REVIEWED INTERIM CONDENSED CONSOLIDATED RESULTS for the six months ended 31 August

Transcription

1 REVIEWED INTERIM CONDENSED CONSOLIDATED RESULTS for the six months ended 31 August 2018

2 CONTENTS Results presentation 1 Commentary 21 Condensed consolidated statement of comprehensive income 24 Condensed consolidated statement of financial position 25 Condensed consolidated statement of changes in equity 26 Condensed consolidated statement of cash flows 27 Earnings per share 28 Segmental information 29 Fair value hierarchy 31 Commitments 32 Additional information 32 Notes to the reviewed interim condensed consolidated results 33 Definitions 37 Supplementary information IBC REVENUE 9.4% EARNINGS PER SHARE 10.5% DIVIDENDS 20.7 cps RETURN ON EQUITY 49%

3 Agenda REVIEW OF THE PERIOD FINANCIAL OVERVIEW TRADING PERFORMANCE TARGETS OUTLOOK APPENDIX 2 REVIEW OF THE PERIOD Ivan Saltzman 3 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

4 Group Highlights Revenue 9.4% to R10.5bn Total income 13.5% to R3.1bn Profit after tax 12.3% to R460m EPS 10.5% to 51.7 cents DPS at 20.7 cents Retail revenue 9.8% to R9.6bn Retail like-for-like growth of 3.5% Market share gains across all categories Retail operating margin to 7.9% from 7.8% Wholesale revenue 15.1% to R7.4bn Cape Town and KZN DC s now fully operational Internal sales at our target optimal level of 80% Around 4.3 million loyalty members First share scheme introduced to key management Opened seven new stores Return on equity at 49% 4 FINANCIAL OVERVIEW Rui Morais 5 2 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

5 Group Financial Summary Statement of Comprehensive Income R m 1H19 1H18* % change Revenue Gross profit Other income Total income Operating expenses (2 373) (2 061) 15.2 Net finance costs (77) (86) (10.4) Taxation (169) (156) 8.1 Net profit after tax Non-controlling interest (15) (7) Equity to holders of parent The decrease in net finance costs is primarily due to the settlement of the ABSA term loan through the quarterly repayments of R37.5m Lower effective tax rate due to an increase in our tax incentives relating to the increase in learner participation and completion of our SETA registered learnership programmes Increase in non-controlling interest mainly as a result of the 50% sale of the Group s oncology business in the second half of FY2018 * Restatement of comparative information to apply IFRS 15 6 Group Financial Summary continued Statement of Financial Position R m 1H19 1H18* % change Property, plant and equipment Intangible assets Inventory Trade and other receivables Other assets Net cash and bank Finance lease liability (634) (629) 0.7 ABSA Loan (571) (720) (20.7) Trade and other payables (3 756) (2 852) 31.7 Other liabilities (549) (581) (5.5) Equity * Restatement of comparative information to apply IFRS 15 7 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

6 Revenue R m 1H19 1H18 % change Retail Wholesale Intergroup (6 569) (5 638) 16.5 Total group % like-for-like Retail growth % Retail price inflation The addition of new space together with maturing space is the most prominent driver of growth Current volume growth of 2.3% vs. the prior year volume growth of 2.6% Low price inflation driven by low SEP (single exit price) and competitive Personal Care as well as Baby categories 8 Total Income R m 1H19 1H18 % change Retail: Gross margin increase as categories focused on inelastic stock items to counter the effect of a low SEP increase Continue to benefit from better trade terms as we carry on gaining market share Wholesale: Unearned fees released due to the re-distribution of stock between retail and wholesale 1H19 margin % 1H18 margin % Retail Wholesale Intergroup (361) (348) Total income DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

7 Operating expenditure Retail R m 1H19 1H18 % change Depreciation and amortisation Occupancy costs Employment costs Other operating costs Total retail costs As a % of revenue Retail space increased by around m² i.e. 18 stores since August 2017 Our human capital and workforce management solution has assisted in managing variable employment costs Focus on staff structures in smaller stores Like-for-like retail employment cost inflation at 3.2% 10 Operating expenditure Wholesale R m 1H19 1H18 % change Depreciation and amortisation (9.4) Occupancy costs Employment costs Other operating costs Total wholesale costs As a % of revenue An increase from employees (February 2018) to employees (August 2018) in the Midrand facility New regulation resulted in casual staff being absorbed as permanent staff Almost m² of space added compared to the prior corresponding period (Cape Town DC) 11 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

8 Operating profit R m 1H19 1H18 % change Wholesale EBITDA losses at R25 million for the reporting period Wholesale breaking even on a monthly basis 1H19 margin % 1H18 margin % Retail Wholesale (46) (20) (0.6) (0.3) Intergroup (7) (11) Group operating profit EPS and HEPS Cents per share 1H19 1H18 % change FY 2018 EPS HEPS WANOS Diluted WANOS Diluted WANOS as a result of the newly introduced share scheme 13 6 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

