Pick n Pay Stores Limited (PIK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the 56th Annual General Meeting of the company. I welcome our shareholders, Board members, members of management and all other guests who are able to join us. The meeting will be conducted through electronic participation earnings as provided for in the Listings Requirements and in terms of the provision of the Companies Act and the company's memorandum of incorporation. I encourage all our registered shareholders to engage with us using the functions available on the platform, which allows for both written messages and questions as well as telephone calls. The quorum for this meeting is 3 members present and entitled to vote who, between them, hold an aggregate of at least 25% of the ordinary shares. The company secretary informs me that the necessary quorum is present, and I declare the meeting duly constituted. I will provide a short opening address, which will be followed by a business update from Sean Summers, our CEO; and a report from Suzanne Ackerman, our Chair of the Social Ethics and Transformation Committee. Thank you. And so I will just start by moving into the Chairman's address. Good morning once again to shareholders and guests. We gather online for our AGM, and I welcome all of you today in what must be probably one of the more important AGMs in our recent history. Much has already been written and said about our difficult 2024 financial year as we begin to wrap up the first half of our 2025 year. In the weeks following the AGM last year, the Board became increasingly concerned that the challenges facing the business were escalating. Management had been tasked with increasing customer sales through a number of key initiatives. While Pick n Pay Clothing and Boxer superstores continued to show growth and success, our core Pick and Pay Supermarkets were declining steadily. At that point, the Board took immediate and decisive action, which demanded of us that a new highly experienced CEO be put in place urgently. As a very successful Pick n Pay veteran, Sean Summers was ideally placed to be appointed CEO. Sean has worked quickly to get to grips with the fundamental challenges facing Pick n Pay. By the start of this financial year, he had put in place a new, highly skilled and experienced management team and new operational structures as well as a comprehensive turnaround plan and a multiyear trajectory. I'm pleased to tell you that this focus is starting to bear fruit, and Sean will give you some more color on this in his presentation. Sean, thank you for your leadership in navigating these unchartered waters. The change in culture, optimism, energy and commitment at the company is clear for all to see. You, Lerena Olivier, our CFO, and your teams have been truly amazing over the past few critical months. A critical component of our recovery is our 2-step recapitalization plan, which seeks to stabilize our balance sheet, repay debt and invest in our business. We recently concluded a ZAR 4 billion rights issue, which was taken up by virtually all shareholders and was heavily oversubscribed. To every shareholder here today, thank you for your support. The second step will be the IPO of Boxer, which is due to take place later in the year. We are pleased by the value that has been created in Boxer, and we'll now plan to monetize a portion of that business to help reduce the group's debt levels. Next week is the first anniversary of the passing of my father and Pick n Pay Founder, Raymond Ackerman. We miss him terribly. That said, we are secure in the knowledge that the values of consumer sovereignty, doing good is good business and business efficiency are being reembraced by Sean and the management teams. The world is currently beset by market turbulence caused in no small measure by political upheaval in many parts of the world. For a change, we are seeing signs of optimism in South Africa as we start to witness the early benefits of a new Government of National Unity. Last year, we would not have thought this possible. We hope and trust that the GNU will prove to be the catalyst for the increased economic growth that our country deserves. This, as most will concur, will require sensible policies, rapid implementation and effective controls, along with the [ class ] cooperation with the private sector. And this must be done without surrendering delivery away from the government who we believe is ultimately responsible to deliver growth. As Sean often says, "There's no purpose in living in the rearview mirror." We must only look backwards to understand what went wrong and to make sure that we don't repeat the mistakes of the past. It has been a time of great reflection for myself as Chair and for the Board as a whole. We all take accountability for the position we find ourselves in, one which developed over many years. And we all take accountability for the action required to build and restore Pick n Pay. We will put all our energy into a better, stronger and innovative future for the sake of all our stakeholders who depend on the success of Pick n Pay. Part of looking into the future is the role of the Ackerman family. We have recognized that this was the time to push for change, and we have now done exactly that. That has meant looking at the control structure and the influence we have on the Board, and we have made the appropriate changes to support the turnaround of Pick n Pay. Importantly, we have great faith in the special company, and along with the rest of the shareholders, fully participated in the rights offer. David Robins retires as a director at this AGM after many years with the group, first as an executive, then as a nonexecutive director. David has made a huge contribution to the company over the years and in many roles, including as Executive Deputy Chair to my father. Thank you, David, for your incredible commitment and valuable support. Mariam Cassim has unfortunately decided to step down as a director due to her workload pressures and living in Dubai. Thank you, Mariam. We really appreciate your contribution and your advice. The Board has agreed to replace longstanding Board members over the next 12 to 18 months. Given the extent of the change required and the work needed to execute that change, we believe a gradual replacement approach over this period is the most prudent course. As previously announced, I will be stepping down as Chair. I initially agreed to do this job for 5 years, and it has been more than 15 years now. Once the balance sheet recapitalization is complete and the turnaround is in place, it feels like the appropriate time to hand over the baton. In due course, the Board will make an announcement on my successor. It has been an honor and a privilege to serve this company -- this incredible company that my father and my mother built. I would particularly like to thank the Board and executive for their efforts over the years, and in particular, for over the past 12 months. This effort has been way beyond what could be expected and helped steer the company through these very stormy waters. A positive energy has returned to Pick n Pay. It may take time, but we will regain our rightful place in South African retail. Thank you. I'd now like to ask Sean Summers, our CEO, to give a quick general overview of the business. Sean, over to you.

