1. Financial Performance Report
Publication date:
June 2019
Next publication:
December 2019
Financial Performance Report

2. Trading Context of the Financial Period (FY2019)
The 12 months to February 2019 saw retailers facing continued tough market conditions . The South African economy remained constrained. Growth in total retail trade sales for the period came in at only +2.0% with retail sales of food and beverages slipping to -2.3% from +3.7% last year. Rand volatility saw the currency fluctuate in response to domestic and international changes. Inflation, although consistently within the target reached over the mid-point leading the Reserve Bank to bump up the interest rate to 10.25% . Low food inflation, +3.4% (LY: 5.9%), continues to support total inflation which is being pushed up by the rising fuel price. Average CPI 4.6% (LY: 4.9%). Against this backdrop, Pick n Pay Stores Ltd delivered a positive FY2019 result, its strongest underlying performance in a number of years, with turnover growth of +7.1% and comparable growth of 4.8% adjusted for 52 weeks*. The Group attributed its good volume growth, and strong reported cash generation to its focus on improving cost discipline and operational efficiencies. The Group’s reported internal selling price deflation of -0.3% (Food CPI for the period +3.4%) reflects the significant push to reduce prices to attract shoppers into stores in an extremely price-sensitive trading climate. The Boxer business showed double- digit customer growth, performing well despite a tough economy, and showing once again that ‘no-fuss’ retailing is what really counts for its target market.
Economic Indicators for the Pick n Pay Stores Ltd FY2019 period (Mar Feb 2019)
GDP Growth
0.1%
Average CPI
4.6%
Fuel Price
2% higher
Average CPI Food and Non-Alc Bev
3.4%
R/$ Exchange Rate
16% weaker
RMB/BER Consumer Confidence Index (CCI)
5.3
Interest Rate
Increased from 10% to 10.25%
Retail Sales Growth
2.0%
Household Debt as % of disposable income
72.0%
Food and Beverage Retail Sales Growth
-2.3%
SOURCE: Ti Economic Indicators Report, StatsSA; Pick n Pay Stores Ltd
NOTE: *Pick n Pay follows a 52-week retail financial calendar, which requires the inclusion of an additional week every six years. The 2019 financial year is a 53-week period, and its results are not directly comparable with 2018, as such a 52:52 result is reported where relevant
Page 2

3. KPIs Metric FY2018 FY2019 (53:52 weeks) (52:52 weeks) Turnover
Turnover Performance
Turnover
PnP SA turnover
PnP Africa turnover
Comparable turnover
+3.9% to R80.5bn
+3.7% to R76.8bn
+9.0% to R3.8bn
+2.2%
+9.6% to R88.3bn
+9.9% to R84.4bn
+3.2% to R3.89bn --
+7.1% to R86.3bn
+7.4% to R82.5bn
+1.3% to R3.82bn
+4.8%
Profitability Performance
Gross Profit
Gross Profit Margin
Operating Profit
Operating Profit Margin
+5.3% to R15.3bn
18.91%
+2.6% to R1.79bn
2.2%
+10.0% to R16.75bn
18.98%
+24.4% to R2.2bn
2.5%
+7.8% to R16.42bn
19.03%
+17.3% to R2.07bn
2.4%
Operational Performance
Inventory Levels
Internal inflation
CAPEX
HEPS
+4.6% to R5.9bn
-12.6% to R1.65bn
+7.1% to cents
-4.2% to R5.7bn
-0.3%
-10.7% to R1.47bn
+25.2% to cents
+18.0% to cents
SOURCE: Pick n Pay Stores Ltd
“The team have delivered consistently on a good plan. By doing so with vigour, focus and enthusiasm, volume growth this year represents the company’s strongest underlying trading performance for many years.” Gareth Ackerman, Pick n Pay Stores Ltd Chairman
- Graham O’ Connor, SPAR Group CEO Jun 2018
Page 3

