UPDATE 2-South Africa's SPAR annual earnings turn positive, shares surge 10%

* FY Normalised HEPS up 8.8%

* Shares hit 9 month high

* Revises Poland 2021 turnover target

* Poland remains on track to break even by end 2021 (Adds shares, Poland targets)

JOHANNESBURG, Nov 18 (Reuters) - South Africa’s SPAR Group said on Wednesday full-year earnings rose 8.8%, following a slump at half-year, pushing the grocery retailer’s shares to a 10-month high.

By 0818 GMT shares in SPAR surged 10.99% to 201.05 rand as investors cheered a return of earnings growth amid the coronavirus pandemic and an improved final dividend payout.

SPAR, which also sells building materials and medicine, said normalised diluted headline earnings per share (HEPS) - the most widely used profit measure in South Africa - rose to 1,262.6 cents in the year to Sept. 30 from 1,160.6 cents a year earlier.

These were SPAR’s first results to include the full impact of the pandemic.

Having declared a conservative interim dividend of 200 cents per share due to the uncertainty around the pandemic at that time, SPAR declared a final dividend of 665 cents, taking the total dividend to 865 cents for the year, up 8.1%.

Group turnover rose 13.5% to 124.3 billion rand ($8.08 billion), while profitability increased 15.6%, driven by a change in the sales mix as more home consumption boosted higher-margin grocery and fresh categories.

A recently acquired retail business in Poland proved vulnerable to the lockdown curbs, disrupting growth plans, but still swelled group turnover by 2.1 billion rand.

This was lower than the projected turnover growth of 160 million euros, Group Chief Executive Graham O’Connor told Reuters.

“Our guideline for the new year (2021) is actually 200 million euros. We’d guided before at 280 million euros but we won’t get there,” he said, referring to the loss-making Piotr i Paweł Poland business, which is being restructured into SPAR-branded stores.

The change in guideline is due to the closure of the courts, making it impossible to complete business rescue proceedings for the Polish retailer as well as restructuring delays.

O’Connor added that the 2022 and 2023 targets will also be revised “but won’t change that much.”

O’Connor said the Polish business, which made a 470.7 million rand loss, remains on track to break even by the end of 2021, driven by increased turnover, recruitment of independent retailers and rental reductions on loss-making stores. ($1=15.3821 rand) (Reporting by Nqobile Dludla; Editing by Jacqueline Wong, Clarence Fernandez and Kim Coghill)