Pick n Pay releases first set of results under new CEO

The retailer is in the midst of a turnaround‚ having lost market share to rivals over the past few years as it struggled to implement changes to its information technology and distribution networks‚ while battling high costs.

For the 52 weeks ended 2 March‚ like-for-like growth was subdued at 2.7%‚ reflecting the difficult trading environment across the sector.

Customers are facing increasing financial pressure as a result of rising fuel‚ electricity and other utility costs‚ rising interest rates and levels of household debt. The weak rand is also contributing to rising commodity and consumer goods prices.

Fewer trading days

The group implemented a 52-week financial reporting calendar in February last year. The 2014 financial year therefore consists of 364 trading days of turnover and related gross profit‚ compared with 368 days in the prior year.

Basic earnings per share increased 6% to 122.01c per share. The new 52-week reporting calendar resulted in the current reporting period being four trading days fewer than the prior year.

The comparable earnings per share (EPS) growth‚ if the impact of 14.64c per share attributable to the additional trading days is excluded‚ was 21.4%.

Given the increase in turnover and reduction in trading expenses‚ headline earnings per share increased 24.4% to 138.51c per share.

Taking into account the new reporting calendar‚ the comparable headline earnings per share (HEPS) growth was 43.3%.

Pick n Pay's progress

CEO Richard Brasher said that the company had taken very decisive action in a number of areas over the past year.

"We are a stronger business than we were 12 months ago. I am particularly pleased by the progress we have made in becoming more effective‚ efficient and productive. This has enabled us to reduce our operating expenses as a percentage of turnover despite rapidly rising fuel‚ utility‚ property and other costs‚" he said.

These are the first annual results under Brasher‚ who joined the group in February last year. He was previously Tesco's CE of its UK operations‚ where he had a record of cost-cutting.

Pick n Pay's internal selling price inflation for the year was 5.3% from 4.9% in 2013‚ against CPI inflation of 5.8%.

The gap between the group's growth and overall market growth narrowed from 2.5% in the previous year to 0.7% this year.

Trading expenses as a percentage of turnover were reduced from 17.1% to 16.7% and its trading profit margin improved from 1.3% to 1.6%.

The group opened 111 new stores during the year and closed 26 under-performing stores‚ adding 3.4% net new space.

Centralisation

Pick n Pay completed the centralisation of its buying‚ operational and finance support functions‚ removing duplicate costs and services in the business.

"The benefits of our central distribution strategy are increasing‚ with improved efficiencies and meaningful cost reductions across our supply chain‚ including removing four-days value of inventory from our stock levels‚ providing our stores with strike-rates that are significantly better than those of direct to store suppliers and improving overall availability by 2.4 percentage points‚" it said.

The total dividend per share for the year was 92.30c‚ up 9.9% on the prior year‚ in line with the group's policy to moderate the dividend cover to 1.5 times headline earnings per share.

Outside South Africa‚ the retailer increased segmental revenue by 27.9% on a comparable basis and increased like-for-like segmental revenue by 9.4%. In the course of the year it closed its Mauritius and Mozambique franchise operations as they did not offer the group a sound basis for sustainable growth.

Pick n Pay said it had experienced good growth in Zambia‚ and has installed a team on the ground in Nigeria to explore opportunities in that market.

"Much work lies ahead in what is a difficult trading environment. We have a clear plan to improve the shopping trip for our customers‚ drive higher turnover growth‚ and deliver further operating efficiencies and cost savings‚" Brasher said.