Result overview - Continuing operations

As reported in October 2009, this financial year has been an exceptionally tough trading period with the recessionary climate biting especially hard during the second six months. We expect the 5.5% reduction in interest rates over the last 15 months and reduced food inflation to ease the strain on consumers’ disposable income. However, the beginning of the 2011 financial year will continue to present a tough trading environment. 

Despite these challenges, we continue to make significant strides in transforming Pick n Pay with the following positive results during the year:

• A slight increase in market share for the year (from continuing operations);
• The completion of the closure of the Score retail trading operation with a total of 70 stores now converted to Pick n Pay and Boxer. After accounting for the closure costs and for the provision of doubtful debts, we have made a material improvement to the profits from the old Score business;
• The consolidation of our 3 northern regions into one team will be completed by August 2010;
• Strong double-digit growth in fresh and private label sales, both being primary areas of focus;
• We added a further 5 sites to our Express network in conjunction with BP. These continue to exceed expectations. We are planning an accelerated rollout of this format;
• The implementation of our supply chain strategy continues apace with the expansion of the Longmeadow distribution facility nearly complete and significantly improved operating efficiencies with cost per case down by 15%;
• Completion of our SAP implementation in all corporate stores with only franchise stores in the Northern part of the country to be converted by August 2010; and
• Continued commitment to sustainable practices within the business. Our focus is on energy saving, waste control, recycling and enterprise development.

This is only the start of our transformation as we embed all of our strategic initiatives.

Group turnover at R54.7 billion was 9.8% above last year; Pick n Pay and Boxer growing by 11.5% and Franklins Australia by 1.4%, in Australian Dollars.

Trading profit for the year decreased by 2.5% as a direct result of the reduction in gross profit margin from 19.0% last year to 18.6% this year. This reduction in margin is due to our continued investment in prices on basic foods. However, the overall decrease was counteracted by enhanced operating efficiencies, especially in our supply chain.

Headline earnings per share at 236.33 cents is 1.1% above last year.  

The total dividend per share for the year of 174.50 cents for Pick n Pay Stores Limited and 84.93 cents for Pick n Pay Holdings Limited is 2.6% and 2.4% above last year, respectively.

Operational highlights

Pick n Pay and Boxer increased turnover by 11.5% for the year. The second half of the year saw growth rates drop substantially as food inflation abated and customers remained cautious. During the year we opened 5 new Pick n Pay corporate supermarkets, 20 new Boxer stores and 38 new Pick n Pay franchise stores (including 5 Express stores and Score conversions). In the year ahead we plan to open a further 27 supermarkets under the Pick n Pay and Boxer brands and are working on opening substantially more new stores for the years thereafter.  

As economic conditions continued to tighten during the second half of the financial year, earnings growth was affected by the rapid decline in food inflation (off the previous year high base), continued investment in lower selling prices, escalating electricity costs, and further conservative provisions against debt. Notwithstanding the above, we did see a significant increase in the number of customer transactions during the year, demonstrating the resilience of the PnP brand.  

Franklins Australia turnover at AUD861.1 million increased by 1.4% and before capital items produced a profit of R21.9 million which is on par with last year. The impact of the 3 year, AUD50 million store refurbishment program continues to be positive with completed stores achieving double-digit sales growth and improved profitability. The program saw 18 refurbishments this year and a further 8 are planned for the next financial year. Franklins’ Loyalty Club achieved substantial membership growth with cardholders now exceeding 780 000.

Our expansion further into Africa is progressing well. We are due to open our first corporate store in Zambia midyear; we have signed up franchise partners in Mozambique; and we have identified sites for expansion into Mauritius. 

General comments

The Competition Commission investigation into food pricing is ongoing and we continue to give the process our full co-operation.

We expect trading for the first six months of the 2011 financial year to remain difficult. However, we are confident that we will start to reap the benefits of our strategic initiatives by: expanding our store footprint, continuing to improve the shopping experience of our customers, driving operating efficiencies through supply chain, SAP and operating cost reductions. All of these initiatives position us well to benefit from the anticipated upturn in the economy.

As announced in October 2009 our Chairman, Raymond Ackerman, and Mrs Wendy Ackerman have now retired as members of the Board. Words alone cannot express the gratitude that all associates, suppliers, management and employees of Pick n Pay feel for their vision and unwavering commitment to grow and build the Pick n Pay business over the past 43 years. We wish Raymond Ackerman all the best in his new ambassadorial role at Pick n Pay.  

For and on behalf of the board

Gareth Ackerman Chairman

Nick Badminton Chief Executive Officer

20 April 2010