Reference no: EM132959700

Evaluate Pickco's financial performance

Indicate areas where further information about Pickco would be helpful. Provide relevant calculations for ratios and trends to support the evaluation.

To assist you with the evaluation of the financial performance you should consider the following: Profitability (2 marks)

Liquidity

Solvency

Investor

Other ratios and trends

Relevant information:

PickCo Ltd ('Pickco') is one of the 3 largest supermarket chains in the country. The company was founded in 2013 by Jessica James CA(SA) and has a 31 December financial year end. Jessica attributes her success to basing her business model on three foundational pillars, namely Education, Care and Sustainability. These values form the cornerstone of the company's business strategy during its continued expansion in the local retail market.

PickCo's two principal competitors, Spaar Pty and Tjeckers Pty, are of similar size to PickCo. In common with its competitors (see below), PickCo operates three main types of store:

- City center stores - these sell food and drink and a range of small household items. PickCo's initial growth was based on its city stores, but it has been shutting them over the last decade, although the rate of closure has slowed in the last couple of years.
- Artisan stores - these are smaller and sell food and drink and very few other items. Between 2013 and 2017, PickCo greatly expanded the number of artisan stores it operated. Their performance has varied, however, since 2017, PickCo has not opened any new stores and closed a number of the worst-performing stores.
- Out-of-town stores - these sell food and drink and a full range of household items, including large electrical goods and furniture. The number of out-of-town stores which PickCo operated increased significantly until 2014, but has only increased slightly since.

The majority of city center and out-of-town store premises are owned by PickCo, but 85% of artisan store premises are currently leased.

PickCo also sells most of its range of products online, either offering customers home delivery or 'click and collect' (where the customer orders the goods online and picks it up from a collection point in one of the stores).

When its 2020 results were published in April 2021, Jessica emphasised that the group was focusing on:

- Increasing total shareholder return by improvements in operating efficiency and enhancement of responsiveness to customer needs (Care)
- Ensuring competitive position by maintaining flexibility to respond to new strategic challenges (Sustainability)
- Maintaining financial strength by using diverse sources of funding, including making use in future of revolving credit facilities

Since April 2021, Spaar Pty and Tjeckers Pty have both announced that they will be making significant investments to boost online sales. PickCo intends to fund its investments by closing all its city center and artisan stores, although it also intends to open more out-of-town stores in popular locations.

The government of South Africa was re-elected in 2019. In the 18 months prior to the election, it eased fiscal policy and consumer spending significantly increased. However, it has tightened fiscal policy since the election to avoid the economy overheating. It has also announced an investigation into whether the country's large retail chains treat their suppliers unfairly.