9 Working capital R m 1H19 1H18 % change Debtors days (2.4) Inventory days Creditors days Total working capital (6.1) Improvement in creditor days due to continued focus on supply chain finance programme offered to vendors Increased inventory levels due to continued concerns around potential labour unrest at certain wholesale facilities 14 Cash Management R m 791 (111) (57) (123) (116) Cash inflow from trading operations Working capital movements Net finance costs (152) Tax Dividends Capex and proceeds on disposal (70) Acquisitions and change in ownership (23) Contingent considerations paid (82) Loans and finance lease repayments 58 Increase in cash and cash equivalents 15 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

10 Capital management Cents per share 1H19 1H18 % change Expansion capex (9.8) Maintenance capex (9.3) Total capex (9.7) % 1H19 1H18 Expansion capex to revenue Maintenance capex to revenue Total capex to revenue R6 067 inflation adjusted per additional square meter of floor space added (approximately m² of space to be added in FY2019) R80m-R100m in IT spend for the full year R20m-R30m in warehouse movables for the full year 16 TRADING PERFORMANCE RETAIL Rui Morais 17 8 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

11 Core Category Performance Low price inflation influencing sales growth across all categories Healthcare and Nutrition continues to be influenced by CAMS regulation % change in transactional gross margin % change in sales Categories continue to focus on transactional gross margin- extracting gross margin from inelastic SKUs % contribution Dispensary Personal care and beauty Healthcare and nutrition Baby care Other Core Category Market Shares Market share (%) 1H19 1H18 Dispensary Personal care and beauty Healthcare and nutrition Baby care All categories experienced strong volume growth as a results of maturing and increasing space, our EDLP strategy and our differentiated range The Group continues to gain market share across all of its core categories despite tough trading conditions Focus on rolling out stores and acquiring and converting independent pharmacies 19 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

12 Market Share Performance of Sub-Categories AUGUST SHARE CHANGE JULY SHARE CHANGE 12mm 6mm 3mm 1mm 12mm 6mm 3mm 1mm PERSONAL CARE AND BEAUTY 1.3% 1.3% 1.3% 1.2% 1.2% 1.3% 1.3% 1.0% Total face care 2.0% 2.2% 2.5% 1.9% 1.8% 2.0% 2.5% 2.1% Total skin care 1.2% 1.2% 1.2% 0.5% 1.2% 1.4% 1.5% 1.2% Total hair care 1.1% 1.0% 0.8% 0.8% 1.2% 1.1% 0.9% 0.1% Total oral care 0.9% 1.1% 0.8% 1.0% 0.9% 1.0% 1.0% 0.1% Total bath care 1.1% 1.2% 1.4% 1.7% 1.1% 1.1% 1.0% 1.4% Total deodorants 0.6% 0.4% 0.2% 0.2% 0.7% 0.4% 0.4% 0.2% Total shaving 1.5% 0.9% 0.6% 0.9% 1.4% 0.9% 0.3% 0.4% Total female care 0.8% 0.8% 1.2% 1.0% 0.8% 0.8% 1.0% 1.2% Total eye care 2.4% 2.6% 2.3% 2.3% 2.4% 2.4% 3.1% 1.7% Total intimate care 1.4% 1.6% 1.8% 2.0% 1.2% 1.1% 1.6% 1.4% Incontinence products 1.4% 2.0% 2.1% 2.3% 1.2% 1.6% 2.1% 1.8% HEALTH CARE & NUTRITION 1.4% 1.8% 1.7% 1.9% 1.3% 1.7% 1.6% 1.3% Total nutrition 1.0% 1.3% 1.1% 1.2.% 0.9% 1.2% 1.2% 0.9% Total health care 2.0% 2.2% 2.2% 2.7% 2.0% 2.2% 1.8% 1.4% BABY CARE 0.3% 0.4% 0.9% 1.1% 0.3% 0.3% 0.6% 0.6% Total baby foods (0.2%) 0.0% 0.5% 0.5% (0.3%) (0.2%) 0.3% (0.1%) Total baby paper 0.4% 0.4% 0.8% 1.2% 0.4% 0.3% 0.4% 0.6% Total baby toiletries 1.0% 0.9% 1.6% 1.9% 0.9% 0.6% 1.1% 1.4% Total baby feeding 0.8% 0.8% 0.8% 0.5% 0.8% 0.7% 0.6% 0.5% Baby clothing 1.5% 2.1% 4.1% 6.3% * Nielsen 20 Driving Dispensary Volume Chronic script volume is a significant contributor to dispensary volume Chronic sales contribute 45% of total dispensary sales Currently of high value chronic patients are managed through our customer call centre Month Average basket Managed R780 Unmanaged R480 Adherence rates on managed patients are 43% higher than managed patients Investing in technology to extend adherence management to all chronic patients Currently there are unmanaged patients with a lost number of script fills per annum of 5.7 at an average basket of R480 Technology investment synergistically implemented into CRM to assist in building customer health profiles Education and chronic disease information is an important driver of adherence DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

