PnP announces another substantive improvement in profits

Richard Brasher

Group turnover increased by 8.5% to R34.9 billion, while like-for-like turnover growth was 4.4% and nett new stores contributed 4.1%. The group's pre-tax profit margin was 1.3%, up from 1.1% for the equivalent period last year.

Basic earnings per share increased 22.1% from 54.39 to 66.40 cents per share. Headline earnings per share increased 23.4% from 53.98 to 66.62 cents per share. The group declared an interim dividend per share of 24.20 cents, up 23.5% on the prior period.

Commenting on the result for the first half of the year, CEO Richard Brasher said: "This is a good result by Pick n Pay, fully in line with our turnaround strategy for the business.

"I set out Stage 2 of this strategy six months ago. Its key objectives are to improve the shopping trip, accelerate sales growth, enhance our operating efficiency and restore our trading profit margin to a sustainable level. By doing this we get the business in the right shape to maintain profit growth in the long term.

"Six months on, we are delivering on each of these objectives. We have improved our products, our range and our availability. Brand match is increasing confidence in our pricing. We have run strong promotions through birthday and Stikeez. Customers are responding positively and that is reflected in our sales growth.

"We are accelerating the improvements to our business model and transforming the substance and value of our offer. Our next-generation stores are exciting customers and provide a very strong blueprint, for both new and refurbished stores.

"In a difficult trading environment, we have invested in the shopping trip to help customers. But by improving our operating model and reducing our costs we have maintaining our gross profit margin.

"We have improved our trading profit margin and delivered another substantive improvement in profits.

"Conditions are tough, but we are on track with our plan. There is more to come from Pick n Pay. Customers know this and I am confident that they will increasingly reward us with their loyalty."

The group launched Stage 2 of its recovery at the beginning of the financial year, setting out to change the trajectory of the group's performance. Key indicators of progress at the half-year include:

• Accelerated turnover growth: 8.5% turnover growth for the group in the first half of the year is a significant increase on the 6.1% achieved in the previous financial year. Like-for-like growth increased from 3.6% at the last full year to 4.4%, and sales growth from nett new space grew from 2.5% to 4.1%.

• Innovating for customers: The group substantially improved the shopping trip. Customers are noticing the benefits at store level, through better availability, a more attractive fresh offer, a relaunched private label, an expanded and improved brand match, a strong birthday promotion and an increasingly individualised Smart Shopper. Pick n Pay also got South Africa talking, collecting and swapping through its very popular Stikeez campaign towards the end of the half year.

• Customer-facing improvements: A focused investment in the design, flow and organisation of stores, together with better product ranging, resulted in an increased momentum in sales growth from new space. The group opened 83 new stores in the first half. It launched its first next-generation store at Blue Hills in Joburg, and refurbished two other stores as next generation during the period. All three have been very well received by customers. These have set a strong benchmark for future store openings. The group expects to maintain this pace of opening in the second half, as it leverages its format flexibility and its strategy to open more stores in locations which cater for customers seeking daily convenience. Twenty-seven refits took place in the first half and a similar number are scheduled for the second half of the year.

• Operational improvements: The group has continued to improve supply chain and store efficiencies. Trading expenses expressed as a percentage of sales were reduced from 17.5% to 17.3%. These efficiencies generated headroom to invest in the shopping trip at a particularly challenging time for customers - while enabling the group to maintain gross margin at 17.7%.

As a result of these and other improvements, the group improved its trading profit margin from 1.2% last year to 1.3% in the first half of this year. A 23.3% savings on nett finance costs saw the nett profit before tax margin improve from 1.1% last year to 1.3% in the first half of this year. This represents real progress in the group's strategic aim of restoring its profit margin to a sustainable level.