Thank you, Chair, and good morning, everybody. This morning, we released a sales update to the market on the 21 weeks ended 21 July and provided some updated guidance on our half year earnings. The results to date thus far show that Boxer superstores and Pick n Pay Clothing once again delivered a strong performance and grew market share in what continues to be a very tough market. And I'd like to congratulate both those incredible teams. Importantly, we've also demonstrated encouraging progress in our core Pick n Pay Supermarket and Hypermarket division. And although it is still very early days for our new management team that has been in place beginning the 1st of March, we can see that the strong plans are starting to gain and find traction. The sales momentum in our company-owned Pick n Pay Supers and Hypers is particularly pleasing. Our like-for-like sales growth has improved from a situation of negative 0.5% for the second half of last year to a positive 3.6% like-for-like year-to-date this year. This positive improvement of circa 4% has been delivered in a really difficult trading environment and provides us with a clear indication that what we are doing is right and sees us on a journey to rebuild Pick n Pay. For the first time in many years, not only has our Hypermarket business delivered positive sales growth, but we have also outperformed our franchise partners and this area of the business is now receiving additional attention. As we indicated on this multiyear journey that we are on, it will take some time for these positive changes to reflect in our earnings. And in the short term, there will be some cost and earnings pressures. Our earnings for the half year will be down on last year, exactly in line with our plans and our expectations. In part, this is due to gross margin investment that we have put into the business to make Pick n Pay even more competitive, which is what our customers would expect from us. The other big cost for us, unfortunately, is interest and this will decline sharply with the impact of the rights offer, which has been concluded and the upcoming Boxer IPO, which will allow us to pay down our debt and strengthen our balance sheet. With any set of results, the important thing is to stand back and look at what the numbers and trends are telling us. What our trading tells us is that our key fundamentals and KPIs are improving every single month and we're delivering against our strategic plans. We've not been able to say this for quite a while and it shows greater discipline, stability and motivation across our business. The huge success of our recent rights offer, which was oversubscribed by more than 100% also tells the story because it shows a renewed confidence in our team, both internally, but very importantly, externally from our shareholders. The rights offer in itself saw a significant amount of hard work, and Lerena and the finance team and our advisers have done a really brilliant job. The next step is the listing of the Boxer superstores on the JSE, and we are incredibly proud of this business as it takes us to rightful place alongside other major retailers on the index. As I highlighted earlier, a key priority now is to continue to drive the growth across our entire estate and this work is what we do every day. I am hugely proud of what has been achieved in a relatively short period of time as we continue to build momentum in the company. Notwithstanding the scale of the challenges that still lie ahead, it is an honor and a privilege to be back amongst the Pick n Pay family. Together, as we overcome and clear the hurdles in front of us one by one we remain resolute and do not doubt the journey that we are on. Onwards and upwards we go together as a team of colleagues both in Pick n Pay, our shareholders, and very importantly, our customers. Thank you, Chair.

Thank you, Sean. Can we now move on to Suzanne who will talk on the Social, Ethics and Transformation Committee. I'll just remind the participants and shareholders out there that the questions will be dealt with at the end. Thank you. Suzanne, over to you.

Thank you, Chair. Good morning all. The Social, Ethics and Transformation Committee continues to oversee and monitor the main focus areas of the business that seek to manage the interaction of all our stakeholders with respect to our values, our purpose and our ethical conduct. Over the past year, we looked specifically at the ESG strategic framework in line with four key focus areas: first, partnering to transform the food system, reducing our impact on society and the environment, investing in our people and supporting our communities. Details of these areas and key learnings can be found in the Integrated Annual Report and the 2024 Sustainability Report, so I urge you to please go back and look at those. However, it must be noted that we constantly look at projects that can be scaled to add value, drive revenue, reduce costs or create measurable impact in the business and in society at large. As much as possible, all projects are measured constantly against the UN Sustainable Development Goals and industry-related targets. The committee oversees the updating and implementation of all policies in both Boxer and Pick n Pay. Whilst the past year, as you've heard, has been a really difficult one for many parts of the business, we remain committed to transforming our workforce and to investing in our people to better reflect the society we serve and ensure that through focused training and development, we will get our BBBEE scorecard back to where it should be. We also hope to improve our waste reduction levels annually and continue towards our goal of reducing food waste by 50% by the year 2030, whilst continuing to improve our energy efficiencies. The company continues to reach out and support all aspects of our communities in line with our founding philosophy: doing good is good business. To this end and I want to highlight a few Boxer in partnership with the Pick n Pay Boxer Foundation now engaged directly with over 90 small-scale farmers who supply produce directly into the Eastern Cape Boxer stores. Amidst the turmoil we have all faced with natural disasters, droughts, fires, the extremes of climate change, our teams continue to do us proud by responding immediately to any call for assistance through the Feed the Nation Foundation. To date this year, we have provided a startling 939,000 meals across all provinces to those in need, from children and child-headed households to surviving families in disaster situations as was witnessed recently in the George building collapse, the Johannesburg explosion and the Eastern Cape flood areas. Every store engages directly with their community and responds directly when required. Since the Feed the Nation Foundation started during the pandemic in 2020, we have provided over 45 million meals. We continue to broaden our reach to schools, pupils and guardians through our extensive Schools Club program and have distributed over 400 tonnes of educational materials to more than 1.7 million learners and over 2.8 million guardians across the country. CSI initiatives continue across every division in this company, including franchise stores, Africa stores, Boxer, hypermarkets, DCs and even within the office parks. Some notable initiatives this past year include the 20th anniversary of the Sunflower Day bandanna campaign where nearly ZAR 0.5 million was raised for fighting blood diseases such as leukemia; Women's Day events nationally; Boxer Youth Leadership campaign, which is an annual 5-day program, providing leadership skills to youth leaders across the country. I would also like to highlight the incredible clothing initiative that sees over ZAR 15 million worth of unwanted and damaged clothing donated to the Clothing Bank annually. This is to be repurposed, recycled and used as stock for newly skilled self-employed entrepreneurs. Mr. Chairman, there are too many initiatives to mention here and I urge everyone online and beyond to look through the integrated annual report and scroll through our social media pages to witness firsthand the constant impact our teams make on the societies we are proud to serve. In every corner of this business, we can find extraordinary initiatives being developed, implemented and run by passionate individuals trying every day to make a difference in the lives of our communities and all our stakeholders whilst leaving a minimal footprint on our planet. This will remain our core purpose even through challenging moments. Thank you.

