Pick n Pay, South Africa's second-biggest supermarket chain, reported a 16.3% fall in annual earnings on Thursday, hit by costs related to store revamps and unprecedented power cuts.
State electricity utility Eskom is implementing the worst rolling blackouts on record, leaving households in the dark for up to 10 hours a day, disrupting manufacturing and hurting businesses.
Retailers specifically are having to crank up diesel generators to power their stores and warehouses, additional costs that are putting pressure on margins.
Pick n Pay said it incurred an incremental cost of R522 million($29 million) for diesel to run generators in the year ended 26 February, and also incurred planned costs in implementing its new growth strategy, which includes revamping old stores and adding new ones.
As a result, annual pro-forma headline earnings per share (HEPS) fell to 242.37 cents.
Pro forma HEPS exclude business interruption insurance proceeds and non-cash hyperinflation gains and losses related to the Zimbabwe business. Including all of this, HEPS fell by 1.3%.
Group turnover, however, increased by 8.9% to 106.6 billion rand, driven primarily by its discount grocery chain Boxer, where sales growth in South Africa was up 20.2%, while group gross profit margin remained flat at 19.6%.
Gareth Ackerman, chairman of Pick n Pay said that the blackouts have placed the economy under enormous pressure.
“South Africa is simply not growing at the required rate to ensure improvements in employment and living standards for all South Africans. We need to grow the size of the cake before we try to cut it differently. The energy crisis is particularly challenging for food retailers because we rely on electricity to keep food chilled and safe. Burning diesel generators adds massively to our costs,” Ackerman said.
“We are at a particularly precarious time in South Africa. With official unemployment sitting at 32.7%, and much higher among young people, the IMF has just forecast our growth at 0.1% this year. That isn’t even standing still. It’s going backwards. Investment in our economy is critical. Pick n Pay’s investment of R4bn into the business over the past year shows our commitment to build for the future. Not many companies in SA are making this scale of investment. In our experience, food manufacturers are not investing in their plants to the degree required to maintain adequate market supply and this has an impact on food security. I was also disappointed to see how poorly South Africa was doing relative to other economies in attracting foreign investment as reported at the recent Investment summit,” he further said.
“Pick n Pay remains committed to serving our customers as best we can. We will play our part in society, and we will do both by being the most efficient business possible. We look forward to continuing the huge strategic transformation the company has embarked upon. It will produce strong longer-term performance. Before I close, there have been a number of requests from shareholders for us to increase our dividend cover to cover some of the Ekuseni costs. The controlling shareholder has agreed to a revised policy from FY24 payouts,” Ackerman said while speaking at the financial results of the retail giant on Thursday morning.
Reuters and additional reporting by Ashley Lechman