| Mon 21 Jun 2010, 8:14 | | PIK - Pick N Pay Stores Limited - Results of the annual general meeting |
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PIK
PIK
PIK - Pick N Pay Stores Limited - Results of the annual general meeting
PICK N PAY STORES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1968/008034/06)
Share code: PIK
ISIN code: ZAE000005443
("the Company")
RESULTS OF THE ANNUAL GENERAL MEETING
Shareholders are advised that, at the annual general meeting of the Company held
in Cape Town on Friday, 18 June 2010, all the resolutions contained in the
notice of the annual general meeting (dated 10 May 2010) were passed by the
requisite majority of shareholders. The special resolution will be submitted for
registration at the Companies and Intellectual Property Registration Office in
due course.
Address given by Gareth Ackerman at the AGM
Ladies and Gentlemen,
It gives me very great pleasure to welcome you to the 42nd annual general
meeting of shareholders of Pick n Pay Stores Limited and Pikwik Limited. This is
the first time that an AGM of Stores has not been held under my father`s
chairmanship, and I am thus conscious of the weight of responsibility and
expectation that has devolved upon my shoulders since I took over as chairman of
the company at the beginning of March.
I would like to congratulate and thank both Raymond and Wendy Ackerman who have
retired from the Stores Board for their incredible contribution and inspired
leadership of the company since 1967.
What I wish to do this morning is to talk about the significance of the very
major restructuring which the company has undergone in the past three to four
years and how this strategic reorientation has prepared us for the challenges
that are presented by the state of the economy, the aspirations of our
customers, and the changing nature of the business environment.
I will reflect on where we find ourselves in a competitive retail milieu and
what steps we have taken in order to secure our long-term profitability. And I
will conclude by reaffirming some important issues of principle that will
continue to guide us.
The last few years have seen us dedicate considerable resources to prepare for
an uncertain future. The past decade has seen unprecedented changes in South
Africa`s retail sector, and it is clearly imperative that we should be in a
position to adapt to these. The nature of our competition has changed, and our
customers have changed - not only in their demographic profile, but in their
expectations and aspirations.
At the same time, the very nature of competition in South Africa`s retail
environment will be changed by the possible entry into the local market of
leading international retailers such as Wal-Mart. Wal-Mart and others have been
very active in their engagement with local retailers, including Pick n Pay, and
their arrival on our shores would have profound implications for the retail
landscape and for the ways in which we do business.
It is precisely because of the magnitude of these changes that we have invested
so much effort in our restructuring strategy over the past few years. It was
clear that these changes needed to be made, and made urgently. We had slipped
behind in many areas, most of which you as shareholders will know well.
When we launched our strategy four years ago, we were clear that this ambitious
and visionary project would be costly in terms of both money and energy - and so
it has proved. We have invested heavily in such components of the strategy as
SAP, centralising distribution, capacity, rebranding, the Score conversions and
a number of other key capital-intensive undertakings.
Despite the cost of these important initiatives, we have no doubt that the
necessary investments will bear considerable fruit in the coming years. It has
been a set of projects with an eye firmly on long-term growth rather than short-
term advantage, and we have always been aware that its scope would affect
returns.
Our recent financial results relative to our competition and relative to prior
years should be seen against this backdrop.
However, it is simply incorrect to suggest in any way that these investments and
the consequence to our bottom line have anything whatsoever to do with our
corporate structure. The record shows that our restructuring exercise represents
a bold and proactive effort to build profitable market share and competitive
advantage. The money spent on expanding our retail footprint, enhancing our
central distribution system, introducing SAP and revitalising our stores has
been directed to precisely this end.
We have been a family business since our foundation. My father established Pick
n Pay in the belief that family control was the only way in which we could
ensure the maintenance of the values and principles which have informed our
commercial conduct since 1967. For 43 years, my family has sought to protect and
promote these values in a business environment where ethical behaviour has not
always been the dominant practice.
Throughout the world, family-owned businesses - and the values they represent -
continue to play an important role in the development of economies. In the
United States, they form the backbone of the American economy. Some 35% of
Fortune 500 companies are family-controlled, while family businesses account for
50% of U.S. gross domestic product. They generate 60% of the country`s
employment and 78% of all new job creation.
Against that background it is important to remember why Pikwik was created as a
pyramid holding structure in the first place. In 1981, amid rumours that certain
business interests were exploring a takeover of a majority of Pick n Pay shares,
it was a necessary step in order to prevent a hostile takeover. Consistently
high returns to shareholders since then have amply shown the wisdom of this
strategy and decision.
