SPP’s FY21 results were disappointing with weak growth in the core SA grocery business and indications of rising expenses in its offshore businesses. The poor growth in the SA grocery was attributed to a high prior year base, liquor restrictions and the civil unrest. However, our analysis finds little evidence of a high base. Instead, we think the performance highlights the dependence of Spar SA on the risk appetite of franchisees. We think labour shortages (especially HGV drivers) could affect all SPP’s businesses in Europe. Both Spar Ireland and Switzerland showed a sharp increase in expenses in 2H21, which may be due to the labour shortage. SPP’s operating leverage increased sharply as the acquisitions added significant fixed costs to the business, while financial leverage has been stable due to low interest rates. We caution that a “perfect storm” of rising interest rates, a slowdown in topline growth and a weak ZAR, could be a significant challenge to SPP. Plans to raise a further R2bn in debt to fund investments in SAP and in Poland increase this risk, in our view.