Listed retailer Pick ‘n Pay has managed the current South African environment of very low inflation and deflation in some categories by improving its operational efficiencies as well as encouraging higher sales volumes, reflected in an improvement in its operating profit margin to 2,6% from 2,4% a year earlier.
Reporting its interim results for the six months to the end of August, Pick ‘n Pay CEO Sean Summers said turnover had risen 9,3% to R15,24-billion from R14-billion a year earlier.
The results were impacted by the continued strengthening of the rand against the Australian dollar and the fact that only one month’s turnover was recorded from homeware retailer Boardmans before its sale to fellow retailer Edcon.
After stripping the effects of these two items, turnover would have increased by 10,6%.
“Achieving real growth has been extremely tough and we are pleased with the result, especially when viewed against internal inflation in our Pick ‘n Pay retail business of approximately 3%, continuing deflation at Score and Boxer of approximately 5% and deflation in the New South Wales food market in Australia of 0,9%,” Summers noted.
Cash balances remained strong, ending on R1,4-billion after paying out R328,5-million on dividends and STC, R114,5-million on tax and investing R251,1-million in property and assets.
Summers said Pick ‘n Pay’s retail division, comprising 14 hypermarkets, 128 supermarkets and 166 franchise stores, continued to be the driving force behind the company and the predominant contributor to its profitability. The division’s regions all recorded consistently good results, with supermarkets growing by seven stores, and another seven planned for the second half of the year.
Hypermarkets showed real growth in turnover and a substantial increase to group profitability, mainly as a result of operating efficiencies. The focus looking forward is on building top-line sales growth in this division.
Six franchise stores were opened in the period, four of which are in South Africa.
The Family store brand showed particularly good growth in turnover and continued to make a significant contribution to group profitability.
Pick ‘n Pay butcheries also did well, recording good increases in turnover, which continued to be driven by increases in volumes.
Increase in Score, Boxer’s turnover
In the group enterprises division, Score’s turnover for the period showed real increases, with volumes being driven by deflation of approximately 5% during the period.
The transfer of the majority of its stores in the Eastern Cape to Boxer and the Western Cape stores to the Pick ‘n Pay Western Cape region was completed during the period, which will allow Score management to concentrate on the predominantly strong areas of the Score brand in the northern and central regions of the country.
“Four new stores were opened and Score is well on the way to returning to profitability in the near future,” Summers commented.
Boxer Superstores recorded increases in both turnover and profitability. Apart from the transferred Score stores in the Eastern Cape, Boxer opened two new stores with a further two to be opened in the next six months.
Go Banking does well
Pick ‘n Pay Go Banking continued to grow its account base and funds on deposit, the CEO reported. During the period, the group had successfully transferred the Pick ‘n Pay staff Saver Association accounts to Go Banking, increasing the customer base. Enhancing the range and utility of the banking products will add to growth of this service.
“Exposing greater numbers of Pick ‘n Pay shoppers to facilities offered is part of the plan going forward,” elaborated Summers, “particularly cash-withdrawal facilities at our till points, which effectively adds 5 000 ATMs to the South African market.”
Australian, Zimbabwean operations trade well
TM Supermarkets in Zimbabwe continued to trade well and turnover increases were above the very high levels of inflation.
Turning to Franklins in Australia, turnover at Aus$426,5-million was 1,6% below last year, largely as a result of food deflation in New South Wales of 0,9%.
“We are setting up our own distribution systems and channels with two new distribution partners,” said Summers. “As a result of these projects, exceptional one-off costs pushed the trading loss before goodwill to Aus$6,7-million for the period versus Aus$3,2-million last year. All these additional costs were anticipated at the beginning of the year and are in line with budget.
“We remain confident of the future of the business and controlling our own distribution channels will drive the expansion of new corporate stores and franchising.”
Looking ahead, Summers said the group foresees low levels of inflation continuing for the remainder of the financial year.
“This is good both for the country and its economy. We are looking for real volume growth through pricing, value add and increasing service levels, and are confident of showing a good earnings increase for the year.”
Pick ‘n Pay reported a 17,1% increase in its headline earnings per share for the six months ended August 31 to 52,4 cents from 44,73 cents a year ago. The group declared an interim dividend of 19,8 cents, up 20% from 16,5 cents in 2003.
Pick ‘n Pay’s share price was up 1,4% or 30 cents on the news, last quoted on the JSE Securities Exchange at R21 from R20,70 at Monday’s close. — I-Net Bridge