22 years later, Pick n Pay control remains in the hands of the Ackerman family,
despite the worldwide decline in large family businesses and despite the
numerous disincentives which confront such enterprises. In South Africa,
corporate governance requirements introduced over the last four years have
unintentionally erected barriers to the formation and sustainability of big
family-owned businesses such as Pick n Pay, with the result that there is a
decreasing number of such enterprises listed on the JSE.
Above all, perhaps, family control has enabled us to take the long view when
devising strategy, considering plans for expansion and assessing the risks of
future investment. This we would have been unable to do had we been restrained
by the understandable demands of majority institutional investors or private
equity shareholders for immediate returns and short-term benefit.
Continuing family control has allowed us the space for innovation, risk-taking
and entrepreneurship which is not always available to institutions or other
investors driven by the need for immediate profit and rapid dividends.
And no one can claim that the governance structure of Pick n Pay has yielded
anything but remarkably satisfactory returns to shareholders over past 30 years.
If you had invested in a R1.10 share in 1968 it would be worth R7 400 today. By
any commercial standard, this has been a remarkable return with a compound
annual growth rate of nearly 25%. Over the last 20 years the Stores and Pikwik
shares have shown compound annual growth rates of over 14%.
And despite the challenges of the last year, we still posted a dividend above
last year`s.
I`d like to be abundantly clear: the pyramid structure is not going to change
and I need only to stress that the directors of Pick n Pay Stores have always
run the Group for all our shareholders, and not merely the interests of the
Ackerman family. It has always been this way.
It is axiomatic that the group`s fortunes have risen and fallen with the
condition of the national economy. In no sense have we been immune to the
cyclical nature of the economy as it passes through periods of recession and
growth. Inevitably, our shareholders are largely content in times when profits
are solid, growth is demonstrable, and returns on investment are high.
It is thus unfortunate that - at a time when the global economy is in a state of
deep crisis, our trading environment is exceptionally difficult and during a
period of heavy investing for the future - some should choose this moment to
question a structure which has served us well in times of prosperity.
It is arguable that those who saw Pick n Pay as a worthwhile investment when
trading conditions were good, both appreciated and understood that they were
buying into a family-owned group governed by a pyramid arrangement. We have
repeatedly said that there is no good reason to change this structure, and I can
only repeat that insistence.
Let me turn to the criticism that has been levelled against our policy to issue
share options at a 5% discount to the market price.
I make no apologies for this scheme, as the expansion of our shareholding base
to incorporate our loyal employees has been an integral component of our
business philosophy for many years. Long before black economic empowerment was a
mandatory imperative, Pick n Pay deliberately sought to extend the benefits of
shareholding deep into our company and I remain convinced that it has been the
right and equitable thing to do. Let the record show that when we introduced
this decades ago, deep within the organization and down to the lowest levels of
employees, we were much heralded. This philosophy worked for us then, and works
for us now.
Our options scheme is fundamental to our sense of corporate social
responsibility. While it may not comply with the technical intricacies of King
3, it is fully compliant with JSE requirements and will thus remain in place. I
should add that the level of the discount has been halved from 10% to 5%, in
line with JSE rules.
In short, this empowering process of offering shares to our people at a
discount, enables them to share in the company`s success, broadens our
shareholder base, benefits those who deserve it and has served us well.
There has also been criticism of a perceived lack of independent directors. In
this regard, I would like to stress that we remain insistent that at all times
the Board should ideally consist of more independent non-executive directors
than executive and family nominated non-executive directors combined.
As a family-controlled Group through its holding company, Pikwik, it is
inevitable that some of the directors of Pick n Pay will be nominated by the
major shareholder, the Ackerman Family Trust. However, with the implementation
of King III, all non-executive directors classified as independent will undergo
an annual evaluation of their independence based on the guidelines provided by
King III. Directors serving terms longer than nine years will undergo a rigorous
review of their independence.
The majority of non-executive directors are independent in terms of King III.
David Robins and I are not considered independent by virtue of our relationship
with the Group`s ultimate controlling shareholder, but the independence of all
other non-executive directors is beyond question. And what we will not and
cannot risk is the loss of incalculable skills on our board.
However, I am able to report today that we are currently concluding a very
rigorous search for new independent non-executive directors, and an announcement
in this connection may be expected this year.
We are thus not blind to the implications of King 3, and the Board`s corporate
governance committee constantly reviews and evaluates our governance practices
and structures to ensure that they comply with relevant international and
national standards, and are appropriate and effective. During this past
financial year, we have and will continue this year, to further embed the
provisions of King 3.
Let me turn now to Australia. This is a market which has proved consistently
sluggish and which has been the subject of a strategic review which I announced
two months ago. That strategic review has now been completed and will be
presented to the Board with Management`s recommendations. Whichever way the
decision goes, suffice it to say for now that the review has demonstrated how
well Franklins has been run, despite an extremely difficult retail environment
in Australia.
