Retailer Pick n Pay is holding onto about R850m in cash by not paying a final dividend, because of the “economic upheaval” in the wake of the Covid-19 pandemic.

The share price dropped almost 15% to close at R50.58c

Pick n Pay, which had delivered seven successive years of growth in sales and profit before tax, would have paid a final dividend of 173.06c a share for its 52 weeks ending March 1.

It said on Tuesday that while the trading outlook remains uncertain, SA’s economy is likely to contract significantly in 2020. It will make a decision about the dividend payment later in the year when more is known about the economic impact of the coronavirus pandemic.

It has warned that future turnover is likely to be 20% lower because of the ban on the sales of general merchandise, liquor, and tobacco under the Covid-19 lockdown regulations. These categories have high margins compared with basic food and grocery lines, Pick n Pay said.

SA has been on lockdown, aimed at curbing the rapid spread of the coronavirus, since March 27, which was after Pick n Pay’s financial year end.

While the lockdown is expected to affect future earnings, it has unlocked growth in online shopping because of the imposed social distancing requirement.

CEO Richard Brasher said there has been fivefold growth in Pick n Pay online shopping and delivery in SA but after life returns to normal, he predicts growth in online shopping, a small part of the business, would continue at a slower rate.

Pick n Pay’s group turnover was up 4.7% to R89.2bn. Headline earnings per share were down 0.6% to 287.89c.

Profit for the period fell about 11.5% to R1.2bn compared with the prior period, due to increased tax rate, struggles in some rest of Africa operations  and increased costs in its home market.

Operations in Zambia and Zimbabwe reduced group earnings by 8.7 percentage points year-on year.

The group “traded in difficult economic conditions throughout the year, with low growth, high unemployment, rising household costs and constrained consumer spending in all regions”, it said in a statement.

SA operations recorded a 15.2% increase in profit before tax, though it was hit by a strike at the main supply depot over Christmas, which he said cost them about R100m. Tax rates surged from 24% to 31% and its operating costs were hit by loadshedding. 

The group said that a robust trading performance in SA was offset by difficulties in some of its African operations, including Zimbabwe, where hyperinflation took a bite out of profits.

The group’s Zimbabwe associate TM Supermarkets faces severe currency shortages, currency devaluation, high levels of inflation, shortages of fuel and other staple goods, and shortages of power and water, Pick n Pay said.

Pick n Pay has written down the fair value of its investment in TM Supermarkets by R173.6m.

Commenting on the rest of Africa operations, Brasher said “the truth is it is risky. [But] we have not lost money. We are staying in Africa. We are supporting our teams.”

The stores in Zambia and Botswana and Zimbabwe are selling fewer ranges, which saves money and shelf space and allows lower prices, something that Boxer discount chain is doing locally. Boxer has converted 85% of its stores to smaller formats with fewer ranges in a bid to keep prices low.

In SA, overall Boxer and Pick n Pay Food inflation over the period was 3.6% but in-store product inflation was 2.6% year on year.

With Karl Gernetzky



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