Thank you very much, Suzanne. It's been very important, enlightening and [ hearty ] stuff that's coming through there and well done to the team. If we can now move to the formalities of the meeting, and I'll just go through the legals. The notice convening this annual general meeting has been in your hands for the prescribed period and contains full details of the resolutions to be considered at this meeting. There has been one change to the proposed resolution as announced to shareholders on the 4th of July 2024. Mariam Cassim resigned from the Board with immediate effect due to time and capacity constraints. As such, we will no longer present ordinary resolution #3.3 to approve the appointment of Mariam to the Audit, Risk and Compliance Committee. We thank Mariam once again for her service to the Board and wish her well for the future. There have been no other changes to the prescribed resolutions. I propose that the notice be taken as read. Are there any objections? I have not received any objections. Just move on. Before we proceed with the matters on the agenda, I wish to advise on how the votes will be cast. Please note that only participants who are in possession of a valid proxy, which has been filed in accordance with the requirements set out in the notice of the meeting or shareholders who are reflected on the share register or who are in possession of a written letter of representation from their CSDP or broker are entitled to speak and vote at this meeting. A few pointers on how to cast your vote. All shareholders or their proxies who have requested to vote would have received a link to access the voting platform, which has been sent to either the phone number or the e-mail address that the participant has provided. Please go to the voting tab at the top of your screen in order to cast your vote. You will notice that the voting platform contains all the resolutions that have been set out in the notice of this meeting. You must exercise your votes individually per resolution by selecting the relevant option, for, against or abstain, on a resolution by resolution basis. Please note shareholders are able to change their votes while the voting is still open. A message will pop up on your screen confirming that your vote has been received. Please check that you get that. Voting is now open and will remain open until the question-and-answer session has been completed. However, I urge you to complete your voting after each of the resolutions have been tabled to the meeting. For the purposes of the voting at today's meeting, the company's transfer secretary, Computershare Investor Services, have been appointed as scrutineers. I have arranged for a director who is also a shareholder to second all resolutions. James Formby has agreed to second all the motions at today's meeting. In light of this, and if there are no objections, I will dispense with the usual formalities of asking for a seconder for all resolutions. Are there any objections to that? If not, we will proceed with James as a seconder. In accordance with good governance practice, the voting on all resolutions at this meeting will be conducted via poll. Shareholders or their proxies or representative present would have registered on the electronic platform to be able to vote on the resolutions. For questions, please submit your questions in writing on the matters being voted on in this meeting. And I stress we're only going to deal with matters that are relevant to this meeting. If there are questions, which do not specifically relate to the matters being voted on, we will leave those to the end to address. It is also possible to submit questions verbally. Please follow the instructions provided on the home tab of the Lumi platform to ask a verbal question. When we get to the question-and-answer session, you will have the opportunity to ask your question, which will be audible to all participants in the meeting. We will respond to your questions once the resolutions have been read out and before the voting is closed. Voting is now open and will only be closed once all your questions have been answered. Until voting has been closed at the end of the question-and-answer session, voting can be changed from the Lumi platform. Each shareholder or its proxy or his representative will be able to cast its vote for each of the resolutions on the electronic platform. I will announce the results of the voting immediately after the voting is closed and the results have been determined. The results will be posted on SENS at the conclusion of the meeting. The minutes of the last Annual General Meeting held on the 19th of July was signed by the Chairman of the Board -- by the Chairman at the Board meeting held in October 2023. The minutes were then posted on our website. No amendments to the minutes were received from shareholders. Once the minutes of the 2024 Annual General Meeting have been signed by the Chairman at the Board meeting in October 2024, they will also be posted on our website for your review. We shall now proceed with the business of the meeting. I confirm that the electronic system is open for voting, and I will now propose the following special and ordinary resolutions as set out in the notice convening this meeting. Given the length of the resolutions, I will take them as read and only provide a summary for each resolution. Please follow the full text of the resolutions in the notice as they are proposed in the order specified. Part 1, presentation of the annual financial statements. The audited annual financial statements of the company incorporating reports of the auditors, the Audit and Risk and Compliance Committee and the directors for the year ending 25 February 2024 are herewith presented to the shareholders as required in terms of Section 33D and Section 618A of the Companies Act. Part 2, ordinary resolutions. Before we proceed, please be advised that the percentage of voting rights for ordinary resolutions numbers [indiscernible] required to be adopted by more than 50% of the voting rights exercised on each resolution. Ordinary resolution #1, reappointment of external auditors and the designated audit partner. I propose that Ernst & Young, Inc. be reappointed as the external auditors of the company with Tina Rookledge as a designated audit partner. Ordinary resolutions #2.1 to 2.4 on the appointment of directors. David Robins retired by rotation after the conclusion of the AGM and will not be offering himself for reelection. We would like to extend our sincere thanks to David for his 22 years of dedicated service to the Board and 30 years of service to the group. Sean Summers was appointed to the Board as CEO on the 30th of September 2023 and offers himself for election as Executive Director. In addition, independent nonexecutive directors who retired by rotation and offer themselves for reelection are David Friedland, Audrey Mothupi and Annamarie van der Merwe. On ordinary resolution 2.1 on Sean Summers. I propose the election of Sean Summers as an Executive Director of the company. Ordinary Resolution #2.2, David Friedland. I propose the reelection of David Friedland as an Independent Nonexecutive Director of the company for a 1-year term. Ordinary resolution #2.3, Audrey Mothupi. I propose the reelection of Audrey Mothupi as an Independent Nonexecutive Director of the company for a 1-year term. Ordinary resolution #2.4, Annamarie van der Merwe. I propose the reelection of Annamarie van der Merwe as an Independent Nonexecutive Director of the company for a 3-year term. Ordinary Resolutions number 3.1 to 3.6, the appointment of Audit, Risk and Compliance Committee members for the 2025 annual financial period. As confirmed earlier, ordinary resolution #3.3 is withdrawn as a result of the resignation of Mariam Cassim. As recommended by the Board, I propose the election of Aboubakar Jakoet being the Committee Chair, Haroon Bhorat, James Formby, David Friedland and Audrey Mothupi as members of the Audit, Risk and Compliance Committee for the 2025 financial year. Please cast your votes as follows: 3.1 -- ordinary resolution 3.1, Aboubakar Jakoet; #3.2 Haroon Bhorat; #4 -- 3.4 James Formby; #3.5 David Friedland; and #3.6 for Audrey Mothupi. Part 3, excuse me, I just need something to drink. Advisory votes #1 and 2, which are the remuneration reports for the 2024 financial period. Advisory votes 1 and 2 are nonbinding advisory votes. In the event that 25% or more of the voting rights exercised are cast against these resolution, the Board will invite dissenting shareholders to engage with the Remuneration Committee on their concerns in line with the provisions of the JSE requirements. Advisory note #1 (sic) [ vote #1 ], endorsement of the remuneration policy. I propose that the endorsement of the company's remuneration policy for the 2024 annual financial period. 4.2. Advisory vote #2, the endorsement of the implementation of the remuneration policy. I propose the company's remuneration implementation report for the 2024 annual financial period. Part 4, special resolutions. Before we proceed, please be advised that the percentage of voting rights required for special resolutions #1 to 4 to be adopted is at least 75% of the voting rights exercised on each resolution. Special resolution #1, directors' fees for the 2025 and 2026 annual financial periods. I propose that the directors' fees for the 2025 and 2026 annual financial periods as set out in the notice of the meeting be approved. Special resolution #2, additional director fees to be paid in the 2025 financial period. Three Board members provided additional critical support in the 2024 annual financial period, including in liquidity management, the group's debt restructure and the formulation of the group's 2-step recapitalization plan. The support provided was in addition to the Board's normal commitments and required attendance at a significant number of additional meetings. I propose that the additional directors' fees for James Formby, David Friedland and Aboubakar Jakoet as set out in the motion of the meeting be approved. For provisions of assistance to related or interrelated parties, I propose that the authorization of the Board of Directors to cause the company to provide any financial assistance to related or interrelated parties under the terms and conditions set out in the notice of the meeting be approved. Seven, special resolution #4, general approval to repurchase the company's shares. I propose that the general approval to repurchase the company's shares set out in the notice of the meeting, subject at all times to the provisions of the company's MOI, the Companies Act and the JSE Listing Requirements be granted. Under general, Item 9 of the notice relates to the company's planned reduction of its ordinary -- of its authorized ordinary and B share capital post the conclusion of its rights offer. As the notice of the AGM was distributed to shareholders before the conclusion of the rights offer, this proposal will be brought to shareholders at a further extraordinary meeting to be held on the 1st of October '24, and in respect of which, a separate notice of meeting will be published. Item 10 of the notice offers to transact such other business as may be transacted at an annual general meeting. Are there any other matters not really covered that members may wish to raise? Ladies and gentlemen, we will now respond to all questions from participants on items under consideration at the meeting.

