Chairman's report

 

The results presented in this Integrated Annual Report demonstrate a marked improvement in the second half of the financial year, driven largely by the major initiatives we have undertaken to transform the business in accordance with a clear strategy and implementation plan. This encouraging performance vindicates the tough choices we have made in recent years to reposition the Group for future expansion and growth.

In the year under review we have delivered substantively on our strategy and the undertakings given to our stakeholders. Notable achievements have included the sale of our Australian business for R1.2 billion, net of fees, the launch of our Smartshopper programme which has exceeded all our projections, an accelerated store roll-out and good progress on several comprehensive transformation projects within the business.

In context, however, trading has occurred in an uncertain economic environment: consumer confidence remains tenuous and slow to recover, with high levels of household debt and further increases in inflation putting pressure on disposable incomes. At the same time, the retail sector has experienced profound changes, posing new challenges to our competitiveness and necessitating a more urgent focus on our determination to improve operating efficiencies and provide a superior customer experience. While the retail industry is hardly a stranger to high levels of competitiveness, this new era takes competitiveness to a greater level. This is ultimately good for the consumer.

We are bound to acknowledge that government has achieved much in improving the quality of life of our citizens and that its management of the economy has, so far, been worthy of praise, and we thus owe government our support where it is due. Macro-economic stability has been impressively maintained in the face of the global financial crisis, inflation has been contained and economic policy has been fiscally prudent. But unemployment remains high, ageing infrastructure has constrained growth and daunting economic problems remain from the apartheid era. It is often said that government alone cannot resolve these issues and Pick n Pay has always believed that business has a duty to partner with government in the urgent task of economic development and socio-economic progress.

 

In the South African context, a sophisticated business sector is well placed to collaborate with government to create public policy and to fashion appropriate legislative frameworks which provide precisely the long-term vision envisaged by the work of the National Planning Commission.

As this report records, Pick n Pay has made great strides in advancing such a contribution. Whether in the nurturing of small-scale producers of agricultural produce, the mentoring of black-owned enterprises as suppliers to our stores, or the many projects undertaken as part of our corporate social investment commitments, we have sought to support and complement government’s efforts to create a society that is prosperous, stable and confident of its future.

Pick n Pay can regard with pride the contribution it has made to society since the dawning of a democratic South Africa and before. As an engaged corporate citizen, we take our social, economic and environmental responsibilities and obligations very seriously. In meeting these responsibilities, we have been guided by our core principle that doing good is good business, but also by the national priorities set by government, particularly in the fields of job creation, the nurturing of skills among emerging entrepreneurs and the advancement of certain key objectives such as education and the combating of HIV/Aids.

Domestic and foreign investor uncertainty would be greatly reduced were government to feel more confident that there is much to be gained from greater co-operation with the private sector and placed greater faith in the potential of public-private partnerships.

For our part, Pick n Pay will continue to explore strategies and opportunities that augment such collaboration in building the nation in which so many South Africans have invested their hopes and aspirations.

In seeking to operate profitably, we owe it to our shareholders to hold government accountable when it behaves in a manner that compromises our ability to conduct our business effectively and efficiently. Unlike labour, business is not in alliance with the governing party, and thus often struggles to have its voice heard above those with more privileged access to national policy debates.

At the time of writing, we launched our new “Goodness” programme, which illustrates our commitment to South Africa both economically and socially and underpins our three main focus areas within Pick n Pay: doing good is good business, consumer sovereignty and business efficiency. While this is a contemporary look at our initiatives, it amply cements our legacy as a company that is fully in tune with South African society.

Through the Pick n Pay Ackerman Foundation, we partner with emerging producers so that they can enter the supply chain as suppliers to our stores in their own right. Our small business incubator initiative offers not only funding, but also expertise to emerging producers and manufacturers in terms of mentorship and access to experts in the field. From milk to olive oil and charcoal, we are assisting small businesses and producers to develop their enterprises and get their products onto our shelves and into the baskets of our shoppers.

For the past five years, we have been investing each year to develop and mentor these independent businesses and we are really pleased with what they have achieved so far.

A major focus area for Pick n Pay is environmental sustainability and we are striving to be South Africa’s greenest retailer. We have won a great number of awards in the past year, such as the Sunday Times Top Brands Grand Prix Award for the third year running for doing the most to promote a more “green” lifestyle and second place in the Mail & Guardian’s annual Greening the Future awards for the most innovative environmental strategies. Pick n Pay was also awarded the Environmental Social Governance award and the Innovation Through Technology award at the annual African Access National Business Awards.

For Pick n Pay, sustainability is more than just being a “green” company. Our approach is to ensure we become a more resilient company by embedding sustainable practices in our core activities. These have positively impacted our bottom line, as they should.

Just after our financial year-end, we finalised our agreement with BP South Africa which will see the roll out of 120 Pick n Pay Express stores on BP forecourts over five years. This is a significant venture and allows us to expand our footprint in this format and benefit from an association with one of South Africa’s top petroleum companies.

Our expansion into Africa during the last year brought our store footprint to 94 and will continue deliberately and strategically into the next financial year, with openings set for Mozambique, Zambia and Mauritius. In February 2012 we subscribed for an additional 24% stake in our associate TM Supermarkets in Zimbabwe, taking our total investment to 49%.

While this Integrated Annual Report records much of which we can be proud, there is still much work to be done on transforming the business. A key focus area for us is customer service, which will receive our full attention in the year ahead and beyond. An integral part of this is our ability to staff our stores correctly and the labour agreement reached during the last financial year will go a long way towards making sure that the optimum staffing levels are achieved, which should have a significantly positive effect on customer service.

What I can confidently assert is that after several years of extremely difficult trading conditions, often dramatic restructuring and very considerable capital expenditure, Pick n Pay is beginning to demonstrate the tangible benefits which have been our goal since we launched this ambitious transformation programme some five years ago. The marked improvement in our second half result provides powerful momentum as we enter the new financial year.

There is a new energy across the Group and the “green shoots” towards which I have looked are becoming evident. I am confident that we have reached a significant turning point in Pick n Pay’s fortunes and that the building blocks are in place for us to become the most efficient and profitable business in South Africa’s food retail industry.

Towards the end of the financial year, Nick Badminton retired after 6 years as CEO and 33 years with the Company. He has played a critical role in transforming the business and I am extremely grateful for the loyalty, dedication and competence which characterised his years with Pick n Pay. He takes with him our very best wishes for his future.

My thanks to Richard van Rensburg and the Group Executive team for stepping up and running the Company so efficiently and effectively while we search for our new CEO.

Gareth Ackerman
Chairman

Cape Town
10 May 2012