Interim Condensed Consolidated Financial Results Dis-Chem Pharmacies Interim condensed consolidated ﬁ nancial results 2019 1 NOTES NOTES 2 Review of the period Ivan Saltzman 3 Wholesale

Interim Condensed Consolidated Financial

Resultsfor the six months ended

31 August

CONTENTS

Results presentation 1 Commentary 25Condensed consolidated statement of comprehensive income 29Condensed consolidated statement of financial position 30Condensed consolidated statement of changes in equity 31Condensed consolidated statement of cash flows 32Earnings per share 33Segmental information 34Fair value hierarchy 37Additional information 38Notes to the provisional reviewed condensed consolidated results 39Definitions 44Supplementary information 46

Dis-Chem Pharmacies Interim condensed consolidated fi nancial results 2019 1

NOTES

NOTES

2

Reviewof the period

Ivan Saltzman

3

Wholesale revenue▲9.0% to R8.1bn

Successfulimplementation

of IFRS 16

Group revenue▲13.2% to R11.8bn

Retail revenue▲11.8% to R10.7bn

L-f-l retails sales growthof 5.4%; Selling price

inflation of 2.3%

Group Highlights

Introduced company-funded primary care

health insurance

Cost growth contained|due to technology and

efficiency enhancements

Over 5.1 millionbenefit members

DPS of12.8 cents

Opened nine new storesin this reporting period

Market share gainsin all core categories

Increased focus onROIC led to improved

free cash flowgeneration

Quenets and TLC franchises driving

external sales

Dis-Chem Pharmacies Interim condensed consolidated fi nancial results 20192

NOTES

NOTES

4

Financial Results

Rui Morais

5

IFRS 16

• IFRS 16 applies to the Group from FY2020 onwards and therefore first presented in the August 2019 results

• The Group adopted the full retrospective approach, therefore prior period amounts are restated

• Leases brought onto the Statement of Financial Position as a finance lease with a corresponding right-of-use asset (reflected in PPE)

• The operating lease cost in the Statement of Comprehensive Income has been replaced by depreciationof the right-of-use asset and finance cost in relation to the finance liability

• Certain key performance indicators impacted including EBITDA, HEPS and ROCE

• Group decided impact should not impact the payment of cash dividends

For the rest of the presentation ( * ) refers to restated numbers for IFRS 16

Dis-Chem Pharmacies Interim condensed consolidated financial results 2019 3

NOTES

NOTES

6

Group Financial SummaryStatement of Comprehensive Income

R'm 1H20 1H19* % change

1H20excl.

once-offs

1H19* excl.

once-offs % changeRevenue 11 848 10 465 13.2 11 848 10 465 13.2Total income 3 263 3 078 6.0 3 263 2 997 8.9Other expenses (2 674) (2 295) 16.5 (2 580) (2 296) 12.4Operating profit 589 783 (24.7) 683 702 (2.6)Net finance costs (202) (167) 20.7 (179) (167) 6.9Profit before tax 388 616 (37.0) 505 535 (5.5)Taxation (106) (165) (35.9) (138) (143) (3.9)Net profit after tax 282 451 (37.4) 367 391 (6.1)Non-controlling interest (16) (14) 11.8 (16) (14) 11.8Equity to holders of the parent 266 437 (39.0%) 352 377 (6.8)

• Increase in net finance cost due to: i) the increase in the term loan ii) financing of additional stock ahead of the strike and iii) IFRS 16• Growth in minorities as a result of good performance of our oncology business

7

Group Financial Summary | continued Statement of Financial Position

• Stock rationalisation and reduction influencing all working capital balances.

R’m 1H20 FY2019* % change 1H19*Property, plant and equipment 2 992 2 995 (0.1) 2 881 Intangible assets 463 447 3.6 388 Inventory 4 339 5 116 (15.2) 4 358 Trade and other receivables 1 367 1 354 0.9 1 212 Other assets 465 433 7.4 399 Net cash at bank (171) (481) (64.4) 30 Lease obligation (2 662) (2 753) (3.3) (2 761) ABSA loan (869) (496) 75.2 (571) Trade and other payables (3 517) (4 294) (18.1) (3 728) Other liabilities (305) (371) (17.8) (323) Equity 2 102 1 950 1 886

Dis-Chem Pharmacies Interim condensed consolidated financial results 20194

NOTES

NOTES

8

Revenue

• Revenue growth continues to be ahead of market growth as we grow space and benefit from a maturing store base

• Wholesale internal revenue growth lagged retail growth due inventory reduction and rationalisation

• External wholesales growth driven by the acquisition of Quenets and an increasing TLC franchise base

R’m 1H20 1H19* % changeRetail 10 737 9 600 11.8Wholesale 8 101 7 434 9.0Intergroup (6 990) (6 569) 6.4Total group 11 848 10 465 13.2% like-for-like Retail growth 5.4 3.5% Retail sales price inflation 2.3 1.2

