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Consistency at the Core Delivers Another Strong Result for Pick n Pay

  • Positive South African performance delivers overall Group earnings growth, despite challenges in Zambia and Zimbabwe
  • Trading profit in core South African business up 16.4%, with trading profit margin up from 2.5% to 2.8% of turnover
  • Group turnover growth of 6.0% on a comparable basis (6.2% on a constant currency basis)
  • South African turnover growth of 6.5% on a comparable basis, against a strong base last year, with like-for-like turnover growth of 3.5%
  • 63 net new stores added 3.1% to turnover growth
  • Closer working with suppliers, improved efficiency, better availability and less waste created room for further price investment, with selling price inflation restricted to 2.2%
  • Stronger owned store sales and earnings contribution lifted the Group’s gross profit margin to 19.8%
  • Headline earnings per share (HEPS) up 17.5%. Comparable HEPS, excluding the effects of hyperinflation in Zimbabwe, and reflecting underlying operating performance, up 9.5%
  • Investment of R758-million in store expansions, refurbishments, supply chain capability and infrastructure
  • Group retains very low debt levels and high liquidity
  • Interim dividend of 42.80 cents per share up 9.5%

Pick n Pay today published its interim financial results for the six months ended 1 September 2019. Consistent and effective implementation of the right long-term plan over a number of years has delivered earnings growth despite an increasingly challenging consumer environment.

Headline earnings per share grew 17.5% to 91.28 cents, with diluted HEPS up 18.8%. On a comparable basis, excluding hyperinflation gains in Zimbabwe, headline earnings per share were up 9.5%, and diluted headline earnings per share were up 10.7%. Comparable profit before tax (PBT) was up 9.7%, with the PBT margin improving from 1.2% to 1.3%.

The strength and resilience of the Group’s core South African business is at the heart of the result. Off a strong base last year, the Group improved its customer offer and its efficiency, lifting sales and expanding profit margins. This performance offset currency and other challenges outside South Africa.

EBITDA (earnings before interest, tax, depreciation and amortisation) in the South African business was up 11.8% to R2.6-billion, with a margin improvement to 6.2% of turnover. Underlying trading profit (EBIT) increased by 16.4% in South Africa, and the trading profit margin grew from 2.5% to 2.8% of turnover.’

The Group maintained its competitive price position over the period, providing customers with high quality fresh produce and groceries at exceptional value. By working closely with suppliers to unlock cost savings across its procurement and distribution channel, the Group was able to restrict internal selling price inflation to just 2.2%.

Other progress over the period included:

  • Strong sales growth in Fresh, including in many butchery, bakery, produce and convenience lines
  • Over 320 new own brand products launched this year – own brand participation of relevant categories now at 22% in Pick n Pay and 20% in Boxer
  • Smart Shopper voted SA’s favourite loyalty programme for the seventh year running
  • Income from value-added services up 16% year on year
  • Partnership with TymeBank grew to 850,000 customers
  • Clothing and liquor stores delivered strong sales growth
  • Two million customers visited Pick n Pay’s online shop, with a 24% increase in order volumes and sales growth of 17%
  • DC centralisation nears 80% in Pick n Pay and 45% in Boxer

The Group’s careful approach to growing and investing outside South Africa has helped limit the impact of challenging conditions in Zimbabwe and Zambia. Segmental revenue from operations outside South Africa was down 1.8% on last year, but up 2.4% in constant currency. On a comparable basis, excluding hyperinflation gains and losses, operations outside South Africa contributed R46 million to profit before tax. Reported earnings from the Rest of Africa division were down 79.8% year-on-year, reflecting difficult economic conditions in Zimbabwe, with the Group’s share of associate income now recognised under hyperinflation accounting. TM’s trading result in Zimbabwe was on par with last year, although its contribution to income fell on the back of foreign exchange losses and hyperinflation.

Commenting on the result, CEO Richard Brasher said:

“I want to thank everyone at Pick n Pay and Boxer for delivering another strong result – despite tough trading conditions inside and outside South Africa.

“In this environment, retailers have found it difficult to balance their two key objectives: delivering solid sales growth while maintaining profit margins. I am very pleased that we have succeeded in growing both our sales and our profits. This is a significant achievement – given in particular the negative impact of foreign exchange volatility affecting our associate TM Supermarkets in Zimbabwe.

“At the core of our result is a very strong performance from our South Africa division. Our South African sales growth – comprising our Pick n Pay and Boxer stores – was 6.5%. This is a very pleasing performance, ahead of overall growth in the market, and achieved against a strong base. We delivered growth across all our owned and franchise formats. I want to thank all our Pick n Pay and Boxer teams, including our valuable franchise partners, for their dedication to the customers they serve, and their determination to build an ever stronger and more sustainable business.

“We have achieved this result by staying true to our plan. We have become more efficient by buying better, simplifying our product range, and cutting waste. This enabled us to restrict selling price inflation to 2.2%, giving customers much needed support in hard times.

“Through Pick n Pay and Boxer, we now compete effectively across the socio-economic range, and increasingly in all parts of the country. We will continue to invest to make life better and brighter for customers. Over the past five years, we have invested over R7.5-billion on our estate and in our systems. This is a strong vote of confidence in the future of South Africa’s economy, and in our plan for sustainable growth.”

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