Questions will be answered by a member of the Board or by any of our advisers who may be best suited to answer your question.

Mr. Chair?

The questions will be read out by the company's secretary, Vaughan Pierce.

The first question comes through from ESG INSIGHT SA from [ Luling Lube ], who's asked -- he's asked that we answer the question on the significant losses and the impact on shareholders. How does the Board justify the termination settlement of ZAR 15 million to the outgoing CEO, especially in light of the company's financial difficulties? And he also wants to know if the Board can be more transparent on the criteria used to determine such payout. And what changes, if any, will be made to executive remuneration policies to better align with the company performance and shareholder value going forward.

Thanks, Vaughan. Could I ask the Chairman of our RemCom, Audrey Mothupi, to respond to this, please?

Thanks for the question. The group fulfilled its legal obligation to Pieter Boone in terms of his contract of employment that we had held with him. The termination settlement that you've seen is -- represents the value of his agreed 12-month notice period. There are no other payments that were made and all shares awarded under the RSP scheme were all forfeited. In terms of all the LTIs going forward, all the executives' remuneration around the LTIs will be aligned to the turnaround strategy that Sean's put forward. Thank you.

The second questions come from the same shareholder. With the failure of the Ekuseni strategy and the subsequent substantial losses incurred by the Pick n Pay group, how does the Board plan to ensure that the newly launched turnaround strategy is more effectively implemented? What measures are being put in place to monitor progress and hold executives accountable for achieving the desired outcomes?

Thank you, Vaughan. I think the first part of the question, I'm going to get Audrey to answer the second part, is that the Board has taken the problems that we had over the last year very, very seriously and we have put forward a resolution a little bit earlier to make incremental payment to various Board members who have been very actively involved in working on the turnaround plan, the turnaround strategy. And we as, a Board, are very, very actively involved in it. But we have also most importantly put -- brought in a new CEO who has brought in a very strong management team and the strategy has been very closely interrogated by our bankers, by our advisers as well as by the Board and the management and we're comfortable with where it is. But the second part of the question, I'll leave to Audrey to answer.

Gareth, was that -- sorry, I missed that second part.

It was the second question on strategic accountability and what measures are being put in place to monitor progress and hold executives accountable for achieving the desired outcomes.

In that one, I think the new performance measures, the LTI and the STI measures that have been put in place is what we're looking to hold management accountable, but more important, aligned to their existing strategy that's been put in place.

Thank you. Vaughan?

Third question is also from ESG INSIGHTS SA talking to the impact of store closures and conversions with the decision to close or convert approximately 112 Pick n Pay stores to Boxer as well as franchise as part of the turnaround strategy. What specific criteria were used to determine which stores would be affected? And how does Pick n Pay plan to mitigate the impact on affected employees and local communities?

I think Sean is the best place to answer that question.

