Press releases

Good progress on pick n pay plan

Tuesday, 26 April 2016

GOOD PROGRESS ON PICK N PAY PLAN
Announces entry into Nigeria with partner AG Leventis

KEY FINANCIALS
  • Turnover up 8.2% - highest since 2010
  • Like-for-like turnover up 3.8% and sales from new space up 4.4%
  • HEPS up 26.4%
  • Gross profit margin improves to 17.9% – notwithstanding investment in price
  • 24.1% increase in other trading income; value-added services up 35%
  • Internal inflation tightly controlled at 3.1% vs CPI Food at 5.3%
  • Like-for-like trading expenses contained at 5.0% despite above inflation increases in electricity, utilities and security costs
  • Segmental revenue for Rest of Africa Division up 15.9% in constant currency terms; 8.8% reported

ACHIEVEMENTS FOR THE YEAR
  • Positive like-for-like volume growth
  • Strong promotional campaigns including Birthday, Stikeez and Black Friday
  • 10.7m Smart Shoppers – South Africa’s favourite loyalty programme
  • 250 new private label products; further 650 re-launched
  • 175 new stores including 46 tailored to growing convenience market
  • 241 suppliers added to centralised supply chain
  • On-shelf availability up to 96% in Pick n Pay owned stores
  • Over 4,500 jobs created over the financial year

[Cape Town, 26 April 2016] Pick n Pay today reported a strong financial performance for the year ending 28 February 2016, with its highest turnover growth for six years, an improved gross profit margin, sound expense control and greater operating efficiency. Pre-tax profit was up 22.3% on the equivalent period last year, demonstrating substantive progress in executing the Group’s three-stage turnaround strategy. Before the impact of capital profits and losses on the disposal and impairment of assets, pre-tax profit was up 26.1%.

PERFORMANCE
Group turnover grew by 8.2% to R72.4bn. Both like-for-like turnover growth at 3.8% and the contribution from net new stores of 4.4% were stronger than in the previous year. On a constant currency basis, Group turnover increased 8.6%. However, currency weakness in Zambia had a dilutive impact on the reported number, particularly in the second half of the year.

The Group’s profit before tax, before capital items, was up 26.1% to R1,506.1-million, with the margin increasing to 2.1%, from 1.8% last year.

Basic earnings per share increased 22.5% to 219.11 cents per share. Headline earnings per share increased 26.4%to 224.04 cents per share. The Group declared a total annual dividend of 149.40 cents, up 26.3% on the prior period.

HIGHLIGHTS OF THE RESULT
The Group supported customers with meaningful price investment in an increasingly challenging economic environment, holding down internal selling price inflation to 3.1% over the year, compared to CPI Food inflation of 5.3%. Despite this, gross profit margin improved from 17.8% to 17.9% as a result of better buying and greater operating efficiency.

A 24.1% increase in other trading income demonstrated the Group’s commitment to broadening and improving its customer offer. Income and other commissions from value-added services, which includes pre-paid electricity sales, third party bill payments and financial services, increased by 35.0%.

The improvement in the Group’s trading profit margin from 1.9% to 2.1% demonstrates that Stage 2 of the Pick n Pay turnaround plan – Changing the Trajectory of Pick n Pay – is delivering results.

Commenting on the result, CEO Richard Brasher said:

“This was a strong performance by Pick n Pay. I have always said that an effective turnaround must be customer-led as well as cost-driven. This result shows that we are delivering on both objectives. We are improving our products, our stores, our range, our availability and our service. Customers are noticing and have rewarded us with our best turnover growth for six years.

“By opening another 175 stores, we are serving more customers in more communities, some for the very first time. I believe that Pick n Pay is a force for good. By investing billions in new stores and refurbishments we are not only improving our business but creating thousands of jobs and hope for the future. At a time when many customers are finding it hard to make ends meet, we are helping by keeping prices as low as possible. Our in-store inflation at 3.1% is well below CPI food. Every Rand we save for customers is a Rand more that they can put towards feeding their families.

“We have achieved this by working harder and getting better at everything we do. We are buying better, diversifying our sales, benefiting from greater centralisation of our supply chain, bearing down on costs, and improving our efficiency.

“Better for customers, simpler for staff, cheaper for the organisation. This is good for shareholders. We have improved our trading profit margin and delivered another substantive improvement in profits. We are making real progress on our turnaround plan and our aim to restore Pick n Pay to long-term sustainable growth”.

AFRICA
Segmental Revenue outside South Africa was up 15.9% in constant currency terms, with like-for-like revenue growth of 4.4%. Profit before tax for the division was up 19.6% on last year. The company said it was confident in its long-term prospects outside South Africa and would continue to pursue opportunities to grow its footprint, including by opening its first stores in Ghana by the end of 2017.

PICK N PAY ANNOUNCES ENTRY INTO NIGERIAN MARKET
Pick n Pay also announced that, following extensive market and consumer research, it would partner with Nigeria Stock Exchange-listed AG Leventis to enter the Nigerian market. Pick n Pay would hold 51% of the joint venture.

AG Leventis has nearly 90 years’ trading experience in Nigeria, with a history of investing in long-term quality assets. The company said it intended rolling out a combination of large and smaller formats to meet consumer needs in Nigeria, offering ranges tailored to local communities.

Speaking today at the release of the company’s year-end results, CE Richard Brasher said:

“The opportunity presented by Nigeria is well-known: a population of 180m, an economy worth US$500 billion, and GDP growth of around 5% a year. Some analysts forecast that by 2030 Nigeria could have 160m households with sufficient incomes for discretionary spending, and a consumer goods market worth more than US$1 trillion.

“The development of modern shopping malls since 2005 in a few major cities reflects rising incomes and changing lifestyle options enjoyed by middle class Nigerians. Existing formal players in this market have relatively little scale.

“Nigeria is a country and a market which Pick n Pay cannot ignore in its quest for long-term sustainable growth. The challenge of course is how to succeed in Nigeria. We can all point to examples which have not worked.

“I set three pre-conditions for success in the Nigerian market:

  • first, we need to understand local consumer needs and how these are evolving in the country. We have done an enormous amount of research on-the-ground over the past two years to get this right.
  • secondly, given the complexities of the Nigerian market, we believe a joint venture with an experienced local partner is the right approach. I am delighted with our decision to enter Nigeria with AG Leventis, which has nearly 90 years’ trading experience in the country. AG Leventis has huge expertise in supply chain logistics from their activities in the FMCG, motor vehicle, logistics and real estate sectors, and notable FMCG capabilities through Leventis Foods.
  • thirdly, as elsewhere in Africa, our growth must take place in a deliberate, planned, and unhurried way, without putting the business under undue risk.

“Leventis is a family business with a similar operating ethos to that of Pick n Pay and I am confident that we have the right decision, the right partner and the right plan.”

AG Leventis Group Executive Vice Chairman and CEO Michael Economakis said:

“Pick n Pay as an African brand is among the largest supermarket chain stores in South Africa. Pick n Pay is known for their brand values, quality and excellent service. We are delighted about this partnership with a highly recognized and trusted brand whose values, operational ethics and dynamism fully align with those of AG Leventis Group. The consumer market in Nigeria is growing with a preference towards quality and affordable goods. Our partnership with Pick n Pay will deliver unparalleled service delivery in Nigeria. Furthermore, this partnership is set to create jobs and youth empowerment.”


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