chairman’s report

By improving the efficiency and underlying profitability of the business we have been able to do more for our customers and for the communities we serve.

Gareth Ackerman

Our trading results make it clear that we have substantially completed the first stage of our turnaround strategy. This achievement is a tribute to the leadership of Richard Brasher and the dedication and loyalty of Pick n Pay’s management and staff.

They have stabilised the business by improving operating efficiencies, containing costs, substantially completing the centralisation of administration and support functions and investing in our customer experience. We have laid foundations for the second phase of our recovery, while recognising that this will require a great deal of further work.

More will be expected of all of us in the year ahead as fresh challenges and opportunities present themselves in a very demanding retail environment.

Over the past five years, we have invested over R6 billion in our business infrastructure, largely from our own cash generation. This benefits all who live and work in the areas where we trade. Through our investment we are contributing to the success of the countries in which we trade and their economies.

South African consumers still face enormous pressure on their household finances. Rapidly rising energy and other utility costs, inflation and stubbornly high rates of unemployment continue to erode disposable incomes. We believe it would be unfortunate if these burdens were exacerbated by an increase in the direct value added tax (VAT) on goods and services. Such a step, following the higher personal income tax rate and the increase in the fuel levy, would cause great hardship to lower-income families and further dampen economic growth. We believe that measures to stimulate economic growth, rather than raise tax, would benefit South Africa and its economy at this time.

Like all other responsible organisations, we have been deeply concerned about the xenophobic incidents in South Africa in recent months. We view with dismay the great damage done to small traders, whatever their origin. Their contribution to the economy and to the food security of lowest-income communities should not be underestimated. The damage to our national reputation has been immense and must continue to be met by decisive leadership from all concerned.

Pick n Pay plans to invest a further R5 billion over the next two years in stores and other activities. This will create many more jobs in our stores and our supply chain. It will help us to build on our record of training the next generation of retailers for our business. It will also help to advance economic transformation by opening the way to successful retail careers among black managers and franchisees.

More broadly, Pick n Pay already buys products worth some R40 billion from local suppliers each year. As this grows further we will bring more black-owned and small businesses into the Pick n Pay supply chain.

Food security, and in particular the sustainable supply of fresh produce, remains a key priority for Pick n Pay. The World Wide Fund for Nature (WWF) reports that just 3% of South Africa’s farmers produce 95% of the food for the country’s formal food sector. At the same time we have become a net importer of certain staple foodstuffs, including wheat, rice, sugar and poultry. Both these facts highlight how vital it is that everyone in the chain recognises the importance and fragility of our food security.

Pick n Pay will continue to play a valuable role through our partnerships with existing valued suppliers and by encouraging and supporting emerging farmers in order to stabilise and sustain our agriculture sector. Our strategic focus on growing private label at Pick n Pay will provide small producers with a national platform for growth. But South Africa needs more. We need government and other stakeholders to acknowledge the grave importance of food security in our region and to provide clear, stable and reasoned agricultural policies as an immediate priority. Adding to our concern is the drought being experienced by many of our farmers, particularly those in the Free State and North West provinces, which has caused a substantial loss of crops. These areas contributed more than 60% of the maize crop in 2014. South Africa is now importing maize, and we are concerned about the impact on local food prices.

Like other businesses, our operations have been disrupted by South Africa’s deteriorating electricity supply position. We have mitigated the impact by installing generators in our stores and we ask that commercial property owners, wherever possible, invest in their infrastructure and provide smaller, more vulnerable tenants with access to generators so that they are able to continue to trade while the lights are out. We call on government to take every available step to restore the dependability of the nation’s power.

In that connection, I am proud to note that Pick n Pay has made good progress in achieving greater energy efficiency. We have exceeded the target we set in 2010 for the reduction of carbon emissions a full year ahead of schedule. Of our carbon emissions, approximately 82% are generated by electricity consumption in our stores and supply chain. We are focusing on reducing our emissions even further, through greater in-store energy efficiencies, including more economical lighting systems and improvements in refrigeration plant control.

Energy efficiency is central to our new store designs, with stores opened in 2015 up to 44% more energy efficient than stores opened in 2010. In the past financial year, 28 existing stores were retrofitted with energy-efficient lighting and 33 with energy-efficient refrigeration. We have also fitted our two flagship distribution centres with daylight harvesting and motion sensors, with the result that these facilities are 20% to 25% more energy efficient.

In the period under review, implementation of the Reserve Bank’s changes to card interchange rates has been a welcome advance. It will benefit consumers, who ultimately pay the price for excessive interchange fees. However, we believe the recent changes should be only a first step: the South African consumer is still paying interchange fees that are considerably higher than those charged in Europe and other comparable markets.

On the external front, I am now co-chairing the Consumer Goods Council of South Africa and from July 2015 will occupy a similar position in the international Consumer Goods Forum. Both of these bodies provide valuable and powerful platforms from which to ensure that the retail sector plays a pivotal role in tackling societal challenges, including the pressing issues of public health, product labelling, employment, sustainability and ethical corporate governance.

As we reach the end of another trading year, I am pleased to report that we have consolidated the foundations from which the Group may now grow and prosper. We have achieved this without compromising or diluting our commitment to the Group’s three core legacies – the values of consumer sovereignty, doing good is good business and our commitment to business efficiency.

Our future growth will create more opportunities for individuals and suppliers to meet their aspirations as employees and partners of our business, and will allow us to do more for the communities we serve.

I would also like to congratulate our founder, Mr Raymond Ackerman, on receiving the 2015 Hall of Fame award from the Franchise Association of South Africa. The award recognises his incredible vision and contribution in building franchise businesses in South Africa and for embodying the entrepreneurial spirit which lies at the heart of the franchise model. In addition Mr Ackerman also received the Free Market Foundation’s (FMF) prestigious Luminary award. The award recognises unique individuals who inspire others and set a great example to all in South Africa. The award was given to Mr Ackerman in recognition of his role as an entrepreneur who changed retailing in South Africa for the lasting benefit of all consumers. Mr Ackerman is only the seventh person to receive the FMF Luminary award and we are extremely proud of his achievements and his lasting contribution to free enterprise in South Africa.

I would like to congratulate Mrs Wendy Ackerman on receiving the honorary title of Lifetime President of Pick n Pay from our Pick n Pay Stores Limited Board. She joins Raymond Ackerman in holding this ambassadorial position, which is in recognition of her exceptional contribution to the Group, particularly in the area of social responsibility.

In conclusion, I thank the entire team for the indispensable role they have played in turning round the fortunes of the Pick n Pay Group.

Gareth Ackerman

Chairman

Cape Town
20 April 2015