9

Total Income

• Low growth in purchases from suppliers impacted growth rebates and fee for service income, negatively impacting total income margin

• Majority of the impact in the retail segment

• Despite successful improvement of additional trade term income and the maintenance of transactional gross margin,Group total income margin declined

R'm 1H20 1H19*%

change1H20 % margin

1H19 % margin

1H20excl.

once-offs

1H19*excl.

once-offs%

change1H20 % margin

1H19 % margin

Retail 2 924 2 791 4.8 27.2 29.1 2 924 2 791 4.8 27.2 29.1

Wholesale 609 648 (6.1) 7.5 8.7 609 567 7.3 7.5 7.6

Intergroup (270) (361) (270) (361)

Total group 3 263 3 078 6.0 27.5 29.4 3 263 2 997 8.9 27.5 28.6


NOTES

NOTES

10

Retail Operating Expenditure

• Occupancy costs reflect ancillary rental costs e.g. Electricity

• Employment costs impacted by the change in the bonus policy

• Other costs influenced by a better use of marketing assets and marketing distribution channels

• Cost growth, excluding once-offs below sales growth

R’m 1H20 1H19*%

change 1H20* 1H19*%

changeDepreciation and amortisation (228) (206) 10.3 (228) (206) 10.3

Occupancy costs (127) (105) 20.5 (127) (105) 20.5

Employment costs (1 364) (1 147) 18.9 (1 296) (1 147) 13.0

Other operating costs (535) (505) 5.9 (535) (505) 5.9

Total retail costs (2 254) (1 965) 14.7 (2 186) (1 965) 11.2

As a % of retail revenue 21.0 20.5 20.4 20.5

11

Wholesale Operating Expenditure

• Employment costs impacted by the change in the bonus policy as well as strike related costs (employment and security)

• Decline in total wholesale costs excluding once-offs due to investment in technology allowing greater visibility of productivity, customer performance and individual supplier profitability

R’m 1H20 1H19*%

change 1H20* 1H19*%

changeDepreciation and amortisation (50) (38) 31.8 (50) (38) 31.8

Occupancy costs (18) (10) 90.0 (18) (10) 90.0

Employment costs (233) (205) 13.9 (226) (205) 10.5

Other operating costs (384) (432) (11.1) (365) (432) (15.5)

Total wholesale costs (686) (685) 0.2 (660) (685) (3.6)

As a % of wholesale revenue 8.5 9.2 8.2 9.2


NOTES

NOTES

12

Operating Profit

R'm 1H20 1H19*%

change1H20 % margin

1H19 % margin

1H20excl.

once-offs

1H19*excl.

once-offs%

change1H20 % margin

1H19 % margin

Retail 670 826 (18.9) 6.2 8.6 738 826 (10.6) 6.9 8.6

Wholesale (77) (37) (111.1) (1.0) (0.5) (51) (118) 56.4 (0.6) (1.6)

Intergroup (4) (7) (45.8) (4) (7) (45.8)

Total group 589 783 (24.7) 5.0 7.5 683 702 (2.6) 5.8 6.7

13

Cents per share 1H20 1H19*%

change

1H20excl.

once-offs

1H19* excl.

once-offs%

changeEPS 31.0 50.7 (38.9) 40.9 43.9 (6.8)HEPS 31.0 50.7 (38.9) 40.9 43.9 (6.8)WANOS 859.9 860.1 (0.02) 859.9 860.1 (0.03)Diluted WANOS 859.9 860.2 (0.03) 859.9 860.2 (0.03)

EPS and HEPS


NOTES

NOTES

14

1H20 FY2019* 1H19*Debtors days 21 21 21

Inventory days 95 102 98

Creditors days 79 85 82

Total working capital 37 38 36

Working Capital

• Debtors days remain consistent year on year

• Inventory days inflated by high February balance. Operational rolling days stock cover at 82

• Creditor days down as a function of lower purchases

• Actual net working capital position is 24 days

15

Cash Management

R’m

877

310173

(23)

(185)

(145)

(125)

(214)(52)

Cash inflowfrom tradingoperations

Workingcapital

movements

Net financecosts

Tax Dividends Capex andproceeds

on disposal

Acquisitionsand changein ownership

Loans andfinance lease

repayments andcontingent

consideration

Decreasein cash

and cashequivalents


NOTES

NOTES

16

R’m 1H20 1H19 % change FY2019Expansion capex 140 119 18.0 247 Maintenance capex 74 37 98.7 148 Total capex 214 156 37.4 395

Capital Management

% 1H20 1H19 FY2019Expansion capex to turnover 1.2 1.1 1.2Maintenance capex to turnover 0.6 0.4 0.7Total capex to turnover 1.8 1.5 1.9