13 Vertical Integration Categories identifying vertical integration opportunities Acquired a basket of supplement and health brands in partnership with USN (leverage operational structure of best performing supplement brand to extract margin) Brands include: Evox, SSN, Supashape, Muscle Junkie In addition to margin we acquire the ability to influence brand direction in a health market with stifled growth and innovation Higher brand focus on wellness and fitness food ranges to support fast growing sub-category of Healthcare and Nutrition Acquired Bemax which gives us access to Personal Care and Beauty margin through exclusive brand contracts held by Bemax 22 Loyalty Quality loyalty partners differentiate a loyalty programme Around 8.2 million CRM profiles - CRM investment gives us a single view of our customer Around 4.3 million loyalty members Contribution to front shop revenue from loyalty members is 72% Partner contribution to total loyalty at 55.7% Partner (R405) and loyalty (R315) baskets are higher than non-loyalty baskets (R183) Partnership with Total highly successful with the recent increases in the price of fuel Awarded benefit points on 122 million litres of fuel since the start of the program in December new loyalty members through the Total partnership 23 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

14 Loyalty continued Launch of Micro Popz on 15 October 2018 Instant reward campaign Launched alongside Mickey s 90th birthday leveraging the Disney brand Campaign well supported by Disney through its marketing channels Campaign metrics: Nine week period (15 October 15 December) 16 concealed Disney Micropopz to collect (identifiable figurines) One Micropop for every R200* spent in store or online 50% of customer transactions are below the R200 required basket (R183 non-loyalty spend) Return on investment driven by stretched baskets as well as supplier and partner funding Opportunity to drive market share gains over the period and encourage first time Dis-Chem shoppers * Excludes dispensary, gift card redemptions, return redemptions 24 E-Commerce Invested heavily in this space Click and Collect in every store with the option to pay online or in store Multiple online payment options Cost effective store hub distribution structure A lot of challenges crime, geographic spread of orders Launched version two of the Dis-Chem App in August 2018; more than active app users 27% order growth over the comparative period 22% of all orders are collected instore 50% of online customers make an additional purchase while instore Online basket size is on average R DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

15 TRADING PERFORMANCE WHOLESALE Rui Morais 26 Wholesale Revenue 7% 5% 88% Wholesale revenue up 15.1% to R7.4bn Internal sales at our target optimal level of 80% Sales to TLC customers increased by 15.6% Acquired wholesaler in the Western Cape; still awaiting competition commission approval Dis-Chem Independent pharmacies TLC 27 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

16 TLC and independent pharmacies as supply chain tool TLC TLC franchise stores are loyal supporters of CJ Distribution Currently TLC support of the supply chain is over 60% Independent Pharmacies Constrained independent pharmacy environment presents opportunities to acquire independents Springbok Pharmacy acquired in the interim review period (pending competition commission approval) Access to market in the south of Johannesburg Synergistic opportunities- pharmacy/private label Guaranteed supply chain support Currently engaged in seven independent store transactions of which all generate supply chain support 28 TARGETS Rui Morais DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

17 Short- and Medium-term Targets Short-term FY 2019 EPS growth (%) Medium-term Achieved 1H18 Achieved 1H target Working capital days New store capex (m²) Inflation adjusted Gross margin (%) EBITDA (%) Operating margin (%) Dividend pay-out ratio (%) OUTLOOK Ivan Saltzman 31 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

18 Expanding Retail Space Store formats Store size Big box format 1 000m² + Smaller format 650m² to 1 000m² TLC 350m² to 650m² Number of stores Number of stores FY Big box format 116 Smaller format 8 TLC 2 Other 3 New stores opened until 31 August Big box format 5 Smaller format 2 TLC 0 New stores opened until 17 October Big box format 1 Smaller format 1 TLC 0 New stores opened until year end Big box format 6 Smaller format 6 TLC 1 Number of stores FY Total 32 Outlook For the 6-weeks to 14 October 2018 group revenue increased by 10.3% from the prior corresponding period and like-for-like retail revenue by 3.3% We expect price inflation to be between 1% and 2% Consumers expected to remain constrained To a certain extent, Dis-Chem well positioned to withstand the weak environment Our Retail strategy: Continue to add retail stores to our base Focus on dispensary volumes to drive total store density Our Wholesale strategy: Leverage wholesale space by adding new stores and independent customers Additional wholesale acquisitions DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

19 APPENDIX 34 Store formats Format type Number of stores FY 2018 New stores FY 2019 Centre type Trading space Product range Minority partner Big Box Format Super regional/ Regional 1000 m² plus Full core and ancillary Unlikely Smaller Format 8 9 Community/ Convenience 650 m² to m² 95% core No ancillary Possible Dis-Chem TLC 2 1 Neighbourhood/ Residential 350 m² to 650 m² 75% core No ancillary Very likely 35 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

