PG plc: A sustainable and resilient business model

Despite the onslaught of the COVID-19 pandemic, the Group reported a turnover of €60.9m for the 6-month period ended 31 October 2020, meaning a growth of 4.8% over the comparable period. This growth was a result of the increase in activity registered both in the Pama and Pavi supermarkets.

Management reported that both Pavi and Pama continued to operate consistently and the supermarkets did not experience any COVID-19 interruptions. The panic buying experienced in March was subsequently normalised in the following months. Additionally, the Group reported that the shortfall in tourism did not impact the sales of its supermarkets stores. However, the absence of tourists and the repercussions of the outbreak did impact the Group’s retail segment.

In fact, revenue from the Group’s Zara and Zara Home segment amounted to €8.7m a reduction of 16.3% when compared to the same period last year. This result captures the closure of the Zara stores during 23rd March and 4th May 2020 in line with the directives issued by the local Health Authorities.

Similarly, the Group’s rental business was also impacted by the containment measures brought about by the pandemic, as the Group waived all rentals during the period April to May. Subsequently, rentals were re-instated but without applying the contracted minimum rent clauses.

The consolidated gross profit earned by the Group during H1-2020 amounted to €9.6m, a decrease of 1.3% (H1-2019: €9.7m). Similarly, the operating profit dropped to €7.9m from €8.1m in H1-2019, meaning a slight reduction of 2.5%. After deducting finance costs and taxation, the Group registered a profit after tax of €5.1m compared to €5.3m in the previous period. This decrease in profits largely represents the loss of the higher margins earned from the franchise operations and the rental business.

Outlook

Management noted that the decline in the franchise operations is significantly less than what was previously expected with both Zara online sales and Zara Home sales registering an improvement of +109% and +26%, respectively. Accordingly, management now expects a stronger than previously envisaged recovery in the Group’s rental business.

Therefore, in the absence of a repeat lockdown, the Group is cautiously optimistic that the results for the full year (May 2020 to April 2021) will not be inferior to those registered in FY2020 (year-end: April 2020). Moving forward, the Group will continue investing in the enhancement of its two supermarkets and the upgrading of the facilities and shops therein so that it consistently attract more clientele. Additionally, the Group has continued to invest in updating its core supermarket IT system. In fact, it held successful negotiations with an experienced Italian IT system provider and it has now started to work on the actual implementation. This process is envisaged to be completed by mid-2021.

Management also reported that it continues to pursue the potential expansion of the Group. This includes the potential expansion to its supermarkets or the development of the ex-pasta factory in Qormi, however currently there are no firm plans. Furthermore, the Group is working on other potential projects, but to date, no projects have yet materialised.

Notwithstanding the challenges presented by the COVID-19 pandemic, the Group has maintained its dividend distribution policy of 50% and resolved to retain the same interim dividend payout as last year amounting to €2m. Evidently, PG has a unique and defensive business model with the ability to maintain a healthy and stable level of revenue, cash flow and profit even during such extraordinary times. This, coupled with a relatively low leveraged balance sheet makes the Group well-positioned to crystallise on new growth opportunities.

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