Annual Report




Our six capitals

Our ability to create long-term sustainable value for stakeholders depends on the use of various capitals within our business. The International Integrated Reporting <IR> Framework supports integrated financial reporting, and, in particular, the reporting of the Group's business model across these six forms of capital. Refer to "Our business model" on pages 20 to 21 for more information.




Social and relationship



Our key stakeholders

The Group is committed to open and constructive engagement with all our stakeholders. Our business model and strategy are designed to consider and address the issues and concerns most relevant to our key stakeholders. Refer to the "Engaging with our stakeholders" section on pages 38 to 41 for more information.







Our business acceleration pillars

The second stage of our strategic long-term plan is organised around seven business acceleration pillars. These pillars represent the material growth opportunities that can materially affect our ability to create value over the short, medium and long term. Refer to our "Strategic focus" section on pages 44 to 51 for more information.

Better for customers

A flexible and winning estate

Efficient and effective operations

Every product, every day

A winning team

a national brand

Rest of Africa – a second engine of growth

Bakar Jakoet

Bakar Jakoet
Chief Finance 0fficer



The Group has delivered 20%
compound annual growth in
earnings over the past
five years.


  • Decisive steps to improve long-term sustainable earnings
  • Leaner and fitter operating model created headroom to invest in lower prices for customers
  • Market-beating sales growth in final quarter
  • Action taken to improve operating model included the VSP, with a once-off severance cost of R250 million
  • Sustainable trading profit margin, excluding the cost of the VSP, increased from 2.2% to 2.5%
  • HEPS up 7.1%; diluted HEPS up 7.7%
    52 weeks to
25 February
52 weeks to
26 February
  Turnover R81.6bn R77.5bn 5.3  
  Gross profit margin 18.7% 18.7%    
  Trading profit R1 819.9m R1 735.6m 4.9  
  Trading profit margin 2.2% 2.2%    
  Profit before tax, before capital items R1 789.1m R1 723.3m 3.8  
  Profit before tax R1 768.1m R1 677.0m 5.4  
  Headline earnings per share 276.98c 258.65c 7.1  
  Diluted headline earnings per share 271.61c 252.13c 7.7  
  Total annual dividend per share 188.80c 176.30c 7.1  

The financial information presented above is on a restated basis. Please refer to note 28 of the Group audited Annual Financial Statements on our website at for further information.


The Group initiated a number of substantial programmes in the first half of the year focused on reducing its operating costs and increasing its productivity across its operations. The action taken included the modernisation of its loyalty programme, a buy better initiative in collaboration with suppliers, and a voluntary severance programme (VSP) across Pick n Pay. The successful implementation of these programmes enabled the investment in a more competitive customer offer in the second half of the year, through lower prices and better promotions.

The success of this strategy was evident in the Group’s strong fourth-quarter trading performance. The Group delivered sales growth of 7.3% in the final quarter of the year, with like-for-like growth of 4.9%. This performance was underpinned by the South Africa division, which delivered 8.0% sales growth, with like-for-like growth of 5.3%. This was well ahead of the market and was achieved at a time when internal selling price inflation had fallen to just 0.2%.

The action to reduce operating costs had a once-off impact of R250.0 million in the form of payments to employees who left the Group through the VSP. The VSP costs will not recur in FY19.

Including the VSP cost, trading profit was up 4.9% on last year, headline earnings per share (HEPS) up 7.1%, and diluted HEPS up 7.7%. Excluding the VSP cost, trading profit grew 19.3% year-on-year, with the trading margin improving from 2.2% to 2.5% of turnover. This demonstrates the sustainable progress delivered in building a leaner and fitter operating model.


Accounting restatements

The Group reclassified certain elements of supplier income received and advertising costs incurred during the year, which impacted its inventory valuation methodology. Advertising costs and related recoveries are now recorded on a gross basis within trading expenses and gross profit respectively. Any supplier income received that is not directly related to the cost of merchandise sold is now recognised within other trading income. The correction has not had a significant impact on either the profitability or the financial position of the Group.

The normalised result is presented on a restated basis. For further information on the restatement of reported gross profit, other trading income, trading expenses and the value of inventory, refer to note 28 of the Group annual financial statements.

The unbundling of Pick n Pay Holdings Limited RF Group

The Group modernised its control structure in the first half of last year, with the unbundling of the Pick n Pay Holdings Limited RF Group (unbundling transaction). Although there were material non-recurring items in certain individual categories of other trading income and trading expenses, the transaction had no impact on trading profit or headline earnings in the prior year.