20 Distribution Centres Space (m²) 1H18 1H19 Cape Town Delmas KwaZulu-Natal Midrand Total % Change 21.3% Can service around 200 stores with ease 36 Retail Density Trading density (R000/m²) FY2015 FY2016 1H17 FY2017 1H18 FY2018 1H19 Trading density Weighted trading density DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

21 Disclaimer This presentation is provided for information purposes only. This is a commercial communication. The information does not include a personal recommendation and does not constitute an offer, or the solicitation of an offer for the sale or purchase of any financial product, service, investment or security. The information, investments and/or strategies discussed here may not be suitable for all investors; if you have any doubts you should consult your investment advisor. This presentation contains certain forward-looking information and statements with respect to the financial condition and results of operations of the Dis-Chem Group. Dis-Chem Group has made every reasonable effort to ensure the accuracy of the information in the presentation, but forward-looking information by their very nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Past performance is not indicative of future results. No assurance can be given that the forward-looking information and statements will prove to be correct and undue reliance should not be placed on such statements. Factors that could cause actual results to differ materially from those in the forward-looking information or statements include, but not limited to: global and local economic conditions; changes in legislations; changes to International Financial Reporting Standards and interpretations; changes in trading space; changes in working capital ratios and changes in margins achieved. The Dis-Chem Group does not undertake to update or revise any of the forward-looking information or statements, whether to reflect new or future events and no liability is accepted by the Dis-Chem Group whatsoever for any direct or consequential loss arising out of reliance upon all or any part of the information contained in this presentation. 38 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

22 20 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

23 COMMENTARY Overview Despite a tough economic environment, the Dis-Chem Group reports positive results with improved market shares across all its core categories and continues to produce attractive returns to shareholders. Earnings attributable to shareholders and headline earnings both grew by 10.5% over the corresponding period in the prior year ( corresponding period ). Earnings per share and headline earnings per share are both 51.7 cents per share, an increase of 10.5%. Chief executive, Ivan Saltzman: The continuing increase in the fuel price along with the 1% increase in the VAT rate continues to put pressure on consumers. After tough trading conditions in April, we experienced another extremely tough trading month in July. Subsequently we have seen trading improvements in August and then again in September suggesting consumer confidence is improving slightly. It is pleasing to note that in each of the last six months we have made market share gains in all of our core categories confirming the success and importance of our everyday low price strategy and the availability of choice for our customers. Our superior trading densities, high average basket size and spend by our Benefits Programme members further points to the loyalty that our brand enjoys in this market. Financial performance During the six-month period from 1 March 2018 to 31 August 2018, Dis-Chem recorded Group revenue growth of 9.4% to R10.5 billion. Retail revenue grew by 9.8% to R9.6 billion with comparable store revenue at 3.5% and selling price inflation of only 1.2%. Comparable store revenue and selling price inflation were, and will continue to be, negatively impacted by the 1.26% Single Exit Price ( SEP ) increase effective 1 March The SEP is prescribed by the Department of Health and impacts approximately a third of Dis-Chem s retail sales. Wholesale revenue grew by 15.1% to R7.4 billion. Total income, comprising of gross profit and other income, grew by 13.5% to R3.1 billion. The Group s total income margin improved from 28.3% to 29.4% as a result of a focused exercise by categories to review and increase gross margin across inelastic products. The Group also continues to benefit from better trade terms with suppliers as it grows market share. Retail expenses grew by 13.2% as the Group invested in 18 new stores over the comparable period. Wholesale expenses grew by 15.4% as a result of the investment in the new Cape Town facility as well as the extension of space in the Delmas facility over the last 12 months. Cost efficiency remains a focus as the Group now has wholesale operations that are more geographically aligned with its retail store base and the independent pharmacy market that the Group intends to access. Operating profit grew by 8.3% to R0.7 billion, with the Group operating margin being 6.7%. Retail operating margin grew by 11% to R0.8 billion. The Wholesale segment incurred an operating loss amounting to R46 million (EBITDA loss of R25 million). After the reporting period, on a monthly basis, the wholesale segment is breaking even at an Earnings Before Interest, Tax, Depreciation and Amortisation ( EBITDA ) level. Net finance costs declined by 10.4% to R77 million, primarily due to the R37.5 million quarterly repayments of the term debt. Working capital continues to be well managed and the Group s net working capital improved from 36.4 days at 28 February 2018 to 35.7 days at August Creditors days have continued to improve due to concentrated efforts on supply chain finance offered to the Group s vendor base. The Group is holding increased levels of inventory, especially in the retail segment, due to a concern of potential labour unrest at certain wholesale facilities. Total capital expenditure of R156 million comprised of R119 million of expansionary expenditure as the Group invested in seven additional stores as well as information technology enhancements across both the retail and wholesale segments. The balance of R37 million relates to replacement expenditure incurred to maintain the existing retail and wholesale network. DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

