SOUTH AFRICA – Retailer Pick n Pay on Monday flagged that both headline earnings and earnings a share would drop more than 20 percent in the half year to June as costs related to its voluntary severance programme (VSP) weighed heavily on its balance sheet.

The country’s second largest supermarket chain store cut 10 percent of its total workforce in April through the voluntary packages.

The company said the earnings forecast was based on a preliminary assessment of the VSP compensation payments, which was offset in part by the expected related savings during the reporting period, the company said.

Chief executive Richard Brasher said the severance package was one of several steps the company had undertaken to make the business more competitive.

“For reasons of timing, it will have a material impact on our first-half result. But it has made us a leaner and more efficient business, and the reduction in our costs will give us more headroom to provide customers with even lower prices and better value. Our plan is on track and we are a stronger and more sustainable group as a result,” Brasher said.

The VSP entailed employees being offered 1.5 weeks of pay per completed year of service, plus four weeks of notice pay as the retail industry came under pressure from the recession and gross domestic product that shrank 0.7 percent on an annualised basis in the first quarter.

Yesterday Pick n Pay said that it had completed the first stage of its turnaround strategy, which was to stabilise its finances and operations.

It said it was making progress on the second stage, which was to change the trajectory of its performance and restore a sustainable profit margin.

The company said the second stage in the first half of the current financial year included permanent price reductions across more than 1300 fresh and grocery products as well as enhancing price competitiveness for Pick n Pay.

The company said it would modernise its Smart Shopper loyalty programme to deliver customers more immediate and tailored weekly discounts on products, reducing the emphasis on awarding points linked automatically to spend.

It said it also planned further progress in achieving a centralised supply chain to deliver more efficient product replenishment, improve on-shelf availability, and reduce cost.

It said it would remove roles that were no longer required to improve the efficiency and productivity of staff in all areas of the business.

“The group is confident that these and other actions will have the effect of improving the resilience and competitiveness of the group, and the value it offers to customers in what is currently a challenging consumer environment,” the company said, adding that it expected the financial benefit to be realised from the 2019 financial year onwards, with significant positive impact on operating costs, making the group more competitive and sustainable.

Pick n Pay shares rose 2.9 percent on the JSE yesterday to close at R63.41.

August 1, 2017: Business Report