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Wed 22 Oct 2003, 17:45 Pick 'n Pay pulls out solid results
Pick 'n Pay pulls out solid results

 

By Vera von Lieres

Cape Town - Despite the triple whammy of an extortion threat, deflation and the negative effect of the stronger rand on its Australian business, supermarket chain Pick 'n Pay pulled solid half-year results out of the hat yesterday.

Chief executive Sean Summers said the blackmail threat from an extortionist in June and July shaved off between R180 million to R200 million on the turnover line.

Offsetting this was growth on the retail side, with Pick 'n Pay supermarkets increasing their market share. 

Summers attributed this to Pick 'n Pay's price competitiveness.

"We had to endure both deflation on the business and the extortion threat. There was some disappointment in Score but we're getting that fixed," he said.

Headline earnings a share in the six months to August rose 18 percent to 44.6c - slightly ahead of a Reuters forecast of a 15 percent increase. Net profit jumped 26 percent to R192.3 million on 10.9 percent turnover growth to R13.9 billion.

Both local gross margin and Australian gross margin were down, in line with the group's intention to reduce gross margin and push volume - similar to the model of global retailer Wal-Mart.

Analysts said results were sturdy despite a bit of a stumble at the Score division and cash generation that could have been sturdier.

Neill Young, an analyst at Coronation Fund Managers, said the effects of extortion costs on turnover was not way off the ballpark figure.

Deflation would definitely be a big issue for the retailer in the next six to nine months, analysts said. A key challenge for management would be to manage selling-price inflation versus cost-price inflation.

Looking at the divisions, Summers said Pick 'n Pay had made the right decision to go into Australia. Two years down the line, the Australian business, including 50 Franklins and 20 Fresco stores, was on the right track. 

"We are not out of the woods but we are on schedule," he said. 

There was some disappointment on the profit performance at Score but moves were afoot to rectify the situation.

Operating in a deflationary environment would put pressure on the group, but Summers said the retailer had tools to fight with. 

"There are efficiency thresholds we can still get to and we can make productivity gains."

Chairman Raymond Ackerman pointed out that numbers were achieved without the benefits of any insurance claims related to the extortion threat.

Its stock traded up ahead of results, closing 52c down at R14.83 in Johannesburg yesterday. 

Published on the web by the Business Report on October 22, 2003. 
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