Thank you, Gareth. With regards to the store closures and conversions, there were a host of criteria applied and they broadly fall into 3 categories. Those stores that over time for various reasons had become untenable to continue in any form going forward into the future. And those were the stores that were identified for closure and we have been in discussion with the various landlords in that regard. And in total number, there will most probably be of the order of approximately 30. The balance of the stores were then assessed on their relevance as either a franchise store or a conversion to Boxer depending upon the demographics and the areas that those stores were in. And those are the broad principles that were applied. And both those processes are currently underway. We have also, as part and parcel of that, taken account of the impact of these changes to our staff. And there, we have been in active engagement with SACCAWU, our union, ensuring that we expedite this in the best way possible for our workforce and very, very loyal employees as well.

Thank you, Sean. Do you want to have a little bit of an input into the previous question as well, which Audrey and I answered.

Certainly. With regards to the strategic accountability and turnaround plan, Ekuseni in and of itself did have some elements that were indeed positive. If we look at Boxer and Clothing, for example, those were 2 great initiatives where there was additional focus put on those 2 divisions within the organization. But the one where we had a challenge very clearly was the QualiSave execution that led to a lot of confusion at consumer level. And this is something that we are currently remedying at the moment, and we are over a period of time going to be doing away with the QualiSave name as a trading entity and converting those back to Pick n Pay. So the comprehensive plan that we shared with everybody in May was a 6-point turnaround plan was put together by the executives of the company and was steeped in a lot of retail knowledge and understanding of exactly what it is that the South African market actually requires without wanting to be critical of the past turnaround plan. A lot of the assumptions that were drawn were maybe had a relevance on international scope and scale in other markets, but with the passage of time, appeared not to be appropriate for the exigencies that exists in South Africa. Every market in the world is unique, and we firmly believe that the plan that we have now put together has been crafted by people, as I said, who do have a profound understanding of what is appropriate and required for a successful retail business in South Africa.

Thanks, Sean. I think the next question, Vaughan, which will also be answered by Sean.

Yes. The fourth question from ESG INSIGHT SA talks to the challenging retail environment where customers are facing high debt levels and rising living costs. What strategies is the Board implementing to maintain affordability for customers, more particularly the lower to middle market segments served by Boxer, while also ensuring the profitability and sustainable growth for the group?

Thank you, Vaughan. We certainly know that the market currently in South Africa does find itself under enormous pressure at a consumer level. Notwithstanding the [ sense ] before you that now exists with the Government of National Unity and the early indicative signs of positive progress that is being made there, that certainly has not manifested itself at a consumer level. And we do know that our consumers remain under pressure on a day-to-day basis and even more so in some of the markets that are served by our Boxer stores and a lot of our Pick n Pay stores as well. To this end, there has been significant margin investment across our business. I can say that all of the diesel savings that had been made with the end of load shedding, all of those savings have been plowed back into margin again to make the company more and more competitive and to ensure that we do everything within our power to help our hard-pressed consumers.

Thanks, Sean. Can I suggest that we go to the audio question and come back to the 2 written questions -- the next 2 written questions. So it's from Ayabulela Quzu from Just Share.

Am I audible?

You are audible. Please go ahead. Thank you.

I have 2 questions. One is on the company's pay ratios and the other one is on the company's employment equity plan. So I'll just ask each question then I'll give the chance for the Chair to respond then I'm going to ask the other one. So on the one on pay ratios. Chair, we want to commend Pick n Pay for disclosing its income differential ratio in line with some of the provisions of the company's amendment act, even though the act is not yet in force. However, your disclosure omitted the total remuneration of the lowest paid employee, which is one of the requirements of the act. Given your approach to following the requirements of the act, could you explain why you omitted this disclosure? Secondly, we note that Pick n Pay has not disclosed its analysis on income equality across classifications of race and gender in the 2024 annual reporting as you have done previously. Can the Chair explain why race and gender pay ratios that have been excluded from this year's annual report then, Chair? So that's my first question. I'll ask the second question after the Chair responds to this one.

Okay. Well, thank you. I think at last year's AGM, we didn't answer this particular question, which you, as Just Share, posed. And the reason we didn't answer it, we were actually trying to do the work and we have the numbers, but we wanted to make sure that we put the correct numbers out there. This is an ongoing project to get the numbers, and we will fully intend to disclose as and when we are able to do so. But I think maybe I should hand this one over to -- I think Lerena is probably the right person to answer this question. If not, Lerena, flip this to get the right -- the other person to deal with it.

I'm happy to start, but I'm sure Audrey would want to add to my comments. Ayabulela, thank you for the question and thank you for recognizing that we are trying to lead in this disclosure requirements and that we have disclosed more than what is actually required. So we acknowledge that we are not there yet fully, as Gareth has indicated, and we will take your comments around the areas where you believe that we can improve absolutely to heart. I think we have started to show that income differential ahead of what is required to illustrate that we are working on the best practices. But I'm happy to hand over to Audrey to add.

Thank you so much. First of all, just I'll spend a little bit of time and just take you through the rationale and what we've been able to put forward, and thanks for that feedback. Our non-management bargaining unit or NMBU employees are remunerated in accordance to contractual agreements with our labor unions and are paid in accordance with agreed [ RU ] pay scales and additional benefits. The minimum wage paid to those employees is at ZAR 27.58 per hour, and that's in line with the legislation. The average NBU salary in Pick n Pay Boxer is between 11% and 28%, and that's actually above the minimum -- prescribed minimum wage that's out there. And for the first time, which you will note, we actually provided income disparity analysis for full-time employees. Our analysis does not yet, as you put out, consider variable time employees because of the significant variation in hours worked across our variable time labor force, the nature of our industry and our sector. The income differential between the average income of our top 5% earners and the average income of our top -- bottom 5% is an income differential of ZAR 18.37. This means that on average, a top earner earns 18x more than an earner in the bottom 5%. We also provided a statistical analysis of income equality across the top 5% of full-time earners and the bottom 5% of full-time earners expressing the pay gap through the result of the Gini coefficient of 0.59. The result demonstrates a large income disparity across our retail operations driven by the high number of unskilled and semi-skilled workers employed. Our income disparity is reflective of the retail industry in South Africa and indeed of the country as a whole, which has an estimated Gini of around 0.66. Our analysis shows no evidence of any earning of disparities across race or gender, which underscores our commitment to equal pay for equal work. And on that, I just need to confirm, the Remuneration Committee, this is something that we have -- or has been on the agenda for many years actually, something that the company prides itself in making sure there are no disparities both at income on race and/or gender. We believe that we fully comply with the Companies Act amendments as they become effective and understand that requirements will be provided, the total remuneration in respect of the employee with the highest total remuneration to the total remuneration in respect of the employee with our lowest total remuneration, the average total remuneration of all employees, the median total remuneration of all employees and the remuneration gap reflecting the ratio between the total remuneration of the total 5% highest paid employees and the total remuneration of the bottom 5% paid employees of the company. I hope that covers your question, and thanks for the prompt. We have done quite a bit of work and we'll continue to as it is an important part linked to our strategy. Thank you.

