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Report to stakeholders

Chairman's report

"Our focus on values continues to lie at the heart of our business" The 2013 annual financial period reflects a mixed result for the Pick n Pay Group. The financial performance of the Group continues to be impacted in the short term by the costs associated with our business transformation. The long-term benefits of these initiatives are still to be realised and we know that a lot of hard work lies ahead.

The year ended with the news that, according to a comprehensive survey of the South African public by Ask Africa,
Pick n Pay is the most trusted retailer in South Africa. We work hard – and have done so since our inception – to earn the trust of our customers and the broader South African society. The news was welcomed by all our people, particularly given the extensive transformation initiatives we have been undertaking in recent years, some of which have inconvenienced our customers at times.

ExEcutivE rEviEw

• The appointment of Richard Brasher as Chief Executive Officer who has in a short space of time brought energy and impeccable global retailing credentials to Pick n Pay.
• We have made progress with our distribution strategy. We successfully opened our second major distribution centre, in Philippi in the Western Cape, and are pleased with the progress we have made with our distribution centre in Longmeadow in Johannesburg after the decision to take the management in-house.
• An encouraging new store pipeline across all our retail formats, which will enhance our community coverage and anchor our recovery in the coming year. This will ensure that customer choice and value for money continue to be the hallmarks of the Pick n Pay Group brands, demonstrating the extent to which a focus on our traditional values reinforces and complements the elements of our strategic plans to enhance performance.
• The bedding down of our category buying team. This has changed the way we negotiate with our suppliers, thereby enhancing our buying function to the advantage of customers.
• We streamlined our performance reporting process including changing to a 52-week reporting calendar, enhancing future comparable reporting.
• 95% of our private label supplies were audited for food safety.

Although we have recorded these and other achievements, they are of a longer-term nature with the commensurate benefits only expected to manifest themselves in future financial periods. In the short term they contribute to an anticipated increase in the cost base and a depressed financial result. Our trading results also reflect the challenging conditions that characterise both the global and domestic economies.

The recent weakening of the rand against developed market currencies may bring some relief to the exporting sectors. The impact on the price of imported and dollar-denominated commodities, especially maize, oil and fuel, imported food products and imported inputs into food and other manufactured goods can be ultimately devastating to the poorest of our customers. These customers are always the first to suffer the consequences of rising food inflation. This impact on the consumer is exacerbated by the above-inflation increases in government-administered prices and services such as electricity, petrol, rates and indirect taxes.

We are making representations against increased duties on imported chicken as it will inflate the retail prices which the population cannot afford.

Pick n Pay has always sought ways to mitigate the effects of such cost pressures on our customers. This we have achieved through strategies such as sourcing local merchandise where possible, competitive product-pricing, and managing our directly attributable operational costs without compromising the quality of our service.

As this Integrated Annual Report and our Sustainable Living Report demonstrate, our focus on sustainability continues to lie at the heart of our business model. We do not regard this as a passing fad or a marketing ploy to accommodate the desires of our more savvy customers. Pick n Pay’s commitment to sustainable operating principles goes back to the late 1980s when, if anything, commentators wondered why we were heading in that direction. But in keeping with our traditional core belief that sustainable businesses have an important role to play in the building of sustainable communities, this report records our aspirations and achievements in our efforts to add value to the broader economy and society of which we are a part.

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