The result presented below excludes the non-recurring items related to the unbundling transaction. The result commentary is presented on a normalised basis. Please refer to page 66 for the principal differences between the Group’s normalised and published results.


The review of the Group’s financial performance for the 52 weeks ended 25 February 2018 focuses on the key elements of the statement of comprehensive income and the statement of financial position which management considers material to the Group’s performance over the year.

The review should be considered together with the Group’s audited annual financial statements, as well as the summarised financial result and the five-year analysis of financial performance set out on pages 64 to 69.

FTSE4Good     FTSE4Good

FTSE Russell confirms that Pick n Pay has been independently assessed according to the FTSE4Good criteria, and has satisfied the requirements to become a constituent
of the FTSE4Good Index Series. Created by the global index provider FTSE Russell, the FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong Environmental, Social and Governance (ESG) practices. The FTSE4Good indices are used by a wide variety of market participants to assess sustainable investment funds and other products.


Group turnover increased 5.3% to R81.6 billion, with like-for-like turnover growth of 2.2%. Selling-price inflation was kept to 2.2% for the year. The Group’s South Africa division delivered turnover growth of 5.1% over the year, with like-for-like growth of 2.3%.

The Group’s muted turnover growth reflects the pressure of an exceedingly challenging trading environment, particularly over the first three quarters of the year. However, the positive steps taken by the Group to invest in its customer offer found traction in the final quarter of the year, with a stronger trading performance across all formats.

On a constant currency basis, Group turnover was up 5.3%, with like-for-like turnover growth of 2.2%.



Group gross profit margin (%)


Gross profit

Gross profit increased by 5.5% to R15.3 billion (FY17: R14.5 billion). Gross profit margin remained unchanged at 18.7%. Greater price competitiveness was achieved without sacrificing margin through a combination of better buying, a more cost-effective loyalty programme and strong discipline on costs across the procurement and distribution channel.

Other trading income

Other trading income consists of franchise fee income, operating lease income, commissions, income from value-added services, and other supplier income. Other trading income increased 15.6% over the year to R1.8 billion (FY17: R1.5 billion). On a comparable basis, excluding the impact of the restructure of certain franchise agreements and the impact of new head leases detailed below, other trading income increased by 8.4%.

Franchise fee income was up 14.4% to R400.1 million (FY17: R349.8 million), with 46 net new franchise stores added over the year. A number of legacy franchise agreements have been restructured to bring them in line with the standard terms and conditions of the Group’s current franchise arrangements. Any increase in franchise fees received as a result of this alignment has been offset by higher royalty payments to franchisees on products purchased through the Group’s supply chain (included within gross profit). On a comparable basis, franchise fee income increased by 4.3%.

Operating lease income increased by 29.2% to R446.1 million (FY17: R345.3 million), driven by new head leases added over the year. Strategic head leases safeguard the long-term tenancy of Pick n Pay franchise stores at key locations. The increase in rental income received is matched with an equal corresponding increase in rent paid (included within occupancy costs).

Commissions, income from value-added services (VAS), and other supplier income grew 10.5% to R914.4 million (FY17: R827.3 million). VAS income grew 30.1% year-on-year, driven by strong growth in income from financial services and commissions received on third-party bill payments and prepaid electricity purchases.

Trading expenses
Growth in trading expenses and employee costs (%)

Trading expenses of R15.2 billion (FY17: R14.2 billion) were up 6.7% on the prior year, with like-for-like expense growth of 1.6%. Excluding the R250.0 million once-off cost of VSP compensation packages paid in the first half of the year, trading expenses were up 4.9%. This demonstrates the Group’s ongoing success in improving the management of its operating costs.

Employee costs increased 4.3% to R6.7 billion, with like-for-like growth of -2.3%. Labour costs improved by 0.1 percentage point to 8.2% of turnover. Excluding the impact of VSP costs, employee costs grew just 0.4% year-on-year, falling to 7.9% of turnover.

Occupancy costs were up 15.2% to R3.1 billion, with 78 net new company-owned stores added to the estate over the year. Like-for-like occupancy costs increased 7.2%, driven by above-inflation regulatory increases in rates (up 20% year-on-year) and increases in security costs to ensure the safety of our customers and staff. Occupancy costs also reflect the addition of strategic head leases over a number of key franchise stores. The Group will continue to negotiate with landlords in order to secure competitive rentals and fair escalation terms, in order to reduce our occupancy costs as a percentage of turnover over time.