Thanks, Audrey, for the very comprehensive response and Lerena. Ayabulela, you've got another question?

Am I audible?

You are audible, yes.

Yes, yes. No, I think the second part of the question was also on the exclusion of the race and gender pay ratios in your company annual report this year, which you have done in the previous years. So that part of the question also at least why -- or at least why has the company actually decided to omit those pay disclosures this year.

Thank you. I think, Audrey, I'm not sure if you've answered this?

I think the question is relating to -- that was disclosed in the prior year hasn't been because in terms of my response there, we do not have any existing earnings disparities across race and gender, as I understand you're looking more to disclosure a component comparable to last year.

Thank you. I apologize for any background noise. We have one enormous storm here in Cape Town and the rain is battering against the windows, so apologies. Okay. Can we -- now good. Hopefully, we've answered your questions Ayabulela from Just Share. Thank you.

Yes, yes. Can I ask the second part of the question, Chair, which deals with the Employment Equity plan?

You can. And then I'm going to have to move on after this question to the next question we've got waiting.

Okay. So we note that the Board has approved the company's 5-year Employment Equity plan that sets out progressive employment equity targets. However, neither the plan nor the targets are disclosed. What are your gender and race transformation targets, particularly at top and senior management? Secondly, has Pick n Pay commit to disclosing its Employment Equity plan with these targets on your website?

Okay. I'm going to ask Lerena to answer first and then I'm going to then obviously hand back to Audrey.

Thank you, Chair. Again, Ayabulela, as you can hear from Audrey's response as well, we do endeavor to improve our disclosures year-on-year. It is something that Pick n Pay takes very, very seriously and we will absolutely take it into consideration. Audrey, I'm sure we can discuss it at the remuneration committee and decide how best to take the request forward.

Audrey?

Thanks. And I think specifically, thanks, that's been noted. The company is fully aware of that drop from a Level 5 to Level 8, which we're disappointed about and I think you're alluding to that. And unfortunately, the deterioration in the Pick n Pay financial performance necessitated tighter expense controls, financial prudence in areas of our business including areas of skill development, learnership, enterprise development and preferential procurement. So the challenges we faced also, unfortunately, to took some of our attention away from the BBBEE assurance process, which continues to be rectified going forward. But from a Board point of the Remuneration Committee, management remains committed to the BBBEE empowerment and there is a plan in place to improve the performance going forward. And your point is well noted around making sure that plant is put forward and publicized. There's no -- it's not a mistake that I'm engaging on this question. It's one that the Chair threw it my way, that we, as Board members, constantly engage on. And it's really about ensuring as a business operating in South Africa. It's no longer just about a tick box approach, it's about being relevant to the communities that we serve, but also being sustainable. And as you understand fully, the company has undergone a test period, and as we regroup, reshape and restrategize, that also remains key -- a key component and part of our strategy.

Thank you. And I know Suzanne did address it as part of her report a little bit earlier on. I don't know if there's anything else you want to add, Suzanne?

Thank you, Mr. Chair. No, I know the teams are very committed to ensuring that this is a focus for the forthcoming months and the year ahead. Thank you.

Thank you. Okay. If we can now move to the next question, which is an audio question first, which is from Chris Logan from Opportune Investments. Chris?

Can you hear me?

Yes, we can hear you. Thanks, Chris.

May I just start off by saying very well done on the revitalized [indiscernible] steps, and in particular, to Sean, for the energy and competence he is demonstrating. Both Sean and our Lead Independent Director, James Formby, spoke about the fact that the problems, which came to a head last year were protracted. And as we reflect on voting for the Board, the obvious question is why did the Board allow these problems to become so protracted and deep-seated? Because these -- it looks as if these problems occurred with many CEOs at the helm, and obviously, they were devastating. I mean, our annual report shows on book value Pick n Pay being technically insolvent. For a food retailer Pick n Pay's caliber, that's very bad, let's just put it that way. So the first question would be, why did the Board not sound alarm a lot earlier? Then the second question would be, I know you've made some changes to your -- the high voting shares. I mean, really, that is cosmetic. You've gone from 50 to 49 or whatever, I think [ borne ] a lot of literature on the fact that these structures are now seen to be positive in the beginning when founders are at their best and full of energy and then over time to become negative to a company. They cut out things like active market control plus numerous other problems. And then also, this is recognized, I mean, for instance, the [ LSE ] and the JSE now only allow these high-voting shares when they got sunset provisions built in. So don't you think that scrapping the structure would make the company more [indiscernible] to possible unfriendly takeovers, possible problems and it would be a very positive step governance-wise. I mean, I may just add great retailers like Walmart and Amazon, they don't have these structures. They have other things to keep the business at the cusp, for instance, Amazon has a Day 1 philosophy. So those are the 2 real questions. Can you give us some reflections why the Board let these problems run to the point they did? And secondly, isn't it time to scrap the control structure in line with modern governance thinking?