• Increase in maintenance capex relates to store renovations and two store relocations

FY2020 outlook:

• R6 492 per additional square meter of floor space added (approximately 23 000m² of space to be added in FY2020)

• R90m-R110m in IT spend for the full year across both retail and wholesale segments

• R30m-R40m in warehouse movables for the full year

17

Retail Trading Performance

Rui Morais

Craig Fairweather


NOTES

NOTES

18

Core Category Performance

• Dispensary margin under pressure as a result of aggressive pricing in the OTC space by competitors

• Analytically continue to understand price elasticity across SKUs within categories

% change intransactional gross margin

% change in revenue

%contribution

Dispensary 10.7 11.0 36.7

Personal care and beauty 12.5 11.4 27.9

Healthcare and nutrition 10.5 9.8 20.1

Baby care 15.4 12.3 5.9

Other 13.0 13.4 9.3

19

• The Group continues to gain market share in all of its core categories despite tough trading environment

• We have 54.6% of the vitamins and supplements market share› Our internally generated, exclusive brand, Biogen, is the largest vits & supps brand in South Africa

• Positive growth of the brands acquired in the previous year after reformulation, rebranding and repositioning › Evox, SSN, Supashape, Muscle Junkie

Market share (%) 1H20 FY2019 1H19Dispensary^ 23.6 23.2 22.7

Personal care and beauty^^ 17.2 16.9 16.7

Healthcare and nutrition^^ 46.9 46.6 45.6

Baby care^^ 10.5 10.3 9.8

Core Category Market Shares

^ Schedule 0-6 medicines including oncology; ^^ Nielsen


NOTES

NOTES

20

Market Share Performance of Sub-Categories

AUGUST SHARE CHANGE12mm

PERSONAL CARE 0.59%Total face care 1.42%Total skin care 0.40%Total hair care 0.35%Total oral care 0.00%Total bath care 0.57%Total deodorants 0.15%Total shaving 0.88%Total female care 0.31%Total eye care 0.96%Total intimate care 1.93%HEALTH CARE & NUTRITION 1.00%Total nutrition 0.90%Total health care 1.37%BABY CARE 0.59%Total baby toiletries 0.27%Total baby clothing 2.94%Total baby feeding 0.82%Total baby paper 0.28%Total baby food 0.81%

21

Focus on Return On Invested Capital Strategy

Margin

Maintained front shop margin• Strategic approach to pricing - Price elasticity , price surveys• Optimised promotional pricing• Range and private label

Terms Income

Extraction of higher trade terms from vendors • Increase in terms as a % of purchases• Increase in fees for service rebates • Focus on growth rebates from suppliers

Stock Days

Rationalisation of stock and improved buying efficiencies • Centralization of procurement function (Buying, planning, replenishment)• Stock release of R776m• Reduction in over stocks and inefficient articles • Return on capital approach to purchasing (stock turn ; GMROI)

Creditor DaysExtension of creditors days• Centralized approach to terms negotiations• Supply Chain Finance

R

O

I

C


NOTES

NOTES

22

Transactional Margin

• Increase in purchases of 1.5% compared to revenue growth of 13.2%› If purchases growth tracked revenue growth, purchases would have been approximately R1bn higher

› Resultant sacrifice of growth rebate and fee for service income, (commercially agreed as a % of purchases)

› Consequential cash unlock

% change in revenue

% change intransactional gross margin

Difference (%)

Dispensary 11.0 10.7 (0.3)

Personal care and beauty 11.4 12.5 1.1

Healthcare and nutrition 9.8 10.5 0.7

Baby care 12.3 15.4 3.1

Other 13.4 13.0 (0.4)

23

Improvement in Net Working Capital

8286 87

92

100

82

38 3944 43

48

34

4447

4349 51

48

61

7073

8285

79

20

40

60

80

100

FY2017 1H18 FY2018 1H19 FY2019 1H20

Group DC Stores Creditor days

Inventory days vs Creditor days

21 d

ays

3 da

ys


NOTES

NOTES

24

• We have 9.3m customer profiles of which 5.1m are benefit members on CRM,up from 8.8m and 4.7m respectively› The increase is a function of the introduction of rewards campaigns

› Over 30% of new loyalty members are under the age of 30

• Benefit members now contribute 73% to front shop revenue up from 72%• Partner contribution is up to 58% fro 55%• Loyalty redemption rate is at 90%• 60 plus members increased by almost 380 000 members to 1.77 million• Baby members increased by almost 33 000 to around 168 000• Our App downloads at 110 000 driven by chronic dispensing initiative

Loyalty

Votedbest pharmacy

and winner of tenreaders choice

awards

25

Primary Healthcare- Leveraging Our Clinic Infrastructure

• Health landscape set to change › NHI will change the framework of private healthcare delivery› Primary care market size estimated at eight million lives

