Result overview

This has been an exceptionally tough trading period in a recessionary economic climate which has had a marked effect on consumer spending. However, we expect the recent 5.5% reduction in interest rates and rapidly reducing inflation to ease the strain on consumers’ disposable income in the period ahead.

Notwithstanding these challenges, we continue to make significant progress in our efforts to transform Pick n Pay. We’ve seen some very positive results from our efforts to date:

• Overall our continuing operations have gained 0.4% of market share in the period with significant gains in every fresh food category.
• Our revamped private label offer has delivered 26% sales growth. We are giving customers a great value alternative to the leading brands.
• The three Pick n Pay Express stores we’ve opened are performing ahead of expectations. A further two will be opened in the next month.
• We have all but completed the process of converting Score to Pick n Pay franchise and Boxer. We now sell as much from 48 conversions as we did from 126 Score stores.
• We continue to be South Africa’s lowest priced retailer – although it’s proving challenging to get customers to believe this given the quality of our offer and our high store standards.
• The efficiency of our Longmeadow operations has improved markedly.
• The installation of SAP is 85% complete with just a handful of Hypers and inland franchise stores to go.
• Our continued efforts to help our customers live more sustainable lives has resulted in our being recognised by the Sunday Times survey as the most green retailer.

However, there is still a lot to do. The management team is focused on ensuring that we not only grow topline sales but improve the efficiency of every part of our operation.

Group turnover at R26.6 billion is 12.3% above last year, with a growth of 15.3% from Pick n Pay and Boxer and a decrease of 8.3% at Franklins, the latter being due to the strengthening of the Rand. The Franklins increase in Australian Dollars is 3.3%.

The decrease in trading profit margin from 2.9% last year to 2.8% this period follows a drop in gross profit margin for the period to 18.6% from 18.8% last year. This is a result of our investment in keeping prices down on certain fast selling lines, among other things.

Profit before tax for the period at R927.8 million is 35.9% above last year, and includes a profit on sale of certain properties of R190.9 million.

Headline earnings per share at 100.30 cents is 11.1% above last year.

The interim dividend per share at 39.75 cents for Pick n Pay Stores Limited and 19.31 cents for Pick n Pay Holdings Limited is an increase of 11.2% and 10.6%, respectively, over last year.

Operational highlights

Franklins Australia produced a 3.3% increase in turnover in Australian Dollars, and its profit before tax for the period (before capital items) increased from R3.5 million last year to R14.7 million this year. The key driver to this improvement is enhanced performances by refurbished stores, which includes an introductionlowest of a comprehensive fresh offer and a wider rangeproving challenging to of perishables. We have now completed 15 refurbishments, with a further 7 stores to be completed by the end of the financial year.

Pick n Pay and Boxer increased turnover by 15.3%, which has resulted in our gaining market share. In addition to the Score conversions, we opened 5 new Pick n Pay supermarkets in the period with a further 7 due to open in the second half of the year. Boxer converted 8 Score stores in the period and will convert another 2 in the second six months as well as open 2 new stores.

Our accelerated refurbishment programme of Pick n Pay Supermarkets is now under way and we anticipate completing 34 franchise and corporate refurbishments this financial year. The enhanced turnover growth experienced by the stores completed to date gives us the confidence to accelerate the programme further and we plan to refurbish a further 60 stores (including franchise stores) in the next financial year.

A number of factors had a significant impact on our earnings growth, including: our continued investment in keeping prices down; electricity costs soared and look set to escalate further; and a prudent provision against certain franchise debt arising from franchisee working capital constraints caused by the financial crisis.

General comments

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

Notwithstanding the worst recession in decades, we have still delivered headline earnings growth and have not been distracted from introducing the strategic imperatives and changes to the business that were required. We have seen substantive change and investment in the business over the last three years and the period ahead will see even more. While many of these improvements have already begun to reap benefits (e.g. Score conversions, private label, fresh foods, SAP) others such as supply chain will deliver their full potential in the longer term. We have a young and energised team that is firmly focused on the future.

Our Chairman, Raymond Ackerman, has indicated his wish to retire at the end of the financial year, to be replaced by non-executive Chairman Gareth Ackerman. Mr Ackerman will stay on in an advisory role as ambassador for the company and will continue to work out of the Cape Town office as he has before. While it is still some months before his official retirement, it is entirely appropriate to acknowledge his contribution to the success of Pick n Pay, his role in changing the retail landscape in South Africa, his contribution to South African society and the legacy he has entrenched at the company. All of us at Pick n Pay wish him extremely well.

For and on behalf of the board