Operations costs increased 7.3% on last year to R3.2 billion, notwithstanding regulatory increases in electricity and utility charges, which were well above inflation. Depreciation and amortisation costs are up 10.8% on last year, reflecting the Group’s ongoing investment in the expansion and improvement of its estate. The severe drought in the Western Cape has led to a water crisis in the City of Cape Town, which has necessitated an increase in water tariffs.

Merchandising and administration costs at R2.2 billion increased just 2.2% over the year, with like-for-like growth of 1.7%, demonstrating substantial savings in professional, legal and other support services over the year.

Trading profit
Trading profit (Rm)

Trading profit increased by 4.9% to R1.8 billion. The trading profit margin remains unchanged at 2.2% of turnover. Excluding the once-off impact of VSP compensation payments, trading profit is up 19.3% year-on-year, to 2.5% of turnover, a good indication of the Group’s sustainable profit performance.

Net interest

Net interest paid increased from R92.5 million to R147.1 million. The increased interest bill is as a result of lower net cash balances over the year, which reflect the Group’s sustained investment in its store opening, refurbishment and centralisation programme over the last five years.

Losses on capital items

The Group incurred capital losses of R21.0 million this year (FY17: R32.4 million) in respect of the disposal or impairment of assets and goodwill, largely related to its refurbishment programme. A further impairment loss of R13.9 million was incurred in the prior year, arising on the unbundling of the Pick n Pay Holdings Limited RF Group. Capital items are added back in the calculation of headline earnings.

Profit before tax

Profit before tax before capital items is up 3.8% to R1.8 billion, with the underlying margin maintained at 2.2% of turnover. Excluding the impact of the once-off VSP compensation payments profit before tax before capital items is up 18.4%, to 2.5% of turnover, demonstrating a marked improvement in the Group’s sustainable profit margin.

Profit before tax is up 5.4%, with the underlying margin maintained at 2.2% of turnover.

Rest of Africa segment

Segmental revenue for the Rest of Africa division increased 7.7% year-on-year to R4.6 billion, with segmental revenue in constant currency up 9.3%, 1.4% on a like-for-like basis. Profit before tax was up 27.7% to R287.9 million, underpinned by a strong performance from the Group’s associate in Zimbabwe, TM Supermarkets (TM). TM has continued to deliver a strong trading and profit performance in a difficult and complex operating environment. The Group’s share of TM’s earnings grew 45% on last year to R116.3 million. The trading environment in Zambia remains challenging and the team has responded with stringent cost control.

    FY18 FY17 %
  Segmental revenue
R4 648.1m R4 315.7m 7.7  
  Segmental profit R287.9m R225.5m 27.7  
  Number of stores 144 140    

The Group’s effective tax rate is down from 27.5% in the prior year to 26.7% in 2018. The decrease is largely as a result of the greater contribution of our associate’s (TM Supermarkets) after-tax profits to the Group’s net profit before tax. The Group is confident that its tax rate is sustainable at current levels over the foreseeable future.

Earnings per share

Basic earnings per share (EPS) – increased 9.0% from 250.98 to 273.64 cents per share.

Headline earnings per share (HEPS) – increased 7.1% from 258.65 to 276.98 cents per share.

The difference between the growth in headline earnings of 5.2% and the growth in HEPS of 7.1% is due to the increase in the weighted average number of treasury shares held by the Group, with shares received under the unbundling transaction last year now fully weighted.

The difference between the growth in basic earnings per share and headline earnings per share relates to the effect of losses of a capital nature in the calculation of headline earnings. Capital losses of R15.8 million, net of tax, were taken into account in the calculation of headline earnings in the current period against R37.2 million in the prior period.

Diluted headline earnings per share (DHEPS) – increased 7.7% from 252.13 to 271.61 cents per share. DHEPS reflects the dilution effect of share options held by participants in the Group’s employee share schemes. The dilution decreased marginally year-on-year due to the delivery of shares to share scheme participants during the year, including the vesting of the first allocation of forfeitable plan shares.


The increase in the Group’s assets reflects its capital investment programme, in particular its ongoing investment in new and refurbished stores, as well as additional capacity across its central supply chain. The net asset value per share increased 4.8% on last year to 966.2 cents per share. The Group delivered return on capital employed of 32.6% (FY17: 32.3%), against a weighted average cost of capital of 12.0%.

Working capital

The timing of the Group’s financial calendar has a substantial impact on reported working capital and cash balances, depending on the timing of creditor payments over financial year-end. The Group’s working capital reduced by R119.4 million over the year, against a R948.1 million reduction in the prior year, largely as a result of the timing of the Group’s financial calendar cut-off.