• Facilitation of care› Clinics will be primary healthcare point of entry› A clinic managed care path allows for lower cost of service

• Opportunity› We have a network of 310 consistently well run clinics › Clinics staffed by 320 registered nurses› Increasing scope of all clinic sisters to facilitate point of entry role› Investment in Telemedicine infrastructure and technology ongoing› Medical insurance products incorporating Telemedicine offerings from January 2020

• Telemedicine added advantages› Synergistic with the investment we have made in the analytical adherence business› Gives cash patients access to GPs at much lower rates› Electronic scripting directly into dispensaries


NOTES

NOTES

26

Chronic Adherence Management Investment Realising Returns

Delivery of disease content influences behaviour

• Health campaign 1.03m

• Campaign return rates 9.8% vs 3.8% if not engaged

3%4% 4% 3%

6%7%

8% 8%9%

13%

0%

4%

8%

12%

16%

01 02 03 04 05 06 07 08 09 10

Dis-Chem’s lead over market (Chronic)

2018 2019

74

1 119

3 138

5 038

7 886

0

3 000

6 000

9 000

Jun 19 Jul 19 Aug 19 Sep 19 Oct 19

Pack my meds orders

27

Wholesale Trading Performance

Christopher Williams


NOTES

NOTES

28

External Wholesale Revenue

864

1 111180

74 33

(40)

0

300

600

900

1 200

1H19 Internalised customers Quenets TLC Independents 1H20

28.5%

• Grew Quenets, recently acquired wholesaler in the Western Cape, by 23% compared to the previous period

• Increase in TLC franchise stores to 96 from 76› Selective criteria for TLC franchise participation› Conversions from independent pharmacies, doubles the supply chain support

• Independent customers grew by 7.1%, ahead of the market as independent pharmacies continue to consolidate

29

Technology and Efficiency Enhancements

Trackmatic

• Inbound management of bookings and measuring efficiency at point of delivery

• Outbound solution to monitor delivery times to store, driver behavior and fleet management

FIORI

• Live analytics tool to provide vital operational information to drive efficiencies

• KPI dashboards (Inbound, Outbound, dispatch and inventory)

• Supplier Profitability Reports/Warehouse opportunity reports

• Telesales/Customer self-service Applications

SAP EWM

• Productivity measures

Returnable packaging- totes, rolltainers


NOTES

NOTES

30

Supplier Profitability

• Technology allows us to understand the throughput and storage cost of a supplier

• Volumetric size and price points of items influence profitability

Supplier

Profitability

1

Increased stock turn• Increased stock turn reduces bin requirements which reduces cost• Collaborative engagement with procurement function• Removal of non-profitable items

2

Increased logistic fees• Identification of sub-economic logistic fees• Collective engagement with suppliers through procurement channel• Transparent costing facilitates negotiations with suppliers

3Conversion to cross-docking or flow-through model from warehousing• No storage space requirements • Reduced operational and net working capital costs

4Remove non-profitable supplier from distribution environment• Opens up space to service a larger store network at appropriate wholesale returns • Reduces need for capital deployment on distribution space in the medium-term

31

Decentralisation and Strike Impact on Inventory

Prior KZN DC KZN DC opening CT DC opening Prior to strike End of strike End of 1H20

14.1%

26.3%

17.2%0.2%

(19.3%)

Decentralisationcomplete


32

Labour Relations Update

• Union representation is down to 8.04% representation from 13% at the start of the strike

• Relaunched company values

• Appointed a Human Resource Business Partner (“HRBP”) in each DC to increase staff accessibility to HR

• Dedicated Industrial Relations (“IR”) representative in each DC

• Launched two wellness initiatives – primary care health insurance and a wellness lifestyle support initiative› All employees now have access to corporate funded healthcare

NOTES

NOTES

33

Infrastructure Requirements for Future Growth

• Investing viability of current warehouse infrastructure

• Regional DC’s geared to accommodate growth well into the medium-term of both internal andexternal customers

• Midrand facility being analysed for short- medium- and long-term site development. Options identified include:› Upgrade existing warehouse

- Increase automated mechanisms such as conveyor and sorter capacity

- Increase dispatch and cross-dock area

- Pharma automation for increased output and reduced labour cost

• Quenets consolidation into the Western Cape DC being considered


NOTES

NOTES

34

Outlook

Ivan Saltzman

35

Outlook

• Introducing Telemedicine into our clinics

• Concluded a franchise agreement to rebrand all airport pharmacies to Dis-Chem pharmacies

• Consumer will remain constrained due to the economic environment

• We expect inflation to be between 2% and 3%

• We plan to add 20 new stores for the full financial year

• Concluded a deal to take ownership of the pharmacies in the Mediclinic hospitals

