of post-retirement medical aid 20.7 (2.6) Deferred tax relating to remeasurement of post-retirement medical aid (5.7) 0.7 Remeasurement of retirement funds 189.3 (440.9) Deferred tax relating to remeasurement of retirement funds (24.8) 45.6 Items that may be reclassified subsequently to profit or loss: Gain on cash flow hedge 3.2 0.5 Tax relating to gain on cash flow hedge (0.4) (0.1) Exchange differences from translation of foreign operations 294.2 76.0 Total comprehensive income 32.0 2 432.7 1 842.6 Attributable to: Equity holders of the company 2 557.1 1 842.6 Non-controlling interests (124.4) Earnings per share (cents) Basic (4.0) 1 078.7 1 124.1 Diluted (3.9) 1 075.0 1 118.6

* Refer to Note 9 relating to the impact of IFRS 16 adoption.

72 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Year ended September

Rmillion Notes 2020 2019

ASSETS Non-current assets 28 375.7 14 212.4 Property, plant and equipment* 8 725.3 7 184.2 Right-of-use assets* 6 605.9 Finance lease receivable* 4 713.4 Goodwill and intangible assets 6 983.4 5 064.0 Investment in associates and joint ventures 102.9 103.1 Other investments 21.8 19.8 Operating lease receivable* 6.2 269.1 Loans and other receivables 795.0 1 131.8 Block discounting loan receivable 199.0 365.0 Deferred taxation asset* 222.8 75.4

Current assets 24 324.2 19 766.9 Inventories 5 377.3 4 447.0 Trade and other receivables* 15 637.9 13 122.7 Prepayments 288.9 256.8 Operating lease receivable 59.6 Loans and other receivables 204.4 134.9 Current portion of block discounting loan receivable 163.6 258.1 Income tax receivable 0.9 1.1 Other current financial assets 0.9 0.4 Finance lease receivable* 716.8 Cash and cash equivalents – SPAR 1 670.7 1 250.9 Cash and cash equivalents – guilds and trusts 262.8 235.4 Assets held for sale 38.7 73.6 Total assets 52 738.6 34 052.9

EQUITY AND LIABILITIES Capital and reserves 7 889.7 7 467.3 Stated capital 2 231.5 2 231.5 Treasury shares (15.3) (23.9) Reserves# 590.3 (236.4) Non-controlling interests (70.3) Retained earnings* 5 153.5 5 496.1 Non-current liabilities 19 694.3 8 405.1 Deferred taxation liability 277.6 297.3 Post-employment benefit obligations 1 270.0 1 268.3 Financial liabilities 5 49.7 1 521.1 Long-term borrowings 6 693.1 4 635.3 Block discounting loan payable 203.5 373.6 Finance lease payable* 11 200.4 Operating lease payable* 298.4 Other non-current financial liabilities 2.8 Provisions* 8.3 Current liabilities 25 154.6 18 180.5 Trade and other payables 19 411.4 14 912.8 Current portion of financial liabilities 5 2 102.5 683.3 Current portion of long-term borrowings 362.8 529.5 Current portion of block discounting loan payable 167.8 263.6 Operating lease payable 59.2 Current portion of provisions 12.9 35.1 Finance lease payable* 1 728.4 Income tax payable 158.4 143.3 Bank overdrafts 1 210.4 1 553.7

Total equity and liabilities 52 738.6 34 052.9

* Refer to Note 9 relating to the impact of IFRS 16 adoption. # Reserves have been aggregated in the current year. Refer to the summarised consolidated statement of changes in equity for further detail.

INTEGRATED ANNUAL REPORT 2020 73 SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Share- Currency based Non- Stated Treasury translation payment Retained Equity Hedging controlling Total Rmillion Notes capital shares reserve reserve earnings reserve reserve interest equity

Balance at 30 September 2018 2 231.5 (10.0) 181.8 274.8 5 211.6 (749.1) (30.8) 7 109.8 Change in accounting policy (18.2) (18.2) Balance at 1 October 2018 2 231.5 (10.0) 181.8 274.8 5 193.4 (749.1) (30.8) 7 091.6 Profit for the year 2 163.4 2 163.4 – Gain on cash flow hedge 0.4 0.4 – Remeasurement of post-retirement medical aid (1.9) (1.9) – Remeasurement of retirement funds (395.3) (395.3) Recognition of share-based payments 38.7 38.7 Take-up of share options 66.4 (30.8) 35.6 Transfer arising from take-up of share options 30.8 (30.8) Settlement of share-based payments 29.8 (27.6) (2.2) Treasury shares acquired (110.1) (110.1) Dividends paid (1 430.5) (1 430.5) Exchange rate translation 76.0 (0.6) 75.4 Balance at 30 September 2019 2 231.5 (23.9) 257.8 285.9 5 496.1 (749.7) (30.4) 7 467.3 Change in accounting policy 9 (616.1) (616.1) Restated capital and reserves at 1 October 2019 2 231.5 (23.9) 257.8 285.9 4 880.0 (749.7) (30.4) 6 851.2 Profit for the year 2 074.7 (118.5) 1 956.2 – Gain on cash flow hedge 2.8 2.8 – Remeasurement of post-retirement medical aid 15.0 15.0 – Remeasurement of retirement funds 164.5 164.5 Recognition of share-based payments 22.2 22.2 Take-up of share options 91.8 (46.6) 45.2 Transfer arising from take-up of share options 46.6 (46.6) Settlement of share-based payments 20.1 (9.8) (10.3) Treasury shares acquired (103.3) (103.3) Dividends paid (1 378.1) (1 378.1) Equity reserve transferred to retained earnings 5 (545.7) 545.7 Non-controlling interest arising on business acquisition 54.1 54.1 Exchange rate translation 300.1 (33.7) (0.6) (5.9) 259.9 Balance at 30 September 2020 2 231.5 (15.3) 557.9 298.3 5 153.5 (237.7) (28.2) (70.3) 7 889.7

74 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

Share- Currency based Non- Stated Treasury translation payment Retained Equity Hedging controlling Total Rmillion Notes capital shares reserve reserve earnings reserve reserve interest equity

INTEGRATED ANNUAL REPORT 2020 75 SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended September

Rmillion Note 2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES 3 844.0 (303.8) Operating profit before: 3 442.5 2 978.9 Non-cash items 2 227.8 877.5 Net loss on disposal of property, plant and equipment 52.4 1.4 Net working capital changes 698.8 (2 016.3) – Increase in inventories (205.4) (425.5) – Increase in trade and other receivables (1 201.3) (1 110.3) – Increase/(decrease) in trade payables and provisions 2 105.5 (480.5) Cash generated from operations 6 421.5 1 841.5 Finance income received* 573.7 110.6 Finance cost paid* (913.5) (138.5) Taxation paid (859.6) (686.9) Dividends paid (1 378.1) (1 430.5) CASH FLOWS FROM INVESTING ACTIVITIES (1 502.4) (1 943.2) Acquisition of businesses/subsidiaries 4.4 (681.6) (487.4) Proceeds from disposal of businesses 20.1 Proceeds on disposal of assets held for sale 25.0 Investment to expand property, plant and equipment and intangible assets (929.9) (685.8) Investment to maintain operations (368.1) (374.0) – Replacement of property, plant and equipment and intangible assets (449.1) (423.5) – Proceeds on disposal of property, plant and equipment 81.0 49.5 Principal element of lease receipts* 649.5 Cash inflows on loans and investments 283.2 470.3 Cash outflows on loans and investments (480.5) (886.4) CASH FLOWS FROM FINANCING ACTIVITIES (1 821.3) 557.6 Proceeds from exercise of share options 45.1 35.6 Settlement of financial liability (884.4) Principal element of lease payments* (1 547.6) Proceeds from borrowings 937.3 748.9 Repayments of borrowings (268.4) (116.8) Treasury shares acquired (103.3) (110.1)

Net increase/(decrease) during the year 520.3 (1 689.4) Net (overdrafts)/cash balances at beginning of year (67.4) 1 598.2 Exchange rate translation 270.2 23.8 Net cash balances/(overdrafts) at end of year 723.1 (67.4)

* Refer to Note 9 relating to the impact of IFRS 16 adoption.

76 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL RESULTS

1. BASIS OF PRESENTATION AND COMPLIANCE WITH IFRS The summarised consolidated financial statements contained in this preliminary report are prepared in accordance with the requirements of the JSE Limited Listings Requirements (Listings Requirements) for preliminary reports, and the requirements of the Companies Act No. 71 of 2008 (Companies Act) applicable to summarised financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements from which the summarised consolidated financial statements were derived are in terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements. Neither this announcement nor the preliminary report has been audited but are extracted from the underlying audited information. The annual financial statements were audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audited annual financial statements and the auditor’s report thereon are available for inspection at the company’s registered office. The directors take full responsibility for the preparation of the preliminary report and that the financial information has been correctly extracted from the underlying annual financial statements.

2. SALIENT STATISTICS AND HEADLINE EARNINGS

% Change 2020 2019

Salient statistics Headline earnings per share (cents) 0.5 1 135.3 1 129.1 Diluted headline earnings per share (cents) 0.7 1 131.5 1 123.6 Dividend per share (cents) 8.1 865.0 800.0 Net asset value per share (cents) 5.7 4 102.2 3 879.9 Operating profit margin (%) 2.8 2.7 Return on equity (%) 27.0 29.7

Headline earnings reconciliation Profit for the year attributable to ordinary shareholders 2 074.7 2 163.4 Adjusted for: Loss on disposal of property, plant and equipment 49.6 0.6 – Gross 52.4 1.4 – Tax effect (2.8) (0.8) Impairment of investments 63.6 – Gross 64.4 – Tax effect (0.8) Fair value adjustment – previously held investment 6.7 Profit on disposal of assets held for sale (2.3) Fair value adjustment to assets held for sale 4.6 3.9 Impairment of goodwill 13.3 5.0 (Profit)/loss on disposal of businesses (26.6) 0.1 Headline earnings 2 183.6 2 173.0

3. SEGMENT REPORTING Segment accounting policies are consistent with those adopted for the preparation of the consolidated annual financial statements. The principal segments of the group have been identified on a primary basis by geographical segment, which is representative of the internal reporting used for management purposes as well as the source and nature of business risks and returns. These geographical segments also represent operating segments as they meet the quantitative thresholds. The Group CEO is the Chief Operating Decision Maker (CODM) and assesses the performance of the operating segments based on profit before tax and for joint ventures and associates based on earnings after tax. The CODM is of the opinion that the operations of the individual distribution centres within Southern Africa are substantially similar to one another and that the risks and returns of these distribution centres are likewise similar. The risks and returns of the Ireland, Switzerland and Poland operations are not considered to be similar to those within Southern Africa or each other and are therefore disclosed as separate reportable segments.

INTEGRATED ANNUAL REPORT 2020 77 Notes to the summarised consolidated financial results (continued)

3. SEGMENT REPORTING (continued)

As a result, the geographical reportable segments of the group have been identified as Southern Africa, Ireland, Switzerland and Poland. All segment revenue and expenses are directly attributable to the segments. Segment assets and liabilities include all operating assets and liabilities used by a segment, with the exception of inter-segment assets and liabilities, and IFRS adjustments made by segments to their management report for the purposes of IFRS compliance. These assets and liabilities are all directly attributable to the segments. The principal activity of the reporting segments is the wholesale and distribution of goods and services to SPAR grocery stores and multiple other branded group retail outlets. The group deals with a broad spread of customers, with no single customer exceeding 10% of the group’s revenue. Analysis per reportable segment:

Southern Consolidated Rmillion Africa Ireland Switzerland Poland Total

2020 Statement of profit or loss Revenue from contracts with customers 79 423.8 30 409.4 14 659.4 2 151.7 126 644.3 Operating profit/(loss) 2 573.6 978.2 361.5 (470.7) 3 442.6 Profit before tax/(loss) 2 299.2 651.7 296.6 (551.1) 2 696.4 Finance income 547.5 14.5 6.8 49.4 618.2 Finance costs 640.3 218.0 71.7 92.5 1 022.5 Depreciation and amortisation 398.9 600.0 758.8 218.5 1 976.2 Taxation 720.7 43.2 47.2 (70.9) 740.2 Share of equity-accounted associate losses 25.7 37.5 63.2 Impairment of goodwill 12.6 0.7 13.3 Statement of financial position Total assets 24 136.1 16 466.9 9 402.2 2 733.4 52 738.6 Total liabilities 18 762.5 14 496.8 8 279.0 3 310.6 44 848.9 2019 Statement of profit or loss Revenue from contracts with customers 75 090.8 25 296.4 11 195.3 1.2 111 583.7 Operating profit/(loss) 2 240.0 686.1 83.3 (30.5) 2 978.9 Profit before tax/(loss) 2 151.3 657.2 2.8 (29.5) 2 781.8 Finance income 167.1 10.0 5.3 3.1 185.5 Finance costs 220.3 35.7 85.8 2.1 343.9 Depreciation and amortisation 237.8 274.1 242.8 754.7 Taxation 617.1 44.6 (41.1) (2.2) 618.4 Share of equity-accounted associate losses/(gains) 12.3 (1.7) 10.6 Impairment of goodwill 5.0 5.0 Statement of financial position Total assets 17 451.9 10 636.2 5 487.8 477.0 34 052.9 Total liabilities 13 686.8 7 645.4 4 749.0 504.4 26 585.6

Material non-cash items relating to the movement in the group’s financial liabilities are presented in note 5.

78 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

3. SEGMENT REPORTING (continued)

Rmillion 2020 2019

Disaggregated revenue as reviewed by the CODM Southern Africa Revenue – sale of merchandise 78 605.4 74 283.7 SPAR 62 851.2 57 566.2 TOPS at SPAR 6 436.5 7 646.9 Build It 7 965.0 8 035.1 S Buys 1 072.8 1 035.5 Encore 279.9 Revenue – Other 818.4 807.1 Revenue from contracts with customers 79 423.8 75 090.8

Ireland Revenue – sale of merchandise 29 896.7 24 835.2 BWG 26 057.8 22 044.0 Appleby Westward 3 838.9 2 791.2 Revenue – Other 512.7 461.2 Revenue from contracts with customers 30 409.4 25 296.4

Switzerland Revenue – sale of merchandise 13 641.9 10 357.0 Wholesale 6 183.3 4 588.1 TopCC 5 363.4 4 109.4 Retail 2 095.2 1 659.5 Revenue – Other 1 017.5 838.3 Revenue from contracts with customers 14 659.4 11 195.3

Poland Revenue – sale of merchandise 2 133.4 1.2 Wholesale 1 518.4 1.2 Retail 615.0 Revenue – Other 18.3 Revenue from contracts with customers 2 151.7 1.2

Total revenue – sale of merchandise 124 277.4 109 477.1 Total revenue – other 2 366.9 2 106.6 Total revenue from contracts with customers 126 644.3 111 583.7

Disaggregated total revenue – other: 2 366.9 2 106.6 Marketing and service revenues 1 706.0 1 543.3 Franchise fees 401.5 295.6 Other services 259.4 267.7

INTEGRATED ANNUAL REPORT 2020 79 Notes to the summarised consolidated financial results (continued)

4. BUSINESS COMBINATIONS 4.1 ASSETS ACQUIRED AND LIABILITIES ASSUMED AT DATE OF ACQUISITION Acquisition of Piotr i Paweł Group On 1 October 2019, SPAR acquired an 80% stake in Piotr i Paweł Sp. z o.o. (PiP) for a consideration of €1. PiP is a retail chain of 77 delicatessen and supermarket stores, together with a wholesale distribution network. PiP remains in advanced stages of a legally supervised debt restructuring process similar to South African business rescue. Creditors of the business have voted in support of the settlement arrangement, which is now to be confirmed by the court. Trade and other payables have been adjusted by a R9.4 million measurement period adjustment relating to legal costs of the sanitation proceedings. The goodwill arising on the business combination represents the expected future benefit which will be derived from the existing distribution and supply network. The goodwill raised on the acquisition of PiP has been considered for impairment. No impairment loss has been recognised as the projected sales growth in the Polish business factors in the increase in loyalty support from the SPAR retailers. During the financial period, the Polish business acquired the licence to operate the SPAR brand in Poland. Included in the cost of acquiring the licence asset are directly attributable costs incurred to obtain control and bring the asset into a condition necessary for operating in the manner intended by management. Management considers the useful life of the licence to be indefinite.

Acquisition of Monteagle Africa Ltd (SPAR Encore) The SPAR Group Ltd purchased a 50% controlling shareholding of Monteagle Africa Ltd. The approval of the Competition Commission was received on 6 March 2020. Monteagle Africa Ltd is a wholesaler in the food retail sector, operating in Southern Africa. Monteagle Africa Ltd is a supplier to SPAR for its private label products. The goodwill arising on the business combination represents the expected future economic benefits of the group resulting from the supply chain integration as well as additional margin.

Acquisition of Heaney Meats Catering Co. Ltd On 31 January 2020, the BWG Group acquired the entire share capital of Heaney Meats Catering Co. Ltd (Heaney Meats). Heaney Meats is a Galway-based supplier of meat to the food sector in Ireland, specialising in the preparation and distribution of meat products to food service outlets. The goodwill arising on the business combination is an indication of future profit expected to be made by the additional margin and security of supply. Measurement period adjustments have resulted in the reported purchase price allocation differing to that disclosed at March 2020 for the following reasons: • The fair value of trade and other receivables, trade and other payables, and finance lease liabilities acquired have changed • The value consideration transferred for this acquisition has been adjusted as a result of a renegotiation • Goodwill recognised on the acquisition

Retail stores acquired During the course of the financial period, SPAR acquired the assets of nine (2019: 13) retail stores in South Africa and the BWG Group acquired the assets of 28 (2019: two) retail stores in the United Kingdom (UK) and two stores in Ireland. The principal activity of these acquisitions is that of retail trade and all its aspects. These stores were purchased in order to protect strategic sites and to expand the retail footprint of the group, and the goodwill arising on the business combinations is indicative of future turnover and profit expected to be made by the group as a result of these acquisitions. These acquisitions were funded from available cash resources.

80 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

4. BUSINESS COMBINATIONS (continued) 4.1 ASSETS ACQUIRED AND LIABILITIES ASSUMED AT DATE OF ACQUISITION (continued) 2020 UK Heaney and Piotr i Monteagle Meats SA Irish Paweł Africa Catering retail retail Rmillion Group Ltd Co. Ltd stores stores Total

Assets 1 898.5 934.8 219.0 32.6 459.5 3 544.4 Property, plant and equipment 349.3 50.9 79.4 32.6 93.7 605.9 Right-of-use assets 966.8 5.9 303.2 1 275.9 Finance lease receivable 214.6 214.6 Goodwill and intangible assets 2.6 9.5 0.2 12.3 Investment in associates 34.2 34.2 Deferred taxation asset 10.0 10.0 Inventories 95.3 188.8 10.8 31.6 326.5 Loans 15.9 15.9 Trade and other receivables* 198.1 638.9 51.5 10.2 898.7 Income tax receivable 0.1 0.1 Cash and cash equivalents 21.7 36.6 71.2 20.8 150.3 Liabilities (2 156.2) (708.6) (82.1) (412.8) (3 359.7) Trade and other payables (714.3) (685.8) (74.1) (84.7) (1 558.9) Income tax payable (17.0) (2.3) (0.2) (19.5) Finance lease liability (1 181.4) (1.3) (5.7) (303.2) (1 491.6) Long-term borrowings (88.1) (4.5) (24.7) (117.3) Short-term borrowings (172.4) (172.4)

Total identifiable net (liabilities)/assets (257.7) 226.2 136.9 32.6 46.7 184.7 at fair value Fair value of previously held investment (Refer to note 4.5) (26.2) (26.2) Non-controlling interest 49.7 (103.8) (54.1) Goodwill arising from acquisition 208.0 60.0 238.6 64.9 231.9 803.4

Cash consideration transferred 156.2 375.5 97.5 278.6 907.8 Cash balances acquired (21.7) (36.6) (71.2) (20.8) (150.3) Business acquisition costs 5.6 0.5 6.6 10.4 23.1 Contingent consideration (70.7) (55.6) (126.3) Net cash (inflow)/outflow on acquisition (16.1) 120.1 240.2 97.5 212.6 654.3

* Included in trade and other receivables is a loss allowance of R2.7 million relating to Heaney Meats and R272.8 million relating to the PiP acquisition.

