PICK N PAY STORES LIMITED - Trading statement for H1 FY24 and trading update for the 20 weeks ended 16 July 2023
19 July 2023 7:05
Trading statement for H1 FY24 and trading update for the 20 weeks ended 16 July 2023

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

Trading statement for H1 FY24 and trading update for the 20 weeks ended 16 July 2023

Trading update

The Group continued to make good progress on the implementation of its Ekuseni Strategic Plan
during the first four and a half months of the 2024 financial year (FY24). Continued strong sales
momentum in Boxer and Online was particularly pleasing, while the Group also managed to make
firm strides in key Project Future people initiatives to drive efficiencies within Pick n Pay
supermarkets. Sales performance within Pick n Pay SA was muted as the Group strove to contain the
margin impact of load shedding costs.

Group sales

Group sales for the first four and a half months of FY24, covering the 20-week period from 27
February 2023 to 16 July 2023, increased 4.8%. South Africa sales growth for this period was 4.4%
(0.9% like-for-like), while the Group’s Rest of Africa segment sales increased 15.9% (12.0% on a
constant currency basis).

Clothing sales in stand-alone stores grew 10.9%. Group liquor sales for the period grew 9.8%. Online
sales growth for the period was 75.3%, sustaining the strong online sales growth momentum
reported for FY23.

South Africa sales

South Africa sales growth for the period was constrained by a slow performance from Pick n Pay,
while Boxer sales accelerated moderately from the 14.4% reported for H2 FY23.

-     Pick n Pay SA sales declined 0.3% (0.0% like-for-like). The slower sales momentum relative to the
      3.2% reported for H2 FY23 was a consequence of reduced promotional activity during the period
      as Pick n Pay managed the impact of extraordinary operating cost pressures caused by elevated
      load shedding. Sales momentum recovered towards the end of the period as reduced load
      shedding in June and early July enabled Pick n Pay to intensify its promotional programme. Pick
      n Pay SA sales growth for the last three weeks of the period was 2.4% (2.9% like-for-like). Both
      Pick n Pay QualiSave and the stores that have undergone the customer value proposition (CVP)
      upgrade are outperforming the remainder of the estate.
-     Boxer SA sales growth was 15.4% (3.0% like-for-like). Boxer continued to deliver strong sales
      growth, despite the high base (27.2% sales growth recorded for H1 FY23).

Group South African internal selling price inflation for the 20-week period was 9.5%, well below
Statistics SA Food CPI of 13.2% for the period, reflecting the Group’s continued commitment to
delivering low prices to consumers.

                                                   20 weeks ended 16 July 2023
                                                                      % growth
Pick n Pay SA sales                                                      -0.3%
Boxer SA sales                                                           15.4%
SA total sales                                                            4.4%
Rest of Africa sales                                                     15.9%
Group turnover                                                            4.8%

Project Future initiatives

The Group’s Project Future people initiatives gained meaningful traction during the period. The two
projects launched in March, the Voluntary Severance Programme (VSP) and the Junior Store
Management restructuring, have been completed. The Group anticipates an H1 FY24 restructuring
charge of approximately R250 million as a result of these and other restructuring efforts, and
anticipates related annualised on-going cost savings of approximately R300 million.

An intensive focus on working capital in Pick n Pay South Africa, including successfully concluding the
hand-over from the Longmeadow to Eastport DCs, resulted in a substantial cash release from
working capital during the period, leaving the Group on track to exceed its stated FY24 working
capital target of a R0.5 billion to R1 billion cash release. The Group raised R5.5 billion of medium-
and long-term facilities during the period at attractive margins, and is set to repay a substantial
portion of its short-term funding to achieve its targeted debt profile.

Trading statement

In terms of section 3.4(b) of the JSE Listing Requirements, the Group advises shareholders that it
expects earnings per share (EPS), headline earnings per share (HEPS), and pro forma headline
earnings per share (pro forma HEPS) for H1 FY24 to decrease by more than 20% when compared to
EPS, HEPS and pro forma HEPS reported for H1 FY23.

The Group guided in the FY23 result announcement that it anticipated H1 FY24 earnings to be under
pressure as a result of: H1 and H2 earnings seasonality; the base (H1 FY23) being minimally impacted
by load shedding; duplication of supply chain costs during the Longmeadow / Eastport handover;
and restructuring costs. Our updated guidance on these factors is as follows:

-     Total diesel costs to run generators for the 4-month period of March to June of R300 million, and
      estimated net incremental energy costs of approximately R165 million, potentially annualising to
      R250 million for H1 FY24;
-     Approximately R110 million duplication of supply chain costs during the Longmeadow/Eastport
-     Approximately R250 million anticipated H1 FY24 restructuring costs.

The estimated incremental abnormal costs for H1 FY24 highlighted above cumulatively total R610
million. Given that H1 FY23 profit before tax and capital items was R671.8 million and pro-forma
profit before tax and capital items was R588.0 million, these abnormal costs give rise to an
expectation that the Group will report a H1 FY24 loss at the earnings, headline earnings and pro
forma headline earnings level.

On an underlying earnings basis, i.e. excluding net incremental energy costs, once-off supply chain
duplication costs, and restructuring costs set out above, the Group does not anticipate a loss for the

Management does not yet have the required degree of certainty to provide details of the anticipated
range for EPS, HEPS and pro forma HEPS for H1 FY24. Management will provide a further update to
this trading statement once the Group has the required degree of certainty to do so.

Management expects the H2 FY24 earnings outlook to be materially stronger than H1 FY24 as a
result of (a) more supportive earnings seasonality, (b) net incremental energy cost growth to be
relatively low (given the high H2 FY23 base), (c) non-repeat of supply chain cost duplication, and (d)
efficiency gains from the H1 FY24 Project Future initiatives beginning to contribute.

Pro forma information
Pro forma earnings exclude all non-cash hyperinflation gains and losses related to the Group’s TM
business in Zimbabwe, and in FY23 excluded R145.2 million (R104.5 million net of tax) of business
interruption insurance proceeds received and accounted for in FY23, but relating to FY22. Pro forma
HEPS will be the Group’s primary measure in determining its FY24 dividend pay-out ratio.

The constant currency sales growth information contained in this announcement has been
presented to illustrate the impact of changes in the Group’s major foreign currencies - namely the
Zambian kwacha and the Botswana pula - on the sales growth of its Rest of Africa segment. The
Group’s turnover growth in constant currency is calculated by translating the prior period local
currency turnover at the current period average exchange rates on a country-by-country basis and
then comparing that against the current period turnover translated at current period average
exchange rates.

The pro forma financial information is presented in accordance with the JSE Listings Requirements
and is presented for illustrative purposes only. The pro forma financial information may not fairly
present the Group’s financial position, changes in equity, results of operations or cash flows.

The financial information on which this trading update is based is the responsibility of the Board of
directors of the Group and has not been reviewed by or reported on by the Group’s external

By order of the Board
Cape Town
19 July 2023                                             Sponsor: Investec Bank Limited

Date: 19-07-2023 07:05:00
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