Salient features of the result– continuing operations

We are pleased with this result considering the current economic climate and the tightening of consumer spending as a result of high food and fuel inflation and high interest rates.

The results of Score Supermarkets have been disclosed as discontinued as we are closing down its operations. The majority of its property leases will be sub-let for operation as Pick n Pay Family franchises. This is an exciting BEE opportunity for the Group, both expanding the Pick n Pay brand into new markets, and promoting black entrepeneurs. We consider the results of the continuing operations to be a more accurate indicator of the performance of the Group.

Turnover

Group turnover at R23.7 billion is 16.4% above last year. This growth comprises 15.2% in the Southern African business segment and 24.9% in Australia. The Franklins increase in Australian dollars is 2.2%.

Trading profit

Trading profit increased by 16.7% with trading profit margin remaining at 2.9%.

Diluted headline earnings per share and headline earnings per share (“HEPS”)

Diluted HEPS at 89.76 cents increased by 21.5% over last year. However, due to the dilutive effect of issuing 20 million new ordinary shares on the conversion of the convertible debentures on 31 December 2007, HEPS at 90.31 cents increased by 15.2%.

Dividends per share

We are declaring an interim dividend per share of 35.75 cents for Pick n Pay Stores Limited and 17.45 cents for Pick n Pay Holdings Limited. In both instances this is an increase of 15.0% over last year.

Operational overview

• Franklins Australia – Franklins had a very good trading period realising an operating profit before interest and capital profits of R1.5 million versus a loss for the same period last year of R40.3 million. This significant turnaround over last year is due to increased operating efficiencies, high double digit turnover growth from refurbished stores and the success of the customer loyalty programme.
  During the period under review we converted one corporate store to Franchise, bringing the total number of Franchise stores to seven. Three new corporate stores will be opened in the remainder of the financial year.
  Managing Director Aubrey Zelinsky and his team are to be congratulated for this very positive performance in a difficult and competitive environment.
• Boxer Superstores – Boxer continues to perform exceptionally well with very strong growth in both turnover and operating profit. This was Boxer’s first result under the leadership of Managing Director Eugene Stoop, who is having a very positive effect on the business.
• Pick n Pay

• Hypermarkets – Hypers had a strong trading period showing good growth in both turnover and profit contribution. Turnovers were particularly strong in the new format and refurbished Hypers. In addition to the new Hypermarket opened in Woodmead, we will open another new Hypermarket on the Durban South Coast in the next six months.
• Supermarkets – Supermarkets performed well with particularly strong growth achieved in our Family franchise stores. We opened 6 new Franchise stores and completed 16 score conversions in the current six months. In the next 6 months, a further 5 new Family and 5 new Corporate stores will be opened. In addition 4 more Corporate stores will be converted to Family stores and another 11 Score conversions completed.

• Pick n Pay strategy – We continued the investment in the implementation of our strategy, including:

• SAP – We are starting to reap the benefits of prompt and more accurate information and improved control in the regions where SAP is fully operational and will complete the installation in the inland Pick n Pay regions over the next 18 months.
• Longmeadow distribution centre – The first phase of transferring our distribution capabilities to Longmeadow is now complete. We are stabilising the operation and the next phase of expanding central distribution capabilities will commence in 2009. It is currently being primarily used for tactical buy-ins of merchandise to combat the effects of inflation.
• Fresh foods – We continue to focus on fresh foods and are pleased with the customer acceptance of the convenience food range.
• House brands – We launched the rebranded PnP house brands (“PnP no name” and “PnP”) recently. Early indications are that they have received a very favourable response from customers.
• Small store formats – We have just opened our first trial Pick n Pay Daily supermarket. This format is targeted at those customers who shop frequently with smaller basket sizes. It contains a merchandise range of approximately 6 500 lines giving customers a good product range in a convenience store format. In November/December 2008 we will also be opening two trial Pick n Pay Express stores, in partnership with BP. This will offer true convenience shopping for customers on a forecourt. We are excited about the potential of these small store formats.
• New world-class stores – We opened another new format Hyper at Woodmead and reopened our flagship Supermarket in Claremont, Cape Town. These stores have already received high acclaim, with Claremont being our most successful supermarket opening in over a decade, and we expect the same consumer acceptance when we reopen Benmore, in Johannesburg, at the end of October 2008.
• Score – Implementation of the conversion process is now in full swing and on track with 23 stores converted to Pick n Pay Family stores to date. These stores will be operated by black franchisees. A further nine stores have been transferred to Boxer, six leases ceded outside the Group and nine permanently closed.
• Sustainability – We are changing the way we operate by introducing more environmentally responsible policies. These include installing video conferencing facilities in all regional centres to dramatically reduce air travel and increasing recycling and power saving initiatives. We will also be embarking on an initiative to encourage our customers to significantly reduce the use of plastic bags.

• New stores – We continue to expand our footprint with the opening of 11 new stores across all brands in the first six months and 21 in the second half of the year.

General comments and prospects

We are pleased with this result, given trading conditions. The current turmoil in world markets is of concern, with further tightening of economic conditions. Despite this challenge, all our strategic investments will position us very well for the future.

We remain confident that the group will achieve a good growth in headline earnings per share, from continuing operations, for the full financial year.

For and on behalf of the Board