GROUP OVERVIEW

Performance highlights

We are encouraged by the Group’s improved performance over the six months to February 2012, after a tough interim result, with the first clear indications that our investments in our transformation are starting to yield real benefits.

We have refocused our strategy and its implementation plan and have made some significant steps forward in transforming the business.

strategic objectives achieved

• We sold our Australian subsidiary, Franklins, which has enabled us to focus on our core southern African operations
• We launched our customer loyalty programme Smartshopper, the biggest loyalty programme in South Africa, with over five million cardholders, which is creating very real benefits for our customers
• We implemented specialised category buying, which has strengthened our buying capability
• We improved our supply chain with improvements at our Longmeadow distribution centre in Gauteng and the development of our new distribution centre in the Western Cape which opened in May 2012
• We achieved improved efficiencies and cost savings through our Goods not for Resale (“GNFR”) programme, despite significant increases in electricity, rates and fuel costs
• We negotiated improved flexible working conditions, which enables us to staff our stores more effectively
• We built on the success of our flagship PnP on Nicol store, successfully rolling out innovations into three other high LSM stores
• We accelerated our store roll-out, opening 88 stores across South Africa across all formats
• We continued our strategic expansion into Africa, with an additional 24% investment in our associate TM Supermarkets in Zimbabwe, and new stores in Zambia, Mozambique and Mauritius.

performance indicators and size of group

FINANCIAL HIGHLIGHTS

The encouraging growth in turnover has been driven by steady volume increases, notwithstanding the effects of inflation. We have also seen improvement in gross margin due to the benefits of specialised category buying.

Significant strategic transformation investment costs have had an impact on profit growth for the year, most notably the upfront launch costs of Smartshopper, the implementation of specialist category buying and the continued investment in our central distribution capability, all of which will improve future operating efficiencies and enable us to serve our customers better.

The marked improvement in our second half year financial performance is very encouraging and is a clear indication that our transformation strategy is starting to have a positive impact on the financial performance of the Group.

		6 months to   August 2011	6 months to   February 2012	12 months to   February 2012
	Turnover	7.6%	8.6%	8.1%
	New trading space at end of period (m2)	2.2%	2.1%	4.3%
	Customer transactions	0.5%	3.4%	1.9%
	Units per transaction	4.1%	1.2%	2.6%
	Inflation (unit selling price)	2.9%	4.5%	3.7%
	Volume (units sold)	4.7%	4.6%	4.6%
	Like-for-like till sales	4.5%	7.1%	6.2%
	Gross margin (% of sales)	0.1%	0.7%	0.2%
	Trading profit	31.7%	11.2%	10.6%
	EBITDA	17.8%	9.6%	4.0%
	Headline earnings per share	39.3%	6.7%	15.1%

environmental and social sustainability – performance highlights

• We continue to incorporate environmental sustainability in all parts of our operations
  • We have reduced our electricity kWh usage by 20% against our baseline – and achieved R130 million in savings
  • Our new Western Cape distribution centre has incorporated off-grid power generation, daylight harvesting, rain water collection and motion sensor lighting
  • We are working with strategic partners on reducing our collective environmental impact
  • Our plastic bags now contain 30% recycled material
• Pick n Pay won the Climate Change Leadership Award (in the retail category) in recognition of our development of eco-friendly stores and our ongoing commitment to climate change education
• Pick n Pay became the first African retailer to commit to only selling sustainably sourced seafood by the end of 2015
• We reduced our carbon footprint by 4.6%
• Pick n Pay are providing permanent employment for 60 women through a small business initiative which manufactures eco-bags that are sold in our stores
• We have mentored more than 36 small enterprises that are supplying Pick n Pay with products, goods and services
• Pick n Pay have a dedicated programme that assists small suppliers with their compliance, a substantial challenge for businesses of this size. The programme covers water and soil testing, labelling, traceability journals and record keeping.