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Retailer Pick n Pay says its financial position has been affected by South Africa’s blockade measures, but with so much uncertainty at the moment, it has no way of predicting how its FY21 results will be affected.
The group has released its financial results for the full year ending March 1, 2020, showing a 4.7% increase in business revenue in the 52-week period ending in February 2020.
This turnover increased to R89.2 billion for the year (2019: R85.2 billion), with a commercial gain of up to 8% to R3.15 billion (2019: R2.92 billion). The profit before tax was R1.87 billion (2019: R1.76 billion).
Despite these gains, after-tax earnings decreased 11.5%, the group said, to R1,195 billion, from R1.35 billion the year before.
This resulted in a slight decrease (-0.6%) in holders’ diluted earnings per share to 278.81 cents, from 280.60 cents earlier.
No dividends were declared, and the group said it made the decision to defer payments as uncertainty persists about the coronavirus.
“In light of the current economic turmoil of the Covid-19 pandemic, the board decided it would be wise not to declare a dividend at this time, but rather to keep the cash,” he said.
“It is anticipated that a formal dividend declaration will be considered and communicated once the full impact of the Covid-19 pandemic on the group’s operations can be reasonably known and evaluated.”
If not for the pandemic, Pick n Pay said it would have declared a final dividend of 173.06 cents per share, keeping the group’s dividend coverage at 1.3 times comparable headline earnings per share on a 52-week basis.
Troubled waters before the crisis
The Pick n Pay results reflect the group’s financial performance before the national blockade came into effect and show the difficult economic conditions that have prevailed in all of its operations, and in South Africa in particular.
The group noted that it traded in difficult economic conditions throughout the year, with low growth, high unemployment, rising household costs, and limited consumer spending in all regions.
South African operations generated 5.1% turnover growth against a solid base from the previous year, reflecting operational challenges in the second half of the year, including the impact of a sustained load shedding program and some disruptions in the supply chain.
This was offset by robust performance in their value-added categories, with the group’s SmartShopper rewards program staying strong and its association with groups like TymeBank progressing. Over 1.2 million TymeBank accounts have been opened at Pick n Pay and Boxer stores, while new rewards partners like Steers and Wimpy have joined.
Covid-19 Impact
According to group CEO Richard Brasher, the coming financial year represents the “biggest challenge any of us has ever experienced in our careers.”
He noted that in the current year, the group’s income is currently affected as a result of the mitigation measures taken by the government to combat Covid-19, including the current inability (level 5 and level 4) to trade liquor, tobacco, clothing and more general merchandise lines
“These categories represent about 20% of our income and have relatively high margins compared to basic food and grocery lines.”
Pick n Pay said that a general reduction in general consumer and commercial activity will also have an impact, as will the additional costs, derived from additional hygiene and social distancing measures that are essential to protect employees and customers.
The cost of providing recognition bonuses to front-line employees for their work during the national shutdown will also be reflected in finances.
However, not everything is negative. One area where the group has seen significant growth at the back of the blockade is online, where, since the disaster state declaration on March 15, online revenue has doubled.
Other featured information includes:
- More than 144,000 new clients registered online: this is 8 times more registrations than the previous year;
- 200% increase in active transaction customers;
- 1,000% growth in new clients compared to last year;
- Dedicated online facilities and click & collect platforms in the store generated more than 150% growth.
Outlook: uncertain
The group noted that the many current and future uncertainties arising from the pandemic mean that it is simply not possible at this stage to estimate or quantify the likely impact throughout the financial year.
He assured shareholders that he was well positioned for the crisis, with stable financing and the required liquidity.
“We do not have long-term structured debt, and we have actively managed your working capital needs through profitable short-term facilities,” he said. “We are well positioned for the crisis, with a stable financing platform and the necessary liquidity.”
Pick n Pay said that, given the various uncertainties, he believes that consumption of food and non-alcoholic beverages will be quite robust, although any growth will be limited by pressure on income and spending.
However, sales in other sectors are likely to be more impacted, depending on the duration of the crisis.
In particular, “the performance of categories such as alcohol, tobacco and some merchandise products in general will crucially depend on the length of the current sales ban and any recovery when sales are allowed again,” he said.
“The impact on profitability will derive not only from an overall reduction in sales, but from any disproportionate impact on higher margin sectors such as alcohol, merchandise in general and clothing.”
Read: Now you can pay for groceries with your mobile phone at Pick n Pay
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