4. Group Turnover Performance
Total Group turnover growth +9.6% to R88.3bn, adjusted for the extra week, 52:52 growth +7.1% to R86.3bn despite a tough trading environment and some disruptions from the 103 store refurbishments and closures of 20 under-performing stores
Positive comparable growth +4.8% despite internal deflation -0.3%
Volume growth reported at the highest in recent years at +5.1% for the period attributed to the Group’s focus on value and changed promotional strategy with fewer more meaningful promotions
Customer growth reported at +4.6% (FY2018: +2.6%) and +2.8% growth in basket size (FY2018: +2.7%)
Support from franchise partners with greater alignment of store operating standards and product offering through closer collaboration, including a spaza-to-market store conversion programme and franchise partners have a new agreement with lower fees to drive growth of the Express format, with 32 Express stores opening in FY2019
The Group is pleased with the improved contribution from its company-owned Pick n Pay and Boxer stores
Sales growth and market share gains in attributed to:
Focus on value for customers
Few items promoted with deeper cuts
Product innovation, more value-added services and store improvements
Buy Better Programme: better planning and collaboration/negotiation with suppliers supported by IT
Focus on fresh delivering strong sales growth through improved in-stocks
Optimised ranging and in-store experience across all formats
Buy-Better programme supporting competitive price position (lower prices and added value for customers) and driving volume growth
The Group continues to build stronger supplier partnerships, working with 3,000+ suppliers reportedly delivered meaningful savings for the Group. The programme, that was initiated in June 2017, focuses on close collaboration with suppliers on category reviews, range optimisation and promotion planning and execution, to improve efficiency and lower supply chain costs and is supported by a dedicated IT platform which aims to provide comprehensive, real-time product and supplier data in order to facilitate transparent engagement and accurate decision-making. This fact-based negotiation is supported by information from our loyalty and procurement platforms. Providing its suppliers with insight into the sales performance of their products, and can demonstrate how personalised promotions can have a positive impact. Pick n Pay wants the market to see it as more efficient in terms of its planning, replenishment
and distribution, and it wants to be seen as a more effective retail partner in driving product growth.
SOURCE: Pick n Pay Stores Ltd
Page 4

5. Group Turnover Performance cont.
103 stores were refurbished in FY2019 including 45 Pick n Pay stores and 20 franchise stores
Six hypermarkets provided a bulk wholesale offer to over 300 independent traders and 100 franchisees, driving wholesale turnover up more than 20% year-on-year
The new Pick n Pay supermarket stores are smaller and convenience focussed
Pick n Pay clothing and Liquor complement the core grocery offering. Clothing reported strong comparable growth. Liquor continues to perform, delivering double-digit growth boosted by 33 net new standalone stores
Online is still a relatively small contributor to the business. Online distribution centres delivered sales growth +24.3%, with online order volumes +17.0%, including Click n Collect’. Supported by system enhancements focusing on innovation and customer convenience as well as ‘Improved stock availability and shorter lead times due to the Group’s two dedicated online distribution centres
Private Label/Own Brand reached 21% of participating category sales as new, redesigned and relaunched products hit the shelves
Smart Shopper programme has 7.2 million active members receiving weekly personalised discounts based on shopping habits. This increased ‘product–specific’ discounting has a redemption rate of almost 30% and being partially supplier-funded the volume growth benefits the Group and the suppliers. Loyalty was boosted by the collaboration with BP and further modernisation made to the programme including the mobile app and POS functionality
Value-Added services are an important growth engine for the Group with growth +40%. The Group is a major retail seller of prepaid electricity in SA and one of the largest in third-party bill payments also offering money transfer, event and ticketing, which increased over +50%, gaining market share
Banking, in collaboration with TymeDigital, SA’s first digital-only bank using Pick n Pay and Boxer supermarkets as a convenient branch network
Store accounts increased +25% to 125,000
SOURCE: Pick n Pay Stores Ltd
Page 5

6. Turnover Performance by Division
Pick n Pay South Africa*
Turnover growth +9.9% for FY2019, +7.4% (52:52), comparable sales growth +5.2%, strong results from the Group’s core operating segment
The result was attributed to the Group’s focus on executing their strategy to ‘build a leaner more cost- effective business’ for its customers
The focus on value was evident in the reported internal deflation at -0.3%
Volume growth +5.5%
Strong performances were reported in stores serving the growing lower to middle income communities
Turnover Performance
Division
Growth
53:52
52:52
Comparable Growth
Volume Growth
Total Group
9.6%
7.1%
4.8%
5.1%
Pick n Pay South Africa
9.9%
7.4%
5.2%
5.5%
Pick n Pay Non-SA
3.2%
1.3%
Constant Currency: 5.3% --
SOURCE: Pick n Pay Stores Ltd
NOTE: *Pick n Pay South Africa division comprised of Pick n Pay and Boxer; -- Data not reported for the period
Page 6