• The majority of the rationalisation of inventory levels have been completed

• ROIC and cost containment will remain key focus areas going forward


NOTES

36

Appendix

37

Statement of Comprehensive Income 1H20

Before once-off items Once-off items After once-off items

1H20 RetailWhole-

sale Inter Group RetailWhole-


sale Inter GroupRevenue 10 737 8 101 (6 990) 11 848 10 737 8 101 (6 990) 11 848Gross profit 2 330 587 (240) 2 677 2 330 587 (240) 2 677Other income 594 22 (30) 586 594 22 (30) 586Total income 2 924 609 (270) 3 263 2 924 609 (270) 3 263Other expenses (2 254) (686) 267 (2 674) 68 26 - 94 (2 186) (660) 267 (2 580)

Depreciation (228) (50) (278) (228) (50) - (278)Occupancy cost (127) (18) 6 (140) (127) (18) 6 (140)Employment cost (1 364) (233) (1 597) 68 7 75 (1 296) (226) - (1 522)Other operating costs (535) (384) 261 (659) 19 19 (535) (365) 261 (640)

Operating profit 670 (77) (4) 589 738 (51) (4) 683Finance costs (153) (49) - (202) 23 23 (153) (26) - (179)Share of profit 0 - - 0 0.3 - - 0.3Profit before tax 518 (126) (4) 388 586 (77) (4) 505Tax (106) (138)Profit after tax 282 367Minority (16) (16)Profit to share holders 266 352

NOTES


NOTES

38

Statement of Comprehensive Income 1H19

Before once-off items Once-off items After once-off items

1H19 RetailWhole-



sale Inter GroupRevenue 9 601 7 434 (6 569) 10 465 9 601 7 434 (6 569) 10 465Gross profit 2 302 621 (315) 2 607 (81) (81) 2 302 540 (315) 2 526Other income 489 28 (45) 472 489 28 (45) 472Total income 2 791 648 (361) 3 078 2 791 567 (361) 2 997Other expenses (1 965) (685) 354 (2 296) (1 965) (685) 354 (2 296)

Depreciation (206) (38) - (278) (206) (38) - (278)Occupancy cost (105) (10) - (140) (105) (10) - (140)Employment cost (1 147) (205) - (1 597) (1 147) (205) - (1 597)Other operating costs (505) (432) - (659) (505) (432) - (659)

Operating profit 826 (37) (7) 783 826 (118) (7) 702Finance costs (122) (45) - (167) (122) (45) - (167)Share of profit - - - - - - - -Profit before tax 704 (82) (7) 616 704 (163) (7) 535Tax (165) (143)Profit after tax 451 391Minority (14) (14)Profit to share holders 436 377

39

Retail Space

Store formats Store sizeBig box format 1 000m² +Smaller format 650m² to 1000m²Dis-Chem TLC 350m² to 650m²Number of storesAs at 28 February 2019 149Big box format 123Smaller and Dis-Chem TLC format 24Other 2New stores added in 1H20 9Big box format 5Smaller and Dis-Chem TLC format 4Other 0New stores in 2H20 11Big box format 5Smaller and Dis-Chem TLC format 4Other 2Total FY2020 168

NOTES


NOTES

40

IFRS 16

41

Highlights

• IFRS 16 applies to the Group from FY2020 onwards and therefore first presented in the August 2019 results

• The Group adopted the full retrospective approach, therefore prior period amounts are restated

• Leases brought onto the Statement of Financial Position as a finance lease with a corresponding right-of-use asset (reflected in PPE)

• The operating lease cost in the Statement of Comprehensive Income have been replaced by depreciationof the right-of-use asset and finance costs in relation to the finance liability

• Certain key performance indicators impacted including EBITDA, HEPS and ROCE

• Group decided impact should not impact the payment of cash dividends

NOTES


NOTES

42

Impact

0

600 000

1 200 000

1 800 000

1 2 3 4 5 6 7 8 9 100

400 000

800 000

1 200 000

1 2 3 4 5 6 7 8 9 10Finance costs Depreciation

0

500 000

1 000 000

1 500 000

2 000 000

0 1 2 3 4 5 6 7 8 9 10(12 000 000)

(6 000 000)

0

6 000 000

12 000 000

0 1 2 3 4 5 6 7 8 9 10ROU asset Lease liability

IAS 17 IFRS 16

IAS 17 IFRS 16

Rental is recognised on a straight-line basis over lease period Depreciation for ROU asset recognised over period of lease. Finance costs for finance liability recognised on diminishing basis

Operating lease liability raised to smooth rental over period of lease ROU asset reduces with depreciation over period of leaseLease liability adjusted with rental payments and finance costs over period of lease