INTEGRATED ANNUAL REPORT 2020 81 Notes to the summarised consolidated financial results (continued)

4. BUSINESS COMBINATIONS (continued) 4.2 ASSETS AND LIABILITIES AT DATE OF DISPOSAL The assets and liabilities disposed of relate to four South African retail stores (2019: two retail stores) previously disclosed as non‑current assets held for sale, and 16 retail stores in Poland.

2020 Polish SA retail Rmillion retail stores stores Total

Non-current assets 32.7 2.4 35.1 Property, plant and equipment 13.7 2.4 16.1 Trade and other receivables 2.5 2.5 Inventory 16.2 16.2 Cash and cash equivalents 0.3 0.3 Current liabilities (24.1) (24.1) Trade and other payables (19.9) (19.9) Long-term borrowings (4.2) (4.2) Profit/(loss) on disposal of businesses 29.0 (2.4) 26.6 Proceeds 37.6 37.6 Deferred consideration 37.6 37.6

4.3 CONTRIBUTION TO RESULTS FOR THE YEAR UK Heaney and Piotr i Monteagle Meats SA Irish Paweł Africa Catering retail retail Rmillion Group Ltd Co. Ltd stores stores Total

Revenue 2 151.8 2 588.2 188.1 644.0 524.8 6 096.9 Operating (loss)/profit (470.8) 101.8 11.6 (0.9) 23.8 (334.5)

4.4 CASH FLOW ON ACQUISITION OF BUSINESSES/SUBSIDIARIES The cash flow on acquisition of businesses/subsidiaries is noted as being the amount disclosed in note 4.1 and the contingent consideration cash outflow relating to the acquisition of Corrib Food Products in 2019.

Rmillion 2020 2019

Net cash outflow (Refer to note 4.1) 654.3 470.9 Corrib Food Products contingent consideration cash outflow 27.3 8.7 Costs on potential acquisitions 7.8 Total net cash outflow relating to acquisitions 681.6 487.4

4.5 FAIR VALUE OF PREVIOUSLY HELD INVESTMENT SPAR held a 50% interest in Monteagle Merchandising Services (Pty) Ltd (MMS) as an investment in associate. Monteagle Africa Limited held the remaining 50% interest in MMS. SPAR acquired control of Monteagle Africa Ltd on 6 March 2020, gaining control of MMS. MMS was an acquisition achieved in stages. The previously held investment in associate was fair valued and the resulting loss was recognised in the income statement.

Rmillion 2020 2019

Investment in associate 32.9 Fair value adjustment (6.7) Fair value of previously held investment 26.2

82 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

5. FINANCIAL LIABILITIES

Rmillion 2020 2019

Present value TIL JV Ltd 1078.7 1 326.3 SPAR Holding AG 1023.8 840.9 S Buys Holdings (Pty) Ltd 49.7 37.2 Carrying value of financial liabilities 2 152.2 2 204.4 Less: Short-term portion of financial liabilities (2 102.5) (683.3) Long-term portion of financial liabilities 49.7 1 521.1

Undiscounted value TIL JV Ltd 1 100.4 1 434.3 SPAR Holding AG 1 106.9 854.8 S Buys Holdings (Pty) Ltd 55.9 55.9 2 263.2 2 345.0 Difference between undiscounted value and the carrying value of the financial liabilities 111.0 140.6

The undiscounted value of the financial liabilities represents the amount the group is contractually required to pay at maturity to the holder of the obligation. On 1 August 2014 The SPAR Group Ltd acquired a controlling shareholding of 80% in the BWG Group, which is held by TIL JV Ltd, a wholly owned subsidiary of The SPAR Group Ltd. The SPAR Group Ltd has agreed to acquire the remaining 20% shareholding from the non-controlling shareholders at specified future dates and in accordance with a determined valuation model. The financial liability is calculated as the present value of the non-controlling interests’ share of the expected purchase value and discounted from the expected exercise dates to the reporting date. An election was made not to recognise a non-controlling interest, but to fair value the financial liability. In the current year, this obligation was transferred from the SPAR Group Ltd to TIL JV Ltd, resulting in the extinguishment of the financial liability at a South African company level. The initial equity reserve of R545.7 million arising on this transaction has been transferred to retained earnings in the current year. In March 2020, 10.106% of the 20% minority interest was settled at an amount of R884.4 million. As at 30 September 2020, the balance of 9.894% was valued at R1 078.7 million based on management’s determination of actual profit performance. The group has recognised 100% of the attributable profit. The remaining payment will be made in January 2021 and is disclosed as a current financial liability. Interest is recorded in respect of this liability within finance costs using the effective interest rate method. The net exchange differences on the financial liability have been presented in finance costs. The estimated future purchase price is fair valued at each reporting date and any changes in the value of the liability as a result of changes in the assumptions used to estimate the future purchase price are recorded in profit or loss. In both 2020 and 2019 fair value adjustments were made to the TIL JV Ltd financial liability. On 1 April 2016 The SPAR Group Ltd acquired a controlling shareholding of 60% in SPAR Holding AG, which is held by SAH Ltd, a wholly owned subsidiary of The SPAR Group Ltd. Part of the purchase price of this 60% shareholding is a deferred consideration of CHF16.0 million. This liability is now disclosed as a current financial liability. The purchase of the remaining 40% shareholding is at a set price of CHF40.3 million. The total obligation of CHF56.3 million was accounted for as a financial liability at the present value of the obligation, discounted from the expected settlement date to the reporting date. An election was made not to recognise the non-controlling interest’s share of profits or losses in equity. The payment is expected to be made in the first half of 2021. Interest is recorded in respect of this liability within finance costs using the effective interest rate method. The net exchange differences on the financial liability have been presented in finance costs. On 1 October 2017 The SPAR Group Ltd acquired a 60% shareholding in S Buys Holdings (Pty) Ltd which trades as S Buys. The SPAR Group Ltd agreed to purchase the remaining 40% shareholding in S Buys between 30 September 2022 and 31 December 2022 for an amount based on a multiple of the profit after tax for the 2022 financial year. This obligation to purchase the remaining shareholding was recognised as a financial liability at the present value of the obligation, discounted from the expected settlement date to the reporting date. An election was made not to recognise the non-controlling interest’s share of profits or losses in equity, but rather as the movement in the fair value of the discounted financial liability to purchase the remaining 40% shareholding. As at 30 September 2020, the financial liability was valued at R49.7 million (2019: R37.2 million) based on management’s expectation of future profit performance. Interest is recorded in respect of this liability within finance costs using the effective interest rate method. The estimated future purchase price is fair valued at each reporting date and any changes in the value of the liability as a result of changes in the assumptions used to estimate the future purchase price are recorded in profit or loss.

INTEGRATED ANNUAL REPORT 2020 83 Notes to the summarised consolidated financial results (continued)

5. FINANCIAL LIABILITIES (continued) Movements in level 3 financial instruments carried at fair value The following tables show a reconciliation of the opening and closing balances of level 3 financial instruments carried at fair value:

Rmillion 2020 2019

TIL JV Ltd Balance at beginning of year 1 326.3 1 216.2 Finance costs recognised in profit or loss 105.7 69.1 Net exchange differences arising during the period (33.5) 6.4 Fair value adjustments 255.6 34.6 Partial settlement of financial liability (884.4) Foreign currency translation 309.0

Carrying value at end of year 1 078.7 1 326.3

Rmillion 2020 2019

S Buys Holdings (Pty) Ltd Balance at beginning of year 37.2 49.2 Finance costs recognised in profit or loss 12.5 7.2 Fair value adjustments (19.2) Carrying value at end of year 49.7 37.2

Movements in financial liabilities held at amortised cost

Rmillion 2020 2019

SPAR Holding AG Balance at beginning of year 840.9 777.5 Finance costs recognised in profit or loss 13.5 22.5 Net exchange differences arising during the period 7.9 37.1 Foreign currency translation 161.5 3.8 Carrying value at end of year 1 023.8 840.9

Total financial liabilities 2 152.2 2 204.4

84 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

6. FINANCIAL RISK MANAGEMENT Rmillion 2020 2019

Financial instruments classification Financial assets held at amortised cost Net bank balances 723.1 (67.4) Loans and other receivables 999.4 1 266.7 Block discounting loan receivable 362.6 623.1 Finance lease receivable 5 430.2 Trade and other receivables 15 637.9 13 122.7 Financial liabilities held at amortised cost Block discounting loan payable (371.3) (637.2) Finance lease payable (12 928.8) Trade and other payables (19 411.4) (14 912.8) Borrowings (7 055.9) (5 164.8) Financial liabilities at amortised cost (1 023.8) (840.9) Financial assets and liabilities at fair value through profit or loss Foreign exchange contract asset 0.9 0.4 Financial liabilities at fair value through profit or loss (1 128.4) (1 363.5) Designated hedging instrument Interest rate swap liability (2.8)

FAIR VALUE HIERARCHY The group’s financial instruments carried at fair value are classified into three categories defined as follows: Level 1 financial instruments are those that are valued using unadjusted quoted prices in active markets for identical financial instruments. Level 2 financial instruments are those valued using techniques based primarily on observable market data. Instruments in this category are valued using quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data. Financial instruments classified as level 2 are mainly comprised of other equity investments. Level 3 financial instruments are those valued using techniques that incorporate information other than observable market data. Instruments in this category have been valued using a valuation technique where at least one input, which could have a significant effect on the instrument’s valuation, is not based on observable market data. The following financial instruments are carried at fair value and are further categorised into the appropriate fair value hierarchy:

Financial instruments

Carrying Fair value Rmillion Value Level 1 Level 2 Level 3

2020 Foreign exchange contract asset 0.9 0.9 Financial liabilities at fair value through profit or loss (1 128.4) (1 128.4) Total (1 127.5) 0.9 (1 128.4)

2019 Interest rate swap (2.8) (2.8) Foreign exchange contract asset 0.4 0.4 Financial liabilities at fair value through profit or loss (1 363.5) (1 363.5) Total (1 365.9) (2.4) (1 363.5)

INTEGRATED ANNUAL REPORT 2020 85 Notes to the summarised consolidated financial results (continued)

6. FINANCIAL RISK MANAGEMENT (continued) FAIR VALUE HIERARCHY (continued) Level 3 sensitivity information The fair value of the level 3 financial liabilities of R1 128.4 million (2019: R1 363.5 million) was estimated by applying an income approach valuation method including a present value discount technique. The fair value measurement is based on significant inputs that are not observable in the market. Key inputs used in the valuation include the assumed future profit targets and the discount rates applied. The assumed profitability was based on historical performances but adjusted for expected growth. In September 2020, the estimated future profit target for TIL JV Ltd was adjusted upward by 21.3% (2019: upward by 3.1%). The S Buys financial liability is based on a minimum profit value. A change in fair value would only result if profits increased between 35% and 40%. The following tables show how the fair value of the level 3 financial liabilities would change in relation to change in the discount rate by 0.5%. Discount Sensitivity rate % Liability % change Rmillion

TIL JV Ltd 2020 Financial liability 8.0 0.5 (1.3) Financial liability 8.0 (0.5) 1.3

2019 Financial liability 8.0 0.5 (6.2) Financial liability 8.0 (0.5) 6.3

S Buys Holdings (Pty) Ltd 2020 Financial liability 6.5 0.5 (0.6) Financial liability 6.5 (0.5) 0.6

2019 Financial liability 12.6 0.5 (0.6) Financial liability 12.6 (0.5) 0.6

The following tables show how the fair value of the level 3 financial liabilities would change in relation to change in the estimated future profit targets by 5.0%. Sensitivity % Liability change Rmillion

TIL JV Ltd 2020 Financial liability 5.0 51.1 Financial liability (5.0) (51.1)

2019 Financial liability 5.0 66.3 Financial liability (5.0) (66.3)

S Buys Holdings (Pty) Ltd 2020 Financial liability 5.0 Financial liability (5.0)

2019 Financial liability 5.0 1.9 Financial liability (5.0) (1.9)

LIQUIDITY RISK As at 30 September 2020, current liabilities exceed current assets. This risk has been managed by committing banking facilities sufficient to allow all current liabilities to be settled when these fall due.

86 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

7. CAPITAL COMMITMENTS

Rmillion 2020 2019

Contracted 665.3 258.0 Approved but not contracted 832.2 91.7 Total capital commitments 1 497.5 349.7 Analysed as follows: Property, plant and equipment 757.3 349.7 Intangible assets 740.2

Capital commitments will be financed from group resources.

8. FINANCIAL GUARANTEES Financial guarantees may be provided by the group to subsidiaries and affiliates. These financial guarantees are accounted for under IFRS 4 and initially measured at cost and subsequently in terms of IAS 37 which requires the best estimate of the expenditure to settle the present obligation. Management has assessed that it is not probable that the amount will be paid. Management’s assessment is based on the ability of subsidiaries and affiliates having sufficient cash resources, in country, to service the underlying debt instrument’s obligations as and when these become due. The risk relating to financial guarantees is managed per geographical region through review of cash flow forecasts, budgets and monitoring of covenants. The table below represents the full exposure of the group in relation to these financial guarantees as at 30 September 2020.

Rmillion 2020 2019

– Guarantee of block discounting loan agreements 255.9 201.4 – Guarantee of Numlite (Pty) Ltd finance obligations 170.6 172.1

426.5 373.5

9. IMPACT OF IFRS 16 ADOPTION The group has applied the standard using the modified retrospective approach, recognising the cumulative effect of initially applying the standard in retained earnings at the date of initial application. The reclassifications and the adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 October 2019. As prescribed by IFRS 16, lease liabilities will be measured at the present value of remaining lease payments discounted at the incremental borrowing rate at the date of initial application. On adoption of IFRS 16, the group has recognised a right-of-use asset representing the underlying asset and a lease liability representing its obligation to make lease payments for all leases with a term of more than 12 months, unless the underlying asset is of low value. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Low-value assets in terms of IFRS 16 comprise smaller items of equipment. Where the group holds a head lease and back-to-back sublease, a finance lease receivable has been recognised rather than a right-of-use asset. Depreciation is recognised on the right-of-use asset and interest is recognised on the lease liability, replacing the straight-line operating lease expense. The right-of-use assets can be measured as the amount of initial measurement of the lease liability and subsequently depreciated over the remaining lease term. However, management has chosen, on a lease by lease basis, the option available in the standard to measure the right-of-use assets as if IFRS 16 had been applied since the inception of the lease, using the incremental borrowing rate on the date of initial application. This has resulted in an adjustment to retained earnings relating to depreciation, and in the instance of some property leases in Ireland, an impairment. Initial direct costs have not been included in the measurement of right-of-use assets. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.

INTEGRATED ANNUAL REPORT 2020 87 Notes to the summarised consolidated financial results (continued)

9. IMPACT OF IFRS 16 ADOPTION (continued) Lease arrangements by segment SPAR Southern Africa leases relate mostly to head lease arrangements on key strategic retail sites that are viewed as fundamental to the group’s growth strategy. These include a back-to-back sublease agreement with our independent retailers. IFRS 16 requires the recognition of the obligation to pay rent under the head lease as a lease liability, with a corresponding asset representing the lease receivable. For these back-to-back sublease agreements, the accounting for the head lease and the sublease under IFRS 16 has an equal and opposite impact on the statement of comprehensive income. To the extent of leased property that is not sublet, the group recognises a right-of-use asset and a finance lease liability. SPAR Ireland leases relate mostly to property leases which are franchised to retailers or operated by the group, and motor vehicles leases. For both the property leases and motor vehicle leases, a right-of use asset and finance lease liability are recognised. For the property leases where the group is a lessor, a finance lease receivable is recognised. SPAR Switzerland has property, trucks and IT hardware leases. The property leases do not include back-to-back sublease agreements, resulting in a right-of-use asset and finance lease liability being recognised. SPAR Poland leases relate to property leases on retail sites, and leases of other properties, which includes the warehouse. For these properties a right-of-use asset and finance lease liability is recognised. Some retail properties are sub-let, in these instances a finance lease asset is recognised instead of the right-of-use receivable. Lease liabilities have been measured at the present value of remaining lease payments discounted at the incremental borrowing rate at the date of initial application. The weighted average lessees incremental borrowing rate applied to the lease liabilities on 1 October 2019 was 5.77%. For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application.

Practical expedients The group has applied the following practical expedients available in the standard: • The use of a single discount rate to each portfolio of leases that have reasonably similar terms, underlying assets and economic circumstances. In Southern Africa, the majority of property leases are on similar underlying assets (stores) within similar economic environments, and with the same lease terms. The same can be said for property leases in Switzerland, Poland and Ireland; however, the Irish portfolio of leases is further split into leases based in Ireland and the UK. • On transition to IFRS 16, the group reversed onerous lease provisions, and accounted for the difference between cumulative unavoidable costs and expected economic benefits (if lower) as an IFRS 16 transitional adjustment through retained earnings. • The accounting for operating leases with remaining lease terms of less than 12 months as at 1 October 2019 as short-term leases. • The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application. • The use of hindsight in order to determine the lease term for contracts containing options to extend or terminate the lease. Lease term, including renewal periods and termination options Renewal clauses and termination options have been considered on a lease by lease basis where it is applicable and it is considered to be reasonably certain that the group will exercise the renewal options in order to retain control of the sites, or terminate the lease early in terms of the option. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise a renewal or termination option. Periods after an optional termination date are considered part of the lease term if the group is reasonably certain not to terminate early. In South Africa, the majority of property leases are entered into for an initial period of 10 years, with renewal options of five years. It has been concluded that these renewal options will only be recognised when it is reasonably certain that they will be entered into, which is generally within six months of the renewal coming into effect. In Ireland no renewal assumptions/rights have been identified as likely to be exercised and incorporated into the lease terms. In Ireland, periods after an optional termination date have been considered part of the lease term for two leases where it is was determined reasonably certain not to terminate early. In Switzerland, renewal clauses have been taken into account on a number of leases where it is considered to be reasonably certain that the group will exercise the renewal options in order to retain control of the sites. In Poland, the majority of leases are for stores and are for a period of 10 years.

88 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

9. IMPACT OF IFRS 16 ADOPTION (continued) Variable lease payments Variable payment terms are mainly used on the lease of a store, where a portion of the rental is based on turnover made by the store. Variable payment terms also occur when utility costs related to a property are on-charged as part of the rental. Variable lease payments mentioned above are recognised in profit or loss in the period in which the condition that triggers those payments occurs.

