Pick n Pay: Leaner, fitter and better for customers
- An important and successful year in which Pick n Pay took decisive steps to become leaner, fitter and better for customers
- Action taken to reduce operating costs and increase productivity created headroom to invest in lower prices for customers. Steps included a voluntary severance programme (VSP) with a once-off severance cost of R250m
- Successful strategy demonstrated by strong sales growth in final quarter, generating real momentum for FY19 and beyond
- Including VSP cost trading profit up 4.9%, with margin maintained at 2.2%
- Excluding VSP cost, trading profit was up 19.3%, with margin improving to 2.5% - strong indications of underlying improvement
- Headline earnings per share up 7.1%, with diluted HEPS up 7.7%
- Turnover growth up 5.3% (like-for-like 2.2%). Lower annual selling price inflation of 2.2%, and just 0.2% in the last quarter, well below CPI
- Greater competitiveness and increased investment in the customer offer was particularly evident in Q4, with market-beating sales growth of 8.0% in the South African segment, with like-for-like growth of 5.3%, against 0.2% internal selling price inflation. Strong volume growth of 5.1%
- Despite lower prices, better buying and improved efficiencies enabled gross margin to be maintained at 18.7%
- 124 net new stores opened, adding 3.3% to space
- Excluding VSP costs, employee costs fell to 7.9% of turnover
- Centralised grocery volume reached 70%, with fresh and perishable produce at 80%
- Value added services income grew 30.1% year-on-year
- Final dividend of 155.40 cents per share. Total annual dividend of 188.80 cents per share, up 7.1% in line with the growth in headline earnings per share
[Cape Town, 19 April 2018] Pick n Pay today published its annual financial results for the year ending 25 February 2018.
Headline earnings per share grew 7.1%, with diluted HEPS up 7.7%. Trading profit was up 4.9%, with the trading profit margin unchanged at 2.2%.
In the first half of the year Pick n Pay implemented a voluntary severance programme (VSP) which improved efficiency and productivity, but had a once-off cost of R250m in severance payments. Excluding these VSP payments, trading profit for the year was up 19.3%, with trading profit margin improving from 2.2% to 2.5%.
Through the VSP and other actions, the Group has built a leaner, fitter operating model, with more headroom to give customers lower prices and better promotions. The benefits were evident in an exceptional Q4 trading performance, with the Group’s South African segment delivering sales growth of 8.0% (LFL 5.3%). This was well ahead of the market and was achieved against internal selling price inflation of 0.2%, with positive volume growth of 5.1%.
Turnover growth for the year as a whole was 5.3%, delivered in a challenging trading environment, with some disruption from the VSP in the first half of the year. Overall selling price inflation was 2.2%, well below the 6.1% in the previous year.
Commenting on the result, CEO Richard Brasher said:
“I want to thank everyone at Pick n Pay for their contribution to a very important and successful year. I am very pleased with what we achieved.
“In the first six months, we acted boldly and decisively to reduce our costs and increase our productivity through the VSP and other programmes. By doing so we built a leaner, fitter and stronger Pick n Pay, and gave ourselves the headroom to reduce our prices from the second half of the year.
“This was the right strategy, and its success was evident in our final quarter, when we delivered a notable increase in sales and market share. Our South African business delivered sales growth of 8.0% in the last three months of our financial year, with like-for-like growth of 5.3%. This was achieved at a time when internal selling price inflation had fallen to just 0.2%, demonstrating strong underlying volume growth.
“Evidence that we have built a leaner, fitter and stronger Group is demonstrated by the fact that, excluding the VSP payments, trading profit for the year was up 19.3%, with the trading profit margin improving from 2.2% to 2.5%.
“I am also delighted with the performance of our Boxer business. The Boxer team have accelerated their turnover growth in a highly competitive market, and Boxer is now without doubt South Africa’s leading limited range discount supermarket.
“While the cost of the VSP impacted our profit this year, these costs will not recur. In contrast, the benefits of our structural changes and increased momentum will be carried into the 2019 financial year and beyond.
“We are changing the trajectory of Pick n Pay. Over the next year we will continue to invest in our prices, our promotions and our customer offer. Through Pick n Pay and Boxer, we will win customers across all levels of our economy.
“By growing as a Group, our positive impact grows. Our new President has called on business to help build the economy and get more South Africans into sustainable jobs. Over the past three years, we have invested R5.3 billion in opening and refurbishing stores and building our supply chain. This enabled us to create 13,700 new jobs. During the next three years, we will create another 15,000 new jobs, bringing many young people into the world of work and the opportunities that retail provides to build a career and progress in the world.”
Other progress made over the year included:
- 730 new own brand products
- winning 20 first place Sunday Times Food Awards
- our first Pick n Pay Store account now has 56,000 active customers
- partnering with the Commonwealth Bank of Australia and TymeDigital to provide banking services at the lowest cost across the industry
- improving our online offer which generated a 150% increase in online customer registrations
- offering R3billion in personal discounts to 7 million Smart Shoppers
- Smart Shopper was voted SA’s best loyalty programme for the 5th time
Rest of Africa
The Group’s Rest of Africa operations contributed R4.6 billion of segmental revenue this year, up 7.7% on last year (9.3% in constant currency terms), notwithstanding difficult trading conditions in some regions. TM Supermarkets performed particularly well, delivering strong profit growth, with Pick n Pay’s share of TM’s profits up 45% year-on-year, or 58.5% growth in local currency. In Zambia, stronger operational efficiency and tight cost control tempered the impact of the tough trading environment on sales growth.
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