7. Turnover Performance by Division cont.
Pick n Pay Rest of Africa
The Group’s approach to investment outside SA has been measured as not to put strain on the core business. In FY2019 Pick n Pay Rest of Africa experienced operating challenges. Economic conditions were tough in Zambia and more recently in Zimbabwe.
Rest of Africa contributes 4.4% to Group turnover, trading out of 148 stores. The Group has a presence in Botswana, Lesotho, Namibia, Eswatini (Swaziland), Zambia and Zimbabwe (49% investment in TM Supermarkets)
For FY2019 segmental revenue (including direct deliveries) up +3.2% to R3.9bn (53:52) and +1.3% to R3.8bn (52:52). In constant currency terms revenue increased +5.3% due to difficult trading conditions and currency changes in Zimbabwe
TM Supermarkets Zimbabwe has 57 stores, 7 of which were refurbished in FY of these stores are branded Pick n Pay. Zimbabwe has seen political and economic challenges and social unrest as well as policy changes around currency. Consumer demand for basic commodities has been high with the stores remaining able to trade and in-stock (97% locally sourced product) boosted by hard-earned customer and supplier loyalty, leading to the brand winning a number of retailer awards in Zimbabwe. Volume and customer growth was double-digit
The range in Zambia was cut during the year in 8 supermarkets to drive operating efficiency and working capital to create some room for price and value
The Group remains confident about its long-term prospects in Africa
* information can be found in the Boxer Trade Profile
SOURCE: Pick n Pay Stores Ltd
NOTE: * Boxer Swaziland is included. With the new IFRS standards sales and revenue from TM Supermarkets is not included in the Group turnover or revenue as TM Supermarkets is recognised as an associate (the removal has been included for FY2018 to ensure comparability).
Page 7

8. Group Profit Performance Gross Profit
Gross profit +10.0% to R16.8bn, adjusted growth % to R16.4bn
Aligned with sales growth
Gross profit margin increased marginally to 18.98% (FY2018: 18.91%) despite internal deflation and investment in price, highlighting the volume growth without sacrificing margin
Margin improvement was attributed, in part, to the improved performance and higher participation from the company- owned stores
The headroom to invest in price was credited to the Groups continued action in reduce operating costs and increase productivity
Buy Better programme
Ongoing focus on centralisation and supply chain efficiencies
Reduced wastage through focus on fresh
SOURCE: Pick n Pay Stores Ltd
Page 8

9. Group Profit Performance cont.
Other trading income
The Group report other trading income growth +7.4% to R1.9bn for 53:52 weeks. Adjusted growth 52: % to R1.89bn, in line with FY2018
Other Trading Income – FY2019
Income
(R’m) 53:52
Growth % 53:52
(R’m)
52:52
Growth % 52:52
Comment
Total
1,913
7.4%
1,890
6.1%
Commissions, income and VAS
986
5.4%
972
3.9%
Including dividends received and income from value added services (VAS)
VAS income growth +41.5% due to commissions from financial services, third party bill payments and prepaid electricity purchases
Franchise fee income
399
-0.2%
390
-2.5%
To drive growth in convenience the Group have changed their agreement between Pick n Pay Express stores and BP forecourts, they anticipate that the lost income will be offset by the increased volume through the supply chain
Excluding the impact of the new agreement growth +4.5%
Operating lease income
528
18.3%
New head leases added to safeguard the long-term tenancy of Pick n Pay franchise stores located at key sites
The increase in rental income received is balanced out by the increase in occupancy costs
SOURCE: Pick n Pay Stores Ltd
Page 9

10. Group Profit Performance cont.
Trading expenses
The focus remained on cost control with trading expenses +8.6% to R16.5bn in FY Adjusting for 52:52 , +7.0% to R16.3bn, with comparable expense growth contained below sales growth at +5.3%, due to better operating efficiency.
As a percentage of turnover, trading expense improved marginally from 18.9% to 18.8%. The good result during tough trading is attributed to the SA division despite the increase in store footprint.
Trading Expenses – HY2019
Expense
R’m 53:52
Growth 53:52
R’m 52:52
Growth 52:52
Comparable
growth
Comment
Total Trading Expenses
16,491
8.6%
16,258
7.0%
5.3%
Employee costs
7,239
8.2%
7,102
6.2%
5.9%
Salaries and wages increased ahead of CPI
Labour cost improved to 8.2% of turnover (FY2018: 8.3%)
Occupancy costs (rent, rates, security and insurance)
3,327
7.8%
3,300
6.9%
3.3%
51 net new company-owned store opened
Increased security and insurance costs
Operations costs
3,516
10.6%
3,463
8.9%
6.1%
Higher repair, maintenance costs an depreciation
Maintenance +15.0% to sustain the refurbishment programme
Comparable electricity costs declined -1.8%
Merchandising and administration costs
2,410
7.7%
2,394
4.9%
Reduction in professional fees and admin costs offset by advertising spend increased for a more impactful promotional calendar
SOURCE: Pick n Pay Stores Ltd
Page 10

