The exchange … with Pick n Pay CEO Sean Summers 

While its Boxer asset is clearly on a roll, the core Pick n Pay business has been through the wringer. The group’s first half losses have widened, but it reckons the worst is behind it.
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The market couldn’t muster up much enthusiasm for Pick n Pay’s first-half results yesterday, with the shares opening 2.5% higher only to close flat. While its Boxer asset is clearly on a roll, the core Pick n Pay business has been through the wringer. It’s now seen three consecutive reporting periods of margin contraction, an eye-watering debt charge of R400m, and an admission that the company’s capex before its recapitalisation plan was “running on fumes”. The comparable pre-tax loss widened to R1.05bn from R837m a year ago, for the 26 weeks ended August 25. So, is the worst really behind it? Currency spoke to CEO Sean Summers. 

Sean Summers, Pick n Pay CEO. Image supplied

First, you announced the Boxer unbundling and listing will happen before the end of the year. Given how well Boxer’s doing, are you likely to sell less of it to outside investors? 

We are severely restricted on anything we can even think, never mind say, with regard to Boxer. So the guidance is out there and the pre-listing statement pertains, and we’re not in a situation to offer any other commentary.  

You did say that what you’d like to raise is now at the higher end of estimates – i.e. R8bn. 

We’ve given a range of R6bn-toR8bn, so there’s nothing really you can read into that.

Would you like to sell as little as possible? 

I’m not in a situation to say anything I’m afraid. If I could, I would. 

Pick n Pay. Image supplied

Okay, sigh! In today’s results presentation you called it a “helluva” year and it’s only the first half that’s been reported on. Is this as bad as it gets? 

Yes. If you look at where we are a year since my return, I forecast then that things would get a lot worse before they got better. These results are a manifestation of that. What I also said today is that I can say with a degree of confidence that the worst is now behind us. We’ve had to step through so many hoops, from a very complex lender situation where we had 11 banks that were holding the debt that Pick n Pay had. Once we breached our covenants and maxed out our facilities in January, that brought about a whole new world of hurt and time and energy that had to be expended in that regard. Then preparing Boxer for the IPO, as well as reconstructing and putting in place an entire management infrastructure across the length and breadth of the company, and a strategy and business plan for Pick n Pay.  

It’s been the longest, fastest year I’ve had in my life. But it’s been enormously rewarding, aside from just the financials. There are the most extraordinary people in this company and they’ve come to the fore. I’ve brought back a limited number of people who had sadly left the company who should never have left. But as I say: people leave people, so they came back gladly and I can feel the cadence and spirit and confidence that grows in this time, day after day. So when our balance sheet is remedied and the listing goes ahead, we’ll really be able to apply our minds to trading even stronger. 

Boxer. Image supplied

Lerena Olivier, your CFO, said in the presentation that your capex was “running on fumes”. If that changes now, thanks to the recapitalisation, how catalytic is that going to be for Pick n Pay’s growth? 

It meant we had to keep stock levels within our current cash requirements – so even down to that level, never mind that we had spent no money on the core Pick n Pay estate. The only money we spent was a couple of hundred million on repairs and maintenance. For next year we’ll be in a situation where we can start refurbishing and cleaning up some of our key trading stores – like the Waterfront in Cape Town, Canal Walk, Benmore, La Lucia, I could go on. Around the country there are still great stores and great operations that desperately need capital. Faerie Glen hypermarket (in Pretoria), we are going to completely reconfigure that centre and rejuvenate it. Our hypermarkets are still sitting in extraordinary positions geographically so we still have a lot of great estate to get stuck into. I mean, look at the Langeberg Mall in Mossel Bay – that store is unbelievable, but holy hell it’s tired. Once we get to fixing up these stores it’s going to be absolutely fantastic. 

You took some umbrage in the presentation to comments that Pick n Pay is losing the game of scale, given that your turnover annually is still about R100bn. So shrinking is not the issue? 

No, not at all. When I look at how the world has changed from … last year – when one dealt with the media in those days it was formal and skilled, and a trained media and they were professional. Today it starts from TikTok, where people spout forth, and it goes from there and morphs, and as it goes up the line, there is so much noise out there. And sometimes you read what’s written and you think to yourself: really? We have a situation where people like to write headlines for click-bait and you just have to rise above it.  

But that sounds quite defensive. Are you saying that’s where the origin of fears of your scale come from? 

It’s not defensive at all, because you see what happens in the marketplace is that for a lot of people who don’t really have a basis of reference, you’d be surprised how much of this nonsense gets traction.

Boxer. Image supplied

Okay. In the presentation, Lerena mentioned that margins have contracted for three consecutive reporting periods, but that contraction is now ending. How do you start growing margins?  

The first thing we had to do was ensure that Pick n Pay was competitively priced again and that was an issue we dealt with, so we took a bit of a cut straight away. That didn’t worry me – I said we focus on customers, and for customers perception is a reality, so we need to deal with the pricing. Widening that margin is what we are going to do with some of the programmes that we will put in place, like housebrands; buying much better – if I have a look across Fresh, how we’ve been sourcing there over the past 10 years, there’s an opportunity to do that far more effectively. And then we’ve got to look at our own cost of distribution in the company.  

In the first half, Pick n Pay’s corporate stores actually produced like-for-like growth of 3.1% against a 0.5% contraction in the second half of last year. But you said that the franchise supermarkets had a more “difficult” period. What exactly is the problem? 

My primary focus in the beginning was re-energising corporate and putting the new management team in place so we got a greater degree of traction urgently and earlier than we did within the franchise business. The franchisees carried on running their own businesses. For a protracted period the franchise businesses had had it “all their own way”. But a big degree of concern in the franchise group was: what the hell happens if Pick n Pay falls over? So they’re very happy that the mothership is back strongly on the front foot again and franchise is coming. It’s not the laggard, but slightly behind where we were in corporate. 

Giulietta Talevi

A prominent voice in print and broadcast financial journalism with a sharp edge in market and company news. Former Financial Mail Money editor and BusinessDayTV anchor, Giulietta boasts an influential digital footprint that commands industry respect.

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