PICK N PAY STORES LIMITED - Pick n Pay Stores Group - Trading and Earnings Update

Pick n Pay Stores Group - Trading and Earnings Update

Pick n Pay Stores Limited
Incorporated in the Republic of South Africa
Registration number: 1968/008034/06
Share Code: PIK ISIN code: ZAE000005443
(Pick n Pay or the Group)

Pick n Pay Stores Group - Trading and Earnings Update

Shareholders are advised that Pick n Pay Stores Limited (the Group) is in the process of finalising its
FY21 interim financial results for the 26 weeks ended 30 August 2020, which are due to be published
on 20 October 2020.

The Groups first-half performance began on 2 March 2020, and was delivered almost entirely in the
unprecedented conditions of Covid-19, in particular the State of Disaster which began on 15 March
2020. Over this period, the Group has successfully pursued two primary goals: feeding the nation in
a safe and reliable way as an essential provider of food and groceries, and delivering on our long-term
plan to build a leaner, more agile and more modern business, attuned to the needs of our customers.

Although Group sales and earnings have been negatively impacted by the pandemic and the measures
taken by government to contain it, we are proud of our achievement against both objectives in a
challenging time.

Feeding the nation in unprecedented times
Our teams have worked effectively to deliver the stringent safety and hygiene standards required to
combat Covid-19, to keep our stores open and full, and to keep our business and colleagues working.
Even in the most challenging periods to date, we have maintained a reliable supply chain, high levels
of availability, and excellent service levels. We also innovated to serve customers in new ways, for
example to meet an increased demand for online shopping by rapidly introducing an on-demand
grocery service. Our team, together with our customers, have raised over R80 million in hunger relief
efforts, providing 20 million meals to vulnerable families.

Covid-19 and the measures taken to contain it have inevitably had a substantial impact on the Groups
sales and earnings over the first half of the financial year. Trade restrictions imposed by the South
African government, and by other jurisdictions across southern Africa, impacted up to 20% of the
Groups revenue at different stages of the nationwide lockdown, and disproportionately affected
higher-margin categories including liquor, clothing and general merchandise. Sales were also
impacted by reduced trading hours and limits on the number of customers in stores to uphold physical
distancing requirements, and by temporary store closures following the identification of positive
Covid-19 cases among staff.

GDP in South Africa contracted over 17% year-on-year in the second quarter of the calendar year,
placing extreme financial pressure on many households. However, relative to areas of discretionary
spend, core food and grocery remained resilient.
Sales performance
Against this background, Group turnover increased 2.6% year-on-year, with like-for-like growth of
1.0%. Turnover from South African operations increased 3.4%, with like-for-like growth of 1.7%. The
Group continued to provide exceptional value for customers, with internal selling price inflation in
South Africa contained at 3.4% over the period, against CPI Food inflation of 4.3%.

Core retail sales
Core retail sales - including food, groceries and general merchandise, but excluding liquor, clothing
and tobacco - grew 8.7% year-on-year (6.4% like-for-like), with 9.9% growth in South Africa (7.6% like-
for-like). The 4.2% volume growth in the Groups core food and grocery offer in South Africa
demonstrates the underlying strength and competitiveness of the Groups performance over the

Liquor, tobacco and clothing
The Groups liquor and tobacco categories were most affected by government trade restrictions, with
full prohibition over liquor sales for 15 weeks of the 26-week trading period, and reduced trading
hours for all but the first three weeks of the half-year. The sale of cigarettes and other tobacco
products was prohibited between 27 March and 17 August. This inevitably had a profound impact on
liquor and tobacco sales, with negative growth of 47.5% over the period.
Clothing sales were prohibited during the Level 5 lockdown, and were subject to some continuing
restrictions under Level 4. The Groups clothing turnover decreased 4.2% in South Africa, delivering
market share gains in key categories.