24 COMMENTARY (continued) Trading performance Retail Retail revenue grew by 9.8% to R9.6 billion and was negatively impacted by the 1.26% SEP increase. The SEP is prescribed by the Department of Health and impacts approximately a third of the Group s retail revenue. Total dispensary revenue growth was 8.2% lagging the average front shop revenue growth of 10.8%. In the absence of an additional SEP increase during the remainder of the financial period, we expect dispensary revenue to continue to lag our front shop categories; Personal Care and Beauty, Healthcare and Nutrition and Baby Care. In the current period, the Group has opened seven new stores, including flagship stores in Sandton and Gateway, resulting in 136 stores at August The addition of new space together with maturing space is the most prominent driver of retail growth. In FY2018, the Group added 21 new stores which contributed R667 million to revenue in the six-month period under review. At August 2018, the Group added seven new stores adding R155 million to revenue. Wholesale Wholesale revenue grew by 15.1% to R7.4 billion. Revenue to our own retail stores, still the biggest contributor to wholesale sales grew by 16.5% as we achieved over 80% of internal supply. The Local Choice revenue growth continues to be very positive coming in at 15.6% and now contributing 5% to overall wholesale revenue. We expect to increase external sales with the acquisition of Quenets Proprietary Limited, a wholesaler in the Western Cape, once final approval is received from the Competition Commission. Directorate No changes have been made to the board since year-end or the prior corresponding period. Outlook For the six weeks to 14 October 2018, Group revenue grew by 10.3% with comparable store revenue by 3.3%. The Group expects that the consumer will continue to remain constrained due to the continuing increase in the fuel price and overall cost of living. As was the case previously, the resilient markets in which the Group operates will offer protection against the weak environment; the Group is well positioned to benefit from additional consumer disposable income. The Group remains focused on adding retail stores. Two stores have been added since the reporting period and an additional 13 store openings are planned through to February We reiterate our guidance to end the full year with a minimum of 151 stores. Earnings guidance for FY2019 Referring to the trading update on 19 July 2018, the Group expects full-year earnings per share ( EPS ) to be between 92.3 cents and 98.7 cents implying an increase of between 16% and 24%, compared to the EPS of 79.6 cents for the 12 months ended 28 February Earnings growth is expected to improve in the second half of the financial year as the benefits of the higher SEP granted in March 2017 predominantly impacts the base for the interim results to 31 August We continue to expect to break even at an EBITDA level in the Wholesale division for the FY2019 period. This will be driven by additional scale on the back of internal and independent pharmacy sales growth as we access new markets as a result of our newly invested warehouse space. Additionally, cost efficiency remains a focus as we now have wholesale operations that are more geographically aligned with our retail store base and the independent pharmacy market that we intend to access. The financial information in the outlook and earnings guidance paragraphs have not been audited, reviewed or reporting on by the Group s external auditors 22 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

25 Dividends declaration Notice is hereby given that a gross interim cash dividend of cents per share, in respect of the interim ended 31 August 2018 has been declared based on 40% of headline earnings. The number of shares in issue at the date of this declaration is The dividend has been declared out of income reserves as defined in the Income Tax Act, 1962, and will be subject to the South African dividend withholding tax ( DWT ) rate of 20% which will result in a net dividend of cents per share to those shareholders who are not exempt from paying dividend tax. Dis-Chem s tax reference number is The salient dates relating to the payment of the dividend are as follows: Last day to trade cum dividend on the JSE: Tuesday, 30 October 2018 First trading day ex dividend on the JSE: Wednesday, 31 October 2018 Record date: Friday, 2 November 2018 Payment date: Monday, 5 November 2018 Share certificates may not be dematerialised or rematerialised between Wednesday, 31 October 2018 and Friday, 2 November 2018, both days inclusive. Shareholders who hold ordinary shares in certificated form ( certificated shareholders ) should note that dividends will be paid by cheque and by means of an electronic funds transfer ( EFT ) method. Where the dividend payable to a particular certificated shareholder is less than R100, the dividend will be paid by EFT only to such certificated shareholder. Certificated shareholders who do not have access to any EFT facilities are advised to contact the company s transfer secretaries, Computershare Investor Services Proprietary Limited at Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2196; on ; or on (fax), in order to make the necessary arrangements to take delivery of the proceeds of their dividend. Shareholders who hold ordinary shares in dematerialised form will have their accounts held at their CSDP or broker credited electronically with the proceeds of their dividend. Approval The interim reviewed condensed consolidated financial statements of the Group were authorised for issue in accordance with a resolution of the directors on 16 October On behalf of the Board Ivan Saltzman Chief Executive Officer Rui Morais Chief Financial Officer DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

26 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Restated* Restated* Six months to Six months to Year to 31 August 31 August 28 February (Reviewed) (Reviewed) Six-month (Reviewed) R 000 R 000 % change R 000 Revenue from contracts with customers Cost of sales ( ) ( ) 9.2 ( ) Gross profit Other income Total income Other expenses ( ) ( ) 15.2 ( ) Operating profit Net financing costs (76 664) (85 572) (10.4) ( ) Finance income Finance costs (85 887) (90 232) ( ) Profit before taxation Taxation ( ) ( ) 8.1 ( ) Profit/Total comprehensive income for the year, net of tax Profit attributable to: Equity holders of the parent Non-controlling interests Earning per share (cents) Basic Diluted * Refer to note 2 24 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

