Result overview – continuing operations

Over the past 6 months we have seen some of the toughest trading conditions in our Group’s history, in an economic climate slow to recover from the global recession, a very competitive environment and low inflation.

Despite these challenges, there are a number of highlights as we maintain focus on our strategy and continue to transform the business:

• The consolidation of our 3 northern regions into one team is now complete and will start to bring operating efficiencies and cost reductions;
• Our SAP implementation has been concluded, resulting in a fully integrated system across the business, with improved in-store disciplines, more efficient business processes and timely information for performance management;
• The extension of the groceries section at our Longmeadow distribution centre is complete. Longmeadow processes 30% of our inland grocery volume and 40% of value, with 550 000 cases handled every week and 32 major suppliers delivering directly to the facility. By the end of this financial year, Longmeadow will distribute 40% of grocery volume. In line with our supply chain strategy we will be rolling out another 4 distribution centres country wide over the next 3 years;
• The implementation of extensive cost control measures has resulted in meaningful cost savings, with more to come;
• The decision to sell Franklins following our strategic review;
• Increased participation in the LSM 4 – 7 market with both Boxer and our Pick n Pay stores converted from Score;
• Specific strategic initiatives resulting in strong growth in Private Label, Clothing and Liquor sales; and
• The opening of our first store in Zambia, which has been positively received and is trading well, as part of our expansion into southern Africa.

Group turnover at R25.2 billion for the period is 6.0% above last year. Turnover growth has been modest with customers exercising caution despite the dramatic fall in food inflation and many price decreases. Group like for like turnover is up 2.1% for the period.

Gross profit margin has fallen from 18.0% last year to 17.8% this year, due to our aggressive pricing of basic commodities and increased franchise participation.

Trading profit is down 0.4% to R720.3 million, due to the lower gross profit margin and cost inflation exceeding internal food inflation. The overall decrease in trading profit has been mitigated by enhanced operating efficiencies and improved cost management.

EBITDA (earnings before interest, tax and depreciation) at R1 074.0 million is up 4.9%.

Headline earnings per share at 90.17 cents is 7.2% down on last year.

The interim dividend per share at 37.00 cents for Pick n Pay Stores Limited and 17.94 cents for Pick n Pay Holdings Limited is a decrease of 6.9% and 7.1% respectively.

Operational highlights

Pick n Pay and Boxer combined, increased turnover by 6.0% for the period. Pick n Pay’s corporate internal food inflation fell from 9.8% in August 2009 to 0.1% in August 2010. On average Pick n Pay food inflation was 1.0% for the past 6 months, against an average of 12.5% for the equivalent period last year.

Notwithstanding that consumer spending remains subdued, we have seen strong growth in certain areas due to specific strategic initiatives, including Private Label, Clothing and Liquor. We have also experienced encouraging growth and an increase in customers in the LSM 4 – 7 market, with a strong performance from Boxer and a profit turnaround in the Pick n Pay stores converted from Score.

During the period we opened 1 new Pick n Pay corporate supermarket, 5 Pick n Pay franchise stores, 3 liquor stores, 6 clothing stores and 1 Boxer Build.

We are on track to open a further 40 stores across all formats, including 15 supermarkets and our new flagship store in Hurlingham Johannesburg, by the end of the financial year.

We continue to move forward with our expansion into Africa and are pleased with the progress made to date. We opened our first Pick n Pay store in Zambia in July 2010. The support from our new Zambian customers is encouraging and the store continues to perform well. We have confirmed openings for 4 more stores in Zambia over the next 12 months. We currently have 17 stores in Namibia, 12 in Botswana, 7 in Swaziland and 1 each in Lesotho and Zambia. In addition to Zambia we plan to open stores in Mauritius, Malawi and Mozambique.

We have decided to sell our Australian operations, Franklins and have accepted an offer of AUD215.0 million from Metcash. The sale is subject to approval from the Australian Competition and Consumer Commission (ACCC), whose decision is expected in November 2010. We are committed to the sale of Franklins, and should the ACCC not give the go ahead we will sell the Franklins’ stores, either individually or in groups. Franklins has been treated as a discontinued operation and its results have been reflected separately from those of continuing operations. Turnover in Franklins for the period of AUD417.5 million was down 3.5%, with operating losses incurred of AUD11.3 million against a profit of AUD1.8 million in the corresponding period last year.

General comments

We expect trading conditions in the second half of the year to remain difficult, as the after effects of the recession continue to be felt. The focus on our strategy will ensure that Pick n Pay continues to be a strong and formidable player in the retail industry. We have already made great strides in transforming Pick n Pay, and with our strong and energetic management team, we remain optimistic for the future.

For and on behalf of the board Gareth Ackerman Chairman Nick Badminton Chief Executive Officer 19 October 2010