The Pick n Pay share price recovered to close stronger on Monday following news the half-year earnings figure would take a hit from the most severe staff reduction programme yet implemented at the retail group.

The share price initially fell 3.4% to R59.26 on news that the cost of the voluntary severance programme (VSP) would drag down headline earnings per share by more than 20% in the six months to end August 2017. This 20% hit points to interim earnings of about 65c a share.

But it recovered to close at R63.41 as analysts realised the cuts would reduce employee costs over the long term.

“It seems it was employees who had worked for the group for several years, sometimes decades, who were more inclined to accept the relatively generous severance package,” said one analyst, noting this category of worker was usually employed on more attractive terms that offered less flexibility for the employer. “As the group opens up new stores, people will be employed on the tougher terms offered in the industry.”

The full cost of the programme, which was initiated in April and is now complete, is being expensed in the first-half results. It is expected to be cost neutral for the full financial 2018 year. The Pick n Pay board said financial benefits would be realised from financial 2019 onwards “with significant positive impact on operating costs, making the group more competitive and sustainable”.

Group CEO Richard Brasher would not put a precise figure on the number of employees who had taken up the offer, only that it had removed “about 10% of the roles and functions” at the group. He stressed this did not equate to 10% of the about 53,000 employees.

Industry sources estimate the figure is closer to 3,500.

Brasher said the VSP, which was entirely voluntary, was needed to realign the group’s employment profile with current needs. Thirty-year old stores have different requirements from stores that are being opened up in 2017. “This does not divert us from our commitment to job creation, we’re still opening stores.”

Brasher said the head count by financial year end in February 2018 could be unchanged on the February 2017 figure.

The VSP is one of several steps management has taken to make the business more competitive in what it describes as a tough trading environment. “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,” said Brasher.

The VSP reflects the deterioration in the trading environment and a shift from the previous management style dominated by the Ackerman family.

At the annual meeting in July 2015 the board’s focus was on the planned employment of an additional 5,000 people a year and the opening of about 100 new stores each year.


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