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| REVIEW
OF OPERATIONS |
GROUP OVERVIEW
We are very pleased to present these results,
given the low inflation environment we are operating
in. Lower selling prices have driven volumes
which, with further enhancements in operational
efficiencies, has resulted in an increase in
operating profit margin from 2.8% to 3.2% over
last year.
The result, being an increase in headline
EPS of 20.6%, has enabled us to increase our
final dividend by 20.8%, which equates to a
20.6% increase in total dividend for the year.
Group turnover increased by 8.9%. Before the
effect of the sale of Boardmans and the continued
strengthening of the Rand against the Australian
Dollar, turnover increased by 10.5%. Against
a backdrop of low inflation and deflation in
Score and Boxer, we are pleased to have again
achieved significant levels of real growth.
The increase in trading profit and operating
profit (including interest received) of 24.1%
and 21.7% respectively, is particularly pleasing
and reflects the continued efficiencies being
achieved throughout the Group.
PICK 'n PAY RETAIL DIVISION
This division continues to be the driving
force behind the Pick 'n Pay Group and predominant
contributor to Group profitability, with consistently
good results across all divisions.
Supermarkets showed good growth in turnover
and continued to make a significant profit contribution
to the Group. During the year 14 new Corporate
stores were opened, with a further 9 new Corporate
stores planned for the year ahead.
Hypermarkets showed real growth in turnover
and a substantial increase to Group profitability,
mainly as a result of operating efficiencies.
Our focus is on building top line sales growth
in this format.
GROUP ENTERPRISES
Score showed good growth in turnover with even
greater increases in volumes fuelled by continued
deflation. The restructure in the Western Cape
and Eastern Cape regions completed in August
2004, allows Score management to concentrate
on the predominantly strong areas of the Score
brand, in the Northern and Central regions of
the country.
12 new stores were opened during the year and
refurbishments in a number of existing stores
were also completed.
Management have made great strides with expense
savings and extracting further operational efficiencies.
There is a renewed focus on driving top line
sales which, together with the cost savings
that continue to be made, puts Score well on
the way to returning to profitability in the
year ahead.
Boxer Superstores had a very good trading year
with commendable increases in both turnover
and profitability. They achieved particularly
good growth in service areas. In addition to
the Score stores taken over in the Eastern Cape,
Boxer opened 6 new stores with a further 6 planned
for next year.
Pick 'n Pay Go Banking - this initiative, in
partnership with Nedcor, has continued to grow
its account base and funds on deposit. Enhancing
the range and utility of our banking products
will add to the growth of this service.
TM Supermarkets in Zimbabwe continues to trade
well. Turnover increases are above the very
high levels of inflation, although in the last
six months management have had to deal with
huge reductions in inflation.
FRANKLINS AUSTRALIA
Turnover for the year at A$841.1 million is
2.0% below last year, which is largely accounted
for by the fact that New South Wales is still
experiencing food deflation in many categories
and that we did not open any new stores this
year.
We have now completed the establishment of
our own channels of distribution. This step
is the most significant since purchasing Franklins
almost 4 years ago.
As a result of these projects, transitional
costs pushed the trading loss before goodwill
to A$12.8 million for the year versus A$8.2
million last year. The bulk of these additional
costs were anticipated at the beginning of the
year and are in line with budget.
Now that we have a self-managed distribution
platform from which to operate we will be launching
our franchising business in the year ahead which,
together with the opening of a further 3 stores,
will ensure the business incurs significantly
reduced losses in the year ahead.
GENERAL COMMENT AND PROSPECTS
We are really pleased with these results which
show real growth in profitability in a low inflation
environment. We do not foresee material changes
to the current inflation levels. With the various
initiatives we have in place in each business
unit for the year ahead, we are confident that
we will be able to produce another year of good
growth.
For and on behalf of the Board
Raymond Ackerman
Chairman
18 April 2005
Sean Summers
Chief Executive Officer
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