Rmillion 2020

Measurement of lease liabilities Operating lease commitments disclosed at 30 September 2019 13 364.5 Discounted using the lessee’s incremental borrowing rate at the date of initial application (3 653.4) Add: Adjustments as a result of a different treatment of extension and termination options 443.8 Add: Finance lease liabilities recognised as at 30 September 2019 42.3 Less: Short-term leases not recognised as a liability (8.3) Less: Low-value leases not recognised as a liability (6.9) Lease liability at 1 October 2019 10 182.0

Analysed as follows: Current 1 364.2 Non-current 8 817.8

The adoption of the new standard affected the following items:

Increase/ Rmillion (decrease)

Statement of financial position at 1 October 2019 Property, plant and equipment (31.5) Right-of-use assets 5 191.0 Finance lease receivable 4 254.4 Deferred tax asset 124.5 Trade and other receivables (57.4) Operating lease receivable (325.5) Finance lease payable 10 182.0 Provisions (24.2) Trade and other payables (28.6) Operating lease payable (357.6) Retained earnings (616.1) Statement of comprehensive income for the year ended 30 September 2020 Depreciation 1052.1 Profit before interest and taxation 79.5 Finance income 438.9 Finance costs 665.9 Profit before taxation (147.5) Taxation (32.2) Headline earnings (115.3) Headline earnings per share (HEPS) (cents) (60.0)

INTEGRATED ANNUAL REPORT 2020 89 Notes to the summarised consolidated financial results (continued)

10. COVID-19 PANDEMIC From March this year, all of our markets were impacted by the COVID-19 pandemic and subsequent lockdown measures to curb the spread of the virus. As an essential service provider of groceries, our stores traded throughout the lockdown periods, albeit with periods of restriction on the sale of alcohol, cigarettes and building materials experienced in South Africa. The group was swift to take the necessary proactive measures and implement effective protocols to safeguard our key priorities: the safety of our people, retailers, suppliers and consumers; managing the supply chain and keeping our retailers’ shelves replenished; and supporting our communities. Southern Africa: TOPS at SPAR liquor business lost almost a third of its total trading days due to the restrictions on the sale of liquor, with wholesale turnover for the year decreasing by 15.8%. Despite trading restrictions on building materials during the initial five weeks of lockdown, Build it delivered a resilient performance in a weak sector, with wholesale turnover 0.9% down. Ireland: The BWG Group in Ireland delivered a remarkable result, with sales growth across all retail brands more than compensating for the cash & carry and BWG Foodservice businesses, which have been severely impacted by the COVID-19 restrictions in the hospitality industry. Switzerland: SPAR Switzerland seized the opportunity of changing consumer behaviour, largely influenced by the closure of Swiss borders during the initial lockdown, with locals shopping closer to home and opting for trusted community-based stores over large supermarkets. Our TopCC Cash & Carry business, which caters largely to the hospitality industry, has been boosted by Swiss support of local restaurants during the summer months. Poland: The COVID-19 pandemic has been disruptive to our plans and has delayed progress in the Polish market. Given the level of development and reorganisation required in year one of operations, this business has been most vulnerable to the impact of lockdown restrictions. Despite the setbacks, good progress has nevertheless been made and this region contributed R2.1 billion towards group turnover for the period. The below areas were specifically considered in light of the pandemic when preparing these financial results:

Financial instruments – IFRS 9 Allowances Management has considered the impact COVID-19 may have on macroeconomic factors in calculating the forward looking adjustment to the historical rates. In assessing the specific provisions for trade receivables, management also considered the heightened economic and business risks on collection, arising from the pandemic. Management has adopted a robust model to determine necessary provisions against debt due ensuring that a conservative approach is taken during these times of uncertainty. Refer to note 39 for more information.

Goodwill and indefinite useful-life intangible assets – impairment considerations Assumptions, forecasts and growth rates used in impairment testing were of a conservative nature as uncertainty remains over the current and future economic outlook, both locally and internationally. The following factors affecting the future outlook of the various operating segments, were considered in assessing impairment of goodwill and indefinite-life intangibles. In Southern Africa, an existing weak economy has been severely impacted by the pandemic. The consumer environment is expected to remain constrained, with many South Africans under financial pressure. Europe is experiencing a second wave of infections and hard lockdown measures. Our businesses in Europe have contingency plans in place to deal with the disruption and have learnt many lessons from the initial lockdowns. In Ireland, the foodservice and hospitality sector will face continued uncertainty, as consumers remain cautious, however the retail sector is expected to remain strong in the year ahead. The gradual reopening of the Irish economy is likely to coincide with the impact of Brexit, which is expected to be disruptive. Our Swiss business is well positioned to maximise the opportunities brought on by shifts in consumer behaviour, new business gained and by the changing dynamics in the marketplace. In Poland, we will concentrate on building relationships and driving loyalty with our SPAR retailers. We are focused on breaking even in this region by the end of 2021. SPAR’s extensive distribution and logistics capability, market-leading brands and overall support of independent retailers, ensure that we remain suitably positioned to deliver exceptional value to consumers. Refer to note 13 for more information.

Financial guarantees Management has reviewed the projections provided by subsidiaries and affiliates to which guarantees have been provided and ensured that there will be sufficient cash resources to service the underlying debt obligations as and when they fall due in the next year. Refer to note 28 for more information.

11. EVENTS AFTER THE REPORTING DATE The directors are not aware of any matters or circumstances arising since the end of the financial year which have or may materially affect the financial position of the group or the results of its operations.

12. CHANGES TO THE BOARD Graham O’Connor, the Group CEO and Mike Hankinson, the Chairman of the board of directors (board), will be retiring at the annual general meeting (AGM) that will be held in February 2021. Accordingly, subject to shareholder approval at the AGM, where applicable, the board has resolved to appoint: • Brett Botten, the current Managing Director of SPAR South Rand as the Group CEO; • Graham, as a non-executive director and Chairman of the Board; and • Andrew Waller, an independent non-executive director, as the lead independent director of the Board. Ms Mandy Hogan has resigned as the Company Secretary of SPAR with effect from 31 December 2020.

90 THE SPAR GROUP LTD FINANCIAL PERFORMANCE OVERVIEW

INTEGRATED ANNUAL REPORT 2020 91 BOARD OF

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mike Hankinson (71) Lwazi Koyana (52) BCom, CA(SA) BCom, CA(SA) Independent non-executive Chairman Independent non-executive director Appointed to the board: Appointed to the board: May 2019 September 2004 RC Member NC Chairman SEC Member

RC Member Lwazi is the founder and managing director of Nations Capital Advisors (Pty) Ltd. He is a non-executive director of Mike is the chairman of Grindrod Ltd and Mineworkers Investment Company (Pty) Ltd, chairman of Grindrod Shipping Holdings Steve Biko Academic Hospital (chairman) Ltd. He was former chief executive of and the South African Qualifications Dunlop Tyres International (Pty) Ltd and Authority (independent chairman of the Romatex Ltd. audit committee). He is the former independent non-executive director of Afgri Ltd, SecureData and the W&RSETA.

Marang Mashologu (44) Harish Mehta (70) BCom, CFA charter BSc (USA), MBA (USA) Independent non-executive director Independent non-executive director Appointed to the board: Appointed to the board: December 2015 October 2004

AC Member RC Chairman

RC Chairperson AC Member

NC Member Marang is a director and shareholder at Sphere Holdings (Pty) Ltd and independent non-executive director and audit RC Member committee chairperson of Chubb Insurance South Africa Ltd, the South African Harish is a non-executive director of Tiso subsidiary of Chubb Ltd. She is a member Blackstar Group, non-executive chairman of the board of trustees of the African of Averda SA (Pty) Ltd, member of the Leadership Network and Aspen Global Provincial Board of FNB, non-executive Leadership Network and fellow of the director of Redefine Properties and inaugural class of the Finance Leaders non-executive chairman of Cibapac (Pty) Ltd. Fellowship Program.

Phumla Mnganga (52) Andrew Waller (58) BA, BEd, MBL, PhD CA(SA) Independent non-executive director Independent non-executive director Appointed to the board: Appointed to the board: January 2006 February 2018

SEC Chairperson AC Chairman

RC Member RC Member

NC Member Andrew is the CEO of Grindrod Ltd and non-executive director of Senwes Ltd. He was previously a partner of Deloitte Phumla is the managing director of & Touche. Lehumo Women’s Investment Holdings. She also serves as a non-executive director on the listed boards of Adcorp Holdings, the Altron Group, Novus Holdings and Crookes Brothers Ltd.

92 THE SPAR GROUP LTD GOVERNANCE

EXECUTIVE DIRECTORS

Graham O’Connor (64) Mark Godfrey (55) CA(SA) BCom, CA(SA) Group CEO Group FD

Joined the group in 1986 Joined the group in 1996 Appointed to the board: Appointed to the board: February 2014 October 2010

RC Member RC Member

SEC Member Mark served in financial management positions in various group operations and SG Member was appointed Group FD in 2010.

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 a partner in five SPAR retail stores. He returned to the group in 2014 as Group CEO.

COMPANY SECRETARY

Mandy Hogan (48) Chartered Secretary GradICSA Company Secretary Joined the group in 2013 Appointed Company Secretary: June 2016

Mandy served in various company secretarial and corporate governance positions at three JSE listed companies over the past 15 years before being appointed Assistant Company Secretary of SPAR in 2013.

The group has announced that Ms Mandy Hogan has resigned as company secretary with effect from 31 December 2020. The board would like to thank Mandy for her contribution to the company and wishes her well in her future endeavours abroad. Shareholders will be advised once a new company secretary has been appointed.

AC Audit Committee RC Risk Committee

NC Nomination Committee SEC Social and Ethics Committee

RC Remuneration Committee SG The SPAR Guild of Southern Africa

INTEGRATED ANNUAL REPORT 2020 93 OUR GOVERNANCE

SPAR is a public company incorporated in South Africa and listed on the JSE and accordingly adheres to the requirements of the Companies Act and Regulations, as amended, the JSE Listings Requirements and King IV.

The SPAR board is the custodian of corporate governance and plays a prominent role in the strategic development, risk management and sustainability processes of the group. The board understands that adhering to the highest standards of corporate governance is fundamental to the sustainability of the SPAR business. Business practices are conducted in good faith and in the best interest of the company and its stakeholders. The board supports the governance outcomes, principles and practices of King IV and applies the applicable King IV principles. Our disclosures in terms of King IV are fully integrated with our reporting elements and are aligned to the following clusters:

Principle cluster Detail Page Leadership, ethics and corporate citizenship Chairman’s message 24 Group CEO’s report 26 Group FD’s financial review 58 Social and Ethics Committee report 122 Strategy, performance and reporting Value creation and strategy 48 Group FD’s financial review 58 Governing structures and delegation Governance 94 Governance functional areas Committee reports 98 Stakeholder relationships Our material relationships 22

In addition to the information contained The board committees are governed by BOARD COMPOSITION in this report, a King IV register is a delegation of authority framework, During the financial year, the board available online, summarising the which is reviewed annually and sets out comprised eight directors, two of whom principles and providing stakeholders the matters reserved for determination are executive directors and six of whom with links and reference in support of the by shareholders, the board and those are independent non-executive directors. principles in one place. matters delegated to management and The board promotes diversity through the executive committees. The board a variety of attributes – knowledge, is satisfied the board’s governance BOARD GOVERNANCE skills, experience, age, culture, race structure is appropriate and the STRUCTURE and gender. governance and authority frameworks The general powers of the board and the provide clarity and contribute to effective See the summary of the board’s diversity directors are conferred in the company’s control and performance of the group. aspects on page 96 and read the board Memorandum of Incorporation (MOI). members’ profiles on pages 92 to 93. Terms of reference for the board are set To ensure conflicts of interest are out in the company’s board charter avoided, board members annually Non-executive directors bring an which is reviewed annually by the board. update the general disclosure of their independent judgement to bear on issues The board charter sets out the powers personal financial interests in terms of of strategy, performance and resources and authority of the board and provides the Companies Act and are reminded and act in the interest of the company’s a clear and concise overview of the roles at the commencement of every board stakeholders. Executive directors provide and responsibilities of board members. and committee meeting that they are insight into day-to-day operations and are required to declare any material personal responsible for implementing strategy and The board has established standing financial interest they may have in all operational decisions. committees, as set out in the contracts entered into or authorised Information relating to the board’s diversity, governance framework, to promote by the company. independent judgement, to assist with independence and performance can be the balance of power and to assist the found in the Nomination Committee board with effectively fulfilling its report on page 102. responsibilities in accordance with the provisions of its board charter.

94 THE SPAR GROUP LTD GOVERNANCE

Our corporate governance framework below illustrates the structures, processes and practices the board uses to direct and manage the group’s operations.

SHAREHOLDERS AND OTHER STAKEHOLDERS

BOARD Provides oversight of the management and governance of the company, monitors executive management’s performance, and provides strategic direction and leadership in line with the company’s value system to ensure its sustainability

AC RC SEC NC RC

AUDIT COMMITTEE RISK COMMITTEE SOCIAL AND ETHICS NOMINATION REMUNERATION COMPANY COMMITTEE COMMITTEE COMMITTEE SECRETARY Supports board members Provides oversight of Provides oversight Provides oversight Provides oversight Provides oversight by providing guidance on financial reporting, of risk governance, of, and reporting on, of the process for of the company’s fulfilling their responsibilities internal financial technology and organisational ethics, nominating and remuneration and as directors in the best controls, internal and information responsible corporate electing board implementation interest of SPAR external audit functions governance and citizenship, sustainable members, board policy and regulatory compliance development and member succession compliance governance stakeholder planning and the relationships evaluation of the performance of the board, its committees and individual members

EXECUTIVE MANAGEMENT

EXECUTIVE COMMITTEES Assist the Group CEO in implementing the strategy and objectives of SPAR and carry out the day-to-day activities of the group

DIVISIONAL/OPERATIONAL Various regional, executive, departmental, operational and project committees and forums

THE SPAR GUILD OF SOUTHERN AFRICA THE BUILD IT GUILD OF SOUTHERN AFRICA

SOCIAL AND ETHICS COMMITTEES REGIONAL GUILD COMMITTEES

INTEGRATED ANNUAL REPORT 2020 95 Our governance system (continued)

Board age profile

50% 37.5% 50 – 59 years 60 – 71 years

Executive vs non-executive profile 12.5% 40 – 49 years 75% Non-executive 25% Executive

Board gender profile

75% 25% 50% Male Female Black

50% White

Board race* profile 50% 50% 0 – 9 years Board tenure 10 – 18 years profile

* Black as defined by the Black Economic Empowerment Act of 2003.

96 THE SPAR GROUP LTD GOVERNANCE

BOARD COMMITTEES The board delegates oversight of certain roles and responsibilities to board committees but understands the delegation of its responsibilities will not by or of itself constitute a discharge of the board’s accountability. The board committees’ responsibilities and key focus areas are set out in each committee’s report. Each committee is chaired by an independent non-executive director and has its own terms of reference. The terms of reference set out the committees’ composition, roles and responsibilities, functions and authority. The committees report to the board at each board meeting and make recommendations in accordance with their terms of reference. Committee members’ attendance is recorded below. The effectiveness of the committees are assessed by way of a self-evaluation review every two years and will be performed again in 2021. The board is satisfied the committees fulfilled their responsibilities in respect of their respective terms of reference. The board from time to time may appoint and authorise ad hoc committees, comprising the appropriate board members, to perform specific tasks as required.

ATTENDANCE AT BOARD MEETINGS The board values independent judgement and requires that each board member prepare, participate and contribute at each meeting. Board members are provided with relevant information, including information on the group’s strategies, plans and performance, and are required to devote sufficient time and effort in preparation for meetings. Agendas of meetings are prepared by the Company Secretary in accordance with approved annual work plans and in consultation with the respective chairmen. To continually improve non-executive directors’ understanding of the company’s operating divisions, a board meeting is held at least once a year at a distribution centre usually in August, however due to the COVID-19 pandemic this did not happen during 2020 and two of the four board meetings were held virtually. Meetings held during the financial year were as follows: Social and Audit Nomination Remuneration Risk Ethics Board Committee Committee Committee Committee Committee Number of meetings held 4 3 3 3 2 2

Attendance by directors Non-executive directors Mike Hankinson 4 n/a 3 3 n/a n/a Lwazi Koyana 4 n/a n/a n/a 2 2 Marang Mashologu 4 3 n/a n/a n/a n/a Phumla Mnganga 4 n/a 3 3 n/a 2 Harish Mehta 4 3 3 3 2 n/a Andrew Waller 3 3 n/a n/a 2 n/a Chris Wells1 2 1 n/a n/a 1 1

Executive directors Graham O’Connor2 4 n/a n/a n/a 2 1 Mark Godfrey 4 n/a n/a n/a 2 n/a Wayne Hook3 1 n/a n/a n/a n/a 1

1 Chris Wells retired on 11 February 2020. 2 Graham O’Connor replaced Wayne Hook as a member of the Social and Ethics Committee on 1 January 2020. 3 Wayne Hook retired on 31 December 2019.

EXECUTIVE MANAGEMENT The Group CEO, Graham O’Connor, is responsible for leading the implementation and execution of approved strategy, policy and operational planning and serves as the link between executive management and the board. The Group CEO is accountable to the board and the board evaluates the Group CEO’s performance annually. There are five executive committees: the SPAR Executive Committee, the BWG Group Executive Committee, the SPAR Switzerland Executive Committee, the SPAR Poland Executive Committee and the SPAR Sri Lanka Executive Committee. These committees are responsible for implementing the company’s strategy and carrying out the day-to-day activities of the group. The membership, qualifications and experience of the Executive Committee members are available online.

COMPANY SECRETARY All directors have access to the services and advice of the Company Secretary, Mandy Hogan (GradICSA), who was assessed during the financial year as being competent, suitably qualified and experienced. The Company Secretary is not a director of the company and accordingly maintains an arm’s length relationship with the board.

INTEGRATED ANNUAL REPORT 2020 97 AUDIT COMMITTEE

The Audit Committee (the committee) of The SPAR Group Ltd (the company) presents the following report pursuant to the requirements of section 94(7)(f) of the Companies Act to shareholders for the 2020 financial year.

