| Review of Operations |
| Group overview |
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As we enter our 40th year of
serving our customers we are pleased to report
that the Group has produced another strong performance.
Group turnover at
R39.3 billion showed an increase of 12.1%. This
was after a strong second half trading performance,
producing a 13.9% increase in turnover.
The trading profit increase of
23.2% has led to an increase in our trading profit
margin from 3.0% to 3.3% in the current year.
The operating profit increase
of 20.6% is lower than that of trading profit
due to the decrease in interest received. The
lower interest received is result of the average
cash balances being lower than last year due to
significant capital investments of R1.1 billion,
and increased dividend payments and share repurchases.
Headline earnings per share increased
by 18.0%, before the reversal of a deferred tax
asset of R46.4 million in relation to previous
years’ Score operating losses. As this charge
has not arisen from current year activity, we
consider a headline earnings calculation excluding
this charge to more fully reflect the Group’s
result for the year. The deferred tax asset has
been reversed in light of Score’s disappointing
current year performance and to present a more
conservative balance sheet. In this regard we
have also impaired goodwill of R36.3 million relating
to Score. This goodwill impairment has no effect
on headline earnings.
We increased our final dividend by
18.5% to 107.25 cents per share for Pick ’n
Pay Stores Limited and 52.35 cents per share
for Pick ’n Pay Holdings Limited. This brings
the total dividend for the year to 134.25 cents
per share for Pick ’n Pay Stores Limited
and 65.52 cents per share for Pick ’n Pay
Holdings Limited. |
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| Pick ’n Pay Retail Division |
| The Retail division produced
a solid performance showing real growth in both
turnover and Group profit contribution. |
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| Supermarkets
– We opened 10 new corporate stores
during the year, converted 2 corporate stores
to the Pick ’n Pay Family franchise format
and had to close our Claremont store in Cape Town
due to the site being redeveloped. Claremont will
be re-opened during the 2009 financial year. For
the 2008 financial year we already have 7 new
corporate stores confirmed to be opened. |
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| Family
Franchise –
We continue to expand our successful Family franchise
format opening 11 new stores during the past financial
year including 1 in Namibia. We have another exciting
year ahead of us, opening a further 20 Family
stores during the 2008 financial year. |
| |
Hypermarkets
– The opening of 2 new Hypermarkets
in Zambezi Road, Montana and on Old Pretoria Road,
Centurion during the second half of the financial
year was a highlight of the year. We have received
good customer acceptance of our new format of
Hypermarket and we expect these openings, together
with the 2 new openings planned for the 2008 financial
year, to provide a revived momentum for growth
in this large store format.
The Retail division continues to expand its other
store formats increasing the number of stand-alone
Clothing stores to 24 and Liquor
stores to 36 during the year. During
the next financial year we will open a further
5Clothing and 20 Liquor stores. |
| |
| Group Enterprises |
Score
continued its conversion of stores to
the Nambawane format completing 18 conversions
in the second half of the year. These additional
refurbishments helped Score produce a better second
half performance. Nevertheless we were disappointed
with the performance for the year and in this
regard are reviewing various options on the future
direction of Score. The brand now comprises 127
stores.
Boxer had
a very good year, despite the toughening trading
conditions, showing good real growth in both turnover
and profit contribution. Boxer opened 9 new stores
including 3 Boxer Build hardware stores. During
the 2008 financial year, Boxer will continue to
expand its footprint by opening a further 5 supermarkets
and 4 Boxer Build hardware stores.
In February 2007 we decided jointly with Fruit
& Veg City, following the Competition Commission
recommendation, not to pursue the acquisition. |
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| Franklins Australia |
The latest full year results
reflect a substantial improvement in overall profitability
and general operational efficiencies, following
a $10.2 million turnaround having reduced losses
from $19 million to $8.8 million through the stability
and costs effectiveness of its new warehousing
and distribution capabilities.
During the year three new corporate stores were
opened and a further three stores are confirmed
to be opened in the 2008 financial year. In the
same period five stores were closed, two of which
were relocated in existing shopping centres.
In order to capitalise and build on the current
business platform the Board has committed to a
significant capital investment programme in our
corporate stores over the coming years. This additional
investment in the Franklins business confirms
the Board’s commitment to growing our business
in Australia.
The Franklins Franchise system was successfully
launched during the year with the conversion of
two stores (one being the conversion of a corporate
store). Since conversion both of these franchise
stores have shown double digit sales growth. The
roll out of further franchise stores is now a
priority and we are pleased to report that we
have recently concluded agreements for the conversion
of a further four stores to the Franklins Franchise
system. This will take the total number of franchise
stores to six. We are confident that these conversions
together with others planned for the 2008 financial
year will give momentum to the expansion of the
Franklins Franchise system. |
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| General Comments and Prospects |
We have now completed a strategic
review of the business with the assistance of
an international consulting group and are about
to implement many of the initiatives highlighted
during the review. The conversion to SAP accounting
systems throughout the Group is now in progress
and it is anticipated that the conversion in the
Pick ’n Pay Retail division will be completed
during the 2008 financial year. We are confident
that the investment in the new system will lead
to greater operating efficiencies.
With the launch of our 40th Birthday campaign
and various other initiatives throughout the Group,
we are confident of being able to achieve good
growth in headline earnings per share during the
2008 financial year.
For and on behalf of the Board |
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Raymond Ackerman
Chairman |
|
Nick Badminton
Chief Executive Officer
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23
April 2007 |
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