Pick n Pay technically insolvent

Pick n Pay’s latest results revealed that the retailer is technically insolvent, as its liabilities are higher than its assets.

The retailer released its audited results for the year that ended 25 February 2024, which revealed a poor financial performance.

Revenue increased from R109.28 billion to R115.37 billion, while trading expenses rose from R20.15 billion to R22.55 billion.

Pick n Pay reported a 373% decrease in its net profit, dropping from a R1.17 billion profit to a R3.2 billion net loss. 

Earnings per share also swung to a loss, with basic earnings per share declining from 243.37 cents per share in 2023 to a loss of 661.67 cents per share.

For the first time in Pick n Pay’s listed history, it has become technically insolvent, with total liabilities exceeding total assets by R183 million. 

The retailer’s total assets amount to R46.51 billion, while its total liabilities amount to R46.69 billion.

Its debt increased tremendously, with its total liabilities increasing by R8 billion from the previous period.

The largest contributor to the increased liabilities was interest-bearing debt which rose by R5.7 billion from the previous period.

In addition, Pick n Pay’s interest on debt costs the retailer R2.4 billion a year. The company’s net debt-to-EBITDA increased from 1.1 times to 6.3 times.

This means that Pick n Pay breached all of its debt covenants. It exceeded its leverage ratio covenant with net debt-to-EBITDA at 6.3 times, way above the covenant threshold of 2.75 times.

It also breached its second debt covenant, which states that Pick n Pay’s EBITDA must be at least 3.5 times greater than the net interest expense. Pick n Pay’s EBITDA is only 3.2 times greater than its interest expense.

In light of the loss Pick n Pay incurred, its board decided not to declare a dividend for the 2024 financial year and has suspended all dividend payments “until such time that the board believes that there is sufficient cash generation to review the dividend policy”.

Ackerman family gives up control

As part of the latest results, Pick n Pay announced that the Ackerman family will give up control of the company.

The family’s involvement with the retailer stretches back to 1967 when Raymond Ackerman purchased the first four Pick n Pay stores in Cape Town.

The company showed rapid growth and now boasts 2,227 stores across South Africa, Botswana, eSwatini, Lesotho, Namibia, Nigeria, Zambia and Zimbabwe.

However, in recent years, Pick n Pay struggled to compete effectively against rivals like Shoprite and Spar.

Pick n Pay chairman Gareth Ackerman said the performance of their core Pick n Pay business has been poor and has not met expectations.

The poor performance prompted Pick n Pay to replace CEO Pieter Boone with former chief executive Sean Summers.

Summers was Pick n Pay’s CEO between 1999 and 2007 during which it showed exceptional growth.

Summers is a Pick n Pay stalwart who worked for the company from 1974 to 2007. He became managing director in 1996 and CEO in 1999.

During his tenure as CEO, Summers made Pick n Pay the clear grocery market leader in South Africa.

However, after he departed, Pick n Pay lost its edge and handed Shoprite the lead in the retail market.

Today, Pick n Pay confirmed that Ackerman Investment Holdings (AIH), and therefore the Ackerman family, agreed to forego majority shareholder voting control.

The exact mechanism to ensure their voting rights fall below 50% after the planned Rights Offer is still to be finalised.

AIH will also relinquish the right to nominate the chairman, CEO and CFO immediately.

After 40 years of service, including 14 years as chairman, Gareth Ackerman will retire after the FY25 results are released.

He has also stepped down from the nominations and treasury committees with immediate effect.

The Board is in the process of identifying his successor as non-executive chairman, who will be announced in due course.

Suzanne Ackerman will remain as chairperson of the social, ethics and transformation committee and will retire from the nominations committee with immediate effect.

The Pick n Pay board has initiated a process for long-serving non-executive directors to rotate and retire during board appointments over the next twelve to eighteen months.