COMMITTEE GOVERNANCE ROLE AND RESPONSIBILITIES The committee assessed the suitability The committee’s roles and responsibilities of PwC as the company’s external COMPOSITION are governed by its terms of reference as auditor and Thomas, as the designated Members of the committee are appointed reviewed and approved annually by the audit partner for the 2021 financial year, by shareholders on the recommendation board. The committee has specific statutory in accordance with the appropriate audit of the Nomination Committee and the responsibilities to the shareholders of the quality indicators, including their board. company in terms of the Companies Act independence against the criteria specified by the Independent Regulatory Shareholders will again be requested to and assists the board by advising and Board for Auditors, the South African approve the re-election of the committee making recommendations on financial Institute of Chartered Accountants, members for the 2021 financial year at reporting, internal financial controls, International regulatory bodies and the the company’s 2021 AGM to be held internal and external audit functions JSE Listings Requirements and have no on Tuesday, 16 February 2021. and regulatory compliance. concerns regarding their performance Members of the committee for the financial The committee receives feedback on all or independence. Accordingly, the year under review were independent relevant matters in its terms of reference committee recommended to the board, non-executive directors, Andrew Waller from the following committees: the re-election of PwC as external (Chairman), Marang Mashologu and •• Risk Committee auditor and Thomas Howatt as the Harish Mehta. designated audit partner for the •• Social and Ethics Committee 2021 financial year. The independence and performance of the committee members were evaluated The committee is satisfied that it has The committee determined the terms of by the Nomination Committee and fulfilled its responsibilities in accordance engagement and fees paid to PwC, as based on their recommendation, the with its terms of reference, a copy of disclosed in note 3 of the annual financial board proposes the re-election of Andrew, which can be found online. statements and the nature and extent of Marang and Harish as the members of the non-audit services that PwC provide the committee to shareholders at the KEY FOCUS AREAS to the company, as disclosed in note 3 2021 AGM. In addition, the board is of the annual financial statements. The EXTERNAL AUDITOR satisfied that the committee as a whole extent of non-audit services provided by has the necessary financial literacy, skills The committee has primary responsibility PwC was immaterial and is continuously and experience to execute their duties for overseeing the relationship with, and monitored, with no excessive effectively. Members’ qualifications and the performance of, the external auditor, engagement noted. experience are available on page 92. including making recommendations on their re-election and assessing their The chairman meets with the external MEETINGS independence, as set out in the auditor without management present to facilitate an exchange of views and The committee met formally three times Companies Act. concerns that may not be appropriate during the financial year under review. PricewaterhouseCoopers Inc. (PwC) for discussion in an open forum, with Members’ attendance at meetings is have been the company’s appointed no concerns raised. recorded on page 97. Permanent invitees external auditor for three years, with at committee meetings are the Group Thomas Howatt as the designated audit NON-AUDIT SERVICES POLICY CEO, Group FD, Group Internal Audit partner. Thomas replaced Sharalene The company has a clearly defined and Manager, external auditor and the Randelhoff as the designated auditor strictly followed non-audit services Company Secretary (who also acts of the company, with effect from policy. No changes were made to the as the secretary of the committee). 19 May 2020. The reason for the change policy for the period under review. The was due to an audit partner rotation. EVALUATION OF COMMITTEE external auditor may only be considered as a supplier of such services where The effectiveness of the committee is Thomas will be required to rotate as there is no alternative supplier for these assessed by way of a self-assessment the designated audit partner in 2025. services, there is no other commercially evaluation review every two years and viable alternative or the non-audit will be undertaken again in 2021. services are related to and would add value to the external audit.

98 THE SPAR GROUP LTD GOVERNANCE

SIGNIFICANT MATTERS Key audit matters identified by the external auditors are detailed below and have been included in the report of the annual financial statements. These matters have been discussed and agreed with management and were presented to the committee.

Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matter How our audit addressed the key audit matter

Adoption of IFRS 16: Leases We performed the following audit procedures: This key audit matter relates to the consolidated and •• Evaluated the initial measurement and valuation of the separate financial statements. right-of-use assets, lease receivable and lease liabilities with reference to the requirements of IFRS 16, including the The disclosures required by IFRS 16: Leases (“IFRS 16”) for these practical expedients applicable to the modified retrospective balances, as well as the impact of adopting IFRS 16, are contained approach that was selected for initial adoption; in note 41 to the consolidated and separate financial statements. •• Making use of our internal valuations expertise, we assessed the IFRS 16 became effective for the Group for the accounting period discount rates used to calculate the lease obligation for each commencing 01 October 2019. The Group applied the modified currency by comparing the rate used to third party sources. retrospective approach for the initial application of the standard. We noted no material exceptions; Management has chosen, on a lease by lease basis, the option •• Verified the accuracy of the underlying lease data by agreeing available in the standard to measure the right-of-use assets a representative sample of leases to the original contract or and lease receivable as if IFRS 16 had been applied since the other underlying information, and checked the integrity and inception of the lease, using the incremental borrowing rate on arithmetical accuracy of the IFRS 16 calculations for each lease the date of initial application. This resulted in an adjustment to sampled through the recalculation of the expected IFRS 16 retained earnings relating to depreciation. We considered the adjustment. We noted no exceptions; adoption of IFRS 16 to be a matter of most significance to our •• Tested the completeness of the lease data by reconciling a current year audit due to the following: sample of the Group’s existing lease commitments to the lease data underpinning the IFRS 16 model and also by comparing •• the magnitude of the right-of-use asset and lease liability rental payments made during the period to the lease data due to the high volume of leases; and underpinning the IFRS 16 model. We noted no material •• the degree of judgement and estimation applied by exceptions; management in determining the lease term and discount rate •• Performed an independent recomputation and compared (incremental borrowing rate) used to determine the right-of-use the results to that of management, and found no material asset and lease liability. The lease term may include future exceptions; lease periods for which the Group has extension options which it is reasonably certain to exercise. •• Evaluated the lease terms for reasonability, including the renewal periods, where appropriate, by inspecting the underlying contracts and assessing management’s judgements for the lease periods applied in the lease calculation and noted no exceptions; and •• Assessed the completeness and accuracy of disclosures with reference to the requirements of IFRS 16.

INTEGRATED ANNUAL REPORT 2020 99 Audit Committee report (continued)

Key audit matter How our audit addressed the key audit matter

Impairment assessment of goodwill and indefinite life intangible We performed the following audit procedures: assets •• Tested the mathematical accuracy of the value-in-use This key audit matter relates to the consolidated financial calculations and the discounted cash flow model prepared statements only. by management, noting no material exceptions; Refer to the accounting policies for Goodwill and Intangible •• Assessed the reasonableness of the valuation methodologies Assets and Impairment of non-financial assets and to note 13 – applied by management by comparing the valuation Goodwill and Intangible Assets. methodology to generally accepted valuation methodology, and found this to be consistent; As at 30 September 2020 the Group’s consolidated statement of •• Performed stress testing on the value-in-use model which financial position included goodwill with a closing net book value involved an assessment of management’s cash flow forecasts of R4.2 billion and indefinite life intangible assets with a closing and assumptions by comparison to prior years’ actual results, net book value of R2.3 billion. our understanding of the industry, the entity-specific Assets that are not subject to amortisation, such as goodwill circumstances and economic environment, in order to and indefinite life intangible assets are required to be assessed determine the degree by which the key assumptions needed for impairment annually and when any impairment indicators to change in order to trigger an impairment. We recalculated exist in accordance with International Accounting Standard 36 – a range of values and compared this to the value as calculated Impairment of assets. by management. Management’s value fell within our independently calculated range of values; Management performed their annual impairment assessment of •• Agreed management’s cash flow forecasts to approved the relevant cash-generating units (CGUs), to which the goodwill budgets, noting no exceptions; and the brands were allocated and based their assessment on value-in-use calculations, which have been estimated using a •• Assessed the reasonableness of the business plans and discounted cash flow model. budgeting process by comparing current year actual results with the prior year budgeted results; In determining the value-in-use of the CGU, the following key •• Compared the projections applied by management to assumptions were used by management: historically achieved volume growth rates, margins and •• discount rate; working capital rates; •• long-term growth rate; and •• Compared the long-term growth rate used by management to •• compound annual volume growth rate. long-term inflation rates obtained from independent sources. The independently determined rate was incorporated into our The value-in-use calculation is sensitive to changes in future cash stress testing referred to above in order to assess the impact flows included in the model, and changes in the discount rate of any difference on the valuation results; and long-term growth rate applied. •• Making use of our internal valuation expertise, we Future cash flows are estimated based on financial budgets and independently calculated a weighted average cost of capital approved business plans covering a five-year period. discount rate, taking into account independently obtained data such as the cost of debt, the risk-free rate in the relevant The impairment assessment of the goodwill and indefinite life territories, market risk premiums, debt/equity ratios as well intangible assets is considered to be a matter of most as the beta of comparable companies. We then compared significance to the current year audit due to: the calculated weighted average cost of capital to the discount •• the significant judgement applied by management with regard rate used by management. The difference in rates was to determining the key assumptions and future cash flows included in our stress testing to assess the impact on the that are included in the value-in-use calculation, and valuation results. The use of our independently calculated discount rates in the management’s assessments would not •• the magnitude of the goodwill and indefinite life intangible have resulted in an impairment charge. assets balance to the consolidated financial statements.

ANNUAL FINANCIAL STATEMENTS The committee reviewed the annual financial statements for the year ended 30 September 2020 and is of the view that in all material aspects, they comply with the relevant provisions of IFRS and the Companies Act. The committee also reviewed the 2020 integrated annual report and recommended both to the board for approval. The board subsequently approved the annual financial statements and 2020 integrated annual report, which will be tabled for discussion at the 2021 AGM.

GOING CONCERN STATUS The committee reviewed the solvency and liquidity assessment as part of the going concern status of the company and based on this detailed review, recommended to the board that the company adopt the going concern concept in preparation of the financial statements.

INTERNAL AUDIT The internal audit function in South Africa is independent and has the necessary standing and authority to enable it to discharge its duties. The internal audit manager has access to and engages directly with the Audit Committee and its chairman. Internal control procedures on the subsidiary businesses in Ireland, Switzerland and Poland are performed by the external auditors. Subsidiary audit committees confirm through enquiry of management and external audit that nothing has come to their attention that the control environment is not operating effectively. This arrangement will continue to be reviewed.

100 THE SPAR GROUP LTD GOVERNANCE

During the financial year under review, RISK MANAGEMENT In addition to the key areas of focus the committee: The board has delegated the oversight detailed above, the committee, during the 2020 financial year, reviewed the: • Approved the internal audit plan of risk governance, technology and information governance and compliance • Reviewed the internal audit charter •• Unaudited interim results report and governance to the Risk Committee. associated reports and announcements and recommended it to the board Andrew, the chairman of this committee, for approval is also a member of the Risk Committee •• Summarised information issued to • Satisfied itself that the South African and ensures that information relevant to shareholders internal audit manager was competent the Risk Committee is transferred and •• Appropriateness of the accounting and possessed the appropriate shared regularly with this committee. policies and financial statement expertise and experience to act in The Risk Committee report is available disclosures this capacity on page 120. •• JSE proactive monitoring of financial • Satisfied itself that the evaluation of the The committee accordingly fulfils an statements report internal control procedures in Ireland, overview role regarding financial •• JSE pronouncement on investor Switzerland and Poland supported the reporting risks, internal financial controls, communications – COVID-19 impact conclusion on the control environment taxation risks, compliance and regulatory •• Changes to the JSE Listings • Confirmed that the company’s internal risks, risk appetite and tolerance, fraud Requirements which pertain to audit function met its objectives and risk (as it relates to financial reporting) the committee’s responsibilities that adequate procedures were in and information technology risk (as it •• Report on the impact of the place to ensure that the group relates to financial reporting), and based implementation of IFRS 16, including complies with its legal, regulatory on the processes and assurances draft disclosure to shareholders and other responsibilities obtained, the committee is satisfied that included in the 2019 annual financial these areas have been appropriately • Ensured that the appropriate financial statements reporting procedures exist and were addressed. •• Adequacy of the group’s banking working COMBINED ASSURANCE facilities •• Ensured that the appointment of the The integrated assurance policy and •• Monitoring of the group’s bank external auditor is presented and framework was reviewed and approved covenants included as a resolution at the AGM by the board on 12 August 2020 and is pursuant to Section 61(8) of the •• Company’s banking facilities in the process of being implemented. Companies Act The implementation of the framework will •• Unbundling of the SPAR BBBEE share Schemes The committee is of the opinion that the help support the corporate governance group’s systems of internal controls and guidelines to provide appropriate •• 2021 budget guidelines and risk management are effective and that assurance and, in addition, evidence assumptions the internal financial controls form a of integrated/combined assurance. •• Property lease arrangements entered sound basis for the preparation of reliable The implementation of the Integrated into by the company financial statements. The committee’s Assurance Policy and Framework was •• Policies which fall under the committee’s opinion is supported by the board. interrupted by COVID-19 as the risk control and oversight. The group’s function was heavily involved in identifying, delegation of authority policy was GROUP FD AND FINANCE assessing and mitigating the risks posed reviewed and recommended to the FUNCTION by COVID-19 at wholesale and retail. board for approval The committee is satisfied that Subsequent to the 12 August 2020 board Mark Godfrey has the appropriate meeting, management has identified •• External auditor’s audit report and expertise and experience to meet the and rated new strategic and underlying key audit matters responsibilities of his appointed position operational risks aligned with progress •• Internal auditor’s report and key audit as the Group FD. His qualification and being made with the delivery of the matters and findings experience is available on page 93. reviewed group strategy. Appropriate •• SPAR Ireland and Switzerland’s internal changes to the integrated assurance audit process The committee considered the framework will be made during 2021. appropriateness of the expertise and •• Whistle-blowing and industry adequacy of resources of the group’s A group tax strategy and policy is in complaints finance function and was satisfied with place. The group tax strategy outlines Thanks go to the members of the the experience of the senior members the framework by which tax obligations committee for their dedicated and of management responsible for the are met from an operational and risk constructive contributions to the group function. management perspective and is aligned with the group’s existing strategies, committee’s functioning. policies and overall purpose. The group’s approach to tax is available online at https://investor-relations.spar.co.za reflecting the total tax contribution per the tax jurisdictions that the group Andrew Waller operates in. Chairman of the Audit Committee 14 December 2020

INTEGRATED ANNUAL REPORT 2020 101 NOMINATION COMMITTEE

The Nomination Committee (the committee) presents the following report for the 2020 financial year.

COMMITTEE GOVERNANCE The committee oversees: • Wayne Hook retired as an executive director and member of the Social • The composition of the board and its COMPOSITION and Ethics Committee on committees by setting criteria for Members of the committee for the financial 31 December 2019 year were independent non-executive board positions, identifying candidates • Chris Wells retired as a non-executive directors Mike Hankinson (Chairman), and making recommendations to the director, member of the Social and Harish Mehta and Phumla Mnganga. board on appointments – in doing so taking into consideration the board’s Ethics Committee and chairman of the The following changes are noted in structure, size, diversity, demographics Risk Committee and Audit Committee respect of the committee for the and balance between executive and at the 2020 AGM 2021 financial year: non-executive directors • Andrew Waller was appointed chairman of the Audit Committee • Mike Hankinson will retire as a member • Succession planning for the Chairman, at the 2020 AGM, following Chris’s of the committee with effect from the board members and the Group CEO, retirement, and was appointed conclusion of the 2021 annual general which includes the identification, Lead Independent Director to the meeting (AGM) mentorship and development of future candidates board with effect from the conclusion • Graham O’Connor will replace Mike as of the 2021 AGM a member of the committee, subject • Succession planning linked to all • Marang Mashologu replaced Chris as to the approval by shareholders of executive and senior management the chairperson of the Risk Committee his appointment as a non-executive positions with effect from 1 February 2020 director at the 2021 AGM • The induction of new directors and the ongoing training and professional • Graham O’Connor replaced Wayne Members’ qualifications and experience development of board members, as a member of the Social and Ethics are available on page 92. as and when required Committee with effect from 1 January 2020 MEETINGS • The effectiveness and ultimately the • Mike Hankinson is to retire as the The committee met formally three times performance of the board, its non-executive Chairman of the board, during the financial year. Members’ committees and individual members Chairman of the Nomination Committee attendance at meetings is recorded • The evaluation of independence and member of the Remuneration on page 97. The Group CEO attends process Committee with effect from the meetings by standing invitation to make conclusion of the 2021 AGM proposals and provide such information The committee is satisfied it has fulfilled as the committee may require. its responsibilities in accordance with its • Graham is to retire as the Group CEO terms of reference, a copy of which can of the company, member of the Risk EVALUATION OF THE COMMITTEE be found online. Committee, member of the Social The effectiveness of the committee is and Ethics Committee and member assessed by way of a self-evaluation KEY FOCUS AREAS of The SPAR Guild of Southern Africa, review every two years and will be and is to be appointed a non-executive performed again in the 2021 financial year. BOARD AND COMMITTEE director of the company and replace COMPOSITION Mike as the Chairman of the board, ROLE AND RESPONSIBILITIES A board appointment policy is in place following approval of his appointment The committee’s role and responsibilities and sets out the formal, rigorous and as a non-executive director by the are governed by its terms of reference as transparent procedure for the shareholders of the company at the reviewed and approved annually by the appointment of new members to the 2021 AGM board. The board has allocated oversight board and its committees. The policy • Brett Botten, the current Managing of the process for nominating and was updated and approved by the board Director of SPAR South Rand is to electing board members, board member on 17 November 2020 to include detail replace Graham as the Group CEO succession planning and the evaluation on the appointment of a Lead of the company, member of the Risk of the performance of the board, its Independent Director, along with the Committee and member of the Social committees and individual members to roles and responsibilities. and Ethics Committee, following the committee. The following changes are noted in approval of his appointment as the respect of the board and its committees: Group CEO by shareholders of the company at the 2021 AGM • The appointment of Lwazi Koyana as a non-executive director with effect The committee rigorously assessed from 14 May 2019 and as a member Graham’s eligibility to act as a of the Social and Ethics Committee non-executive director of the board and Risk Committee with effect from and Brett’s eligibility to be the Group 1 November 2019 was approved by CEO of the company, and the board shareholders at the 2020 AGM accepted the results of the assessment. Accordingly, the board recommends their appointments to shareholders at the 2021 AGM.

102 THE SPAR GROUP LTD GOVERNANCE

The average age of the board is 58 years Mike and Marang are required to retire • The effectiveness of the executive (2019: 59) and therefore succession by rotation at the 2021 AGM and, being directors planning will continue to be a key focus eligible, Marang offers herself for • The effectiveness and contributions area for the board as a whole. It is re-election. Mike does not offer himself of each of the directors always the board’s intention to balance for re-election and will accordingly retire fresh perspectives from new directors as an independent non-executive The last evaluation in respect of the with the experience and knowledge of director of the company with effect from above areas was conducted in 2019 the directors due to retire. the conclusion of the 2021 AGM. and, accordingly, the next evaluation process will be undertaken in the The average tenure of board members The independence and performance of 2021 financial year. is nine years (2019: 10 years). Marang was assessed by the committee and based on the results of the In addition to the key focus areas Newly appointed directors receive a assessment, which was accepted by the detailed above, the committee received comprehensive induction pack including board, the board recommends to feedback on the succession of executive the company’s MOI, board charter, shareholders that Marang be re-elected and senior management. committees’ terms of reference, board as an independent non-executive policies and other documents relating to The key focus for 2021 will be to director of the company. the company. Directors are encouraged digitalise the evaluations process which to attend courses that provide them with INDEPENDENCE is currently being done manually. the necessary training and information All directors have a duty to act with Thanks go to the members of the related to their duties, responsibilities, independence of mind and in the best committee for their dedicated and powers and potential liabilities, with interests of the company. Accordingly, constructive contributions to its regulatory and legislative updates the board agreed that internally facilitated functioning. provided at quarterly meetings. independence assessments would be BOARD DIVERSITY conducted annually by the committee for each non-executive director who has The board recognises the benefits of served on the board beyond nine years, a diverse board and adopted a board and that an externally facilitated, diversity policy which sets out its Mike Hankinson independence assessment would be approach to board diversity. The Chairman of the Nomination Committee conducted every three years. The last voluntary targets in terms of the policy externally facilitated independence 14 December 2020 are a minimum of three black people assessment was conducted in 2017 (as defined by the Black Economic EXECUTIVE DIRECTOR UP FOR and will be conducted again in 2021. Empowerment Act, No. 53 of 2003) and ELECTION two women. At the date of this report, The board conducted an assessment of the board comprised four black people, the independence and performance of Brett Botten (56) two of whom are female. A copy of the Harish Mehta and Phumla Mnganga, BCom, CA(SA) board diversity policy is available online. who have both served on the board for Group CEO elect more than nine years, and believes they The company is a member of the continue to be independent of mind, act Joined the group in 1994 30% Club Southern Africa. The aim of the in the best interest of the company and club is to develop a diverse pool of talent provide valuable insight and input into the Brett is a qualified Chartered Accountant for all businesses through the efforts of (South Africa) and holds a BCom Accounting company’s strategy, despite their long respective chairman and CEO members. degree from the University of Port Elizabeth. tenure on the board. The assessment Business Engage, the custodian of the He joined the group in 1994 and is the was based on whether the directors have current Managing Director of SPAR club, runs a number of specific and no interest, position, association or South Rand division, a position which he targeted networking initiatives that look relationship which, when judged from the held since 2010, and a member of the to broaden the pipeline of women at all perspective of a reasonable and informed SPAR Guild of Southern Africa. Brett has levels, from ‘schoolroom to boardroom’. also previously served as the Managing third party, is likely to influence unduly or Selected SPAR employees are Director of SPAR North Rand, SPAR Lowveld cause bias in decision-making in the best encouraged to attend these initiatives, and SPAR Eastern Cape divisions. interest of the company. which provide them with valuable business insight and help them unlock their future PERFORMANCE EVALUATIONS potential to become aspiring leaders. The board agreed that the performance ROTATION OF evaluation process would not be NON-EXECUTIVE DIRECTORS externally facilitated and that internal self-evaluation questionnaires would be The company’s MOI requires that completed biannually in respect of the one-third of those elected non-executive following areas: directors who have served in office • The effectiveness of the board’s longest since their last election, retire by composition, governance processes rotation at each AGM and, being eligible, and procedures may seek re-election should they wish. • The effectiveness of the board’s committees in discharging their respective mandates

INTEGRATED ANNUAL REPORT 2020 103 REMUNERATION COMMITTEE

The Remuneration Committee (the committee) presents the following report for the 2020 financial year.

