October 22, 2013 / 2:18 PM / 4 years ago

UPDATE 1-S. African grocer Pick n Pay increases profit for 1st time since 2010

* Headline first-half EPS at 41 cents vs 36 cents

* Sales up 7 pct yr/yr at 30.1 billion rand

* To raise dividend cover to 1.5 times from 1.33 times (Adds CEO, analyst comments, shares)

By Tiisetso Motsoeneng

JOHANNESBURG, Oct 22 (Reuters) - South Africa’s No.2 grocer, Pick n Pay, increased its profit for the first time since 2010 in the first half, sending its shares surging on Tuesday as investors bet the retailer’s turnaround plan is starting to bear results.

After years of being an investor and consumer favourite, Pick n Pay is struggling to keep up with rivals like Shoprite both operationally and in the stock market due to its late investment in streamlining its supply chain.

The company was also hit by a costly shopper loyalty programme - launched in 2010 - aimed at fending off intensifying competition from Wal-Mart’s Massmart unit.

Pick n Pay reported a 14 percent rise in headline earnings per share (EPS) for the six months through Sept. 1 on Tuesday, compared with a year earlier, and announced an interim dividend of 14.80 cents a share, up 0.3 percent on last year.

Headline EPS, South Africa’s main profit gauge, strips out certain one-off items. The company saw its full-year profit fall 31 percent in the last fiscal year.

The latest results prompted its retired founder, Raymond Ackerman, to proclaim a revival of the Cape-Town-based retailer under new chief executive Richard Brasher, although analysts said it was too soon to tell if the costly strategy to win market share and streamline the supply chain would be successful.

“If I was in Richard’s shoes, I would probably take out an ad saying ‘We’re back’,” Ackerman said.

“It’s been a very sad time seeing the company slip down. I am terribly encouraged by what Richard has produced over the last six months.”

Brasher, the former head of British-based Tesco’s UK unit who took over in February, is widely expected to speed up the business turnaround plan.

“I do feel like we’re playing. We haven’t won anything yet but we are definitely back on the pitch,” Brasher said in a telephone interview after the results.


Pick n Pay’s share price rallied 8.9 percent to 45.99 rand by 1201 GMT, on course for its biggest daily percentage gain since late 2008, and outperforming a 0.6 percent rise in Johannesburg’s broader All-share index.

“The market responded positively to these set of results but it’s difficult to say if the business has turned around. It’s early days,” said Suvasha Kander, a portfolio manager at Johannesburg-based Ashburton Investments.

“We still need to see their trading margin look a little better and, apart from protecting their market share, we need to see them winning market share from competitors.”

The company, which achieved a slight improvement in trading margins during the period, still has the weakest margins in the industry, squeezed by cost pressures.

It said it would pay less dividend in the future by raising its cover to 1.5 times from 1.33 times in order to save money after cutting 400 staff at its head office and regional hubs in August.

The company said sales increased by 7.5 percent to 30.1 billion rand ($3.07 billion) in the six-month period, suggesting that some of the bottom line growth - which was nearly double the rate of the topline - came from cost cuts as consumers in Africa’s biggest economy grappled with rising fuel costs and household debt.

Industry sales grew 3 percent year-on-year in August, little changed from the previous month and confirming a slowdown in household consumption. (Editing by Susan Fenton)

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