27 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Restated* Restated* As at As at As at 31 August 31 August 28 February (Reviewed) (Reviewed) (Reviewed) R 000 R 000 R 000 Non-current assets Property, plant and equipment Intangible assets Deferred taxation Current assets Inventories Trade and other receivables Loans receivable Taxation receivable Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity and reserves Share capital Common control reserve ( ) Retained earnings/(loss) ( ) Other reserves ( ) ( ) Non-controlling interest Total equity Non-current liabilities Finance lease obligation Operating lease obligation Loans payable Contingent consideration Current liabilities Trade and other payables Employee-related obligations Deferred revenue (contract liability) Contingent consideration Finance lease obligation Loans payable Taxation payable Bank overdraft Total equity and liabilities * Refer to note 2 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

28 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Retained Common Non- Share earnings/ control Other controlling capital (loss) reserve reserves interest Total R 000 R 000 R 000 R 000 R 000 R 000 Restated balance at 28 February 2017* ( ) ( ) Profit/Total comprehensive income for the year Shares issued during the year Dividends paid (63 206) (2 817) (66 023) Restated balance at ( ) ( ) August 2017* Profit/Total comprehensive income for the year Change in ownership interest in subsidiary Transfer to other reserves ( ) Dividends paid ( ) (5 769) ( ) Restated balance at ( ) February 2018* Profit/Total comprehensive income for the year Change in ownership interest in subsidiary (135) Share-based payment expense Dividends paid ( ) (5 985) ( ) Balance at 31 August 2018 (reviewed) ( ) * Refer to note 2 26 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

29 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Six months to Six months to Year to 31 August 31 August 28 February (Reviewed) (Reviewed) (Reviewed) R 000 R 000 R 000 Cash flow from operating activities Cash inflow from trading operations Movement in working capital ( ) ( ) ( ) Finance income received Finance costs paid (70 716) (77 768) ( ) Taxation paid ( ) ( ) ( ) Dividends paid ( ) (66 023) ( ) Cash flow from investing activities ( ) ( ) ( ) Additions to property, plant and equipment and intangible assets To maintain operations (37 466) (41 305) (78 242) To expand operations ( ) ( ) ( ) Proceeds on disposal of property, plant and equipment and intangible assets Acquisition of subsidiary and assets and liabilities in business combination, net of cash acquired (69 726) (17 000) (23 345) Cash flow from financing activities ( ) ( ) ( ) Long-term loans repaid (75 000) (76 000) ( ) Contingent consideration paid (23 133) (22 941) (22 941) Finance lease repayment (6 720) (1 894) (6 226) Change in ownership interest in subsidiary Net increase/(decrease) in cash and cash equivalents ( ) ( ) Cash and cash equivalents at beginning of year (27 515) Cash and cash equivalents at end of year (27 515) DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

30 EARNINGS PER SHARE Reconciliation of profit for the year to headline earnings Restated* Restated* Six months to Six months to Year to 31 August 31 August 28 February (Reviewed) (Reviewed) (Reviewed) R 000 R 000 R 000 Profit attributable to equity holders of the parent Net loss/(profit) on disposal of property, plant and equipment and intangible assets 16 (78) (25) Taxation (4) 23 7 Headline earnings Earnings per share (cents) Basic Diluted Headline earnings per share (cents) Basic Diluted * Refer to note 2 Six months to Six months to Year to 31 August 31 August 28 February (Reviewed) (Reviewed) (Reviewed) Reconciliation of shares in issues to weighted average number of shares in issue Total number of shares in issue at beginning of the period Shares issued during the year weighted for the period outstanding Total weighted number of shares in issue at the end of the period Share options issued during the period Total diluted weighted number of shares in issue at the end of the period DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