COMMITTEE GOVERNANCE –– Annual remuneration increases for For the 2021 AGM, the remuneration employees outside the bargaining policy and the remuneration COMPOSITION unit. An increase of 6.5% (2019: implementation report will again be tabled Committee members for the financial 6.5%) was mandated. separately for non-binding advisory votes year were independent non-executive –– Annual remuneration increases for by shareholders. In the event that either directors Harish Mehta (Chairman), employees within the bargaining the policy or remuneration implementation Mike Hankinson and Phumla Mnganga. unit. Increases of between 7.0% report or both are voted against by 25% or more of the voting rights exercised, the The following changes are noted in and 7.5% (2019: between 6.5% committee commits to an engagement respect of the committee for the 2021 and 7.0%) were mandated. process to ascertain the reason for the financial year: –– Executive directors’ and Executive dissenting votes and appropriately Committee members’ performance, • Mike Hankinson will retire as a member address any legitimate and reasonable remuneration and incentives of the committee with effect from objections and concerns raised. bonuses. the conclusion of the 2021 AGM –– The annual award of shares in terms CHANGES IN THE • Graham O’Connor will replace of the group’s long-term Conditional Mike Hankinson as a member of the REMUNERATION POLICY Share Plan (CSP). Details can be committee with effect from 1 March 2021, The fundamental policies and practices found on page 111. subject to approval by shareholders at have remained unchanged this year. the 2021 AGM of his appointment as a –– The fees payable to non-executive The committee did confirm and adopt non-executive director directors for approval by shareholders. the malus and clawback policy presented Details can be found on page 113. in the 2019 Remuneration Committee Members’ qualifications and experience report. Refer to page 105 for details –– Its terms of reference and annual are available on page 92. of this policy. work plan. The committee continued to develop MEETINGS The committee is satisfied it has fulfilled a Minimum Shareholding Requirement The committee met formally three times its responsibilities in accordance with its (MSR) policy for executive directors and during the financial year. Members’ terms of reference, a copy of which can be Executive Committee members. Further attendance at meetings is recorded on found on the group’s corporate website. page 97. The Group CEO attends details can be found on page 110. meetings by standing invitation to make SECTION 1 – BACKGROUND The committee also considered and proposals and provide such information STATEMENT confirmed the policy on the treatment of as the committee may require. both variable short and long-term incentives ENGAGEMENT WITH in the event of a change of control. Any EVALUATION OF COMMITTEE SHAREHOLDERS early vesting of awards because of a The effectiveness of the committee is During the course of the year the company change of control will consider performance assessed by way of a self-evaluation engaged with key shareholders on various and the time elapsed up to the relevant review every two years and will be matters, including whether they had any date, with a consequent reduction in the conducted again in the 2021 financial year. concerns or comments on the existing size of the awards which vest. remuneration arrangements. No issues ROLE AND RESPONSIBILITIES The committee is satisfied remuneration were raised on any remuneration matters. The committee’s role and responsibilities in all forms accruing to employees at all Positive endorsement was received on are governed by its terms of reference as levels is market related and equitably the malus and clawback adoption. reviewed and approved annually by the awarded. In addition, the committee board. As members of the committee, At the 2020 AGM of the company, our believes SPAR’s remuneration philosophy our mandate is to ensure the company 2019 remuneration report was presented and policy support the company’s remunerates fairly, responsibly and and voted on in sections, namely: strategic objectives by incentivising both transparently and in doing so annually short-term and long-term behaviour to • Remuneration policy – supported reviews the company’s remuneration meet and exceed its strategic goals. by 91.52% (2018: 94.71%) of the policy to ensure it promotes the company’s shareholders who voted My thanks to the members of the achievement of strategic objectives and committee for their dedication and encourages individual performance. • Remuneration implementation report – supported by 85.83% (2018: constructive contributions to the During the financial year: 66.48%) of the company’s shareholders functioning of the committee. • The committee reviewed, monitored, who voted considered, recommended and approved (where applicable): –– The company’s remuneration policy Harish Mehta and remuneration implementation Chairman of the Remuneration Committee report for approval by the board, which will be put to a non-binding vote 14 December 2020 by shareholders at the 2021 AGM.

104 THE SPAR GROUP LTD GOVERNANCE

SECTION 2 – REMUNERATION Fair differentiation based on performance PROCESS TO DETERMINE POLICY and skills shortage is applied. The REMUNERATION company takes cognisance of its external The committee is responsible for PHILOSOPHY environment through an understanding of approving salary increases for the SPAR’s employees are critical in national remuneration trends and by executive directors and the Executive achieving the company’s strategic regular benchmarking against Committee. objectives. Accordingly, SPAR is comparable companies and the market. committed to paying fair, competitive The Group CEO, together with the SPAR uses remuneration surveys and market-related remuneration to Executive Committee, is responsible for conducted by reputable salary survey ensure the company is able to attract all employees below EU grade. The overall companies with sufficient sample sizes and retain top-quality and talented percentage increase for employees below and spread of positions, and an employees. Our remuneration policy EU grade is authorised by the committee. adequate representation in relevant therefore seeks to: Salary increases are implemented: industries comparable to SPAR. • Position remuneration levels • On 1 January each year for all Salary scales provide remuneration appropriately and competitively in employees graded DU band and guidelines based on the Paterson comparison with the labour market below, who are not members of the grading system and are informed by bargaining unit • Acknowledge the contribution of market comparisons. The company • On 1 October each year for employees individual employees by rewarding strives to remunerate key positions and graded EL band and above them for the successful achievement those positions where there is a of company goals and objectives shortage of skills (as defined annually) on • As per collective agreements with the at least the 75th percentile of the market, union(s) for employees in the Apart from fixed remuneration, an bargaining unit element of variable remuneration aligned and the rest of the positions on at least to value creation in the form of short and the 50th percentile of the market. longer-term incentive schemes is also The use of a performance management catered for and linked to the achievement system also ensures that there is a and performance of specified targets and positive correlation between individual objectives, with payment being made and team performance and remuneration from increased returns. earned. Management is responsible for This also assists in attracting and managing remuneration and thus retaining key employees. supporting the long-term sustainability of the company.

REMUNERATION STRUCTURE SPAR’s remuneration structure consists of both fixed and variable remuneration using the Paterson grading methodology.

Fixed remuneration Variable remuneration

Short-term incentives (STIs) Long-term incentives (LTIs)

Objective To help attract and retain the To motivate and incentivise delivery of To motivate and incentivise delivery of best talent. performance, financial and non- long-term, sustainable performance. financial, consistent with the group’s strategy over the financial year.

Type Salary. Performance Bonus Plan. • CSP • Share Option Plan (Closed)

Policy Based on the Paterson Solely at the discretion of the company Annual or ad hoc awards approved by grading methodology and and can be changed or withdrawn at any the board are granted to employees determined by level of skill time. STIs are only paid to individuals graded EL and above and identified and experience, and scope who are in employ of the company at the selected other staff on merit. May be of responsibilities.* end of the financial year. either performance or restricted awards.

* The Paterson grading methodology works as follows: F Chief Executive Officer EL and EU Executives DU High-level specialists/middle to high management D Management CU Lower-middle management C High-level skilled/clerical/supervisory B Clerical A Low-level skilled

INTEGRATED ANNUAL REPORT 2020 105 Remuneration Committee report (continued)

FIXED REMUNERATION Fixed remuneration consists of cash remuneration, pensionable remuneration and benefits, and is structured as follows:

Bands A to CU • Salary (Non-management) • Guaranteed 13th cheque payable in December of each year. This amount forms part of the employee’s pensionable remuneration • Benefits

Bands D to F • Salary (Management) • Other pensionable remuneration, such as car allowance, vehicle insurance and fuel, which is paid by the company • Benefits

All permanent full-time employees are required to become members of one of the company’s available retirement funds, namely: • The Old Mutual SuperFund Provident Fund: The SPAR Group Management Provident Fund • The Old Mutual SuperFund Pension Fund: The SPAR Group Ltd Defined Contribution Pension Fund • The Old Mutual SuperFund Provident Fund: The SPAR Group Ltd Staff Provident Fund Membership of a medical aid scheme is voluntary. The company has a number of medical aid schemes which employees are entitled to join. The Tiger Brands Medical Scheme is a group scheme, while a number of other low-cost medical aids have been negotiated at distribution centre level. Other variable remuneration, such as allowances, is paid where applicable and in accordance with the 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 training and development.

VARIABLE REMUNERATION Short Term Incentive (STI) All employees participate in the STI scheme, as follows:

Bands A to CU Performance bonus of up to 50% of one month’s salary or part thereof, based on the achievement of set (Non-management) targets. The targets are based on key issues in the business strategy and are mainly financial targets.

Bands D to F Performance bonus, as follows: (Management) Grade % of basic annual salary Bonus split financial:functional

EU to F 100 75:25

EL 60 60:40

DU 30 30:70

DL 15 30:70

The financial component of the STI is based on: • A targeted divisional profit before tax for divisional management • The group’s profit after tax for executive directors and central office management In both cases the financial target matrix threshold commences at profit achieved for the previous year (adjusted for extraordinary items if necessary), and increases incrementally until the maximum stretch achievement level is reached at a profit level approximately equal to the board-approved internal budget.

106 THE SPAR GROUP LTD GOVERNANCE

On-target is set at approximately 97% of The last options were allocated on The committee recognises that this budget. The methodology is based on the 7 February 2014 and remaining decision might raise concerns from company’s approach in setting budgets participants have 10 years from date of shareholders but believe that this is that include sufficient stretch for issue to exercise their option rights. Based appropriate in these challenging times management, and are not simply seen as on the SOP rules, all awards under this when it is critical for the group to retain an easily achieved result. For this reason, scheme will lapse or vest by February 2024. these key executives. It is not the the achievement of the budget committee’s intention to use restricted Options previously granted to executive presupposes an exceptional performance. shares as an add-on award to retain or directors, options exercised during This allows management to focus on all compensate executives during a year of the year under review and unexercised components of the budget throughout the poor performance. The committee has options as at 30 September 2020 year and ensure these remain relevant. carefully considered these limited grants. are provided in the remuneration It should also be noted that most of these The functional component comprises implementation report on page 113. grants are made on both a broader and objectives that include corporate deeper level among the key-employee objectives (for example, transformation) Conditional Share Plan (CSP) executive management base. and individual objectives, which are The CSP provides a mechanism that specific to a manager’s sphere of enables the company to provide key The committee continues to review its influence. employees the opportunity to receive compensation practices on a regular shares in the company based on basis and may consider, as per global The attainment of these targets personal or group performance. The and local best practice, not to reward the contributes to the achievement of the primary intent is to make performance- executive team with time-based restricted company’s strategic objectives, which related awards under the CSP through shares. The Remuneration Committee will are aligned to the delivery of sustained an award of shares subject to appropriate also continue to seek feedback from shareholder value. The principle of performance conditions. An award shareholders in this regard as part of its paying for performance is a key factor of restricted shares may be made in ongoing shareholder engagement. underpinning the STI, and any variable exceptional circumstances to address payments are directly aligned to retention risks or to compensate The CSP is differentiated from the SOP performance outcomes. Achieving these prospective employees for the loss of in that it has performance conditions objectives will result in a bonus pay-out LTI awards with their existing employer. governing the vesting of awards. In subject to the achievement of a minimum addition, whereas the SOP is generally profit level of no less than the profit level While the board was extremely satisfied settled by the issue of shares, the CSP achieved in the previous year. with the succession process following is intended to be settled by a market the retirement of a number of senior purchase of shares and will therefore Transformation is weighted at 40% of the executives in 2019 and early 2020, it not cause dilution to shareholders. functional allocation, totalling 10% of the remains concerned that the loss of any of total bonus opportunity, and addresses the executive management at this time (1) the employment and promotion of would be damaging to the group. To help black employees and (2) the development mitigate this concern of heightened of black ownership. employee flight risk and to ensure a The STI bonus is capped at 100% of strong, stable executive team throughout annual salary for executive directors and this critical period, the remuneration senior general management. committee decided to further “lock in” certain identified key executives. Long Term Incentives (LTI) Accordingly, the committee has again The company has two LTI plans in place decided to make a limited number of for key employees, senior management extraordinary awards of retention shares, and executive directors: the Share Option together with the normal performance Plan and CSP. CSP shares. To emphasise the retention element and further strengthen the Share Option Plan (SOP) alignment with long-term shareholder The SPAR Group Ltd Employee Share interests, the restricted shares will vest in Trust (2004) scheme closed in 2014 and equal parts after three, four and five years no further share option allocations can following the grant date. be made in this scheme. The SOP provided the right to the option holder to purchase shares in the company at the option price. On election by option holders, one-third of the options granted vests after three years, with a further third vesting on the expiry of years four and five respectively. There is no performance criteria in this scheme and as the scheme is now closed, none can be introduced for previous awards.

INTEGRATED ANNUAL REPORT 2020 107 Remuneration Committee report (continued)

Salient features of the CSP remain as follows: Details CSP

Description Operating under the CSP, participants receive a conditional right to receive a share in the company on the vesting date and will have no shareholder rights prior to this date.

Company limit The cumulative aggregate number of shares that may be allocated under the CSP shall not exceed 5 200 000 shares (approximately 3% of issued share capital). This limit excludes share purchases in the market and shares forfeited. The aggregate number of restricted shares that may be allocated under the CSP may not exceed 1 300 000 shares.

Individual limit The cumulative aggregate number of shares that may be allocated to any one individual may not exceed 570 000 shares (approximately 0.33% of issued share capital). To prevent these numbers being exceeded, the annual awards are capped at a percentage of gross annual basic salary, for example, the Group CEO at 60%.

Settlement method The intention of the company is to settle all CSP awards from a market purchase of shares; however, the rules of the CSP do allow for settlement in any of the following ways: •• Market purchase of shares •• Issue of shares •• Use of treasury shares

Termination of Bad leavers will forfeit all awards on the date of termination of employment. employment In the case of good leavers, a pro rata portion of all unvested awards will vest. The pro rata portion will reflect the number of months served since the award date and the extent to which the performance conditions (if any) have been met. The balance of the awards will lapse.

Change of control In the event of a change of control of the company occurring before the vesting date, a portion of the award held by a participant will vest on such date. The portion of the award that will vest will be determined based on (1) the extent to which the performance conditions are satisfied, and (2) the number of completed months served over the total number of months of the award.

Allocation methodology The CSP may be used for annual allocations. The company will define annual allocation levels expressed as a percentage of gross annual basic salary. In defining these levels, the company will endeavour to maintain the fair value that participants would have maintained under the SOP. To this end, allocation levels that may be made on an annual basis (expressed as a percentage of gross annual basic salary) are as follows: Group CEO: 60% Executive Committee members: 50% Senior managers: 35%

Grant price Not applicable

Vesting/employment period The scheme rules set this at three years for annual award of performance shares and in equal parts after years three, four and five for restricted shares. Prior to vesting, executive directors may elect to subject settled shares to an additional holding period of three years.

Performance conditions The performance conditions applicable to an award of shares are set annually by the committee and consider shareholder guidance. The performance conditions will be measured over a performance period of three years, which is aligned with the financial years of the company. The table presented on the following page summarises the three performance conditions along with their definitions, and the proportion of the total number of shares awarded to which the performance conditions relate. Also included in the table are the target levels for the threshold, on-target and stretch measures which represent the levels of achievement required for certain portions of the performance shares related to that particular performance condition to vest. The targets remain largely unchanged from those approved by shareholders on 11 February 2014 when this scheme was initiated. The committee did acknowledge shareholder concerns raised around the TSR targets and amended the vesting levels for all three targets by making these more challenging for all new awards issued from 2019.

108 THE SPAR GROUP LTD GOVERNANCE

Performance condition Defined as Detail Threshold On-target Stretch Weighting Return on Operating profit The average RONA 80% of the The average 120% of the 30% net assets expressed as a over the performance on-target. RONA as per the on-target. (RONA) percentage of the net period will be operating budget closing asset value at compared to the approved by the the relevant year end. targets set out board for each herewith. financial year in the performance period. For the 2019 award, this was set at an average of 40%. HEPS Headline earnings Growth in HEPS will Consumer price HEPS growth Target plus 9% 50% divided by the be calculated as the index (CPI) between the over the weighted average growth between the growth over the operating budget performance number of ordinary base year and the last performance approved by the period. shares (net of treasury year in the period. board for the last shares) in issue during performance period. year in the the relevant financial performance year. Headline earnings period and the consist of the earnings base year HEPS. attributable to ordinary For the 2019 shareholders, award, this was excluding non-trading set at 30% growth. and capital items. Total The TSR will be To remove vagaries in 80% of the Weighted average 160% of the 20% shareholder measured as the the market, the CAGR on-target. TSR of peer group. on-target. return (TSR) compound annual in TSR calculation is The committee The committee The committee relative to a growth rate (CAGR) to be smoothed by acknowledged recognised the amended the peer group in the TSR index for using the average the shareholder shareholder stretch target the company and TSR index for the 20 concern and concern and to 160% for the the peer companies business days up to reduced the adjusted the 2019 award. over the performance and including the start vesting vesting percentage Previous period after holding of the performance percentage to to 40% for awards will the shares and period and 20 business 10% for on-target for the continue to reinvesting the days up to and threshold for 2019 award. All be measured dividends. including the end of the 2019 award. future awards will at the original the performance All future awards apply the vesting 120% period. The peer will apply this percentage, until group will constitute vesting further review. suitably constructed percentage until and appropriate peer further review. companies.

