Pick n Pay CEO Nick Badminton said today (18 April) he was “disappointed” with the performance of South Africa’s second-largest grocer and warned about continuing difficulties in the trading environment as he unveiled an 18% drop in annual profits.

Badminton said the fiscal year to the end of February had been the “toughest trading year in the group’s history” as it worked to “transform” the business in “an exceedingly difficult trading environment”.

“This has been a disappointing set of results, within a year of tremendous change,” he said.

The company booked earnings per share for the year of 142.50 cents for Pick n Pay Stores Limited and 69.28 cents for Pick n Pay Holdings Limited, down 18.3% and 18.4% down on last year, respectively.

Trading profit was down 13.5% to ZAR1.4bn (US$203m), due to lower gross margin and cost inflation that outpaced price hikes. The retailer was also hit by industrial action during the period, and was forced to concede to an improved three-year wage package after a 13-day strike was staged in November.

The company also revealed that it is experiencing difficulties as it attempts to centralise distribution operations using its expanded Longmeadow distribution centre as a “blueprint” for further centralisation.

“This facility is not yet optimal and every effort is being made to ensure that Longmeadow becomes the blueprint that we roll out to distribution centres in the Western Cape, Kwa-Zulu Natal, Eastern Cape and Gauteng over the next three to five years,” Badminton said.

Group turnover rose 5.9% year-on-year to ZAR51.9bn.

During the year, Pick n Pay opened 4 new Pick n Pay supermarkets, 13 Pick n Pay franchise stores, 33 liquor stores, 11 clothing outlets and six Boxer stores.

“In the year ahead we plan to open a further 12 new corporate and seven new franchise supermarkets, as well ten clothing stores and approximately 45 liquor stores (corporate and franchise),” the retailer stated. “In the Boxer stable, we will open 13 supermarkets, seven Punch stores, five liquor stores and five Boxer Builds.”

Pick n Pay added that it plans to continue its expansion into the rest of Africa in 2011.

However, the company warned that it expects to see continued pressure from the difficult trading environment in South Africa over the next six months. Nonetheless, the group insisted that the changes made over the last year “will build a sound platform for future growth” in the medium to long term.