Pick n Pay turnaround on track in tougher times

HEADLINES

• 7th consecutive reporting period of sustainable growth
• Headline earnings per share (HEPS) up 23.7%
• Gross profit margin up from 17.7% to 17.9%
• Turnover up 7.2%
• 2-year compound turnover growth rate (smoothing disruption from store refurbishments) close to 8%
• Like-for-like turnover growth of 3.5% (3.8% in constant currency)
• Internal inflation tightly controlled at 5.5%, well below CPI food inflation of 10.7%
• Strong growth in value-added services: commissions and other income up 39.4% to R162.1 million
• Online turnover up 33.7% year-on-year
• Increase in like-for-like trading expenses restricted to 3.8%
• Boxer delivers good turnover growth in challenging market
• 2,100 jobs created in the six months
• 74 new stores opened
• Smart Shopper voted SA’s favourite loyalty programme for the fourth time
• Progress in centralising supply chain: 85% of groceries centralised in W Cape and 75% in Inland region

   

  Cape Town: Pick n Pay today delivered growth of 23.7% in headline earnings per share (HEPS) for the Half-Year ending 28 August 2016. This is the Group’s seventh consecutive reporting period of headline earnings growth in excess of 20%. It was delivered despite a challenging trading environment characterised by sluggish economic growth, depressed consumer confidence and heightened competition.

  PERFORMANCE

  Pick n Pay’s long-term strategy depends on a combination of greater operating efficiency, margin improvement and sales growth. Each were evident in this Result:

  • gross profit margin strengthened from 17.7% to 17.9%, as a result of better buying and a more efficient supply chain. This created headroom to invest in price to help customers under pressure from inflation. Pick n Pay’s selling price inflation over the period was 5.5%, well below CPI food inflation of 10.7%.
  • strong financial control and tight management of costs enabled the Group to restrict growth in like- for-like trading expenses to 3.8% in an inflationary environment. This was achieved despite high regulatory increases in electricity, rates and other utilities.
  • turnover increased 7.2% for the first half of the year (7.5% in constant currency), with like-for-like growth of 3.5% (3.8% constant currency). This reflected the tougher trading environment, together with some disruption from store refurbishments as the company continued to improve the quality of its estate. The two-year compound growth rate, which smooths the impact of disruption, was close to 8%.

The Group improved its trading profit margin for the half-year, up from 1.3% to 1.5% of turnover.

The Boxer team once again delivered a strong sales and gross margin performance in a tough environment, investing in the price of basic commodities to help customers under pressure and strengthening its butchery, fresh produce and convenience offer.

The Group delivered growth in other trading income (excluding non-recurring items) of 18.8% to R508m, driven by stronger value-added services in both Pick n Pay and Boxer. Both delivered strong double-digit growth in all categories of value-added services, including prepaid electricity, third party bill payments, cellular, financial services, ticketing and travel.

The Group declared an interim dividend of 29.9 cents, up 23.6% on the prior period.

AFRICA

Segmental revenue for the Rest of Africa division increased 8.2% in constant currency terms, with like-for- like revenue growth of 2.7%, which reflected difficult tradition conditions in Zambia. The Group is on track in developing its operations in Ghana and Nigeria, with both businesses in an early start-up phase. The first store in Ghana is due to open towards the end of the 2017 calendar year.

Commenting on the result, CEO Richard Brasher said:

“The Pick n Pay turnaround plan remains firmly on track. We are improving our shopping trip, introducing more products, becoming ever more efficient, and reducing our costs.

“It has been a tough six months for customers, who have had to battle higher costs and rising prices. By running a better business, we were able to show that we are firmly on the side of customers – keeping our prices well below the general rate of inflation.

“We made good progress in improving our estate. Our Next Generation stores – both in Pick n Pay and Boxer – are exciting customers and improving returns. We opened 74 new stores and refurbished 35 stores. We are serving more customers in more communities.

“Importantly for South Africa, at a time when our labour market is contracting, we created 2,100 jobs in the last six months for South Africans with a passion for retail and a desire to serve customers.”

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