The peer group for purposes of the TSR measurement are: •• Shoprite Holdings Ltd •• Pick n Pay Stores Ltd •• Woolworths Holdings Ltd •• Massmart Holdings Ltd •• Cashbuild Ltd •• Clicks Group Ltd and remain unchanged.

INTEGRATED ANNUAL REPORT 2020 109 Remuneration Committee report (continued)

The portion of the performance shares vesting at each target will be as follows: Performance Vesting percentage

Threshold Acts as a gatekeeper and will represent the 30% of the award of performance shares will minimum performance required before vest for performance at threshold. performance shares vest. For the TSR award, the committee reduced the threshold for vesting to 10% for the 2019 award. All future awards will apply this vesting percentage, until further review. None of the performance shares will vest for performance below threshold.

On-target Relates to good but sufficiently stretching 65% of the award of performance shares will vest performance. for performance on-target. For the TSR award, the committee recognised shareholders’ concern that the award percentage was possibly overly generous and reduced on-target vesting to 40% for the 2019 award. All future awards will apply this vesting percentage, until further review.

Stretch Relates to exceptional performance in the 100% of the award of performance shares will context of the prevailing business environment. vest for performance at stretch.

For performance levels between threshold and stretch, linear interpolation is used to determine the proportion of shares vested. The performance conditions of the CSP continue to be reviewed in line with best practice and feedback from shareholders. The committee supports shareholding by its executive directors and believes this re-enforces shareholder alignment post the vesting of LTIs. To this end, executive directors may elect to subject their CSP shares coming up for vesting for a further agreed holding period during which time such shares cannot be disposed of. All executives have elected to further hold their shares for an additional three years.

Minimum Shareholding Requirement (MSR) The committee has developed a draft MSR policy which will apply to executive directors and executive committee members. The policy will require executives to build up a specific shareholding in SPAR using shares from various sources, including (but not exclusively or limited to) the vesting of awards under the CSP. The target minimum shareholding to be built up by executives would be: •• Group CEO – 200% of total guaranteed package •• Other executives – 150% of total guaranteed package In terms of the MSR policy, executives will hold their shares to the earlier of: •• Three years; or •• The date of their termination of employment with any of the SPAR employer companies; or •• The abolishment of the MSR policy; or •• Upon their successful application to the committee in special circumstances as governed by the MSR policy, which may include proven financial hardship. The vested shares are settled and held by an escrow agent. Executives are prohibited to trade with the shares freely until the end of the holding period but will be treated as normal shareholders and will be able to vote and receive dividends paid by the company in respect of the shares. The committee plans to finalise and introduce the policy in the 2021 financial year.

MALUS AND CLAWBACK POLICY The committee confirmed the adoption of this policy. The salient features are: Malus Clawback

The committee may, on or before the vesting The committee may apply clawback and take steps to recover awards that have vested in a date of an award, reduce the quantum of an participant (on a pre-tax basis) as a consequence of a trigger event which, in the judgement award in whole or in part after an actual risk of the committee, arose during the clawback period. The clawback period will run for three event (trigger event) occurs, which in the years from the vesting date of the awards. judgement of the committee, had arisen In the event of a breach of directors’ duties by a participant, the committee reserves the during the relevant vesting or financial period. right to pursue any remedies available to it in terms of the clawback policy, as well as In the event of early termination of common and statutory law. employment during the vesting period The policy will make provision for the implementation of certain methods of recovery in of an award, the committee will consider the event that the participant disposes of the shares after the vesting date but before the whether a trigger event arose between the clawback period ends, as well as in the event that the shares are retained throughout the award date and the date of termination of clawback period. employment.

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The summarised trigger events for malus and clawback include: •• Employee misbehaviour, dishonesty, fraud or gross misconduct •• A material misstatement of the financial results for the performance or employment period of the award, resulting in an adjustment in the audited consolidated accounts of the company •• The assessment of any performance metric or condition (where applicable) in respect of an award which was based on error, or inaccurate or misleading information •• Any information used to determine the quantum of a cash STI or LTI scheme payment, or the number of shares subject to a LTI award was based on error, or inaccurate or misleading information •• Events or behaviour of the employee that had a significant detrimental impact on the reputation of the company or the group

CURRENT CSP AWARDS Performance conditions, targets, information and allocations The interim measures against the targets for the unvested awards issued in 2017, 2018 and 2019 are summarised in the table below. The projected HEPS growth and average annual RONA returns over the appropriate performance periods for each applicable grant were calculated using historical and forecast HEPS values and are provided purely for shareholders’ information. Description 2017 2018 2019 Grant date 14 November 2017 14 November 2018 12 November 2019 Vesting date 8 February 2021 14 February 2022 11 February 2023 Performance period 1 October 2017 to 1 October 2018 to 1 October 2019 to 30 September 2020 30 September 2021 30 September 2022

HEPS condition Threshold (expected CPI growth) 11.64% 10.79% 8.19% On-target growth (based on approved budget) 30.00% 30.00% 30.00% Stretch growth 39.00% 39.00% 39.00% Base year HEPS measure 976.0 cents 1 063.2 cents 1 166.3 cents On-target HEPS required 1 268.8 cents 1 382.2 cents 1 516.2 cents Management forecast based on current projections 1 267.0 cents 1 373.4 cents 1 528.7 cents Expected HEPS growth (management forecast based on current projections) 29.8% 29.2% 31.1%

RONA condition Threshold (80% target) 32.00% 32.00% 32.00% On-target RONA (average for three years) 40.00% 40.00% 40.00% Stretch 48.00% 48.00% 48.00% Base year RONA measure 39.3% 39.1% 39.9% Management forecast based on current projections 40.9% 45.3% 49.7%

The measure of TSR will be the TSR of SPAR relative to the weighted average TSR of the six selected peer group companies.

Awards made during 2020 On 11 February 2020, the committee awarded 294 950 performance shares (2019 grant) and 114 000 restricted (retention shares) (2019 grant) to key employees, senior management and executive directors. The vesting date of the performance shares award is 11 February 2023 and the vesting dates of the retention shares are 11 February 2023, 11 February 2024 and 12 February 2025. The performance targets for both the HEPS and RONA conditions are set out in the table above (see column headed 2019). Also included in the table are management’s current forecasts of the achievement levels for both conditions. These performance shares were calculated in accordance with the targeted award level at a share price of R194.42, which was the 30 day volume weighted average price (VWAP) for the month prior to presenting the proposed awards to the committee. Details of CSP awards to executive directors are provided in the remuneration implementation report on page 113.

INTEGRATED ANNUAL REPORT 2020 111 Remuneration Committee report (continued)

Awards that vested during 2020 On 7 February 2020 the third tranche of CSP awards issued in November 2016 vested. The final performance conditions for the grant were measured and externally verified by Deloitte. The results of the calculation of the actual vesting percentage were as follows:

HEPS growth over performance period Revised Vesting vesting Weighted Threshold On-target Stretch Actual percentage percentage x 50% HEPS condition 14.74% 30.00% 39.00% 12.90% 0.00% 26.26%* 13.13%

* Adjustment approved by the committee to recognise the unforeseen dilution effect of additional equity issued – recalculated as if equity has not been issued.

RONA growth over the performance period Revised Vesting vesting Weighted Threshold On-target Stretch Actual percentage percentage x 30% RONA condition 32.00% 40.00% 48.00% 39.42% 62.46% 62.46% 18.74%

Compound annual growth rate Revised Vesting vesting Weighted Threshold On-target Stretch Actual percentage percentage x 20% TSR condition -8.79% -7.33% -5.86% 3.03% 100.00% 100.00% 20.00%

Total to vest 51.67%

The committee again adjusted the HEPS measurement for the 2020 vesting tranche to recognise the additional equity shares issued in 2016 that were not taken into account when the growth target was originally set. These 11.9 million additional ordinary shares, constituting approximately 6.9% of issued shares, were placed in March 2016 to raise funding. The adjustment took into account the extent of dilution caused to HEPS growth due to these additional shares. Of the total number of awards in effect at the measurement date, 112 160 vested. The awards were once again settled by a market purchase of shares. The actual vesting awards for the last three years were as follows:

2020 2019 2018 HEPS growth 26.26% 28.38% 51.10% RONA growth 62.46% 50.80% 53.20% TSR 100.00% 100.00% 100.00% Final vesting 51.67% 49.43% 61.50%

EXECUTIVE AND NON-EXECUTIVE DIRECTORS’ REMUNERATION The committee uses PricewaterhouseCoopers (PwC) executive and non-executive remuneration reports for insight into current remuneration practices and trends and continually engages with PwC to assist it with a benchmarking exercise of salaries. This includes looking at STIs and LTIs in order to ensure the remuneration of executive management is fair and responsible in the context of overall employee remuneration. The committee is satisfied PwC is independent and objective in giving advice.

Executive directors’ remuneration Executive directors receive a monthly salary and benefits based on the role of each executive and their performance and contribution to the group’s overall results. Benefits include other pensionable remuneration, allowances such as a car allowance, pension fund, medical aid, vehicle insurance and fuel, which is paid by the company. Details of executive directors’ remuneration for the financial year are provided in the remuneration implementation report on page 113.

Executive directors’ terms of service Executive directors are full-time employees of the company and, as such, have an employment agreement in accordance with the company’s standard conditions of service, but with a notice period of two months (versus one month for other employees) and more comprehensive confidentiality undertakings. The Group CEO has a notice period of three months.

Non-executive directors’ remuneration Non-executive directors are not full-time employees of the company and, as such, have a contract for services and not a contract of employment. Non-executive directors’ remuneration consists of a fixed basic fee and is not linked to the financial performance of the group, nor do they receive share options or bonuses. Details of non-executive directors’ remuneration for the financial year are provided in the remuneration implementation report on page 113. Management recommends non-executive directors’ fees, based on industry benchmarks, to the committee for onward recommendation to and approval by the board which in turn recommends the fees to shareholders for approval in accordance with the Companies Act.

112 THE SPAR GROUP LTD GOVERNANCE

Non-executive remuneration increases are implemented on 1 March each year. An aggregate increase of 4% (2019: 13.62%) was recommended and approved by the board. The proposed fees for the period 1 March 2021 to 28 February 2022 are as follows:

Current Proposed Increase R R %

Board directors Chairman (including his participation in all committees) 1 620 000 1 685 000 4.0% Lead independent (including his participation in all committees) – 1 300 000 – Member 470 000 489 000 4.0%

Audit Committee Chairman 263 000 274 000 4.2% Member 127 000 132 000 3.9%

Risk Committee Chairperson 155 000 161 000 3.9% Member 110 000 114 000 3.6%

Social and Ethics Committee Chairperson 151 000 157 000 4.0% Member 99 000 103 000 4.0%

Remuneration Committee Chairman 151 000 157 000 4.0% Member 98 000 102 000 4.1%

Nomination Committee Chairman 146 000 152 000 4.1% Member 98 000 102 000 4.1%

The committee reviewed the fees for non-executive directors against the Institute of Directors in South Africa’s Non-Executive Directors’ Fees Guide and PwC’s Non-executive directors: Practices and remuneration trends report in terms of percentile and reference group. A reference group is a group comparable to SPAR in terms of market capitalisation. The committee concluded that following the market adjustment to non-executive fees in the previous year, these were now appropriately aligned. Based on this, an inflationary increase of 4% was proposed to the board.

Non-executive directors’ terms of service The notice period for non-executive directors is three months with an age limit of 70 years. The board may, at its discretion, extend a non-executive director’s retirement date.

SECTION 3 – REMUNERATION IMPLEMENTATION REPORT The remuneration implementation report contains detailed information and figures pertaining to the application of the remuneration policy in relation to executive and non-executive directors.

EXECUTIVE REMUNERATION The policy for executive directors’ remuneration is summarised on page 105. The executive remuneration was again benchmarked by using an appropriate reference group of peers in the market. In addition, the committee considered remuneration trends and latest developments in the market for the comparable percentile. The committee assessed the market-related adjustment made to the Group CEO’s salary in the prior year was appropriate to rightly align his earnings with comparable executives. In the current year the Group CEO was awarded an increase of 6.5% in line with the group mandate. The effective increase of 20.9% in his total basic salary is fundamentally influenced by the timing of the extraordinary adjustment awarded in the prior year. The committee recognised the Group FD’s increased responsibilities resulting from the acquisition of the Polish business in October 2019 and the added financial complexities of expanding the group into that region. This also included not just the additional reporting, control and governance matters, but also the overall management of new funding arrangements and banking relationships. This new geography introduced further demands on the Group FD of securing additional debt facilities and co-ordinating these against the group’s existing European and local banking requirements. The committee further considered the Group FD’s expanded obligations over the last six years since acquiring the Irish business in 2014 and reconfirmed that salary adjustments awarded over the last four years were realistic against the growth, complexity and increased demands of the international business. The committee felt that the Group FD’s strong leadership performance and his overall contribution to the wider business warranted a further salary increase in the current year above the mandate. An additional increase of 10.3% in basic salary was awarded in December 2019. The Group FD’s revised basic salary is considered appropriate for the substantially increased role.

INTEGRATED ANNUAL REPORT 2020 113 Remuneration Committee report (continued)

Directors’ remuneration

Perfor- Retirement Travel mance- funding allowance Share Basic related contri- and other option R’000 salary bonus1 butions benefits2 gains Total

EMOLUMENTS 2020 Executive directors GO O'Connor 8 145 7 820 944 506 17 415 WA Hook* 1 136 137 1 116 10 732 13 121 R Venter* 531 65 572 4 862 6 030 MW Godfrey 5 217 5 010 614 545 11 386 Total emoluments 15 029 12 830 1 760 2 739 15 594 47 952

2019 Executive directors GO O'Connor 6 735 6 525 787 545 14 592 WA Hook 3 407 1 599 427 1 467 6 900 R Venter 3 185 3 000 400 924 7 509 MW Godfrey 4 451 4 267 528 533 1 509 11 288 Total emoluments 17 778 15 391 2 142 3 469 1 509 40 289

* Wayne Hook and Roelf Venter retired during the first quarter of the 2020 financial year. 1 The performance-related bonuses relate to amounts earned in the current year. No performance bonuses were paid to Wayne Hook or Roelf Venter as they retired during the financial year. These bonuses only accrue on the last day of the financial year and no pro rata payment is made. 2 Other benefits include medical aid contributions and proceeds from benefit policies. No other payments were made to Wayne Hook or Roelf Venter as a result of their retirement.

EXECUTIVE STIs The STI policy is summarised on page 106. For executive directors, the breakdown of the targets, relative bonus caps as a percentage of annual salary and the average payout for the 2020 financial year, were as follows:

Executive directors’ average Bonus cap performance achievement (% of annual salary) %

Group financial results 75 100.00 Transformation targets 10 60.20 Key performance 15 100.00 Total 100 96.02

Maximum bonus Actual Actual achievable bonus bonus (% of salary) (% of salary) R'000

Director GO O'Connor 100.00 96.01 7 820 MW Godfrey 100.00 96.03 5 010 Average achievement 96.02

114 THE SPAR GROUP LTD GOVERNANCE

Performance bonus scorecard

Weighting Payout (as a % of (as a % of total annual Achieved as a % of maximum total annual bonus Actual bonus opportunity) Threshold On-target Stretch achievement opportunity)

Performance measure Group financial 15.00% 80.00% 100.00% Profit after tax, adjusted for exceptionals 75% R2.34 billion R2.53 billion R2.60 billion R2.84 billion 100.00%

Strategic scorecard Transformation objectives 10% 50% of all management Employment equity management positions appointments 5% filled 5/8 3.30% Weighted points awarded for stores owned by equity groups, with bonus points if Enterprise development – store stretch ownership 5% exceeded 16.33/30 2.72% Other measures Personal objectives 15% 15.00%

Profit after tax, adjusted for exceptionals In 2019/20, profit after tax decreased by 9.6% to R1.96 billion as it was negatively impacted by the losses incurred in the new Polish business, as well as certain financial liability measurement adjustments. Management has consistently adjusted for these financial measurements and reported a normalised profit after tax to provide meaningful comparisons and has based the dividend declaration on this adjusted profit. The normalised profit, i.e., headline earnings, adjusted for exceptional measurement adjustments, for the year increased by 8.6% to R2.24 billion in an extremely challenging business environment. The board had agreed in advance that the performance of the Polish business would be excluded from the profit measurement for incentive purposes in this year as management were not able to quantify the financial impact due to the uncertainty of finalising the acquisition. The financial targets also ignored any impact from this business. After adjusting for the Polish result, the group reported a 21.7% increase in normalised headline earnings – an exceptional result.

Employment equity management appointments To achieve the group transformation objectives, management has been challenged to fill at least 50% of all available management positions (graded DL to EU) with equity candidates. During the year eight positions were identified at the group’s head office and five of these were successfully filled with designated managers. Despite this being more than 50% of the total positions filled, the measurement also considers each of the grade bands, i.e. DL, DU and E and, as the single DU appointment was not achieved only two-thirds of the available score was earned.

Enterprise development – store ownership Management has strategically focused on developing equity ownership within the South African retail formats. This objective awards points on a weighted format basis to all stores owned by designated groups. This has been an extremely satisfying result as reported ownership increased to 399 stores across all retail formats, an increase of 5.6% in the year.

Personal objectives The executive directors’ personal objectives are fundamentally set to drive strategic initiatives. Each agrees a minimum of three personal objectives with the committee. These are generally equally weighted but may be adjusted to recognise more significant matters. No adjustments were made to the personal objectives of the executive directors in the 2020 financial year. The broad objectives and achievements of executive directors in the 2020 financial year were: GO O’Connor • Further develop and implement the new strategy for the Southern Africa business (Details can be found on page 50) 33.3% • Manage the Executive Committee succession appointments within the group to ensure these changes are effective 33.3% • Finalise the targeted Polish acquisition 33.3% Score achieved 100.0%

MW Godfrey • Finalise second Irish Promoter minority exit legal arrangements and implement necessary funding 33.3% • Polish acquisition – deal finalisation and secure new funding requirements (Details can be found on page 58) 33.3% • Prepare for and implement IFRS 16: Leases accounting across the group (Details can be found on page 87) 33.3% Score achieved 100.0%

INTEGRATED ANNUAL REPORT 2020 115 Remuneration Committee report (continued)

While both executive directors successfully achieved their personal objectives and this was confirmed by the committee, it was decided to acknowledge and reward the senior managers participating in the STI for their fantastic contributions to managing the business through the extremely difficult times caused by the COVID-19 pandemic by awarding 100% personal objective scores to them all.

EXECUTIVE LTIs SOP The SOP closed in 2014 and no options have been allocated since 7 February 2014. There are no performance criteria in this scheme and as the scheme is now closed, none can be introduced.