From the very outset of our Australian venture, we have encountered spirited
opposition. It is therefore a credit to our Australian associates that Franklins
has achieved such an outstanding turnaround, thus establishing a solid
foundation for long term growth in that country.
It is only appropriate at this point that I should pay tribute to Aubrey
Zelinsky, the MD of Franklins, who will be retiring at the end of this month. It
has been largely thanks to him and the team which he has assembled that
Franklins has been able to increase profitability in the past two years. He has
been responsible for the introduction of increased operating efficiencies and it
has been under his watch that we have achieved double digit turnover growth from
the store refurbishment programme.
In retrospect, it is clear that we should have concentrated more on the larger
and more promising African market. For that reason, we are stepping up our
operations in the SADC region, where our first store is about to open in Zambia
and where we have signed up franchise partners in Mozambique, while identifying
sites for expansion into Mauritius. Other developments on the continent are
underway.
Within South Africa, I would like to emphasise that our focus will be on
profitable market share and not merely on market share for its own sake.
Having said that, I must report that I am very comfortable with the performance
of our stores in respect of their position in the market place. It remains now
for us to improve this favourable position even further through the acceleration
of new store development, with particular focus on LSM 4-7, and the expansion of
our retail presence in historically black residential areas.
The result of all the changes and restructuring is that we have added
considerable value to our enterprise. For all the trauma that has accompanied
the process, we are now able to face the future with confidence, certain in the
knowledge that ours is a very much more efficient and strategically structured
company that it was only a few years ago.
Pick n Pay will maintain its regional structure, in order to empower line
management and deliver enhanced customer service through a decentralised system
of responsibility and accountability.
Ladies and gentlemen, I would like to stress one enduring principle: at the
conclusion of all the changes we have introduced, the values that differentiate
Pick n Pay from its competitors will remain unchanged. Out of the restructuring
process, three legacies will remain intact and central to our retailing
philosophy -
Firstly, consumer sovereignty will continue to occupy a front-of-mind position
in all our operations.
As never before, our customers expect to receive sales and service support, and
are generally better informed, more demanding and savvier than any previous
generation. That mastery of information - combined with the rise of consumer
activism and the exponential growth of the internet - has enabled them to
exercise choice with a power and freedom that was totally foreign to their
forebears.
And it is our primary duty to adapt to that new generation of shoppers, ensuring
that the right product is available at the right price at the right time.
Secondly, we will absolutely adhere to the maxim that "doing good is good
business". Pick n Pay was one of the first companies in South Africa to make a
strong commitment to corporate social responsibility and it will remain as one
of the pillars on which the company philosophy is founded.
Thirdly, our commitment to business efficiency and decentralization will remain
undiluted. While we have already made major progress through the Group`s
restructuring project, the quest for efficiency can never be said to be
complete. This will be achieved through measures such as augmenting the way we
use SAP to improve process efficiency, and reducing the cost of doing business
through "goods not for resale" enhancements and further cuts in overheads.
The Pick n Pay brand remains a strong and envied one. Our reputation for
maintaining low prices during periods of high food inflation and our long
history of championing the consumer have not been developed overnight or won
easily. Our identity has been designed both to meet the demands of changing
financial norms and to match the aspirations of our customers. We continue to
project the image of a modern, vibrant and dynamic organization which conducts
itself ethically and responsibly.
The respect with which that brand is regarded by South Africans is jealously
guarded by my family, our shareholders and our employees.
As we confront the challenges of a struggling world economy and as we share the
financial difficulties that face our loyal customers, we will not abandon the
business model or ethical foundation that have served us so well for almost half
a century.
In conclusion, I wish to thank you for the active interest you have displayed in
the welfare of Pick n Pay, your constructive criticism and the encouragement I
have received from you since taking over the chairmanship. Although shareholders
don`t run the company, I can assure you that your voice is heard, and I hope
that what I have said this morning has conveyed the value which we attach to
your concerns and your legitimate interests.
This trading year is one of the hardest we have encountered, similar to the
trend worldwide, and our management team is doing exemplary work. Before I hand
over to our Chief Executive, Nick, I`d like to record my particular thanks,
appreciation and congratulations to him and his Retail team. They have run the
business extremely well not only in the midst of significant and fundamental
strategic changes, but in one of the toughest trading environments in decades.
They are deserving of both acknowledgement and praise for their incredibly hard
work in repositioning the group.
I now have much pleasure in handing over to Nick, who has, as always, been a
strong support to me in my short time in the chair.
Thank you
By order of the Board.
Cape Town
21 June 2010
Sponsors: Investec Bank Limited
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