Earnings performance
As previously communicated to shareholders, in our earnings update provided on 4 August 2020, the
Groups earnings over the period have been impacted by three specific factors:

1. Government trading restrictions arising from Covid-19. As noted above, Covid-19 trade restrictions
   disproportionately affected higher-margin categories, including liquor, clothing and general
   merchandise. However, the negative gross profit margin impact is expected to be partly offset by
   progress in optimising the Groups central procurement and supply chain channel.

2. R150 million additional costs as a result of the Covid-19 crisis. Operating expenses will reflect costs
   directly related to the Groups Covid-19 operational response. These include additional safety and
   hygiene costs of R80 million, a R50 million appreciation bonus paid to 50 000 front-line staff, in
   recognition of their essential service under difficult circumstances, and security and
   communication costs of R20 million.

3. R100 million once-off costs of the Groups voluntary severance programme. Once-off compensation
   payments to colleagues who volunteered for the voluntary severance programme (VSP) in Pick n Pay
   at the beginning of the financial year will total around R100 million. The VSP is a major step forward
   in making the business more competitive and more sustainable. The full cost of VSP compensation
   payments has been borne in the first half of the financial year, and is expected to be fully recouped
   through cost savings in the second half of the year.
The Groups first-half earnings performance will therefore reflect the full impact of extraordinary
trading and operating conditions in the first months of Covid-19, and the once-off cost of a programme
which has increased the cost-efficiency of the Group. As well as delivering for customers and
communities through the crisis, the Group has maintained momentum on improving the efficiency
and productivity of its operations, and the relevance of its offer, in line with its long-term plan. The
Group launched Project Future in January 2020, and has made excellent progress in achieving its target
of reducing costs by R1 billion over two years.

The Group expects the FY21 interim financial results to fall within the following ranges:

                                                          26 weeks to          26 weeks to           26 weeks to
                                                       30 August 2020       30 August 2020     1 September 2019
                                                        Current period       Current period          Prior period
                                                       Expected range       Expected range
                                                             % growth       cents per share       cents per share
Reported earnings metrics,
including hyperinflation net monetary gains in

Headline earnings per share (HEPS)                        -50% to -60%       36.51 to 45.64                 91.28

Diluted HEPS                                              -50% to -60%       36.24 to 45.30                 90.61

Earnings per share (EPS)                                  -55% to -65%       28.46 to 36.59                 81.31

Diluted EPS                                               -55% to -65%       28.25 to 36.32                 80.71

Comparable earnings metrics,
excluding hyperinflation net monetary gains
in Zimbabwe:

Comparable HEPS                                           -50% to -60%       34.01 to 42.51                 85.03

Comparable HEPS, excluding once-off VSP costs             -35% to -45%       46.77 to 55.27                 85.03

The Group looks forward to presenting its FY21 interim financial results to shareholders in the coming
weeks, where it will demonstrate balance sheet stability and successful cash and working capital
management alongside its resilient earnings performance.

We extend our sincere thanks to our management team, front-line staff, suppliers and franchise
partners across the country who have responded with such skill and determination to keep our stores
open, safe and full throughout the crisis.
Shareholders are advised that Pick n Pay plans to release its interim financial results for the 26 weeks
ended 30 August 2020 on SENS before the market opens on Tuesday, 20 October 2020. A live online
result presentation will follow at 9:30am.

All interested stakeholders are invited to watch the live webcast which can be accessed using the
following link: www.corpcam.com/PicknPay20102020.

The slides accompanying the live result presentation will be available on the Pick n Pay Investor
Relations website at www.picknpayinvestor.co.za shortly before the commencement of the
presentation on 20 October 2020. A playback of the webcast will be made available on our website
approximately 2 hours after the presentation.

The financial information on which this trading statement is based has not been reviewed by or
reported on by the Groups external auditors.

By order of the Board

Cape Town
7 October 2020                                       Sponsor: Investec Bank Limited

Date: 07-10-2020 02:00:00
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