Options held over shares in the company Number of options held Date of Option price option issue R 2020 2019

Executive directors GO O’Connor 07/02/2014 124.22 50 000 50 000 Total 50 000 50 000 WA Hook 10/11/2009 66.42 50 000 08/12/2010 99.91 50 000 08/11/2011 96.46 55 000 55 000 13/11/2012 122.81 60 000 60 000 Total 115 000 215 000 R Venter 08/11/2011 96.46 11 800 13/11/2012 122.81 30 000 12/11/2013 126.43 30 000 Total 71 800 MW Godfrey 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 120 000 120 000 Total options held by directors 285 000 456 800

Options exercised Market Date of Number of Option price on options options price exercise Gain exercised exercised R R R’000 WA Hook 13/11/2019 32 000 66.42 200.96 4 305 22/11/2019 18 000 66.42 200.96 2 422 31/03/2020 50 000 99.91 180.00 4 005 10 732 R Venter 07/05/2020 11 800 96.46 187.01 1 069 07/05/2020 23 601 122.81 187.01 1 515 18/09/2020 6 399 122.81 190.00 430 07/05/2020 20 000 126.43 187.01 1 212 18/09/2020 10 000 126.43 190.00 636 4 862

116 THE SPAR GROUP LTD GOVERNANCE

CSP The CSP is summarised on page 111.

Details of unvested CSP awards held by directors Share price Number of shares on date Award of grant date R 2020 2019

Executive directors GO O’Connor 07/02/2017 183.55 14 600 07/02/2018 190.25 30 700 30 700 12/02/2019 190.21 33 100 33 100 11/02/2020 193.80 45 1001 Total 108 900 78 400 WA Hook 07/02/2017 183.55 7 500 07/02/2018 190.25 13 000 12/02/2019 190.21 15 800 Total 36 300 R Venter 07/02/2017 183.55 7 500 07/02/2018 190.25 15 000 12/02/2019 190.21 15 200 Total 37 700 MW Godfrey 07/02/2017 183.55 9 000 07/02/2018 190.25 17 500 17 500 12/02/2019 190.21 20 800 20 800 11/02/2020 193.80 20 8002 – Total 59 100 47 300 Total directors’ interest in the CSP 168 000 199 700

1 Awarded in 2020: 25 100 performance shares and 20 000 retention shares. 2 Awarded in 2020: 12 400 performance shares and 8 400 retention shares.

Details of vested award shares held by directors In line with the committee’s view that senior executives should be exposed to the share price post the vesting of their LTIs, the following executives elected to subject their CSP shares to a further agreed upon holding period of three years. On retirement, and in accordance with the MSR policy, Wayne Hook and Roelf Venter terminated their extended holding periods and were authorised to trade in these shares.

Total number % Total Award date granted vested vested

2020 GO O’Connor 07/02/2017 14 600 51.67 7 544 WA Hook 07/02/2017 7 500 51.67 3 875 R Venter 07/02/2017 7 500 51.67 3 875 MW Godfrey 07/02/2017 9 000 51.67 4 650

2019 GO O’Connor 09/02/2016 20 000 49.43 9 886 WA Hook 09/02/2016 7 500 49.43 3 707 R Venter 09/02/2016 9 600 49.43 4 745 MW Godfrey 09/02/2016 11 000 49.43 5 437

Special vesting in 2020 arising from ‘good leaver’ retirements

Total number % Total Award date granted vested vested

WA Hook 07/02/2018 13 000 59.43 7 727 12/02/2019 15 800 48.30 7 631

R Venter 07/02/2018 15 000 58.70 8 805 12/02/2019 15 200 47.78 7 262

INTEGRATED ANNUAL REPORT 2020 117 Remuneration Committee report (continued)

NON-EXECUTIVE DIRECTORS’ REMUNERATION The policy for non-executive directors’ fees is summarised on page 112.

R’000 2020 2019

Fees for services as non-executive directors MJ Hankinson (Chairman)b 1 532 1 385 M Mashologuac 681 544 HK Mehtaabc 918 848 P Mngangabd 791 741 AG Wallerac 761 631 LM Koyanacd 641 185 CF Wellsacd* 371 875 MP Madi – 213 Total fees 5 695 5 422

a Member of Audit Committee. b Member of Remuneration and Nomination Committees. c Member of Risk Committee. d Member of Social and Ethics Committee. * Chris Wells retired as a non-executive director during February 2020.

EXECUTIVE AND NON-EXECUTIVE DIRECTORS’ INTERESTS IN THE SHARE CAPITAL OF THE COMPANY

Number of shares 2020 2019

Directors’ interests in the share capital of the company Executive directors GO O’Connor – direct beneficial holding 61 178 53 634 MW Godfrey – direct beneficial holding 23 617 18 967 Non-executive directors MJ Hankinson – held by associates 2 800 2 800 HK Mehta – direct beneficial holding 2 000 2 000 HK Mehta – indirect beneficial holding 9 000 10 000 AG Waller – direct beneficial 3 200 3 200

As at the date of this report the directors’ interests in the share capital of the company remain unchanged.

INDICATION OF EXECUTIVE DIRECTORS’ SHAREHOLDING AGAINST THE PROPOSED TARGET MINIMUM SHAREHOLDING REQUIREMENT

GO O’Connor Direct beneficial holding 61 178 shares Market value at 30 September 2020 R11 602 308 As a percentage of 2020 guaranteed basic salary 142% Target for Group CEO 200% MW Godfrey Direct beneficial holding 23 617 shares Market value at 30 September 2020 R4 478 964 As a percentage of 2020 guaranteed basic salary 85% Target for executives 150%

DECLARATION OF DISCLOSURE The company enters into arms-length transactions in the ordinary course of business with certain entities in which executive director Graham O’Connor, or his direct family members, have both a controlling interest or significant influence. These interests are in the form of shareholdings in food service and retail stores and are disclosed in an annual declaration of directors’ interests to the company. Transactions between the company and businesses where control has been demonstrated by Graham O’Connor or his direct family members, for the period ended 30 September 2020, comprise wholesale sales of R217.1 million and trade account balances at year end of R16.1 million. All transactions between these entities and the group were insignificant in terms of the group’s total operations for the year. Other than that disclosed above and in note 36 to the annual financial statements, no consideration was paid to or by any third party, or by the company itself, in respect of the services of the company’s directors, as directors of the company, during the year ended 30 September 2020.

118 THE SPAR GROUP LTD GOVERNANCE

INTEGRATED ANNUAL REPORT 2020 119 RISK COMMITTEE

The Risk Committee (the committee) presents the following report for the 2020 financial year.

COMMITTEE GOVERNANCE The committee oversees the company’s wholesale operations. Sophisticated risk management, IT and compliance protocols were drafted and implemented COMPOSITION processes to ensure management for the protection of employees and Members of the committee for the identifies potential risks in these areas consumers. The risk function also financial year were independent which may affect the company or its worked closely with industry bodies non-executive directors Marang Mashologu operations. It implements effective and government to guide and formulate (Chairperson), Lwazi Koyana, Harish Mehta policies and plans to mitigate any risks, regulations to deal with the spread and Andrew Waller and executive directors enhance the company’s ability to achieve of COVID-19. Graham O’Connor and Mark Godfrey. its strategic objectives, and support the The focus on mitigating the risks company in being ethical and a good The following changes are noted presented by the pandemic meant that corporate citizen. in respect of the committee for the the risk function deferred the following 2021 financial year: The committee receives feedback on all items contained in the roadmap for risk relevant matters in its terms of reference agreed to by the board in October 2019: • Graham O’Connor will retire as a from the following committees: member of the committee with effect • Finalisation of key performance from the conclusion of the 2021 AGM • Audit Committee indicators (KPIs) in relation to the • Brett Botten will replace Graham as a • Social and Ethics Committee revised group strategy member of the committee, subject to • Completion of data and reporting The committee is satisfied it fulfilled its the approval by shareholders of his dashboards for key risk indicators (KRIs) appointment as the Group CEO of responsibilities in accordance with its • Finalisation of the implementation of the company at the 2021 AGM terms of reference, a copy of which can be found online. a new enterprise risk management Members’ qualifications and experience system across the group are available on pages 92 and 93. KEY FOCUS AREAS • Finalisation of the Combined Assurance Forum and the revised MEETINGS RISK GOVERNANCE Combined Assurance Framework The committee met formally twice during Kevin O’Brien is the Risk and Sustainability Focus areas for the 2021 financial year the financial year. Members’ attendance Executive and is responsible, together will be to: at meetings is recorded on page 97. with executive management, for the Permanent invitees at committee implementation and execution of the risk • Review ERM framework and policy meetings are the Risk and Sustainability management process. and combined assurance framework Executive, the Group Logistics Executive, and policy in light of new strategic risks An enterprise risk management (ERM) the Group IT Executive, the Group Internal and corresponding operational risks policy and framework are in place Audit Manager, the external auditor and agreed and rated prior to the end of and were reviewed during the financial the Company Secretary (who also acts as September 2020 the secretary of the committee). year. In keeping with the King IV recommendation of providing a combined • Finalise all risk management plans, EVALUATION OF THE COMMITTEE assurance policy and framework, the KPIs and KRIs identified in terms of the new strategic and corresponding The effectiveness of the committee is committee considered such a policy and operational risks assessed by way of a self-assessment framework and approved the same at its evaluation review every two years and August 2020 meeting. • Finalise amended combined assurance framework and have it signed off by will be undertaken again in 2021. Internal audit provides the committee the Combined Assurance Forum assurance as to whether risk ROLE AND RESPONSIBILITIES management processes within the group • Roll out ERM software into all The committee’s roles and are adequate and effective and makes distribution centres, thereby creating responsibilities are governed by its terms recommendations on areas where the a fully integrated system to monitor of reference as reviewed and approved SPAR risk management processes could risk mitigation and performance annually by the board. The board be improved. against KRIs and KPIs allocated oversight of risk governance, • Review and implement changes to crisis technology and information governance During the financial year, the risk team management plans and business and compliance governance to focused on providing leadership to the continuity plans across the business the committee. company on dealing effectively and impactfully with the COVID-19 pandemic. • Achieve an overall maturity rating Early in March 2020, the risk function of ‘Managed’* by the end of the commenced preparations for the 2021 financial year end mitigation and management of the spread of COVID-19 at retail and

* Risk maturity rating levels: 1. Initial; 2. Repeatable; 3. Defined; 4. Managed; and 5. Optimised

120 THE SPAR GROUP LTD GOVERNANCE

IT GOVERNANCE COMPLIANCE GOVERNANCE Mark Huxtable is the Group IT Executive Mandy Hogan is the Company Secretary and is responsible, together with and is responsible, together with executive management, for the executive management, for the implementation and execution of effective implementation and execution of effective technology and information management. compliance management. A compliance policy is in place to ensure compliance An IT strategy is in place and was with legislative and regulatory enriched during the financial year to requirements, and a formal integrated include drivers for best practice and management software solution is standardisation across the group and to currently in pilot phase to better assist create value and leverage shared centres management with the monitoring of of excellence. compliance throughout the group. A security programme was formalised Focus areas for the 2021 financial year during the financial year, with key will be to: projects, including the NIST Cybersecurity Framework, PCI and data privacy • Roll out the integrated management compliance, under way. This programme software solution throughout the together with the IT strategy initiatives group, including compliance with are aimed at addressing the technology international regulations and information governance requirements • Review the compliance policy and as set out in the Risk Committee terms framework of reference mandated by the board. In addition to the key focus areas SPAR detected cyber attacks in the past detailed above, the committee received year within the retail and distribution centre feedback from management on the environments but did not experience any group’s insurance and operational risk loss, damage or significant impact as a matters (logistic risks, human resource result. Due to the rising risks in cyber risks, food safety risks, climate change demand, a vigilant approach is necessary risks and financial risks). to ensure the appropriate security measures are constantly being upgraded. Thanks go to the members of the committee for their dedicated and The modernisation version of SAP will constructive contributions to its be rolled out to complete the inland functioning. distribution centres in the first half of next year. This ensures business efficiencies and employee training momentum continues. SPAR is engaged in the exploration and Marang Mashologu build phase of a global SAP template. Chairperson of the Risk Committee The template will drive enhanced 14 December 2020 governance and security, simplified management, improved agility, support business growth in the digital transformation journey and leverage Strategic risks and opportunities IT to gain competitive advantage. can be found on page 55.

INTEGRATED ANNUAL REPORT 2020 121 SOCIAL AND ETHICS COMMITTEE

The Social and Ethics Committee (the committee) presents the following report to shareholders for the 2020 financial year, in accordance with the requirements of the Companies Act.

COMMITTEE GOVERNANCE The committee oversees the company’s ORGANISATIONAL ETHICS social and organisational activities Ethics within the company is addressed COMPOSITION relating to the environment and its through SPAR’s Code of Ethics. The Members of the committee for the stakeholders. It monitors the company’s code applies to all the company’s financial year were independent sustainability performance to ensure the employees and directors. Ethics at non-executive directors Phumla Mnganga company’s ethics support its culture, it is SPAR is simply ‘the way we do things (Chairperson) and Lwazi Koyana, and seen as a responsible citizen, and that here’ and is defined as ‘doing the right executive director Graham O’Connor. there is a balance between the company thing in the best long-term interest of and the needs, interests and expectations The following changes are noted all stakeholders, even when no one of all stakeholders. in respect of the committee for the is watching’. 2021 financial year: The committee receives feedback on all The company encourages employees relevant matters in its terms of reference • Graham O’Connor will retire as a and other stakeholders to disclose any from the following committees: member of the committee with effect serious impropriety or improper conduct. from the conclusion of the 2021 AGM • Audit Committee SPAR subscribes to Deloitte’s Tip-offs Anonymous, which is an independent • Brett Botten will replace Graham as a • Risk Committee hotline that enables employees to report member of the committee, subject to • The SPAR Guild of Southern Africa illegal actions and ethical misconduct the approval by shareholders of his Social and Ethics Committee confidentially. appointment as the Group CEO of the company at the 2021 AGM • The Build it Guild of Southern Africa During the financial year 13 reports Social and Ethics Committee (2019: 12) were received. All reports Members’ qualifications and experience were investigated and of the 13 reports are available on pages 92 and 93. The committee is satisfied it fulfilled its responsibilities in accordance with its received, four were in respect of MEETINGS terms of reference, a copy of which can independently owned SPAR stores and referred to the respective retailers for The committee met formally twice during be found online. further investigation. Out of the nine the financial year. Members’ attendance relating to the company, two led to the at meetings is recorded on page 97. KEY FOCUS AREAS dismissal of the employees concerned Permanent invitees at meetings are the and the remaining reports were found Chairman of the board, the Risk and POLICY REVIEW to be untrue. Sustainability Executive, the Group The committee is responsible for Human Resources Executive and the reviewing the group’s policies relating Disciplinary action is taken where Company Secretary (who acts as the to ethics, social and economic employees are found to have secretary of the committee). development, good corporate citizenship, transgressed and corrective actions sustainable development and stakeholder implemented where necessary to EVALUATION OF THE COMMITTEE relationships. During the financial year improve controls and prevent a The effectiveness of the committee is the committee considered and recurrence of the incident. assessed by way of a self-assessment recommended to the board for approval evaluation review every two years and the social media guidelines, which are An Ethical Culture Assessment was will be undertaken again in 2021. contained in SPAR’s IT policy. performed during the 2018 financial year by The Ethics Institute (TEI). Management Going into the 2021 financial year the ROLE AND RESPONSIBILITIES has undertaken to implement the committee will continue to review The committee’s role and responsibilities recommendations by the TEI to establish the various policies in place dealing a comprehensive ethics management are governed by its terms of reference as with ethics, social and economic reviewed and approved annually by the programme to create ethics awareness development, good corporate citizenship and improve employee relations. board. The board allocated oversight of, and sustainable development, and and reporting on, organisational ethics, implement a formal corporate compliance responsible corporate citizenship, programme to monitor the company’s sustainable development and stakeholder activities in this regard. relationships to the committee.

122 THE SPAR GROUP LTD GOVERNANCE

CORPORATE CITIZENSHIP The committee is mandated to consider not only the impact the company’s performance has on shareholders, but also on it employees, society, the economy and the natural environment. Accordingly, during the financial year, the committee received feedback from management on the following matters: • BBBEE • YES programme • Trade union activity • CSI • SPAR’s CDP submission • Staff benefits for retail staff members • SPAR’s rural hub • Sustainability initiatives undertaken by SPAR, such as packaging, nutrition and wellness • COVID-19 preparedness and implications on employees, retailers and consumers Detailed feedback on a number of the abovementioned matters can be found in our environmental and social STAKEHOLDER RELATIONSHIPS within its mandate at the company supplementary report online. The committee has oversight of AGM to be held on 16 February 2021. stakeholder engagement and monitors Any specific questions relating to the Due to the strategic importance of a stakeholder-inclusive model report may be sent to the Company transformation and diversity, a workshop throughout SPAR. Secretary prior to the meeting. titled Transformation: Creating an Imperative for Change coincided with the SPAR continues to: Thanks go to the members of the November 2020 meeting of the committee for their dedicated and committee and all board members and • Engage with suppliers to form strategic constructive contributions to its members of the company’s Executive alignments where possible functioning. Committee attended this externally • Collaborate with government in facilitated workshop. assisting to address various sustainable development issues In addition to the key focus areas above, the committee considered the sustainability content included online Phumla Mnganga and recommended it to the board for Chairperson of the Social and Ethics approval. The committee is required to Committee report through one of its members to the 14 December 2020 company’s shareholders on the matters

INTEGRATED ANNUAL REPORT 2020 123 ANALYSIS OF ORDINARY SHAREHOLDERS

Number of % of total Number of % of issued Rmillion shareholdings shareholdings shares capital

Shareholder spread 1 – 1 000 15 614 75.19 4 470 462 2.32 1 001 – 10 000 3 900 18.78 11 951 035 6.21 10 001 – 100 000 996 4.80 32 452 564 16.85 100 001 – 1 000 000 234 1.13 69 155 873 35.91 Over 1 000 000 23 0.11 74 572 421 38.72 Total 20 767 100.00 192 602 355 100.00

Distribution of shareholders Insurance Companies 242 1.17 7 706 055 4.00 Mutual Funds 1 305 6.28 93 986 975 48.80 Private Investors 18 442 88.80 65 937 307 34.23 Retirement Funds 778 3.75 24 972 018 12.97 Total 20 767 100.00 192 602 355 100.00

SHAREHOLDER TYPE Non-public shareholders 10 0.05 24 990 477 12.98 Directors and associates 6 0.03 101 795 0.05 Government Employees Pension Fund 1 0.00 24 719 915 12.83 Share schemes 2 0.01 72 397 0.04 Treasury 1 0.00 96 370 0.05 Public shareholders 20 757 99.95 167 611 878 87.02 Total 20 767 100.00 192 602 355 100.00

Fund managers with a holding greater than 5% of the issued shares Coronation Fund Managers 33 253 446 17.27 Public Investment Corporation 27 980 523 14.53 Total 61 233 969 31.79

Beneficial shareholders with a holding greater than 5% of the issued shares Government Employees Pension Fund 35 411 156 18.39 Coronation Fund Managers 14 562 025 7.56 Total 49 973 181 25.95

SPAR (SPP) vs General Retail Index (J537) vs JSE All Share Index (J203) vs Food and Drug Index (J533)

Oct ov Dec Jan Feb ar Apr ay Jun Jul Aug Sep

SPAR eneral Retail ndex JS All Share ndex Food and Drug ndex Source of data: IRESS

124 THE SPAR GROUP LTD SHAREHOLDER INFORMATION NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given to shareholders that the annual general meeting (AGM) of The SPAR Group Ltd (the company) is scheduled to be held in the company’s boardroom, 22 Chancery Lane, Pinetown, Durban, South Africa on Tuesday, 16 February 2021 at 09:00 for the purpose of conducting the following items of business:

ORDINARY BUSINESS Shareholders will be requested to consider and, if deemed fit, to pass (with or without modification) the following ordinary resolutions. The percentage of voting rights required for the adoption of each ordinary resolution below is the support of more than 50% of the voting rights exercised on the resolution at a properly constituted meeting of the company’s shareholders:

1. ORDINARY RESOLUTION NUMBER 1 – ADOPTION OF THE ANNUAL FINANCIAL STATEMENTS “Resolved that the annual financial statements for the year ended 30 September 2020, incorporating the directors’ report, Audit Committee report and independent auditor’s report, be and are hereby adopted.” The annual financial statements of the company are available on the company’s website at http://investor-relations.spar.co.za

2. ORDINARY RESOLUTION NUMBER 2 – APPOINTMENT OF AN EXECUTIVE DIRECTOR “Resolved that the appointment of Brett Botten, the current Managing Director of SPAR South Rand, as the Group CEO with effect from 1 March 2021, be and is hereby confirmed.” The Nomination Committee conducted an assessment of the eligibility of Brett as a member of the board of directors (board) and Group CEO and the board accepted the results of the assessment. Accordingly, the board recommends his appointment to shareholders. A brief curriculum vitae for Brett can be found on page 103 of the integrated report of which this notice of AGM (notice) forms part.

