Spar Group’s board has recommended to shareholders that Graham O’Connor be re-elected as a nonexecutive director at the upcoming annual general meeting — notwithstanding the fallout over Spar’s many missteps under his watch, including, most recently, an acrimonious legal battle with one of its largest retailers.
In its recently released integrated annual report, the nominations committee says that in accordance with the board charter, O’Connor’s independence and performance were reviewed by the committee. “Based on the results of these assessments, as accepted by the board, the board recommends to shareholders that Graham … be re-elected as nonexecutive director of the company.”
O’Connor is one of five directors seeking re-election at next month’s AGM. He also happened to be chair of the nominations committee that undertook the assessment. He has since stepped down from that position.
O’Connor is one of five directors seeking re-election at next month’s AGM. He also happens to be chair of the nominations committee that undertook the assessment
Until a few weeks ago O’Connor was also chair of the Spar board. However, after some governance concerns were raised in the media, chiefly about the fact that he’d moved seamlessly into the role of chair from his post as CEO, which he’d held for eight years, the board announced in early December that O’Connor was stepping down as chair but would remain on the board.
Days later the board announced Mike Bosman would replace O’Connor as chair. As chair of Spar’s nominations committee O’Connor presumably played a decisive role in Bosman’s selection.
His chair’s review, written shortly before Bosman took over, contains O’Connor’s first public comments on the recent media controversy, which he says has been damaging for the Spar brand and deeply concerning. “During this time my lack of independence as chair has come under increased scrutiny,” says O’Connor. He reminds shareholders that in 2019 at the time of his retirement as CEO the board debated the advantages and disadvantages of appointing him as chair. The board “believed the benefits of me leading the board from a position of extensive experience and firm integrity, far outweighed a more independence orientated salutation as set out in the King 4 code on corporate governance”.
O’Connor says the board engaged with major shareholders and appointed Andrew Waller as the lead independent director. He doesn’t name the shareholders or say whether they actually approved the move but 76% of shareholders attending the 2021 AGM gave the necessary approval to his appointment as a nonexecutive director.
Spar’s major shareholders include the Public Investment Corp, Coronation Fund Managers, Foord Asset Management, Old Mutual Investment Group, Vanguard Investment Management, Allan Gray and BlackRock.
Because of the recent media allegations, O’Connor says he believed it was in the best interests of Spar to step down as chair.
Bosman’s appointment pushes his board commitments above the recommended limit of five. He is currently chair of restaurant franchiser Spur Corp and independent wine distribution company Vinimark Trading and is also a nonexecutive director of food group AVI, telecom giant MTN and tech firm EOH.
At the Spar AGM in February 2021, a few months after it had been announced O’Connor would take over the role of chair effective March 2021, 23.37% of the shareholders in attendance voted against O’Connor’s re-election as a director. Ahead of that AGM Spar’s nomination committee had assessed his eligibility as chair and recommended his appointment.
Yet O’Connor’s reign at Spar has not been particularly rewarding for shareholders. Though he has overseen substantial growth in its international operations — the latest annual report reveals Southern Africa accounts for just 65% of group turnover and international operations the rest — it has been at huge cost to its core financial ratios.
Spar’s p:e has plummeted from a high of 19.7 in 2015 to 11.8 at end-September 2022; return on equity has also spiralled downwards, from 44.7% in 2015 to 23.4% in 2022. The share price is back to levels last seen in 2014; worse still, this once-generous dividend payer announced early last year that it was halving payouts for two years. Given how tough things look over the near term, it’s difficult to see how that deadline won’t be extended.
Debt-funded international acquisitions have forced the group into a straitjacket that leaves it with almost no room for strategic manoeuvre
The debt-funded international acquisitions have forced the group into a straitjacket that leaves it with almost no room for strategic manoeuvre. In 2013, ahead of the spending spree, the group was making annual interest payments of around R25m and had no long-term borrowings. In 2022 finance costs were a near-crippling R984m on long-term borrowings of just over R7bn.
It's hardly surprising that in its 2002 report the audit committee notes yet again that “adequacy of the group’s banking facilities” is one of the two key matters identified as areas of focus for financial 2023.
The other is “strengthening the internal audit structure”. In his report Waller, chair of the audit committee, points out that the directors are responsible for the company’s systems of internal financial control. “These 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 and to prevent and detect misstatement and loss.”
On this point Waller says that during the year management identified higher levels of overdue receivables and weaker collections across the business. However, he adds, “rigorous processes were introduced to bring the position back to within company policies”.
Then there’s Spar’s legal battle with the Giannacopoulos Group, which owns 45 Spar stores, and is claiming R2.1bn in damages.
Not that any of these issues will necessarily be aired at next month’s AGM. The sort of large institutional investors who feature among Spar’s major shareholders generally prefer to operate in secret or, worse still, do nothing at all.
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