To view the PDF file, sign up for a MySharenet subscription.

PICK N PAY STORES LIMITED - Business and trading statement

Release Date: 31/07/2017 08:27
Code(s): PIK     PDF:  
Wrap Text
Business and trading statement

Pick n Pay Stores Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1968/008034/06)
Share Code: PIK
ISIN code: ZAE000005443

Pick n Pay Stores Group - business and trading statement

   -   Voluntary severance programme (VSP) initiated in Pick n Pay in April 2017
   -   Programme now complete, removing c.10% of roles and functions
   -   Financial benefit to be realised from FY19 onwards, with significant positive impact
       on operating costs, making the Group more competitive and sustainable
   -   Expected to be cost neutral for FY18
   -   Full cost to be expensed in H1 FY18
   -   As a result, Group headline earnings per share expected to be down more than 20%
       (17 cents); 82.43 cents (26 weeks ended 28 August 2016)
   -   Group earnings per share expected to be down more than 20% (16 cents); 78.69
       cents (26 weeks ended 28 August 2016)

Richard Brasher, Chief Executive Officer said:

“The Voluntary Severance Programme is one of several steps we have taken to make
our business more competitive in what is a tough trading environment. For reasons
of timing, it will have a material impact on our H1 Result. But it has made us a leaner
and more efficient business, and the reduction in our costs will give us more
headroom to provide customers with even lower prices and better value. Our plan is
on track and we are a stronger and more sustainable Group as a result.”


Business update

Having delivered on the first stage of its strategy, to stabilise the finances and operations of
the business, the Group is making substantial progress on its second stage, which is to
change the trajectory of its performance and restore a sustainable profit margin.

Key actions in this second stage of the Group’s strategy, each of which has been progressed
in the first half of the current financial year, include:

   -   permanent price reductions across more than 1,300 fresh and grocery products,
       enhancing price competitiveness for Pick n Pay and providing vital assistance to
       customers in a difficult economy;

   -   modernisation of the Group’s Smart Shopper loyalty programme to deliver customers
       more immediate and tailored weekly discounts on products, reducing the emphasis
       on awarding points linked automatically to spend;

   -   further progress in achieving a centralised supply chain to deliver more efficient
       product replenishment, improve on-shelf availability, and reduce cost;

   -   action to improve the efficiency and productivity of staff in all areas of the business,
       including by identifying and removing roles and functions which are no longer
       required as a result of improved processes or ways of working.

The Group is confident that these and other actions will have the effect of improving the
resilience and competitiveness of the Group, and the value it offers to customers in what is
currently a challenging consumer environment.

The Group will update shareholders further on the progress on its plan on 17 October this
year, when it publishes its half-year result for the 26 weeks ended 27 August 2017.


Trading statement

Through its work to improve the efficiency and productivity of its workforce, the Group
identified opportunities earlier this year to remove around 10% of its roles and functions
across its Pick n Pay head office, regional structure, store operations and supply chain.
These roles and functions were no longer required due to improvements in organisation,
planning and technology.

To remove these roles and functions from the business, the Group embarked in April this
year on a voluntary severance programme (VSP), through which employees were offered
1.5 weeks of pay per completed year of service, plus four weeks of notice pay.

This programme has now been completed. It was conducted in accordance with the
longstanding positive values of the Group. Participation by employees was entirely
voluntary, and the process did not give rise to any labour dispute or other disruption of the
Group’s operations. Through improved ways of working and greater productivity, the Group
has been able to minimise the impact of the programme on its operations and on customer
service.

Alongside other strategic actions designed to improve the Group’s performance, the VSP
should be seen as a significant step in making the business more competitive and more
sustainable.

Compensation payments to employees who left the business will be fully recouped through
the resulting savings in employee costs by the end of this financial year. In subsequent
years, the reduction in employee numbers will have a significant positive impact on the
operating costs of the Group, creating additional headroom to reduce prices and improve
value for customers.

However, shareholders are advised that the cost of VSP payments made to employees have
arisen in the first half of the financial year, and will not be fully recouped by the close of the
half-year. As a result, there exists a reasonable degree of certainty that the Group’s
headline earnings per share for the 26 weeks to 27 August 2017 will be down more than
20% (or 17 cents) on the reported 82.43 cents of the previous corresponding period.
Earnings per share are estimated to be down more than 20% (or 16 cents) on the reported
78.69 cents of the previous corresponding period. This is based on a preliminary
assessment of the cost of the VSP compensation payments, offset in part by the expected
related savings during the reporting period. A final assessment will be completed during the
financial half-year process.

Shareholders are advised that this trading statement addresses only the impact of the cost
and timing of the VSP on earnings and headline earnings per share for the first half of the
financial year, and does not take into account trading performance or any other operational
factors over the period in question. The Group will report on its full trading performance
when it publishes a further trading statement in due course to provide shareholders with
earnings forecast ranges for basic and headline earnings per share ahead of its half-year
result announcement during October 2017.
Notwithstanding its impact on half-year financial performance, the Group is confident that,
alongside other strategic steps designed to improve its performance, the VSP is a significant
step in making the business more competitive and more sustainable. This trading statement
has not been reviewed by or reported on by the Group’s auditors.

By order of the Board
Cape Town
31 July 2017                                               Sponsor: Investec Bank Limited

Date: 31/07/2017 08:27:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story