FIFI PETERS: Despite losing R1.7 billion in sales as a result of the looting that took place in the July riots, as well as the alcohol bans, Pick n Pay has reported a 90% increase in its headline earnings per share for the 26 weeks to August. Its profit margins were also higher, and it opened a couple of new stores over the period.
We have the CFO of Pick n Pay, Lerena Olivier joining the Market Update to review the numbers. Lerena, thanks so much for your time. The riots and the bans affected your sales but not profits. Help us understand how you’re able to make up the lost ground in sales in your bottom line.
LERENA OLIVIER: Good evening, Fifi. Thank you for the opportunity to talk to you this evening, and good evening to the listeners. This half-year, as well as our base half-year last year, were both severely disrupted. Our financial year-end [first half] runs from March to August, and you might recall that the Level 5 lockdown period started in April last year. So in our base year there is a significant portion of trade that we were not able to have last year. We were not able to sell any of our clothing or our general merchandise, as well as a substantial amount of liquor. So, as a first step that did come back to a large extent in this year’s result. We still had some liquor restrictions, so there was still about R800 million worth of liquor turnover that we did not receive this year, due to the weekend liquor restrictions. But the fact that our higher-margin clothing and general merchandise sales did come back, did support the year-on-year profitability.
But of course in this year, besides the liquor restrictions that are still in place over weekends, we experienced significant civil unrest during July and August in the sad events of those couple of days. That however is largely covered by insurance and is therefore not that significant in terms of a bottom line for us, but definitely hurt us on the top line.
To assist the investor community to understand our results, we’ve presented a two-year Cagar (compound annual growth rate) view on most line items
…and on a two-year Cagar view our turnover growth in South Africa was up 5.7%.
FIFI PETERS: Lerena, I see that amid all those challenges that you have described over the year, and the challenge of not being able to pass on the higher pricing in terms of food inflation to your consumers, your selling prices were restricted. We’re speaking on a day where we’ve just had inflation coming out – the CPI now at a four-month high. How sustainable is this situation for you whereby you’re restricted in the level of price increases that you can [apply].
LERENA OLIVIER: Fifi, it’s extremely important for us to give value to our customers across our Pick n Pay value[‑segment] Boxer stores. Yes, we have restricted our internal selling price to 3.6%, well below [the] food CPI of 6.5%. We believe that it is extremely important for us to give value to the customer. So we’ve launched our Project Future programme. We’ve already secured R1 billion worth of savings we believe we’ll deliver by the end of this financial year.
And we’ve also announced that we’ve a phase two of that initiative with the objective to secure a further R3 billion worth of savings over the next three years in order to support prices for the customer.
FIFI PETERS: Where will the savings come from?
LERENA OLIVIER: They will come across the entire business. We will focus on what we call internally the ‘office of the future’. That is looking at the way we support our business from a hybrid working environment. We’ve learned a lot of lessons through Covid, as well as looking at our overall processes and digitalisation of them. We’ll also be focusing on making sure that our entire operations across our stores and our supply chain are more productive at the end of the day. Working smarter is our objective, and through that process we’ll make the entire business more efficient.
FIFI PETERS: Will there be any job losses along the way?
LERENA OLIVIER: Our focus is on making sure that we are more productive and, through that way, we know we will grow the business. We will be able to grow our store footprint.
We’ve also announced an objective to double the amount of Boxer stores over the coming three years – a full 200 stores that we will add to the estate just under that brand. That will create jobs as one of one of South Africa’s large employers.
FIFI PETERS: So Boxer is doing really well for the group. Can you just describe the consumer shopping behaviour that you witnessed in this part of your business, and what supported the increased spend?
LERENA OLIVIER: Fifi, it’s both our Boxer and our Pick n Pay value [segment] stores which are focused on the customer who is very, very price-conscious. The success of that, as per your earlier point, is really making sure that we’ve got the right price point for the customer, great value for money, but also an offering that really honours the customer, and stores that are beautifully lit, with great customer service. Customers have proved that they’re voting for us in those areas by bringing their spend into our stores.