Chris, thank you for this. Over many years, we have engaged on these issues, particularly the second part of your question, and we have given you answers on the control structure and I'll give you some more on that now. I think you've got to take it back and I think Sean alluded to it in his response a little bit earlier on. In about maybe 3-odd years ago, the Board -- the company did a strategic review of the business. And as part of that strategic review, it showed the problems that were being fixed and they needed to be fixed in the retail division. And the Board took the advice of the management and the advisers and consultants at the time and implemented the Ekuseni strategy. And the Ekuseni strategy was aimed at reversing the negative trend that was happening in retail. But you can't just say that it has happened then. It actually does go back many, many years beforehand. And it goes back to the need, which we determined way back in the -- later in the 2000s, where the company needed to centralize and get its cost structure and the structure right. And the company did centralize and did a huge amount of work over many years and it did rectify some of the issues, particularly in the core retail structure. It also put a lot of investments into building and developing, particularly the Boxer brand and the Boxer business, which was pretty much a full-scale supermarket in those days and was reformatted into the limited range, deep discount offering that we have today and built and developed, and we've seen the value add from that. But this is not something that just happened in the last couple of months. This is something that the Board has been watching for a number of years and was dealt with over a number of CEOs over many years. The issue we hoped was fixed and the issue, which was why we went out and borrowed the money to get the Ekuseni program up and running and working was that, that we felt as a Board was necessary to be done. It worked well in our Clothing business, where we put a lot of investment in and has worked well in our Boxer business, where there's been a huge investment going in. Unfortunately, the implementation within our core Pick n Pay retail business was not as effective as we would have liked and did not work. And the reason we brought in a new CEO was to actually focus absolutely on our core business and turn that around and make it work. I'm going to leave it at that point. I just wanted to just really check with Sean or with any of my other Board colleagues if they want to answer that and then I'll answer the second half of the question afterwards. Sean?

Thank you, Gareth. And Chris, thank you for your comments and feedback. It's greatly appreciated. I think to answer a bit of that, it's kind of one of those truths in life of slowly, slowly, suddenly. And I think in a retail business like our core Pick n Pay business that with the best of intent, and one must believe that the Ekuseni strategy in itself and the plans that were put forward at that time that were supported both by the Board and the management, you have to take responsibility for it with time did prove to be fatally flawed. And the fact that we've actually been able to step into the breach, grab a hold of it, stabilize the organization is the challenge that lies immediately ahead of us. And I think that for those people outside the company, one would expect that they don't have the full context of the scope of work and the enormity of the task that has been undertaken in the last 9 to 10 months in this organization. And here, specifically, I would like to call out Lerena and the finance team as well as our NEDs, James, David and Bakar, who at times have been called upon to be involved in 2, 3 times a week extraordinary meetings and late in the evening meetings. So the reality is what we were confronted with. As Gareth has said, I've always fundamentally believed that one cannot live one's life in the rearview mirror. One only needs it for context to understand. So our focus now is fully going forward on how we remedy the stabilizing of the balance sheet and get our core Pick n Pay business back in the shape and order that it deserves to be. And for full, the very real aspiration that our consumers still have for Pick n Pay. And that's why we can see in the early traction that we are starting to gain, that as our stores start to remedy themselves and start to fix up the offer and the delivery and that we get the spirit and the sense of belief back into the organization, that we can see that our consumers still reward Pick n Pay for the extraordinary position that we still hold in the hearts of the South African consumer by and large.

Thanks, Sean. Are there anybody else on the Board who would like to make a comment? Okay. So Chris, on the second part of your question on the B shares, as our departing director, David Robins, always says, "What's good for the company is good for the family." And our philosophy has always been to do what is right for Pick n Pay as a controlling shareholder and as a family. And in the period of time since my father, Raymond Ackerman, stepped down as Chairman, this business has been a professionally run business with professional management. And family members have been advisory, but not involved in the day-to-day executive for the last couple of years of the business. And we have always taken our role as Board members and as directors seriously in that we do not and we have not enforced our view on the business and forced the business to go in any particular direction. The role of the director -- I mean role of directors on the Board has always been that largely more of a supportive role to management and to the Board of Directors. And the Board has always been a very independent-minded group who basically take the decisions that are required for the business. And the family has -- I cannot recall or very seldom ever on substantive issues put their foot down and said you will go a certain way. So it's always been one of support and help and guidance. And this has been very much so in the last couple of months because with the position that the family found itself in and the position that the Board and the company found itself of was of very dire circumstances, and we needed to make sure that we all did what was right for the company and to build the business going forward. So we believe that the role of the family in terms of stabilizing the business has never been more important than it is at the moment and has really helped to steady the ship. The family was very keen in getting Sean to come back to Pick n Pay, and I spent quite a lot of time with him in the days beforehand. It was over this time last year that we started talking. And between my mother and myself, we did quite a lot of work on getting Sean to come back to Pick n Pay. I must say it wasn't easy, and he was not the easiest person to negotiate with, but has made a huge, huge difference to the company. The next point was that the family indicated our commitment to the group by actually following all our rights, and we actually put another ZAR 1 billion investment into this business because we believe in the future of the business and we believe this is what this business required. And we've also made a lot of changes to our corporate governance and to our [indiscernible] rights on the Board to strengthen the Board independence. And we've seen that with reducing the number of Board members, the fact that a couple of family members have stepped down from various Board committees, reducing our right to nominate certain positions on the Board, all of which we stepped back because we believe the company needs to have a more modern form of governance and that is what we're doing. And we also were asked by shareholders to reduce our shareholding to below 50%, which we have done. We've now reduced by 3% to 49%. And I know, Chris, you -- basically what you're saying is it's just window dressing by going down to the 49%. But we did get a lot of requests from a number of the big shareholders to say, listen, we don't want the family to leave. We don't want the family to reduce its shareholding too much, but we'd just like to see a change in the way that the governance happens within Pick n Pay. And we listened to all the different stakeholders and this is the way we've come up to. Right now, the control structure will remain in place. But obviously, we are open to discussions and considerations at some point in the future. Thank you. So Vaughan, if we can now move back to the other two written questions that we have, please?

