Pick n Pay: The right plan for tougher times

HIGHLIGHTS

• Trading profit up 15.8% to R641.5 million on a normalised basis
• Headline earnings per share up 11.6% on a normalised basis
• Diluted headline earnings per share up 13.1% on a normalised basis
• Turnover growth of 5.1% to R39.3 billion
• Internal inflation restricted to 3.6%, well below CPI food inflation of 6.9%
• R500 million investment in lower prices, beginning in March with price cuts across 1 300 products
• 63 new stores opened: 40 company-owned stores and 23 franchise stores
• Employee costs improving as a percentage of turnover from 8.6% to 8.3%
• Grocery centralisation increased to 73% in Inland Region and 89% in Western Cape
• Interim dividend of 33.40 cents per share, up 11.7% on H1 last year
• Pick n Pay voted most trusted retailer by South African consumers

Cape Town: Pick n Pay today announced its ninth consecutive period of profit and turnover growth. Headline earnings per share grew 11.6% on a normalised basis, excluding the impact of a voluntary severance programme. Turnover grew 5.1%, reflecting a difficult trading environment and significant investment in lower prices for our customers.

Commenting on the result, CEO Richard Brasher said:

“This has been an important six months for Pick n Pay. Nine consecutive periods of profit and turnover growth demonstrate that we have the right plan to modernise our business, reduce our costs and deliver better value for customers.

“Six months ago, I described the low-growth economy as the new normal. To succeed in this new normal, we had to accelerate our plan. 

“We completed Pick n Pay’s first company-wide voluntary severance programme, reducing roles and functions across the company by 10%. We modernised our Smart Shopper loyalty programme, delivering more relevant savings for customers and saving on our own costs. We launched a programme to buy better from our suppliers and deliver better value to customers.  And we made further progress in centralising our supply chain across the country.     

“Each of these actions has made us a better business. Lower operating costs are giving us the headroom to reduce prices. We have generated R1 billion to invest in the customer at precisely the time that customers most need it. We cut prices on 1,300 everyday grocery products in March and plan to cut more prices over the next six months. 

“Our turnover growth in the first half was constrained by the challenging trading environment and our investment in lower prices to customers. But we have the right plan to succeed in tougher times. By taking action over the past six months, we are more firmly and confidently positioned for future success.

“I want to thank colleagues across our business for their positive response over the past six months.”

COMMENTARY

The Group took decisive steps in the first half of the year to accelerate its turnaround plan. On operational effectiveness, the Group:

• completed its first company-wide voluntary severance programme, removing 10% of Pick n Pay’s roles and functions which were no longer required due to improvements in the operating model
• restricted like-for-like trading expense growth to 1.6%, with employee costs improving by 0.3% pts from 8.6% to 8.3% of turnover
• increased  the total volume of goods centralised from 60% to 65%
• modernised its Smart Shopper loyalty programme. With over seven million active members, Smart Shopper has been recognised as South Africa’s favourite loyalty programme in the Sunday Times Top Brands Awards for the 5th consecutive year
• implemented a programme to buy better from suppliers. This and other work to make the company more efficient enabled the Group to restrict internal inflation to 3.6%, well below CPI food inflation of 6.9%

The acceleration in the turnaround plan and improvement in operating efficiency will deliver at least R1 billion in a full year to invest in better value for customers. Tangible progress in improving the shopping experience in the first half of the year included:

• reducing prices across 1,300 everyday grocery lines in March, with more to follow in the second half of the year
• opening 63 new stores. The Group now has 183 Next Generation stores across Pick n Pay and Boxer
• launching a further 400 new or improved private label products, with private label participation increasing to 19%. Pick n Pay’s convenience range achieved 12 first-place awards in the ‘Sunday Times Food Awards’ – more than double the first-place awards of any other retailer
• launching a redesigned website for online customers
• the Group’s money transfer service, operated in partnership with TymeDigital, had 200,000 customers registered either with Pick n Pay or Boxer by the end of the period
• partnering with the Commonwealth Bank of Australia and TymeDigital to provide greater access to financial services for our customers

Boxer

Boxer celebrates its 40th anniversary in 2017, and continued to grow by giving customers exceptional value in a difficult market.  Boxer opened 13 stores in the first half of the year, and grew its presence in the Western Cape, with two new stores in Mitchells Plain and Worcester.

Rest of Africa

Segmental revenue for the Rest of Africa division increased 12.6% year-on-year (14.3% in constant currency) to R2.3 billion. Profit before tax was up 22.3% from R103.7 million to R126.8 million.  The total number of stores outside South Africa rose to 142 including TM Supermarkets in Zimbabwe.  Despite ongoing challenges in some markets, the Group remains positive about its long-term prospects outside South Africa.

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