FIFI PETERS: All right. You did mention the rollout of new stores over the period, but your competitors seem to be on a shopping spree if you look at what Shoprite has done in adding Massmart’s food business to its store offering, and Massmart itself with its latest acquisition. So just talk to us about whether acquisitions of new businesses are on the cards for Pick n Pay, and potentially where you’re looking.
LERENA OLIVIER: Fifi, we are always open for any growth opportunities. However, I think we have proved that we can run a generic growth programme very, very successfully. We also know that we can do that in an extremely cost-effective manner. So we are open for any opportunities where there’s growth in the right areas, as long as we make sure that that capital will bring the required return for our shareholders.
FIFI PETERS: Okay. Sticking with competition, we have spoken with some of the analysts and there is a perception that Pick n Pay, your food business, is actually losing market share to some of your competitors. Is this the case?
LERENA OLIVIER: Fifi, the market remains extremely competitive and it’s been extremely disrupted over the reporting period. As I’ve mentioned, our reporting period is different from that of our peers. We run from March to August for this specific half, and our peers have either a December or June year-end. So a direct comparison is very complicated. We do however know that we are gaining strong momentum in our Boxer and our value [segment] stores, and that there’s more work to be done in our core Pick n Pay.
FIFI PETERS: Okay. Going back to the riots, Lerena, just update us on how the claims process with Sasria is going. How much have they paid, and how much is the loss standing [at]?
LERENA OLIVIER: Fifi, I would like to take a moment to really, really commend the insurance industry and the assessors of the South African insurance industry. We’ve worked very, very closely with them since the beginning to ensure that we can reopen our stores as fast as possible for our customers, and they’ve really given significant support during this very difficult process. We have received 65% of our claims to date, with more expected shortly. It’s really been a process that has supported us through a very difficult time.
FIFI PETERS: All right. In numbers are you able to tell us what 65% translates to?
LERENA OLIVIER: We’ve received R600 million to date.
FIFI PETERS: All right. On the damaged stores to date, how many of your stores that were damaged have reopened, and how many still have a bit of a way to go?
LERENA OLIVIER: We had 212 stores across the estate that were damaged and looted, and we had 551 stores that we closed preventively to protect our staff and our customers. The preventive closures have all been reopened, and of the 212 stores we still have 45 stores that haven’t reopened, 27 of them being Boxer and the balance being Pick n Pay stores. We have absolute plans to open them. These stores often are in larger centres with larger repair work to be done. Also, maybe for the listeners to know, even where we have opened some stores, they are not running with optimum till banks at this stage, and we still have some shortages of equipment. We are prioritising that, but we made sure that we could open the doors as quickly as possible to ensure that our customers can have the groceries and the food stuff they want to buy.
FIFI PETERS: How are you feeling about the market or your stores outside South Africa, in the rest of Africa? We have seen quite a lot of people or companies coming home as a result of the difficulty of doing business there. How are you feeling about it?
LERENA OLIVIER: Our rest of Africa business remains very important to us. The economies in which we trade have also been significantly impacted by the Covid-19 pandemic – specifically the travel restrictions on the hospitality industry. Those economies are very, very reliant on tourism, so we are seeing the impact of that. However, we firmly believe that there is growth in the countries where we trade. Our business in Zimbabwe had a very strong half-year, showing positive volume growth for this half. So it’s a business unit in our case that is profitable and that contributes to the group’s overall profitability.
FIFI PETERS: All right. Last question. The new CEO, Pieter Boone – describe what he has brought to the table so far?
LERENA OLIVIER: Peter is a leader with a wealth of retail knowledge. He’s worked through multiple countries and emerging markets. The transition has really been seamless. He’s come with what he calls ‘not a revolution, but an evolution’. He feels that he’s inherited a strong team with strong prospects for the future. He’s definitely brought renewed energy at a time where it’s been extremely difficult – the period of civil unrest. This is the first stretch of his tenure but he has really pulled us all together and we are all looking towards the future.
FIFI PETERS: All right. Lerena, thanks so much for that. It’s an ‘evolution, not a revolution’ – interesting phrase there. That was the CFO of Pick n Pay, Lerena Olivier.