31 SEGMENTAL INFORMATION The Group has identified two reportable segments being Retail and Wholesale. Intergroup/ Retail Wholesale consolidation Total Six months to 31 August 2018 (reviewed) R 000 R 000 R 000 R 000 External customers Inter-segment ( ) Total turnover ( ) Cost of sales ( ) ( ) ( ) Gross profit ( ) Other income (45 204) Total income ( ) Other expenses (excluding depreciation and amortisation) ( ) ( ) ( ) Depreciation and amortisation (75 459) (20 361) (95 820) Net finance costs (46 264) (30 400) (76 664) Profit/(loss) before tax (75 928) (6 571) Earnings before interest, tax, depreciation and amortisation (EBITDA) (25 167) (6 571) Capital expenditure ( ) (25 730) ( ) Total assets ( ) Total liabilities ( ) Gross profit margin 24.0% 8.3% 24.9% EBITDA margin 8.7% (0.3%) 7.7% Operating margin 7.9% (0.6%) 6.7% Intergroup/ Restated six months to 31 August 2017 Retail Wholesale consolidation Total (reviewed)* R 000 R 000 R 000 R 000 External customers Inter-segment ( ) Total turnover ( ) Cost of sales ( ) ( ) ( ) Gross profit ( ) Other income (27 066) Total income ( ) Other expenses (excluding depreciation and amortisation) ( ) ( ) ( ) Depreciation and amortisation (69 295) (22 473) (91 768) Net finance costs (53 154) (32 418) (85 572) Profit/(loss) before tax (52 841) (10 977) Earnings before interest, tax, depreciation and amortisation (EBITDA) (10 977) Capital expenditure ( ) (64 424) ( ) Total assets ( ) Total liabilities ( ) Gross profit margin 24.3% 8.8% 24.8% EBITDA margin 8.6% 0.0% 7.8% Operating margin 7.8% (0.3%) 6.8% DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

32 SEGMENTAL INFORMATION (continued) Intergroup/ Restated twelve months to 28 February 2018 Retail Wholesale consolidation Total (reviewed)* R 000 R 000 R 000 R 000 External customers Inter-segment ( ) Total turnover ( ) Cost of sales ( ) ( ) ( ) Gross profit ( ) Other income (65 746) Total income ( ) Other expenses (excluding depreciation and amortisation) ( ) ( ) ( ) Depreciation and amortisation ( ) (40 891) ( ) Net finance costs ( ) (58 137) ( ) Profit/(loss) before tax ( ) (19 763) Earnings before interest, tax, depreciation and amortisation (EBITDA) ( ) (19 763) Capital expenditure ( ) (64 986) ( ) Total assets ( ) Total liabilities ( ) Gross profit margin 24.4% 7.6% 24.5% EBITDA margin 8.1% (1.0%) 6.7% Operating margin 7.3% (1.3%) 5.8% * Refer to note 2 30 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

33 FAIR VALUE HIERARCHY The information below analyses financial assets and liabilities that are carried at fair value or financial assets and liabilities that have carrying amounts that differ from their fair values: Level 1 Level 2 Level 3 August 2018 R 000 R 000 R 000 Financial liabilities at fair value through profit and loss Contingent consideration August 2017 Financial liabilities at fair value through profit and loss Contingent consideration February 2018 Financial liabilities at fair value through profit and loss Derivative liability Contingent consideration The derivatives represent forward exchange contracts (FECs). The fair value of the FEC liability is measured with reference to market data. The key input into this valuation is the forward exchange rate as provided by a reputable bank. The fair value of the contingent consideration payable is measured with reference to the performance forecasts which can be used to estimate future cash flows. The key inputs into this valuation are the estimated future cash flows and the average discount rate of 11.4% (2017: 12.9%) used to determine the present value of the future cash flows. As at As at As at 31 August 31 August 28 February (Reviewed) (Reviewed) (Reviewed) R 000 R 000 R 000 Reconciliation of recurring Level 3 fair value movements: Opening balance Payments (23 133) (22 941) (22 941) Interest Release to other income (1) (2 115) (10 735) Fair value adjustment Closing balance (1) Relates to an amount, reflected in other income, that was not paid by the Company due to performance conditions not being met and expected future performances not being met. A reasonable movement in the unobservable inputs would not significantly impact the fair value of the contingent consideration as at the end of the reporting period and therefore not significantly impact profit after tax or equity. There were no transfers of financial instruments between Level 1, Level 2 and Level 3 fair value measurements during the period ended August 2018 and DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

34 COMMITMENTS Operating lease commitments As at As at As at 31 August 31 August 28 February (Reviewed) (Reviewed) (Reviewed) R 000 R 000 R 000 Within one year Two to five years Over five years Finance lease commitments Within one year Two to five years Over five years ADDITIONAL INFORMATION 31 August 31 August 28 February Ordinary shares in issue: Closing share price (R/share) R33.83 R29.50 R34.40 Six-month (twelve-month) share price (high) (R/share) R38.00 R30.60 R39.95 Six-month (twelve-month) share price (low) (R/share) R25.57 R21.50 R21.40 Net asset value per share (WANOS) (cents/share) Net asset value per share (actual shares at year-end) (cents/share) DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