43

0

500 000

1 000 000

1 500 000

2 000 000

1 2 3 4 5 6 7 8 9 10

IFRS 16 - Finance costs and depreciation IAS 17 - Rental

Lease Life Cycle

EPS impact

EPS dilutive

NOTES


NOTES

44

Profit Before Tax Impact

1 055 612 1 031 12530 156

432 209 304 319

182 533

PBT pre-IFRS 16 Straight-lining mvt Rental Depreciation Interest paid PBT post-IFRS 16

February 2019R’000

45

Impact on Statement of Comprehensive Income and Financial Position

12-months Feb 2019Pre-IFRS 16

R’000Change

R’000

12-months Feb 2019Post-IFRS 16

R’000Other expenses - occupancy costs (701 535) 462 365 (239 170) Depreciation (186 598) (304 319) (490 917) Finance costs (182 437) (182 533) (364 970)Taxation (291 040) 6 855 (284 185)

Net profit after tax 764 572 (17 632) 746 940 EBITDA 1 404 464 462 365 1 866 829

Property, plant and equipment 1 370 310 1 624 446 2 994 756 Deferred tax 169 745 60 766 230 511 Lease liability (643 317) (2 109 204) (2 752 521) Operating lease liability (267 737) 267 737 -Net asset value 629 001 (156 255) 472 746

NOTES


46

Impact on Statement of Comprehensive Income and Financial Position

6-months Aug 2019Pre-IFRS 16

R’000Change

R’000

6-months Aug 2019Post-IFRS 16

R’000Other expenses - occupancy costs (377 604) 237 999 (139 605) Depreciation (118 056) (159 975) (278 031) Finance costs (119 280) (90 909) (210 189) Taxation (109 370) 3 608 (105 762)

Net profit after tax 291 609 (9 277) 282 332 EBITDA 629 510 237 999 867 509

Property, plant and equipment 1 469 667 1 522 617 2 992 284 Deferred tax 138 764 64 347 203 111 Lease liability (636 445) (2 025 063) (2 661 508) Operating lease liability (272 637) 272 637 -Net asset value 699 349 (165 462) 533 887

NOTES


NOTES


Dis-Chem Pharmacies interim condensed consolidated financial results for the six months ended 31 August 2019 1

Commentary

OverviewIn the current period, with the challenges of the strike coming to an end and the decentralisation of the wholesale space now concluded, the Group continues to focus on Return on Invested Capital (‘’ROIC’’) to ensure optimal returns to shareholders over the long term. This has resulted in the necessary inventory reductions and rationalisation across the wholesale space without compromising sales to our customers. The rationalisation has resulted in strong cash generation over the corresponding period in the prior year (“corresponding period”) and together with a continued emphasis on cost management, positions the Group well to benefit from future growth opportunities.

Despite the difficult consumer environment revenue has grown by 13.2% over the corresponding period. External revenue in the wholesale environment grew by 28.5%, mainly due to the successful acquisitions and integration of Quenets - the acquired Western Cape wholesaler. The Group continues to report revenue growth ahead of market growth, as it grows space and benefits from a maturing store base. As a result the Group has improved its market shares across all core categories.

The Group’s earnings in the current period was not only impacted by once off items (as described below) but was also impacted by the low growth in purchases from suppliers of only 1.5% against the corresponding period which, despite the successful improvement in additional trade terms, has resulted in the total income margin declining.

Earnings attributable to shareholders and headline earnings both declined by 39.0% over the corresponding period. Earnings per share (EPS) and headline earnings per share (HEPS) are both 31.0 cents per share, a decrease of 38.9%.

Chief executive, Ivan Saltzman: “I am very pleased that in this extremely tough trading environment we managed strong revenue growth in both our retail and wholesale segments resulting in a 13.2% increase in Group revenue to R11.8 billion.

This growth together with the continued roll out of more than 20 stores led to market share gains in all of our core categories.

As we have reiterated, commercial decisions made are for the long term benefit of Group growth considering the position of our brand within a resilient, consolidating market.

This set of half year results is the last set impacted by once off strike related items which, once eliminated, highlight our cost containment efforts together with a significant stock rationalisation, effected post the conclusion of the strike, driven by our return on investment focus.

The labour issues that led to strikes across two consecutive financial years have been settled and we are actively rebuilding the relationship with distribution staff so that they understand the culture of our brand and our commitment to values that I, together with my partners, have built over many years.

NHI’s aim is for affordable access to healthcare and we expect that this will frame a change in the consumption of care in the private space going forward. It is no secret that we have the largest and most consistent clinic offering and we are expanding the service scope of our Clinic sisters as well as investing in Telemedicine technology across our 310 clinics to increase the reach and reduce the costs of specialist services for patients. I am excited about the fruition of my vision for Dis-Chem, to play a significant role in bringing affordable healthcare to the many South Africans that are in need.”