The next written question comes through from ESG Africa SA from the same shareholder on carbon footprint and renewable energy targets. The annual report indicates a 5% increase in Scope 1 and 2 emissions due to store expansions, and this is despite the group's ambitious targets for carbon reduction and energy efficiency. How does the Board plan to address this emissions while expanding operations? And what specific measures are being implemented to ensure that the group stays on track to achieve its net zero carbon goals by 2050? And I can answer that, Mr. Chair, as the ESG Head. Whilst our emissions have increased by 5%, our emissions intensity and emissions per square meter have actually decreased by 11%. And this shows that we are actually more carbon-efficient. We're also on a path to natural refrigerants with store operations and store fit-outs and this will also significantly reduce and decrease Scope 1 emissions with the goal of us being 100% natural refrigerant efficient by 2040. We're also in the process of setting emissions targets with the Science Based Targets Initiative, SBTi, which should be concluded by the second quarter of 2025, which we agreed to and committed to do at the last AGM. And the SBTi process will provide a robust emission reduction road map to the 2050 net zero target goal that we've set. Thank you.

Thank you, Vaughan. The next question?

The next question is on financial stability post the rights offer. The rights offer has raised ZAR 4 billion to stabilize the balance sheet and reduce debt. How does Pick n Pay plan to ensure that these funds are effectively utilized to prevent future financial instability, particularly in the Pick n Pay retail segment? And this has also come from ESG INSIGHTS SA.

Thank you. I think we should ask Lerena to answer that question.

Thank you, Mr. Chairman. Happy to do so. [ Luling ], I'm very happy to report back that post the successful rights offer of ZAR 4 billion, most of that funds have already been used to reduce Pick n Pay estate, and therefore, to prevent future financial stability inside the Pick n Pay retail segment. I can also add that there's 2 other elements that we are working on that will secure that. Firstly, the second step of our recapitalization program, which is our Boxer IPO that we hope to conclude later this year; as well as the turnaround plan that the team is working on to. So the rights offer, the IPO and the turnaround plan is specifically focused on making sure that there is stability in that core Pick n Pay retail segment going forward.

Thank you. And then it looks like another question on the climate change has come through. It's quite a long one to read. Vaughan?

I'm happy. Yes. At your 2021 AGM, there was a claim that 6 of Pick n Pay's 14 directors had relevant climate change experience. And given that no experience was provided to support these claims, there's been a request from Just Share that the Board, please, substantiate and provide evidence to the claim that the directors have made on climate change experience. There's -- in last year's report, for example, they have claimed that every Board member has at least some skill and experience in climate change and biodiversity issues. Please, can you commit to specifying on your website as soon as possible the qualifications and experience that informs this plan for each Board member. As the ESG head, I can confirm and commit that we will be taking through -- we will be updating the Board and running sustainability and ESG workshops as well as equipping the Board and those that are interested on the Board to upskill themselves. But I can then refer to each member of the Board to talk to the relevant expertise and skills that they want to equip themselves on.

Thanks, Vaughan. I just want to make a point here that this does come up frequently. But I'll just talk to myself, I'm not going to go through the whole Board. I used -- I was the Chairman of the international Consumer Goods Forum for a number of years. And under my direction, a huge amount of the global food industry changes started happening, including plastics, social and ethics issues, palm oil, deforestation and what have you, and that had happened on my watch as Chair. I've also been the Co-Chair of the Consumer Goods Council of South Africa and very involved in getting the plastic pack going, getting involved in a lot of environmental projects at the moment, which I know you are aware of that the Consumer Goods Council is doing, which is under my watch as well. And within Pick n Pay, I have been a very strong supporter and pushed for the whole green thing to happen within the company at a multilevel. It's not just about getting rid of plastic, it's about how we look at our role within society and within the circular economy. And I know a number of the Board members have similar areas of involvement in these particular areas. But Vaughan will give you more detail on that.

I'd like to add to answering the question that we commit to updating the website and doing our best to ensure that we comply. Thank you.

Thank you. As I see there are no further questions, can I just ask if any of our Board members, and particularly Sean, have any final comments that they'd like to make while everybody is finalizing their votes. Sean?

Thank you, Chair Gareth. I'd just like to say one thing on closing to Chris' questions earlier about family and Pick n Pay. One thing that we must not underestimate is the fact that the Ackerman family, and specifically Raymond and Wendy's legacy, is so inextricably linked internally within the organization and is in the very fabric of everything that the company does and believes in. A lot of our guiding ethics and principles of how we conduct our business and how we treat each other as colleagues in the organization are imbued in the founding principles of Raymond and Wendy from the get-go. And similarly, at a consumer level as well, the Ackermans and Pick n Pay are inextricably linked and it is a real strength of the organization. And we want to, as the management and the company, thank the family for the faith that they have placed in us and also following their rights and continuing to support us in the organization. Thank you, Chair.

Thank you very much for that, Sean. We do appreciate it. Now as there are no further questions, the question-and-answer session is now completed, and I declare the voting closed. We'll give the scrutineers an opportunity to finalize the votes and the results will be displayed shortly. Thank you. We've got the -- you'll see the results up on the screens in front of you. I declare that all the resolutions have passed by the requisite majority except for advisory note #1 and advisory note #2. The nonbinding advisory notes endorsing the remuneration policy and the remuneration implementation report do not pass with the requisite 75% majority. The Board will invite dissenting shareholders to engage with the RemCom on their concerns in line with the provisions of the JSE Listing Requirements. There being no further business, I now formally close the proceedings of the 56th Annual General Meeting of Pick n Pay Stores Limited. Thank you very much for your attendance. We really do appreciate it. Thank you for your questions. I hope that we've been able to answer them to your satisfaction. And thank you to the team for putting this all together. It has been quite an effort, and we really do appreciate it. Thank you very much for attending. Goodbye.