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PnP to spend R1.8bn on new stores

Companies
Cape Town - Retail chain Pick n Pay on Wednesday said it would spend R1.8 billion on opening new stores and refurbishing old ones this year as it looks to accelerate its turnaround strategy to win back market share. The company reported an 18 percent rise in profits for the year ended February.

Pick n Pay shares dropped 4.4 percent to close at R61.69.

Chief executive Richard Brasher said the results indicated that the group had maintained momentum of the past four years as it has tightened its operating model and centralised its supply chain in the process.

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A customer walks beneath the logo of South African supermarket operator Pick n Pay in Cape Town

“We are now a much better business for our customers than we were four years ago,” Brasher said. “With a cost-effective and efficient engine and effective platforms for long-term growth, we are well advanced on our journey to restore a sustainable profit margin to the business.”

The company, which was once regarded as the favourite by customers and investors alike, has ceded its market share to rival Shoprite in recent years. But yesterday it said it was confident that it would meet its investment requirements through internal cash-generation and cost-effective short-term borrowings.

A leaner and meaner Pick * Pay has emerged since Brasher took over the reins at the company in 2013.

Turnaround

The former Tesco chief executive has put his energies into turning around the fortunes of Pick n Pay.

When he left Tesco in 2012 it had a turnover of £4 billion (R67.39 billion) and generated a trading profit of £2.5 billion. It remains the largest private employer in the UK, with more than 2800 stores.

For the year ended February, Pick n Pay’s headline earnings per share went up by 18percent while the company opened 151 new stores in the period.

The company’s trading profit rose 17 percent year-on-year to R1.7 billion, more than double the profit of four years ago. Turnover increased 7 percent from R72.4 billion in the last reporting period to R77.5 billon in the period under review.

The company attributed the moderate turnover growth to the difficult consumer environment in South Africa.

The group said it would pay a dividend of 176.30 cents a share for the year, up from the 149.40c it had declared in the corresponding period. As part of speeding up its turnaround plan, the company earlier this year introduced R500 million in investment on lower prices and modernised its Smart Shopper Loyalty scheme.

Basher said the group was determined to make good of its turnaround blueprint as to unlock value for shareholders.

“Pick n Pay is determined to succeed in this new normal by accelerating the pace of its plan, in particular by reducing its costs further in order to create additional headroom to deliver lower prices and better value for customers.”

Pick n Pay chairperson Gareth Ackerman said the company’s turnaround plan had begun to pay off.

“We are now a more centralised business, a more efficient business, with better service and more innovation,” Ackerman said. “We have picked up pace and have pursued a clear plan under Richard Brasher’s leadership over the past four years. This is demonstrated in the result today.”

An analyst at Vestact, Sasha Naryshkine, said Shoprite would continue to hold the lion’s share of low-income customers. “Despite the high expectations that Pick * Pay captures significant market share away from Shoprite and other food retailers, Shoprite was still well placed to leverage on growth opportunities in the low-income consumer market segment and those customers that are trading down due to a slowdown in economic growth,” Naryshkine said.

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