IFRS 16 LeasesThe Group adopted IFRS 16, Leases, in the current period and elected to present financial information on a restated basis in order to allow for comparability between periods. The new standard aligns the accounting of leased assets with owned assets and has resulted in the majority of the Group’s store and warehouse leases being brought onto the Statement of Financial Position as a finance lease with a corresponding right-of-use asset (reflected in property, plant and equipment). The rental occupancy costs in the Statement of Comprehensive Income have been replaced by depreciation of the right-of-use asset and finance costs in relation to the finance liability.

Due to the relatively young age of the Group’s lease portfolio and new stores continually being opened, the new standard has and will continue to be earnings dilutive in the short and medium term (excluding any renegotiation of lease terms that may take place).

The adoption of IFRS 16 will impact certain key performance indicators (”KPI’s”) such as EBITDA, EBIT, EPS, ROCE and gearing ratios. Importantly, however, it does not change the Group’s underlying, fundamental economic business model, investment case or strategy.


Dis-Chem Pharmacies interim condensed consolidated financial results for the six months ended 31 August 20192

Commentary continued

The Group’s EPS at 28 February 2019 and 31 August 2018, which was previously 85.4 cents per share and 51.7 cents per share respectively, has been restated to 83.6 cents per share and 50.7 cents per share respectively.

The presented financial performance of the Group is based on restated numbers after the adoption of IFRS 16.

Review of financial performanceRevenueDuring the six-month period from 1 March 2019 to 31 August 2019, Dis-Chem recorded Group revenue growth of 13.2% to R11.8 billion.

Retail revenue grew by 11.8% to R10.7 billion with comparable store revenue at 5.4%. The Group restricted selling price inflation to 2.3% thereby achieving positive volume growth despite the difficult economic climate. The Group opened 20 new stores and acquired 2 new pharmacies from the corresponding period resulting in 158 stores at August 2019. These new stores contributed R545 million to revenue, including R78 million from the acquisition of Springbok Pharmacy on 1 April 2019.

Dis-Chem loyalty members continue to grow, especially through the successful reward driven campaigns, bringing total members to 5.1 million, up from 4.7 million in the corresponding period.

Wholesale revenue grew by 9.0% to R8.1 billion. Revenue to our own retail stores, still the biggest contributor to wholesale revenue, grew by 6.4% while external revenue grew by 28.5% from the prior comparative period.

The wholesale internal revenue growth lagged that of the retail growth as a result of the necessary inventory rationalisation post the strike.

The external wholesale revenue growth of 28.5% is due to the successful acquisition of Quenets (acquired in November 2018) which resulted in additional revenue of R180 million as well as the number of TLC franchises growing from 76 at August 2018 to 96 at August 2019.

Total incomeTotal income, comprising gross profit and other income, grew by 6.0% to R3.3 billion. In the prior period – H1 FY19 – the Group benefitted from the release of unearned rebates of approximately R81 million as a result of a redistribution of inventory across the retail and wholesale segments which did not occur again in the current period. Excluding this once off amount, total income grew by 8.9%.

Despite the continued and successful improvement of additional trade terms, the Group’s total income margin reduced from 29.4% (28.6% excluding the prior year unearned rebate release) to 27.5%.

With the optimisation of inventory levels together with the increased focus on ROIC in the current period, the lower increase in purchases from suppliers (1.5%) compared with the increase in revenue (13.2%) resulted in a negative impact on the total margin of the Group. Lower purchases resulted in a sacrifice of purchase driven growth rebates together with lower supplier purchase linked fee for service income.

Retail total income grew by 4.8%, carrying the majority of the terms sacrifice as a result of the lower purchases while wholesale total income, excluding the once off unearned rebate release, grew by 7.3%.

Other expensesOther expenses grew by 16.5% over the corresponding period to R2.7 billion. This increase is partly due to the following once-off transactions that impacted the current and corresponding period:• The change in the Group’s bonus policy relating to employee’s 13th cheques - previously the Group expensed

the full bonus amount when paid in December of each year. The bonus is now evenly accrued throughout the financial period due to its guaranteed nature. The effect of the change has resulted in the recognition of R75 million in 1H20; and

• Additional strike-related costs (additional security and payroll) incurred between the FY19 year end and the conclusion of the strike on 10th April was approximately R19 million.

Excluding these once-off costs, expenses would have grown by 12.4% over the corresponding period, lower than the growth in revenue of 13.2%, and corroborates our commitment to cost management.

Retail expenses, excluding the once-off transactions, grew by 11.2% as the Group invested in 22 new stores since the corresponding period. Wholesale expenses, excluding the once-off transactions, declined by 3.6%.

