Pick n Pay wants R4 billion amid ‘disappointing performance’

Pick n Pay’s board has unanimously approved a two-step capital raise of up to R4 billion for the struggling retailer. The share price plummeted on the news.

The company said this raise aims to stabilise its balance sheet, strengthen liquidity, unlock shareholder value and set a platform for long-term sustainable growth.

The proposed two-step equity capital raise is expected to comprise a rights offer to existing shareholders to provide near-term liquidity around mid-year. 

It will be followed by an offering and listing of shares in the Group’s Boxer business (IPO) towards the end of 2024.

Pick n Pay intends to retain a majority stake in Boxer after the IPO and will seek to raise up to R4 billion through the rights issue.

“The terms of the capital raise are still being finalised and are subject to final board approval as well as the requisite shareholder and regulatory approvals,” the company said. 

“Shareholders are advised to exercise caution when dealing in their Pick n Pay shares until a further announcement is made.”

It added that the Ackerman family has given their in-principle support for the two-step capital raise.

Pick n Pay CEO Sean Summers said that by reducing debt, the proposed capital raise would allow the retailer to start putting focus on the core Pick n Pay retail business.

Pick n Pay reported a disappointing trade performance from its Pick n Pay supermarkets business in a trading update released today, with sales down 0.1% for the 47 weeks ended 21 January 2024. 

This, together with increased inventory levels and strategic investment into Boxer, Pick n Pay Clothing and asap!, has led to a marked increase in net debt, from R3.8 billion at the end of H1 FY24 to R7.2 billion on 21 January 2024. 

However, the company said its net debt position improved in February 2024, largely as a result of the receipt of R5 million of cash proceeds from the sale of property.

It added that good progress was noted in reducing inventory levels over recent weeks, with the cash benefits thereof expected to flow after year-end.

“Our balance sheet needs to be restructured and stabilised,” Summers said. “This is the appropriate action, at the right time, to help our turnaround strategy.

“We have totally reorganised our leadership team and strengthened and simplified our operational structure to drive rapid decision making, focusing on better in-store execution and excellent customer service.”

“Cutting debt and creating a sustainable platform for investment in growth is the next big step towards unlocking the group’s clear potential, and more details of our turnaround plan will be announced when we release our results in May.”

The company reported that its Boxer business continues to shine, posting sales growth of 17.1% for the 47-weeks ended 21 January 2024, with like-for-like growth of 7.3%.

“This leading performance shows the strength of the Boxer brand and its operating model in a difficult and highly competitive trading environment,” Summers said.

Pick n Pay said it has actively engaged with its key lenders under its long-term syndicated and bilateral loan facilities to ensure continued compliance with the group’s long-term debt covenants.

This engagement has resulted in agreements which have provided the retailer with sufficient time and flexibility to assess its gearing position and progress the optimal course of action to correct the capital structure.

“We are grateful to our lenders for their continued long-term support of the business,” said Summers.

“The steps we are taking now to stabilise the balance sheet will give Pick n Pay and our new leadership team a platform to build from as we work to get Pick n Pay back where it belongs.”

“As I indicated when I was appointed five months ago, this will be a multi-year journey, and I am happy to say that this is the start of the process, notwithstanding the current performance and results.”

Pick n Pay will release the detailed terms of its planned capital raise after the announcement of its full-year results in May 2024.