GROUP OVERVIEW
This result must be viewed in the context of the significant investment we are making in the implementation of our strategy. The Pick n Pay brand re-launch, the development of the new convenience food range, the continued implementation of SAP and the opening of our new distribution facility at Longmeadow in Gauteng have had a material cost impact on this result. We remain very confident that this investment will reap substantial financial benefits in the future.
Turnover
Group turnover at R45.4 billion shows strong growth of 15.4% above last year. This growth comprises 15.2% in the Southern African business segment and 16.4% in Australia. The Franklins increase in Australian Dollars is 1.7%, despite the sale of 2 stores.
Trading profit
The trading Profit increased by 16.9% with trading profit margin increasing from 3.2% last year to 3.3% in the year.
Headline earnings per share
Headline earnings per share at 198.82 cents is 10.1% above last year, before last year’s write-off of Score’s deferred tax asset. Inclusive of this write-off in the prior year, headline earnings per share shows an increase of 16.7%.
Dividends per Share
We have increased the final dividend to 118.00 cents per share for Pick n Pay Stores Limited and to 57.65 cents per share for Pick n Pay Holdings Limited, both a 10.0% increase over last year. The total dividend payable by both companies is up 11.1% on last year.
FOOD PRICE INCREASES
We are very aware of the inflationary pressure on basic foods and are doing everything we can to minimize its impact on customers.
PICK N PAY RETAIL DIVISION
Overall the core retail business performed well, in a year that was exceptionally busy with the re-launch of our brand and the introduction of a brand new convenience food range, both of which received good customer response. Another highlight of the division was the opening of our Longmeadow Distribution Centre in Gauteng, which will give us greater operating efficiencies and flexibility.
Supermarkets – We opened 7 new corporate stores during the year and converted 6 corporate stores to Family franchise stores. In the year ahead we plan to open a further 6 new corporate supermarkets and look forward to the re-opening of new flagship stores in Claremont - Cape Town and Benmore, Johannesburg.
Family Franchise – We continue to expand this successful format opening a further 20 new stores during the year including 6 conversions from corporate stores and 7 Score conversions. Next year is exceptionally exciting as we plan to open a further 50 new Family stores, including 3 corporate conversions and 29 Score conversions.
Hypermarkets – During the year we opened the Greenstone Mall Hypermarket in Edenvale and our first Pick n Pay store (a Hyper) in Soweto, as well as opening the new revamped Norwood Hypermarket all of which are trading well. These new generation Hypers are all outperforming at sales level and are proving popular with a broad spectrum of customers. However, the cost pressures of opening these stores, along with other refurbished new format stores, did lead to a profit contribution for the year below expectations. We expect a much better performance next year.
Liquor and Clothing stores – During the year, the division opened 18 new Liquor stores and 7 new Clothing stores. In the year ahead we will further expand these formats with 20 more Liquor and 2 Clothing stores.
GROUP ENTERPRISES
Score
The operating performance of Score was in line with last year. The conversion of Score stores to the Pick n Pay Family model is an extremely exciting development for the Group, as we are able to expand the Pick n Pay brand into this market as well as create a franchise opportunity for historically disadvantaged entrepreneurs. To date we have converted 7 stores, all of which are trading well, and by the end of the 2009 financial year we expect to have 36 converted stores.
Boxer
Boxer had another excellent trading year including opening 5 additional stores. Next year a further 14 are to be opened, including 9 Score conversions.
TM
TM continues to trade under exceptionally difficult economic conditions with the procurement of stock being their biggest challenge. We continue to support our colleagues and hope for economic and social stability in the near future. In the current year we have impaired our remaining investment in TM of R9.1 million.
FRANKLINS AUSTRALIA
Turnover for the year at AUD820.8 million showed an increase of 1.7% over last year. This is despite the fact that we sold 2 stores to a franchisee early in the year. Due to the weakening of the SA Rand relative to the Australian Dollar, turnover for the period at nearly R5.0 billion showed an increase of 16.4%.
Franklins produced an operating profit before interest of AUD2.3 million for the year which included a profit on the sale of 2 corporate stores to a franchisee of AUD7.9 million as part of our planned strategic franchise roll-out. We are exceptionally pleased with this result as it is underpinned by an operating profit before interest of AUD1.2 million in the second half of the financial year. We are confident that this is the turning point for the operation.
The decision to invest a further AUD50.0 million (AUD20.0 million already remitted) to fund the refurbishment of 30 Franklins stores will have a significant impact on sales growth over the next few years.
The significant changes made in the Franklins business in the last three years, together with the continued roll out of our franchise business, the refurbishment of key stores and the opening of 3 new stores next year provide a strong platform for earnings growth.
GENERAL COMMENTS AND PROSPECTS
The conversion of our accounting systems to SAP throughout the Group is ongoing with the conversion of the Western Cape, Eastern Cape and KwaZulu Natal regions, together with the corporate accounting office, now complete. The remainder of the Pick n Pay Retail divisions are due for conversion over the next 18 months.
As we continue to implement our strategy, as set out in various financial reports presented during the year, our main focus areas for the coming year include the continued conversions of Score stores to Pick n Pay Family stores, enhancements to the efficiency and throughput of our new distribution centre at Longmeadow, improvements to our organisation, and further enhancements to our Fresh food offer.
We are confident that the Group will achieve an acceptable growth in headline earnings for the 2009 financial year and with the significant investment taking place, strong growth for the years thereafter.
Effective 30 April 2008, and after many years of dedicated service, Rene de Wet and David Nurek have decided to retire as directors of the Pick n Pay Stores Limited Board. We thank both Rene and David for their valuable contribution and service over the years. Rene will continue to serve on the Board of Pick n Pay Holdings Limited.
For and on behalf of the Boards |
