Turnover for the Pick n Pay Group for the year ended 28 February 2010 increased 9.8% to R54.7-billion,while the trading profit margin dropped to 3% as a direct result of the reduction in gross profit margin from 19.0% last year to 18.6% this year. Pick n Pay and Boxer grew by 11.5% and Franklins by 1.4% in Australian Dollars.
CEO Nick Badminton said the past financial year had been an exceptionally tough trading period with the recessionary climate biting especially hard during the second half of the 2010 financial year. “While it was tempting to use a deflationary food environment to attempt margin recovery, we continued to keep prices for consumers as low as possible. We believe this will pay loyalty dividends to us down the line.”
He said the Group expected trading for the first six months of the 2011 financial year to remain difficult, but is confident the Company would start reaping the benefits from strategic initiatives put in place over the past year.
“We expect that the 5.5% reduction in interest rates over the past 15 months and significantly reduced food inflation will ease the strain on consumers’ disposable income.
“The drop in trading profit margin clearly demonstrates our continued investment in prices on basic foods. However, the overall decrease was counteracted by enhanced operational efficiencies, especially in our supply chain.”
Headline earnings per share were 236.33 cents, 1.1% above last year, with 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 at 2.6% and 2.4%, respectively, above last year.
Badminton said that in spite of challenges, the Group continued to make significant strides in transforming Pick n Pay, with positive results, most notably an increased market share to 33.7%, excluding the discontinued Score operation (34% including Score). Another significant achievement was strong double-digit growth in fresh and private label sales, both of which are primary focus areas.
“The past year has seen the closure of the Score retail trading business, with a total of 70 stores now converted to Pick n Pay and Boxer. After accounting for the closure costs and the provision of doubtful debts, we have made material improvement to the profits from the old Score business.
“A further five sites were added to our Pick n Pay Express network, in partnership with BP. This format continues to exceed expectations, with an accelerated rollout in the pipeline.” Badminton said that the implementation of Pick n Pay’s supply chain strategy continued apace with the expansion of the Longmeadow Distribution Centre facility nearing completion and significantly improved operating efficiencies with cost per case down by 15%.
The past year saw the completion of the Company’s SAP implementation across all Corporate stores, with full completion by August 2010. Pick n Pay has continued its commitment to sustainable practices within the business, with core focuses being on energy-saving, waste-control, recycling and enterprise development.
“This is only the start of our transformation as we embed all our strategic initiatives,” said Badminton.
“During the year we opened five new Pick n Pay corporate supermarkets, 20 new Boxer stores and 38 new Pick n Pay franchise stores (including five Express stores), the latter two formats including 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 severely affected by the Company’s continued investment in lower selling prices, escalating electricity costs and further conservative bad debt provision. Notwithstanding this, Pick n Pay experienced a significant increase in the number of customer transactions during the year, demonstrating the resilience of the Pick n Pay brand.
Franklins turnover at AUD861.1 million increased by 1.4% and before capital items, produced a profit of R21.9 million (on par with last year).
“The positive impact of the three-year, AUD50-million store refurbishment programme continues to be felt with refurbished stores achieving double-digit sales growth and improved profitability. Eighteen refurbishments have been completed, with a further eight being planned for the next financial year.”
Badminton confirmed the Group’s expansion into Africa: “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.”
Looking ahead, Badminton said: “Given current trading conditions, we are satisfied with this result. 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, driving operating efficiencies through the supply chain, SAP and operating cost reductions. All of these initiatives position us well to benefit from the anticipated upturn in the economy.”
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