Debt reduction gives Pick n Pay more options
The company will fully settle its long-term debts at the end of October and CEO Richard Brasher has no immediate plans to take on more
Free from its long-term debts, cash-flush Pick n Pay now has the option to put more money behind attractive investment opportunities, CEO Richard Brasher said on Tuesday.
The company had increased short-term borrowings to take advantage of better rates, but would fully repay its long-term debts in October, said Brasher, the former boss of Tesco’s UK business who took over as Pick n Pay CEO in early 2013.
Seven years ago, Pick n Pay had long-term debts worth more than R1bn.
Brasher said he had no immediate plans to use long-term debt “because I just spent the last five years getting rid of it”.
“We’re in a good place — we’re a cash-generative business and therefore our choices are probably better now than before.”
Thanks to stronger cash generation, the group had cash and cash equivalents of R709m on its books as at August 26, from a deficit of R834m a year before.
It could lift its capital investment spending, at R1.6bn in 2018, “if we feel that we could get a return for it”, Brasher said.
“And if things come along that we like the look of and they’re appropriately priced and complement our business, at least we can give it serious consideration.”
But while Pick n Pay’s improved cash position “gives us potential, it’s not burning a hole in our pocket and we don’t have to go spend it”, said Brasher.
The company said on Tuesday that thanks to promotions and lower prices on certain goods, it delivered its best six-month trading performance in five years based on sales volumes.
Turnover for the 26 weeks to August 26 rose 6.4% to R41.2bn and aftertax profits grew 19.8% to R489m. Diluted headline earnings per share climbed 17%.
‘Same-store sales growth’
“A key positive was the increase in same-store sales growth, particularly in SA, at a time when the local economy is so weak, inflation is quite low and a major competitor’s growth is slowing,” said Simon Anderssen, associate portfolio manager at Kagiso Asset Management.
However, Anderssen said sales would need to accelerate further to get earnings to the levels implied by the share price, and this would be difficult in a weak economy.
Brasher said the strong result was “based predominantly on work we were doing 18 months ago which is coming to fruition”.
The company cut costs in 2017, partly by reducing the size of its workforce.
He said the retailer held its internal inflation at 0.3%, well below the 3.5% food inflation reported by Stats SA.
“So we’ve managed to get more customers, we got them to buy a little bit more, and we looked after them a bit better than we did in the past.”
Meanwhile, Brasher said he was not worried that Pick n Pay remained highly dependent on the flagging SA economy.
“I think SA has a lot more potential for us. The rest of Africa is the rest of our lives; it’s a good long-term bet but it’s not a quick win.”
The group would probably rely on smaller stores with fewer product lines as it built out its rest-of-Africa business, he said.