Inventory – increased 4.9% on last year to R6.0 billion, including the impact of 78 net new company-owned stores over the year and the short-term impact of greater levels of centralisation across the Group. Removing the impact of new stores and inflation, like-for-like inventory is down 5.0% on last year. This reflects consistent improvement in the Group’s forecast and replenishment processes, and solid progress on its plan to reduce its stockholding of slow-moving products through its range rationalisation programme.

Trade and other payables – of R10.8 billion is up 3.1% on last year, with the positive impact of the Group’s buy better programme reflected in lower supplier balances at year-end. The Group implemented its fully integrated ‘Pick n Pay Fast Pay’ platform this year, a supply chain finance programme that provides suppliers with the opportunity of immediate or early settlement of invoices.

Key banking partners on this platform provide competitive funding for participating suppliers off the strength of the Group’s balance sheet.

Trade and other receivables – increased 5.5% on last year to R3.6 billion, with 46 net new franchise stores added over the year, and an increase in the sales to franchisees through the Group’s supply chain. The quality of the debtors’ book improved on last year, with the impairment allowance reducing to 2.5% of the value of the debtors’ book, from 3.5% last year.

Cash generation and utilisation
Cash generation and utilisation (Rbn)

The Group is cash generative, with cash generated before movements in working capital up 5.5% on last year. Cash invested in working capital reflects the impact of new stores and distribution centres and strategic investment buys ahead of year-end.

The Group paid R866.5 million in dividends to shareholders, up 15% on last year, added a further R1.6 billion to its capital investment programme, and invested R423.4 million in its employee share incentive schemes. These important outlays resulted in increased gearing over the 2018 financial year, and an increased interest bill.

Cash outflows were largely funded from internal cash generation, with R1.1 billion of free cash flow generated over the year.




Cash and cash equivalents
    25 February 
26 February 
  Cash balances
1 129.1  961.9   
  Cost-effective overnight borrowings (1 800) (1 800.0)  
  Cash and cash equivalents (670.9) (838.1)  
  Total borrowings (528.8) (133.2)  
  Net funding positions (1 199.7) (971.3)  

The Group’s net funding position increased by R228.4 million over the year, driven by a strong store opening and refurbishment programme. The Group raised R400.0 million of three-month debt to take advantage of competitive interest rates. The Group’s liquidity position remains strong, with R5.5 billion unutilised borrowing facilities at year-end.

Capital investment

Capital expenditure related to the Group’s capital investment programme of R1.6 billion was in line with target. The Group opened 94 new company-owned stores during the year (72 Pick n Pay and 22 Boxer), opened its new Pick n Pay distribution centre in KwaZulu-Natal and the new Boxer distribution centre in the Eastern Cape, and refurbished 61 stores across the estate. The Group committed the majority of its capital investment on expansion and refurbishment in order to improve the customers’ shopping experience.


Pick n Pay Food

The Board declared a final dividend of 155.40 cents per share. This brings the total annual dividend for the year to 188.80 cents per share, 7.1% up on last year, in line with HEPS growth and maintaining a dividend cover of 1.5 times headline earnings per share.


The Group has set a new trajectory for long-term sustainable earnings growth. We are confident that the benefits of the structural changes undertaken this year and the increased momentum achieved will be carried into the 2019 financial year and beyond. We will continue to focus on improving our broader customer offer, including through lower prices, in order to drive turnover growth in what remains a tough economic environment. Cost control and operating efficiency are key to gross profit margin stability and continued sustainable improvement in our profit before tax margin. We are confident in our ability to become even more cost-effective over the coming year.

The Group plans to invest a further R1.7 billion next year in new stores, refurbishments and in building our supply chain capacity. Total retail trading space will increase by an estimated 3% in 2019, in line with this year. The Group is confident of its ability to meet its investment requirements through internal cash generation and that it will reduce its reliance on cost-effective, short-term borrowings over the medium term, with a reduction in its interest bill.


Thank you to our shareholders and funders for their support and for the broader investment community, both locally and internationally, for their ongoing interest and constructive engagement with the Group. I extend my sincere appreciation to our finance and reporting teams across the Group for their professionalism, integrity and commitment to high standards of financial reporting and corporate governance. They continue to drive improvement in reporting, making our processes quicker, simpler and more transparent. I am grateful for your support.

Bakar Jakoet

Chief finance officer

22 June 2018