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PICK N PAY STORES LIMITED - Trading statement for H1 FY24 and trading update for the 20 weeks ended 16 July 2023

Release Date: 19/07/2023 07:05
Code(s): PIK     PDF:  
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Pick n Pay Stores Limited
Incorporated in the Republic of South Africa
Registration number: 1968/008034/06
JSE Share Code: PIK
ISIN code: ZAE000005443
('Pick n Pay' or 'the Group')

Trading statement for H1 FY24 and trading update for the 20 weeks ended 16 July 2023 Trading update
The Group continued to make good progress on the implementation of its Ekuseni Strategic Plan during the first four and a half months of the 2024 financial year (FY24). Continued strong sales momentum in Boxer and Online was particularly pleasing, while the Group also managed to make firm strides in key Project Future people initiatives to drive efficiencies within Pick n Pay supermarkets. Sales performance within Pick n Pay SA was muted as the Group strove to contain the margin impact of load shedding costs. Group sales
Group sales for the first four and a half months of FY24, covering the 20-week period from 27 February 2023 to 16 July 2023, increased 4.8%. South Africa sales growth for this period was 4.4% (0.9% like-for-like), while the Group's Rest of Africa segment sales increased 15.9% (12.0% on a constant currency basis).
Clothing sales in stand-alone stores grew 10.9%. Group liquor sales for the period grew 9.8%. Online sales growth for the period was 75.3%, sustaining the strong online sales growth momentum reported for FY23. South Africa sales
South Africa sales growth for the period was constrained by a slow performance from Pick n Pay, while Boxer sales accelerated moderately from the 14.4% reported for H2 FY23.
- Pick n Pay SA sales declined 0.3% (0.0% like-for-like). The slower sales momentum relative to the 3.2% reported for H2 FY23 was a consequence of reduced promotional activity during the period as Pick n Pay managed the impact of extraordinary operating cost pressures caused by elevated load shedding. Sales momentum recovered towards the end of the period as reduced load shedding in June and early July enabled Pick n Pay to intensify its promotional programme. Pick n Pay SA sales growth for the last three weeks of the period was 2.4% (2.9% like-for-like). Both Pick n Pay QualiSave and the stores that have undergone the customer value proposition (CVP) upgrade are outperforming the remainder of the estate.
- Boxer SA sales growth was 15.4% (3.0% like-for-like). Boxer continued to deliver strong sales growth, despite the high base (27.2% sales growth recorded for H1 FY23).
Group South African internal selling price inflation for the 20-week period was 9.5%, well below Statistics SA Food CPI of 13.2% for the period, reflecting the Group's continued commitment to delivering low prices to consumers.
20 weeks ended 16 July 2023 % growth Pick n Pay SA sales -0.3% Boxer SA sales 15.4% SA total sales 4.4% Rest of Africa sales 15.9% Group turnover 4.8% Project Future initiatives
The Group's Project Future people initiatives gained meaningful traction during the period. The two projects launched in March, the Voluntary Severance Programme (VSP) and the Junior Store Management restructuring, have been completed. The Group anticipates an H1 FY24 restructuring charge of approximately R250 million as a result of these and other restructuring efforts, and anticipates related annualised on-going cost savings of approximately R300 million.
An intensive focus on working capital in Pick n Pay South Africa, including successfully concluding the hand-over from the Longmeadow to Eastport DCs, resulted in a substantial cash release from working capital during the period, leaving the Group on track to exceed its stated FY24 working capital target of a R0.5 billion to R1 billion cash release. The Group raised R5.5 billion of medium- and long-term facilities during the period at attractive margins, and is set to repay a substantial portion of its short-term funding to achieve its targeted debt profile. Trading statement
In terms of section 3.4(b) of the JSE Listing Requirements, the Group advises shareholders that it expects earnings per share (EPS), headline earnings per share (HEPS), and pro forma headline earnings per share (pro forma HEPS) for H1 FY24 to decrease by more than 20% when compared to EPS, HEPS and pro forma HEPS reported for H1 FY23.
The Group guided in the FY23 result announcement that it anticipated H1 FY24 earnings to be under pressure as a result of: H1 and H2 earnings seasonality; the base (H1 FY23) being minimally impacted by load shedding; duplication of supply chain costs during the Longmeadow / Eastport handover; and restructuring costs. Our updated guidance on these factors is as follows:
- Total diesel costs to run generators for the 4-month period of March to June of R300 million, and estimated net incremental energy costs of approximately R165 million, potentially annualising to R250 million for H1 FY24;
- Approximately R110 million duplication of supply chain costs during the Longmeadow/Eastport handover;
- Approximately R250 million anticipated H1 FY24 restructuring costs.
The estimated incremental abnormal costs for H1 FY24 highlighted above cumulatively total R610 million. Given that H1 FY23 profit before tax and capital items was R671.8 million and pro-forma profit before tax and capital items was R588.0 million, these abnormal costs give rise to an expectation that the Group will report a H1 FY24 loss at the earnings, headline earnings and pro forma headline earnings level.
On an underlying earnings basis, i.e. excluding net incremental energy costs, once-off supply chain duplication costs, and restructuring costs set out above, the Group does not anticipate a loss for the period.
Management does not yet have the required degree of certainty to provide details of the anticipated range for EPS, HEPS and pro forma HEPS for H1 FY24. Management will provide a further update to this trading statement once the Group has the required degree of certainty to do so.
Management expects the H2 FY24 earnings outlook to be materially stronger than H1 FY24 as a result of (a) more supportive earnings seasonality, (b) net incremental energy cost growth to be relatively low (given the high H2 FY23 base), (c) non-repeat of supply chain cost duplication, and (d) efficiency gains from the H1 FY24 Project Future initiatives beginning to contribute. Pro forma information
Pro forma earnings exclude all non-cash hyperinflation gains and losses related to the Group's TM business in Zimbabwe, and in FY23 excluded R145.2 million (R104.5 million net of tax) of business interruption insurance proceeds received and accounted for in FY23, but relating to FY22. Pro forma HEPS will be the Group's primary measure in determining its FY24 dividend pay-out ratio.
The constant currency sales growth information contained in this announcement has been presented to illustrate the impact of changes in the Group's major foreign currencies - namely the Zambian kwacha and the Botswana pula - on the sales growth of its Rest of Africa segment. The Group's turnover growth in constant currency is calculated by translating the prior period local currency turnover at the current period average exchange rates on a country-by-country basis and then comparing that against the current period turnover translated at current period average exchange rates.
The pro forma financial information is presented in accordance with the JSE Listings Requirements and is presented for illustrative purposes only. The pro forma financial information may not fairly present the Group's financial position, changes in equity, results of operations or cash flows.
The financial information on which this trading update is based is the responsibility of the Board of directors of the Group and has not been reviewed by or reported on by the Group's external auditors. By order of the Board Cape Town
19 July 2023 Sponsor: Investec Bank Limited Date: 19-07-2023 07:05:00
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