11. Group Profit Performance cont. Operating Profit
Operating profit* +24.4% to R2.2bn (53:52), adjusting for the extra week growth +17.3% to R2.07bn)
Operating profit margin at 2.49%, 2.4% (52:52) (FY2018: 2.2%%)
Operating profit growth has been boosted by
Value-added services
Benefits seen from range optimisation, reduced inventory levels, improved store execution, improved stock availability and better waste management
Modernising their loyalty programme
Streamlining their labour force
Fewer promotions with more supplier collaboration and reduced costs
South Africa division reported segmental* profit growth +23.8% to R1.8bn (52:52) with margin increasing to 2.2% (FY2018: 1.9%)
Rest of Africa declined -16.2% with the tough trading conditions in Zambia as well as the once-off impact of the Zimbabwean currency devaluation of R42.1m**
SOURCE: Pick n Pay Stores Ltd
NOTE: *Operating profit = Profit before tax and capital items; segmental profit comprises the segment’s trading results and directly attributable costs only. No allocations are made for indirect or incremental cost incurred by the South Africa segment relating to this division. **Oct 2018 RTGS currency translation of foreign debt
Page 11

12. Operational Overview CAPEX
CAPEX declined -10.7% to R1.47bn in FY2019 with majority of spend on ‘customer-facing’ initiatives
Store refurbishment R620m
Store expansion R476m
R377m on supply chain capability and IT infrastructure
The Group plans to invest R2bn in CAPEX for FY2020 and is confident it will meet its investment requirements through internal cash generation
The tighter management of Working Capital, good returns on CAPEX as well as improved operational efficiency increased HEPS (headline earnings per share) by %, adjusted 52:52 growth +18.0%
SOURCE: Pick n Pay Stores Ltd
Page 12

13. Operational Overview cont. Inventory Levels
Inventory levels declined -4.2% to R5.7bn in FY2019
Stripping out the impact of new stores and inflation, inventory levels declined -10.5%
The Group reports reductions in ranges as a in many instances as part of range optimisation. This has led to simplified administration, higher on-shelf availability, reduced waste and improved trading densities as well as contributing to the lower inventory levels
The Group has continued to make progress in centralising its supply chain to deliver more efficient and reliable product replenishment, better on-shelf availability while reducing costs.
The Group has leveraged its online infrastructure to deliver small, single-pick orders to smaller format stores in Gauteng and the Western Cape
The Group has invested heavily in operational efficiencies, with over 400 new suppliers added to its distribution network in FY2019
Centralised supply for FY2019 reached 75% of volume (FY2018: 65%)
DC volumes are up +13.6% in FY2019 with increased distribution allowances from suppliers
A new DC opened in Kwa-Zulu Natal, centralisation increased to 76% (FY2018: 45%)
SOURCE: Pick n Pay Stores Ltd
Page 13

14. Operational Overview cont. Internal Inflation
SA’s CPI Food and Non-Alcoholic Beverages averaged +3.1% for the 12 months well below last years levels (FY2018; %) and significantly lower than FY2017: +11.0%
The Group reported Internal price deflation for FY2019 at -0.3% (FY2018: 2.2%), this is well below CPI for Food and Non Alcoholic beverages
Internal price deflation is attributed to:
The impact of price reductions reported for thousands of products, with focus on fresh and meat
Deeper cuts on fewer promotion lines to drive more effective promotions
Better buying, supply chain leveraging and focus on operational efficiency has allowed for the Group to support prices
SOURCE: : Ti Economic Indicators Report, StatsSA, Pick n Pay Stores Ltd
Page 14

15. In Summary
Pick n Pay Stores Ltd delivered its strongest underlying trade performance in a number of years
The Positives:
Turnover +7.1% to R86.3bn with volume growth at a high at +5.1% for the Group
Gross profit +7.8% to R16.4bn, with gross profit margin consistent at 19.0%
Trading profit +12.6% to R2.05bn, with trading profit margin consistent at 2.4%
Continued investment in improving the customer experience
The well-supported Smart Shopper loyalty programme with 7.2 million active users
Operating profit ahead of sales growth at +17.3%, with operating profit margin improving to +2.4%
Inventory levels declining as supply chain efficiencies come through
The Negatives:
Local currency weakness and ongoing challenging trade conditions in Zambia impacting on Group sales with Zimbabwe also having significant challenges
The aggressive refurbishment programme impaired sales in some stores
Page 15

16. Outlook
Retailers continue to face tough trading conditions. South Africa’s low growth expectation for 2019, and poor start with a significant contraction in Q1 add to the growing concerns over geo-political uncertainty, slowing global growth and domestic challenges, with fiscal constraints and low investment.
Despite inflation being within the target range, the fuel, electricity and tax increases are chipping away at the already constrained disposable income for households.
Is Pick n Pay back? Perhaps it would be too hasty to say considering the uncertainty of an economy that leaves little to no room for error. However, with its sights firmly set on its long-term trajectory and by focusing on the formats that are working for it, the Group appears well positioned to achieve its targeted 3% PBT margin
Page 16

17. Maryla Masojada. |. Lead Analyst Carey Leighton. |
Maryla Masojada | Lead Analyst Carey Leighton | Associate Retail Analyst