3. ORDINARY RESOLUTION NUMBER 3 – APPOINTMENT OF A NON-EXECUTIVE DIRECTOR “Resolved that the appointment of Graham O’Connor as a non-executive director of the company with effect from 1 March 2021, be and is hereby confirmed.” The Nomination Committee assessed the eligibility of Graham as a member of the board and the board accepted the result of the assessment. Accordingly, the board recommends his appointment to shareholders. A brief curriculum vitae for Graham can be found on page 93 of the integrated report of which this notice forms part.

4. ORDINARY RESOLUTION NUMBER 4 – RE-ELECTION OF NON-EXECUTIVE DIRECTOR RETIRING BY ROTATION It is recorded • That Mike Hankinson and Marang Mashologu retire as independent non-executive directors of the company in terms of the company’s Memorandum of Incorporation (MOI) • That Mike, being eligible does not offer himself for re-election and will retire as an independent non-executive director with effect from the conclusion of the AGM • That Marang, being eligible offers herself for re-election “Resolved that Marang Mashologu be and is hereby re-elected.” The Nomination Committee conducted an assessment of the performance of Marang and the board accepted the results of the assessment. Accordingly, the board recommends her re-election to shareholders. A brief curriculum vitae for Marang can be found on page 92 of the integrated report of which this notice forms part.

5. ORDINARY RESOLUTION NUMBER 5 – RE-ELECTION OF THE INDEPENDENT EXTERNAL AUDITOR “Resolved that PricewaterhouseCoopers Inc., as approved by the Audit Committee and recommended to shareholders, be re- elected as the independent external audit firm of the company, and that Thomas Howatt be appointed as the designated individual audit partner, to hold office for the ensuing financial year.”

6. ORDINARY RESOLUTION NUMBER 6 – RE-ELECTION OF THE MEMBERS OF THE AUDIT COMMITTEE “Resolved that the following independent non-executive directors be and are hereby re-elected, each by way of a separate vote, as members of the Audit Committee of the company with immediate effect, until the conclusion of the next AGM of the company: 6.1 Marang Mashologu, subject to the adoption of the proposed ordinary resolution number 4 6.2 Harish Mehta 6.3 Andrew Waller (Chairman)” The Nomination Committee conducted an assessment of the performance of each member and the independence of Harish, and the board accepted the results of the assessment. Accordingly, the board recommends their re-election as members of the Audit Committee to shareholders. Brief curricula vitae for Marang, Harish and Andrew can be found on page 92 of the integrated report of which this notice forms part.

INTEGRATED ANNUAL REPORT 2020 125 Notice of annual general meeting (continued)

7. ORDINARY RESOLUTION NUMBER 7 – AUTHORITY TO ISSUE SHARES FOR THE PURPOSE OF SHARE OPTIONS Note: The SPAR Group Ltd Employee Share Trust (2004) (the Trust) scheme closed in 2014 for the issuing of further share options and option holders have 10 years from date of issue to exercise their option rights. Pursuant to the granting of share options by the Trust, and in the event of any of the option holders exercising their rights thereto, authority is sought to place the issuing of the necessary shares under the control of the directors. “Resolved that such number of the ordinary shares in the authorised but unissued capital of the company required for the purpose of satisfying the obligations of the Trust to option holders, be and is hereby placed under the control of the directors, who are hereby, as a specific authority, authorised to issue those shares in terms of the Trust deed.”

Reason and effect This resolution is required to facilitate, in terms of the requirements of the MOI, the issue of the requisite number of ordinary shares to the Trust so as to enable it to meet its obligations to holders of the relevant share options when such options are exercised.

8. ORDINARY RESOLUTION NUMBER 8 – AUTHORITY TO ISSUE SHARES FOR THE PURPOSE OF THE CSP “Resolved that such number of the ordinary shares in the authorised but unissued capital of the company, required for the purpose of The SPAR Group Ltd Conditional Share Plan (CSP), be and is hereby placed under the control of the directors, who are hereby, as a specific authority, authorised to issue those shares in terms of the rules of the CSP.”

Reason and effect This resolution is required to facilitate, in terms of the requirements of the MOI, the issue of the requisite number of ordinary shares in terms of the rules of the CSP. The intended settlement method of the CSP is a market purchase of shares, which will result in no dilution to shareholders. The rules of the CSP, however, are flexible in order to allow for settlement by way of a market purchase of shares, the use of treasury shares or the issue of shares, and this resolution, if passed, will facilitate an award under the CSP being made by an issue of shares if, for whatever reason, this least preferred settlement method is used. The company has not previously had to resort to a fresh issue of shares for these purposes.

9. ORDINARY RESOLUTION NUMBER 9 – NON-BINDING ADVISORY VOTE ON THE REMUNERATION POLICY “Resolved that, by way of a non-binding advisory vote, the remuneration policy of the company, as contained in the Remuneration Committee report, be and is hereby endorsed.” To the extent that 25% or more of the votes cast be against this non-binding advisory resolution, the Remuneration Committee undertakes to engage with shareholders as to the reasons therefore and undertakes to make recommendations based on the feedback received.

10. ORDINARY RESOLUTION NUMBER 10 – NON-BINDING ADVISORY VOTE ON THE REMUNERATION IMPLEMENTATION REPORT “Resolved that, by way of a non-binding advisory vote, the remuneration implementation report of the company, as contained in the Remuneration Committee report, be and is hereby endorsed.” To the extent that 25% or more of the votes cast be against this non-binding advisory resolution, the Remuneration Committee undertakes to engage with shareholders as to the reasons therefore and undertakes to make recommendations based on the feedback received.

SPECIAL BUSINESS Shareholders will be requested to consider and, if deemed fit, to pass (with or without modification) the following special resolutions.

The percentage of voting rights required for the adoption of each special resolution is the support of at least 75% of the voting rights exercised on the resolution at a properly constituted meeting of the company’s shareholders:

11. SPECIAL RESOLUTION NUMBER 1 – FINANCIAL ASSISTANCE TO RELATED OR INTER-RELATED COMPANIES “Resolved that directors of the company, in terms of provision 45 of the Companies Act, No. 71 of 2008 (as amended) (Companies Act), be and are hereby authorised to cause the company to provide any financial assistance, whether by lending money, guaranteeing a loan or other obligation and/or securing any debt or obligation, to any of its subsidiary companies or other related or inter-related companies, during the period from 1 March 2021 to 28 February 2022.”

Reason and effect This resolution is required in order to comply with the requirements of section 45 of the Companies Act, which provides that a special resolution is required to provide such assistance either for the specific recipient, or generally for a category of potential recipients and the specific recipient falls within that category.

126 THE SPAR GROUP LTD SHAREHOLDER INFORMATION

12. SPECIAL RESOLUTION NUMBER 2 – NON-EXECUTIVE DIRECTORS’ FEES “Resolved that the exclusive of VAT (if applicable) fees of non-executive directors of the company for the 12-month period from 1 March 2021 to 28 February 2022, be and are hereby approved, as follows:

Current Proposed R R

Board directors Chairman (including his participation in all committees) 1 620 000 1 685 000 Lead independent (including his participation in all committees) – 1 300 000 Member 470 000 489 999 Audit Committee Chairman 263 000 274 000 Member 127 000 132 000 Risk Committee Chairperson 155 000 161 000 Member 110 000 114 000 Social and Ethics Committee Chairperson 151 000 157 000 Member 99 000 103 000 Remuneration Committee Chairman 151 000 157 000 Member 98 000 102 000 Nomination Committee Chairman 146 000 157 000 Member 98 000 102 000

Reason and effect This resolution is required in order to comply with the requirements of sections 65(11)(h) and 66(9) of the Companies Act, which provide that a special resolution is required to authorise the basis for compensation to directors of a profit company.

The proposed fees were determined pursuant to a benchmarking exercise undertaken by the Remuneration Committee.

13. TO TRANSACT SUCH OTHER BUSINESS AS MAY BE TRANSACTED AT AN AGM

RECORD DATE The record date set by the board for the purpose of determining which shareholders are entitled to: • Receive this notice is Friday, 11 December 2020 (being the date on which a shareholder must be registered in the company’s securities register in order to receive this notice). • Participate in, and vote at, the AGM is Friday, 5 February 2021. Accordingly, the last day to trade in order for a shareholder to be eligible to vote at the AGM is Tuesday, 2 February 2021.

COVID-19 PROTOCOLS The following COVID-19 protocols will be observed at the AGM: • Do not attend the meeting if you are unwell, have a fever, cough or respiratory symptoms. • Undertake regular preventative measures such as cough etiquette and regular handwashing and sanitising. • A COVID-19 visitors form will be completed upon arrival at the offices and temperature will be tested prior to accessing the offices. Should the temperature be in excess of 37.3°C, entrance to the office park will be denied. • Masks are compulsory. • Social distancing guidelines will be enforced.

INTEGRATED ANNUAL REPORT 2020 127 Notice of annual general meeting (continued)

VOTING AND PROXIES Shareholders who have not dematerialised their shares or who have dematerialised their shares with own name registration are entitled to attend and vote at the AGM and are entitled to appoint a proxy or proxies to attend, speak and vote in their stead. The person so appointed need not be a shareholder. Forms of proxy should be forwarded to reach the company’s transfer secretaries, Link Market Services South Africa (Pty) Ltd, PO Box 4844, Johannesburg, 2000, by no later than 09:00 Friday, 12 February 2021. Thereafter, a form of proxy must be handed to the Chairman of the AGM before the appointed proxy may exercise any rights of the shareholder at the AGM. Forms of proxy must only be completed by shareholders who have not dematerialised their shares or who have dematerialised shares with own name registration. A form of proxy is attached. Subject to the rights and other terms associated with any class of shares, on a poll every shareholder of the company present in person or represented by proxy shall have one vote for every share held in the company by such shareholder. Shareholders who have dematerialised their shares, other than those shareholders who have dematerialised their shares with own name registration, should contact their central securities depository participant (CSDP) or broker in the manner and time stipulated in their agreement: • To furnish them with their voting instructions • In the event that they wish to attend the meeting, to obtain the necessary letter of authority to do so

IDENTIFICATION Section 63(1) of the Companies Act requires meeting participants to provide the person presiding over the meeting with satisfactory identification.

ELECTRONIC COMMUNICATION Shareholders may participate electronically in the AGM, provided that electronic participants shall not be entitled to cast a vote on any matter put to a vote of the shareholders. Shareholders wishing to participate in the AGM electronically should contact the Company Secretary on 031 719 1760 not less than 5 (five) business days prior to the AGM. Access to the AGM by way of electronic participation will be at the shareholder’s expense. Only persons physically present at the AGM or represented by a valid proxy shall be entitled to cast a vote on any matter put to a vote of shareholders. By order of the board Mandy Hogan Company Secretary 14 December 2020

128 THE SPAR GROUP LTD FORM OF PROXY

THE SPAR GROUP LTD Registration number 1967/001572/06 JSE code: SPP ISIN: ZAE000058517 (SPAR or the company) For use by certificated and own name dematerialised SPAR shareholders (shareholders) at the AGM of the company to be held in the company’s boardroom, 22 Chancery Lane, Pinetown, Durban, South Africa on Tuesday, 16 February 2021 at 09:00 for the purpose of conducting the following items of business: I/We of (address) being the holder/s of shares, appoint (see note 1) 1. or failing him/her/it; 2. or failing him/her/it; 3. the Chairman of the AGM as my/our proxy to act for me/us on my/our behalf at the AGM which will be held for the purposes of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at any adjournment thereof, and to vote for and/or against the resolutions and/or abstain from voting in respect of the ordinary shares registered in my/our name/s, in accordance with the following instructions: Insert an ‘X’ or the number of shares with which you wish to vote For Against Abstain ORDINARY BUSINESS 1. Adoption of the annual financial statements 2. Appointment of Brett Botten as an executive director 3. Appointment of Graham O’Connor as a non-executive director Re-election of Marang Mashologu as a non-executive director retiring 4. by rotation 5. Re-election of the independent external auditor 6. Re-election of the members of the Audit Committee 6.1 Marang Mashologu; 6.2 Harish Mehta; 6.3 Andrew Waller (Chairman). 7. Authority to issue shares for the purpose of share options 8. Authority to issue shares for the purpose of the CSP 9. Non-binding advisory vote on the remuneration policy 10. Non-binding advisory vote on the remuneration implementation report SPECIAL BUSINESS 11. Financial assistance to related or inter-related companies 12. Non-executive directors’ fees

Signed at on this day of 2021

Signature NOTES TO THE FORM OF PROXY Completed forms of proxy must be received at the office of the company’s transfer secretaries, Link Market Services South Africa (Pty) Ltd, PO Box 4844, Johannesburg, 2000, by no later than 09:00 on Friday, 12 February 2021. Thereafter, a form of proxy must be handed to the Chairman of the AGM before the appointed proxy may exercise any rights of the shareholders at the AGM. 1. A member’s instructions to the proxy must be indicated in the appropriate box provided. Failure to comply with the above will be deemed to authorise the proxy to vote or abstain from voting at the AGM as he/she deems fit. A member may instruct the proxy to vote less than the total number of shares held by inserting the relevant number of shares in the appropriate box provided. A member who fails to do so will be deemed to have authorised the proxy to vote or abstain from voting, as the case may be, in respect of all the member’s votes exercisable at the AGM. 2. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity (e.g. for a company, close corporation, trust, pension fund, deceased estate, etc.) must be attached to this form of proxy unless previously recorded by the company’s share registrar or waived by the Chairman of the AGM. 3. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. 4. A minor must be assisted by the minor’s parent or guardian unless the relevant documents establishing the minor’s legal capacity are produced or have been registered by the company’s transfer secretaries. 5. The Chairman of the AGM may accept any form of proxy which is completed other than in accordance with these notes if the Chairman of the AGM is satisfied as to the manner in which the member wishes to vote.

SUMMARY OF RIGHTS OF SHAREHOLDERS In terms of section 58 of the Companies Act: • A shareholder of a company may, at any time and in accordance with the provisions of section 58 of the Companies Act, appoint any individual (including an individual who is not a shareholder) as a proxy to participate in, and speak and vote at, a shareholders meeting on behalf of such shareholder • Irrespective of the form of instrument used to appoint a proxy, the appointment of a proxy is suspended at any time and to the extent that the relevant shareholder chooses to act directly and in person in the exercise of any of such shareholder’s rights as a shareholder • Any appointment by a shareholder of a proxy is revocable, unless the form of instrument used to appoint such proxy states otherwise • If an appointment of a proxy is revocable, a shareholder may revoke the proxy appointment by (i) cancelling it in writing, or making a later inconsistent appointment of a proxy; and (ii) delivering a copy of the revocation instrument to the proxy and to the relevant company • A proxy appointed by a shareholder is entitled to exercise, or abstain from exercising, any voting right of such shareholder without direction, except to the extent that the relevant company’s MOI, or the instrument appointing the proxy, provides otherwise • If the instrument appointing a proxy has been delivered by a shareholder to a company, then, for so long as that appointment remains in effect, any notice required in terms of the Companies Act or such company’s MOI to be delivered to a shareholder must be delivered by such company to: – The relevant shareholder, or – The proxy or proxies, if the relevant shareholder has (i) directed such company to do so, in writing; and (ii) paid any reasonable fee charged by such company for doing so • If a company issues an invitation to its shareholders to appoint 1 (one) or more persons named by the company as a proxy, or supplies a form of proxy instrument: – The invitation must be sent to every shareholder entitled to notice of the meeting at which the proxy is intended to be exercised – The invitation or form of proxy instrument supplied by the company must: » Bear a reasonably prominent summary of the rights established in section 58 of the Companies Act » Contain adequate blank space, immediately preceding the name(s) of any person(s) named in it, to enable a shareholder to write the name and, if desired, an alternative name of a proxy chosen by the shareholder » Provide adequate space for the shareholder to indicate whether the appointed proxy is to vote in favour of or against any resolution(s) to be put at the meeting, or is to abstain from voting • The company must not require that the proxy appointment be made irrevocable • The proxy appointment remains valid only until the end of the meeting at which it was intended to be used DIRECTORATE AND ADMINISTRATION

DIRECTORS: MJ Hankinson* (Chairman), GO O’Connor Auditors (Group CEO), MW Godfrey (Group FD), LM Koyana*, PricewaterhouseCoopers Inc. M Mashologu*, HK Mehta*, P Mnganga*, AG Waller* PO Box 1274 Umhlanga Rocks * Non-executive. 4320 Company Secretary: MJ Hogan Sponsor THE SPAR GROUP LTD (SPAR) or (the company) or (the group) One Capital PO Box 784573 Registration number: 1967/001572/06 Sandton 2146 ISIN: ZAE000058517 Bankers JSE share code: SPP Rand Merchant Bank, a division of FirstRand Bank Ltd PO Box 4130 Registered office The Square 22 Chancery Lane Umhlanga Rocks PO Box 1589 4021 Pinetown 3600 Attorneys Garlicke & Bousfield Transfer secretaries PO Box 1219 Link Market Services South Africa (Pty) Ltd Umhlanga Rocks PO Box 4844 4320 Johannesburg 2000 Website www.spar.co.za

SUPPORT OUR DIGITAL DRIVE This is why we are going digital: • To provide stakeholders with more detailed and interactive content, clustered around topical matters • To save money and resources (which we can use for other value-creating purposes) by not printing or distributing reports Please help us by signing up for electronic communication only. To register, go to https://www.linkmarketservices.co.za which is a secure platform provided by our transfer secretaries, Link Market Services South Africa (Pty) Ltd. Under the investor section, you can register and login to update your communication details and preferences. All you need is your shareholder number or identity number.

FORWARD LOOKING STATEMENTS Certain statements in this report may constitute forward looking statements. Such statements involve 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, performance or achievements expressed or implied by such statements. These forward looking statements have not been reviewed or reported on by the external auditors. SPAR undertakes no obligation to update publicly or release any revisions to these statements that reflect events or circumstances after the date of this report, or to reflect the occurrence of anticipated events.

GREYMATTERFINCH # 14274 www.spar.co.za