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Markets cheer turnaround efforts of Pick n Pay and Spar

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By: Nompilo Goba - BusinessLive

After years of declining performance, Pick n Pay and Spar have shown signs of recovery, boosted by the recent appointments of new CEOs and strategic shifts, respectively.

Over the past three years, both companies have struggled, but recent share price movements suggest a renewed investor confidence in their leadership and turnaround plans.

Pick n Pay lost nearly half its market value, with a 48.95% drop in its share price in the last three years. However, in the past three months it has seen a 38.25% gain, adding R3.4bn to its market cap, with its value now standing at R13.3bn.

Investment analyst Chris Gilmour said Pick n Pay’s woes dated back over 15 years, beginning with the departure of former and recently reappointed CEO Sean Summers.

Gilmour said successive leadership changes had struggled to reverse the company’s downward trajectory.

He said Richard Brasher’s tenure saw streamlined operations but introduced issues that lingered. His successor, Pieter Boone, implemented the Ekuseni strategy, which segmented the Pick n Pay brand into core and lower-income divisions.

This strategy resulted in financial losses and market share erosion, leading to the company’s first loss in its 57-year history.

“Richard Brasher did a good job in streamlining Pick n Pay but in the process went too far, ripping the heart and soul out of the operation. Brasher retired a few years ago and was replaced by a Hollander called Pieter Boone, who had previously run a number of European supermarket and cash & carry groups,” he said.

“Boone was a disaster; he created a nothing brand called QualiSave that wasn’t Boxer and wasn’t Pick n Pay but was supposed to be something in-between. It never took off. The group went into serious debt problems, lost market share, and by about a year ago it was painfully obvious that Pick n Pay was heading for catastrophic losses.”

Pick n Pay said in its 2024 annual report that Boone, who left the role in September, was paid R15.7m to leave the position early.

Summers, reappointed 10 months ago, introduced a turnaround strategy involving a R4bn rights issue to recapitalise and plans to list the profitable Boxer division separately.

After a recent rights offer, the Ackerman family, which has historically controlled Pick n Pay, gave up its the right to nominate key executive positions, including those of chair, CEO and CFO. Gareth Ackerman will also step down from the role of chair next year. This move is part of the strategy to stabilise and rejuvenate the company.

Despite Summers’ efforts, the market remains sceptical, particularly given his age. Gilmour said there was an urgent need for a successor.

“Summers is 70 and will have to consider retiring at some point... The market still needs to be convinced that Summers can pull this off. I think he can,” Gilmour said.

The company’s latest financial results have highlighted the gravity of its situation. Turnover increased by only 5.4% to R112.3bn, with a trading profit slump of 87.4% to R385m.

While Boxer, half the size of Pick n Pay, demonstrated strong sales growth of 17.3% and big trading profits, Pick n Pay reported a trading loss of R1.5bn.

Spar’s new CEO, Angelo Swartz, appointed in October 2023, is steering the company through a period of transformation.

Despite a challenging three-year period during which Spar lost R12.3bn in value (a 34.8% decrease), recent market gains of 24.61% over the past three months have brought its current market cap to R22.92bn.

Spar faced issues particularly with its Polish operation, which is being sold, and suboptimal performance in its Swiss operations. However, the Irish operations are recovering. Gilmour said the business was slowly recovering.

“Locally, Spar is clawing back profit margin but it’s a slow process. Build it was a great performer a few years ago but not so much these days. The home improvement sector is in the doldrums and will take time to come right,” he said.

The company’s interim trading statement in June indicated market approval of its strategic direction. Spar’s revised capital expenditure for the 2024 financial year, reduced by R800m to conserve cash, has also been positively received.

The commitment to dispose of unprofitable corporate-owned stores and refocus on making independent retailers profitable was a central element of Swartz’s strategy, Business Day previously reported.

The first half of the financial year saw turnover for continuing operations increase by 7.9% to R77.2bn, though profit before tax decreased by 11.2% to R1.15bn.

The unsuccessful IT rollout at the KwaZulu-Natal distribution centre and high interest rates have been notable drags on earnings.

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