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Report to stakeholders

Chief Finance Officer's report

"Pick n Pay is a growing business in a growing market; however, we delivered a result that did not turn those sales into sufficient profit"

Pick n Pay is a growing business in a growing market. We’ve served more customers and sold more products this period than we did last period. However, we have delivered a disappointing result as we failed to turn those sales into sufficient profit. We have invested heavily to build a better future for Pick n Pay. These investments have yet to generate sufficient value for our customers and shareholders.

The Group experienced a challenging trading period against a backdrop of depressed economic growth and waning consumer confidence.

• The South African economy continues to record low economic growth driven by low demand from developed economies and uncertainty created by industrial action. This resulted in moderate salary increases for many of our customers.
• Household cost inflation was significantly more than overall inflation, particularly considering increases in electricity, fuel and rates and taxes.
• Historic low interest rates place pressure on the disposable income of our customers who rely on investment income.

The pressure on customers’ disposable income, combined with continued competition for market share by an increasing number of market players vying for the same basket, contributed to unsatisfactory turnover growth of 7.1%. Operating profit at R808.9 million, 30.9% below last financial period, reflects our weak trading performance. We have invested in the business and we now need to ensure we deliver the benefits.

The Group adopted a 52-week financial reporting calendar for all future annual financial periods. This change will align financial reporting with Group operational structures and will improve comparative reporting to both internal and external stakeholders. As a result, the 2013 annual financial reporting period ended on 3 March 2013 compared to 29 February 2012 at the end of the comparative period. The impact of this change has added 0.9% growth to turnover and 6.1 cents per share to HEPS.

The Group is managed through 2 divisions, the South Africa Division and the Africa Division. The South Africa Division operates in various formats under the Pick n Pay and Boxer brands. The Africa Division is responsible for the Group’s emerging expansion into the rest of Africa and operates in Namibia, Lesotho, Swaziland, Mozambique, Mauritius, Botswana, Zimbabwe and Zambia.

We are a scale business that is growing. The Group opened 107 stores during the financial period, ending with 992, consisting of 570 company owned and 422 franchise stores across multiple formats and in 8 geographies. In addition 49 stores, 2 of which operate under the Pick n Pay brand, are operated in Zimbabwe by our associate, TM Supermarkets. Our customer count increased by 4.3% and we serviced our customers with close on 750 million transactions. More than half of South African consumers regularly shop with us (source: AMPS 2012). Close on 60% of the Group’s turnover is through smartshopper, the largest loyalty programme in South Africa.

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