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Send  Share  RSS  Twitter  21 Oct 2009

RETAILING: Pick n Pay Shows Positive Performance


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Turnover for the Cape Town-based Pick n Pay group for the six months ended 31 August 2009 increased 12.3% to R26.6 billion. Pick n Pay and Boxer increased turnover 15.3%, which resulted in market share gains from continuing operations. The Franklins increase in Australian Dollars was 3.3% but decreased in ZAR by 8.3% due to the relative strength of the Rand. 

The results of Score Supermarkets have been disclosed as discontinued as the company is closing down its operations with the majority of its property leases being sub-let for operation as Pick n Pay Family franchises. The company considers continuing operations to be a more accurate indicator of the performance of the Group and figures are thus reflective of this consideration.

CEO Nick Badminton said that the six months had been ‘very tough’ and that the Group had performed satisfactorily in this environment, but very well on a number of key strategic initiatives under way.

The trading profit margin dropped from 2.9% last year to 2.8% following a drop in gross profit margin for the period to 18.6% from 18.8% last year. This was a consequence of investing in keeping prices down on certain fast selling lines, among other things. Operating profit at R927.8 million was 35.9% above last year, and includes a profit on sale of certain properties of R190.9 million. Headline earnings per share at 100.30 cents was 11.1% above last year. This excludes the profit on sale of properties and other capital items.

Badminton said that significant progress had been made in the effort to transform Pick n Pay and that some very positive results had been seen to date. These included a market share gain of 0.4% from continuing operations, with significant gains in every fresh food category, together with a 26% sales growth increase in its private label offer, the latter reflecting the consumer trend to value for money.

The Score-to-Pick n Pay franchise conversion process was almost complete, with sales from 48 conversions currently almost as high as that from 126 Score stores previously. The three Pick n Pay Express stores on BP forecourts were performing ahead of expectations and a further two would be opened in the next month.

In looking at the supply chain, the efficiency of its Longmeadow operations had improved markedly and strike rates were now exceeding 90%. The installation of SAP was now 85% complete with only a few hypermarkets and inland franchise stores remaining.

The accelerated refurbishment of Pick n Pay Supermarkets will see an anticipated 34 franchise and corporate refurbishments this financial year.  The enhanced turnover growth experienced by the stores completed to date gives us the confidence to accelerate the programme further and we plan to refurbish of a further 60 stores, including franchise stores, in the next financial year.

A number of factors had a significant impact on our earnings growth, including our continued investment in keeping prices down and a prudent provision against certain franchise debt arising from franchisee working capital constraints caused by the financial crisis.

Importantly, electricity costs soared and look set to escalate further. These costs grew markedly from 3.1% of expenses for the six months ended August 08 to 3.8% of costs for this period. The impact of Eskom’s increases is expected to result in a 40% increase in our electricity bill for the full year, with more to come in subsequent years. We will be doing everything possible to absorb as much of this increase as we can.

Looking ahead, the Competition Commission investigation into food pricing is ongoing and we continue to give the process our full co-operation.

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