35 TO THE REVIEWED INTERIM CONDENSED CONSOLIDATED RESULTS 1. These interim condensed consolidated financial results for the six months ended 31 August 2018 have been prepared in accordance with International Financial Reporting Standards (IFRS), International Accounting Standard (IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Pronouncements as issued by the Financial Reporting Standards Council, the requirements of the Companies Act of South Africa and the JSE Listings Requirements. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group s annual financial statements as at 28 February The directors take full responsibility for the preparation of these interim condensed consolidated financial results, which has been prepared under the supervision of Mr Rui Morais CA(SA), the Chief Financial Officer of the Group. The accounting policies and methods of computation used in the preparation of the interim condensed consolidated financial results are consistent in all material respects with those applied in the Group s annual financial statements as at 28 February 2018, except for the adoption of IFRS 15 and IFRS 9 the impact of which is shown in note 2. None of the other new standards, interpretations and amendments effective as of 1 March 2018 have had a material impact on the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group. The Group s assessment of the financial impact of the adoption of IFRS 16: Leases has identified the following which will impact the financial results when adopted: IFRS 16: Leases, predominately relating to stores, will be brought onto the Statement of Financial Position. The quantitative impact of this standard is expected to be material due to the number of store leases in place. Due to new leases being entered into and lease renewals occurring on a regular basis the exact amount of the impact of the new standard is difficult to estimate. The Group currently intends to adopt IFRS 16 by applying the full retrospective approach. Effective from 1 January Restatement of comparative figures The Group adopted IFRS 15, 'Revenue from Contracts with Customers' in the current financial period and elected to apply the standard on a full retrospective basis whereby the cumulative effect of the retrospective application is recognised by adjusting the opening retained profits for the earliest comparative period presented (which for the Group is the comparative period beginning on 1 March 2017). None of the practical expedients were used in the restatement. The impact has resulted in the recognition of a right to return liability and right to return asset on a gross basis. Another IFRS 15 key area of impact are the changes in the principal versus agent recognition of third party vouchers and coupons whereby these transactions are now recognised on a net basis. In addition, a new sub-total line has been disclosed on the face of the Statement of Comprehensive Income called Total income. This additional line item has been included in order to show the total of gross profit and other income for the period in order to give information that Dis-Chem believes is important to a user of the financial statements. DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August

36 TO THE REVIEWED INTERIM CONDENSED CONSOLIDATED RESULTS (continued) Statement of Financial Position August 2017 Adjusted (previously stated) Restatement Total R'000 R'000 R'000 Trade and other receivables Trade and other payables ( ) (6 411) ( ) Deferred taxation Retained loss Statement of Comprehensive Income Revenue from contracts with customers (37 111) Cost of sales ( ) ( ) Gross profit Taxation ( ) (30) ( ) Basic and diluted earnings per share (cents) Statement of Financial Position February 2018 Adjusted (previously stated) Restatement Total R'000 R'000 R'000 Trade and other receivables Trade and other payables ( ) (7 021) ( ) Deferred taxation Retained earnings (98 546) (97 481) Statement of Comprehensive Income Revenue from contracts with customers (80 909) Cost of sales ( ) ( ) Gross profit (35) Taxation ( ) 10 ( ) (25) Basic and diluted earnings per share (cents) DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018

37 Revenue from contracts with customers can be further disaggregated between the following retail categories: As at As at As at 31 August 31 August 28 February % % % Dispensary Personal care and beauty Healthcare and nutrition Baby care Other Dis-Chem enters into certain transactions with related parties. A finance lease was previously entered into with Columbia Falls Property 7 Proprietary Limited on which rental of R31 million was incurred during the six-month period (2017: R30 million). This finance lease obligation amounted to R617 million at 31 August 2018 (2017: R621 million). Rental paid to other related party property companies amounted to R35 million at 31 August 2018 (2017: R23 million). Amounts owing from MSDS No.3 Proprietary Limited, Eleador Proprietary Limited and Mathimba Proprietary Limited at 31 August 2018 amounted to R21 million, R3 million and R22 million respectively (2017: R43 million, R3 million and Rnil respectively). Amounts owing to Josneo Proprietary Limited and Minlou Proprietary Limited at 31 August 2018 amounted to R12 million and R2 million respectively (2017: R37 million and R2 million respectively). Amounts owing from Dis-Chem Bothamed, Dis-Chem Namibia, Dis-Chem Swakopmund, Dis-Chem Dunes and Geniob (all Proprietary Limited s) at 31 August 2018 amounted to R59 million (2017: R12 million).. There were no impairments of assets in the current and prior comparable period.. During the period, no shares were issued (2017: shares worth R15 million). On 1 June 2018, shares on the Forfeitable Share Plan and options on the Share Appreciation Rights Plan were awarded and accepted.. During June 2018, the group acquired 100% of the shares of Bemax Proprietary Limited, an import company of retail products. The main shareholder of this company is a related party to key management personnel of Dis-Chem Pharmacies Limited and received 80% of the purchase consideration transferred. The provisional fair values of the identifiable assets and liabilities of the company as at the date of acquisition were: R 000 Assets Property, plant and equipment 112 Trade and other receivables Inventories Other intangibles Liabilities Trade and other payables (5 586) Bank overdraft (376) Taxation owing (2 462) Deferred tax (4 374) Total identifiable net assets at fair value Non-controlling interest Goodwill arising on acquisition Purchase consideration transferred DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August 2018 DIS-CHEM PHARMACIES Reviewed interim condensed consolidated results for the six months ended 31 August