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Pick n Pay CEO makes no apologies for results

But promises things will improve.

CAPE TOWN: Richard Brasher, Pick n Pay’s new CEO, is a man with a plan. He has a 30 day plan, a 60 day plan and a 90 day plan. And that is just for starters.

“You need to have a plan. Anyone who doesn’t have a plan doesn’t know where they are going,” he says. “The plan is to make the business better; it allocates tasks, resources and finance; it makes it clear what is expected this year and how people will be held accountable; it is less about strategy and more about delivery and the end result should be that profits increase faster than sales. That’s the plan.”

It’s coming in the nick of time.

Pick n Pay’s operating margin has fallen to an anorexic 1.4%, widening the profitability gap between it and Shoprite, which trades on a healthy 5.18%. Its turnover grew by a dismal 7.1% to R59.3bn on weak trading; operating profit dropped 30.9% to R808.9m and headline earnings per share fell similarly to 111.30 cents/share from 160.78 cents/share.

Brasher, who joined the company in February, makes no apologies for the results. “These are not my results. They are what they are. There should be no surprises in them as they were telegraphed to the market. My job from now is to make sure the margin goes up and not down.”

The ongoing business improvement initiatives – which contributed to the increase in operating expenses – should start to deliver results. In the reporting period the company opened its second major distribution centre, in Philippi in the Western Cape; it cut costs and increased efficiency when it took the management of its Johannesburg distribution centre in-house; and the category buying team is operating which means customers should benefit from better products, better prices and greater innovation.

Brasher makes no promises about when the financials will improve. “I believe it is going to get better and I believe it can be done in a sensible time frame. But I will not commit to a deadline. This company has over promised and under delivered.”

However he is making his presence felt and some small changes are visible to investors. The company has adopted a 52-week financial reporting calendar which aligns financial reporting with Group operational structures. It creates a bump this year – the 2013 annual financial period ended on 3 March compared to 29 February in the comparative period. “But in future it will allow us to compare like for like. It makes internal reporting and internal comparatives clearer and crisper.”

The group has also for the first time segmented the reporting on its South Africa Division and the Africa Division. The Africa Division is powering ahead, growing turnover by 35.0% to R2.7bn and operating profit to almost R100m, with store openings in Zambia, Namibia, Swaziland, Lesotho and Mauritius contributing to the growth.

For now Brasher has no plans to deviate from the previously articulated strategy which sees the focus remaining on the core South African business while the Africa team, led by Dallas Langman, looks for profitable growth opportunities. “We have an emerging strategy for Africa – we are in the foothills. We have 100 stores and a good base to grow from.”

Other changes are less visible to the outside eye. Inside the company it is a different matter. Brasher exudes confidence and retail know-how and is earning the respect of the management team. His focus is on projects that deliver. “Don’t tell me what you think, tell me what you know,” is a favourite refrain. Earlier this year a big Easter promotion was cancelled because the expected results could not be proven. His instruction was to pilot the promotion in one store, gather the evidence, and then decide whether or not to roll the programme out.

Pick n Pay’s Smart Shopper loyalty programme gets the nod. “Our customers like it and use it.” But it can be improved and it can be run more cheaply, he says. What bothers Brasher is that Pick n Pay is dipping into its skinny margin to reward customers that are already loyal, without seeing the commensurate increase in turnover. “The costs must be covered by improvement at the tills,” he says.

Pick n Pay is a business with all the building blocks in place – but the disruption caused by strategic restructuring initiatives like the centralised distribution and Smart Shopper programme has at times threatened to engulf the company. “My task as CEO is to ensure that we replace disruption with direction, and inject the right discipline and determination to make each of these and other changes succeed.”

Pick n Pay’s weary shareholders seemed indifferent to the results. The share traded up 1.09% to R41.75 on a day when the all share rose 1.21%.


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