Western Cape Business News

Send  Share  RSS  Twitter  23 Apr 2009

RETAIL: PnP To Invest R1.4b


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In the face of an economy characterised by retrenchments, cutbacks and slowing investment, Pick n Pay said yesterday that it would invest R1.4-billion in the year ahead, and would help to create new jobs through its new store roll out and refurbishment programme.

CEO Nick Badminton said that although many would see this as counter-trend, Pick n Pay’s confidence in South Africa’s ability to recover relatively quickly from the economic downturn meant that it would not only continue its investment in key areas, but would step it up. “Retail is a significant proportion of the country’s GDP and we are happy to play our part in ensuring that South Africa’s economy continues to perform well, particularly given the pressures being felt globally. We feel strongly that what the country needs now is confidence and investment in order to recover quickly.”

The company today released its results for the year ended February 2009, reporting turnover growth of 17.4% to R49.9-billion, an increase in trading profit of 11.2%, diluted headline earnings per share increase of 18.1% and headline earnings per share of 232.48 cents, an increase of 13.4%. In line with the company’s 40 year history of paying increased dividends, the company declared a dividend for the year of 170 cents, an increase of 14%.

Despite this generous dividend, the company's cashflow allows for a R1.4-billion investment, including new stores, store refurbishments, distribution improvements and the completion of the SAP roll out.

Market share grew in March 2009, year on year.

The year was characterised by an aggressive focus on gross margin in order to keep prices as low as possible for consumers battling high interest rates, high food inflation and a slowing economy. Although this put a significant pressure on our operations, the investment was well worth it.”

The trading profit margin was down from 3.6% to 3.4%, illustrative of margin sacrifice to bring prices down in this trading environment.  This decreased margin was cushioned by a reduction in expenses of 0.2% of turnover.

Interest received increased over last year due to higher interest rates and better average cash balances. Interest paid was also up on last year due to the R500 million term loan drawn down in June 2007, owing for a full year. 

Headline earnings per share at 232.48 cents reflects an increase of 13.4%. Diluted HEPS shows an increase of 18.1% as last year’s base already allowed for the full dilution of the 20 million new ordinary shares issued on 31 December 2007.

Cash generated from operations shows a healthy increase which reflects robust trading and improved working capital management.

 “Hypermarkets traded strongly, especially in the new format and refurbished stores. Supermarkets continue to show robust turnover growth, particularly from our new look refurbished stores such as Claremont (sales up over 30% since re-opening), Benmore (sales up over 80%) and Bedfordview (sales up over 40%). Based on this positive uplift in turnover from the 23 supermarkets (11 corporate, 12 franchise) refurbished in the current year, we will be expanding our ‘new look’ refurbishment programme in the year ahead to another 54 stores (21 corporate, 33 franchise).

The performance of our newly converted Score-to-Pick n Pay franchise stores has been nothing short of phenomenal. In some cases, turnovers have more than doubled.  We’re delighted with their performance and our conversion programme will continue during F10. 29 are now completed and next year, we plan to convert a further 25 stores to complete the conversion programme, with the only stores remaining to be converted in the 2011 financial year being a few in Botswana.  In addition, we have converted nine Score stores to Boxer and plan to convert a further four stores to Boxer in F10.

We are also pleased with the performance of our new “Express” stores, our operation in partnership with BP. As a result, we will open another two pilot stores this year. Consumer acceptance has been exceptional.”

Boxer produced another very solid result with a significant increase in turnover and profit.

Franklins Australia saw a substantial turnaround with turnover growing 18.2% in ZAR and 3.5% in AUD, and delivered a swing of R52 million to a R23.5 million trading profit before capital profits. The key drivers to this significant improvement were attributed to increased operating efficiencies and double digit turnover growth from refurbished stores. 

The success of the 11 fully refurbished stores in the current year is not only producing good turnover growth and increased profitability but starting to open doors with landlords for prospective new stores. During the 2010 financial year Franklins will complete another 14 store refurbishments.

Franklinsbusiness model continues to prove resilient in the challenging Australian retail environment as consumers seek new ways to save money and as they respond well to the company’s increased promotion of weekly specials. 

We are delighted by the outstanding turnaround achieved by Franklins which has now established a solid foundation for long term growth in Australia.”

Turning to operational highlights, Badminton said: “our SAP implementation is now 65% complete, with the remaining Pick n Pay regions to be completed in the next 18 months at a cost of R86-million, which includes capital items. 

In looking at supply chain development, Phase 1 of the Longmeadow Distribution Centre is now complete and all set-up costs fully absorbed, with the distribution centre now supplying all 263 inland stores. In Phase 2, currently in progress, we will increase capacity and volume of product through Longmeadow, centralize key suppliers and automate replenishment to stores.

We have implemented many new sustainable development initiatives within the Group around energy saving, reducing our carbon footprint, and recycling. Sustainable practices are becoming a new way of life at Pick n Pay and we are confident that not only will it cultivate a more sustainable environment but will also lead to increased operating efficiencies.

We continue to facilitate ways our customers can help the environment. As an example, we have recently launched an initiative to encourage customers to significantly reduce the use of plastic bags.  We also undertook 23% fewer airtrips during 2009 by using videoconferencing, a substantial contribution to reducing our carbon footprint.

Two years ago, we outlined our strategy; we are very pleased with our progress to date and we are very much on track to deliver each component part of our strategy.

Taking into account both the very tough trading conditions and the level of investment we’re continuing to make, we’re pleased with this result.

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