Pick n Pay invests in customer to score R41.2bn turnover
Companies / 17 October 2018, 07:30am / Sandile Mchunu
DURBAN – Pick n Pay rode the wave of the massive fuel hikes and the one percentage VAT increase in April that constrained consumer spending to record its best ever results during the six months to end August.
The retailer said yesterday that it benefited from decisive action to reduce operating costs, increase productivity and invest more in the customer.
Chief executive Richard Brasher said the momentum became evident as the company maintained lower prices and gave better value to customers.
Brasher said the company made bold choices to ride the stagnating economy in order to raise its bottom lines. “We have acted boldly and taken tough decisions,” he said.
“We have reduced prices of key grocery lines, delivered a more compelling fresh meat and produce offer, and given our customers simpler and more personalised promotions.”
Brasher said the decisions saw the group recording a 6.4 percent increase in turnover to R41.2 billion from R38.8bn in the corresponding period last year in an environment marked by low retail sales. Like-for-like turnover rose by 3.8 percent.
The group’s home operations delivered a 6.7 percent increase in turnover.
Brasher said the group held its internal inflation at 0.3 percent during the period - lower than the 3.5 percent food inflation reported by Statistics South Africa in its consumer price index.
Ron Klipin, a senior analyst at Cratos Capital, said the results showed that Pick n Pay was finally in turnaround mode after a prolonged period of effort by Richard Brasher and his team.
Klipin said the group also gained some market share by offering competitive pricing, entailing price increases of 0.30 percent compared to food inflation of 3.50 percent.
“They have resorted to major cost cutting, which impacted negatively on last year’s results, and are now out of the system, resulting in a robust set of normalised earnings in an extremely competitive operating environment,” Klipin said, adding that supply chain efficiencies had achieved 80 percent of their target, boosting the group’s working capital and borrowings.
“The smart shopper card, now being digitalised, has saved their customers R2.4bn, with a roll-out of own brands a focus for future growth,” he said.
“Management appear to be fairly confident of growth prospects in the LSM 4 to 7 market while looking to become more aggressive in the LSM 9 to 10 markets,” Klipin said.
The group reported a 20percent rise in profit to R489million, while diluted headline earnings per share increased by 17percent to 98.38cents.
It opened 60 new stores and closed 13 under-performing stores.
Pick n Pay has declared an interim dividend of 39.10c a share, up by 17.1 percent as compared to last year’s 33.4c. Its operations in the rest of the continent contributed R2.3bn of segmental revenue, up 0.4 percent.
The group said that without the impact of currency weakness, segmental revenue was up 3.9 percent in constant currency terms, with like-for-like growth of 0.6percent.
Profit before tax increased 7.3 percent to R136.1m, driven by an outstanding performance from the group’s associate in Zimbabwe, TM Supermarkets, which recorded turnover growth in local currency of 30.4 percent.
In Zambia, strong cost control and tight working capital management mitigated the impact of difficult trading conditions.
Samantha Steyn, a portfolio manager at Cannon Asset Managers, said the double digit headline performance figures came as a result of cost savings, operational efficiencies and a reduced interest bill.
“The consumer remains under pressure, and this is more evident in the group’s like-for-like turnover growth, which excludes new stores at 3.8percent.
"Pick n Pay management has stated that there were clear market share gains over the period as a result of reduced prices and increased value strategy,” Steyn said.
Pick n Pay rose 0.80 percent on the JSE yesterday to close at R64.61.