The decline in Wholesale expenses was as a result of investment in technology that allowed for greater visibility of productivity, customer performance and individual supplier profitability within the wholesale space. Supplier



profitability within the wholesale space was driven by understanding factors influencing the cost of carrying supplier inventory. Factors included inventory turn, space allocation and bin consumption across each warehouse within our wholesaling environment. This supplier specific profitability analysis enabled better informed commercial discussions to ensure improved space optimisation and efficiencies.

Net finance costsNet finance costs increased by 20.7% to R202 million. This increase was primarily due to R23 million additional interest cost as a result of the additional inventory held over the strike period to avoid compromising stock levels in our stores and R11 million additional interest from the new term loan that was taken out on 1 March 2019. The Group took advantage of favourable financing by replacing the existing ABSA facility with a new facility in order to facilitate the recent acquisitions in both the retail and wholesale businesses. With the improvement in cash levels already being seen from the rationalisation of inventory, finance costs are expected to reduce favourably in the short term.

Net working capitalDuring the current period, the Group reduced inventory holdings by R776 million from February 2019. This was achieved through the afore-mentioned ROIC processes and simplified by normalised trade in our wholesale business post the strike allowing more efficient replenishment cycles and focus on excess stock levels. This net working capital outflow improvement, from R111 million in August 2018 and R404 million in February 2019 to R22 million in August 2019 has resulted in a greatly improved cash generation for the Group.

The Group’s net working capital at 31 August 2019 is 37.3 days compared to 37.7 days at 28 February 2019.

Capital expenditureCapital expenditure on tangible and intangible assets of R214 million comprised R140 million of expansionary expenditure as the Group invested in additional stores as well as information technology enhancements across both the retail and wholesale segments. The balance of R74 million relates to replacement expenditure incurred to maintain the existing retail and wholesale network. The increase in replacement expenditure over the prior comparable period is a result of five additional store renovations together with two more costly store relocations to improve trading positions in those respective retail centres.

Capital expenditure on acquisitions amounted to R52 million with the acquisition of two independent pharmacies and a pharmaceutical adherence business in the current period.

DirectorateNo changes have been made to the board since year-end or the prior corresponding period.

OutlookThe Group expects that the consumer will continue to remain constrained as a result of the current macroeconomic environment. As was the case previously, the resilient markets in which the Group operates together with the brand positioning will offer a certain amount of protection against the weak environment and the Group is well positioned to benefit from additional consumer disposable income.

The Group remains focused on adding retail stores. Four stores have been added since the reporting period and an additional seven store openings are planned through to February 2020.

The financial information in this outlook paragraph has not been audited, reviewed or reported on by the Group’s external auditors.

Dividend declarationThe Group has decided that the impact of IFRS 16 should not impact the payment of cash dividends to shareholders and therefore the Group’s dividend in the current period is based on 40% of headline earnings, excluding the impact of IFRS 16.

Notice is hereby given that a gross interim cash dividend of 12.79404 cents per share, in respect of the interim ended 31 August 2019 has been declared based on 40% of headline earnings (excluding the impact of IFRS 16). The number of shares in issue at the date of this declaration is 860 084 483. 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 10.23523 cents per share to those shareholders who are not exempt from paying dividend tax. Dis-Chem’s tax reference number is 9931586144.



Commentary continued

The salient dates relating to the payment of the dividend are as follows:• Last day to trade cum dividend on the JSE: Tuesday, 26 November 2019• First trading day ex dividend on the JSE: Wednesday, 27 November 2019• Record date: Friday, 29 November 2019• Payment date: Monday, 2 December 2019

Share certificates may not be dematerialised or rematerialised between Wednesday, 27 November 2019 and Friday, 29 November 2019, 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 011 370 5000; or on 0861 100 9818 (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.

ApprovalThe interim condensed consolidated results of the Group were authorised for issue in accordance with a resolution of the directors on 6 November 2019.

On behalf of the Board

Ivan Saltzman Rui MoraisChief Executive Officer Chief Financial Officer

Dis-Chem Pharmacies Interim condensed consolidated financial results 2019 29Dis-Chem Pharmacies interim condensed consolidated financial results for the six months ended 31 August 2019 5

Restated * change Restated * Six months to Six months to August 2018 Year to 31 August 31 August to August 28 February 2019 2018 2019 2019 R’000 R’000 % R’000

Revenue from contracts with customers 11 847 642 10 464 943 13.2% 21 420 023Cost of sales (9 170 668) (7 858 142) 16.7% (16 197 190)

Gross profit 2 676 974 2 606 801 2.7% 5 222 833Other income 586 010 471 667 24.2% 1 010 258

Total income 3 262 984 3 078 468 6.0% 6 233 091Other expenses (2 673 506) (2 295 597) 16.5% (4 857 179)

Operating profit 589 478 782 871 (24.7%) 1 375 912Net financing costs (201 665) (167 146) 20.7% (344 787)

– Finance income 8 524 9 223 (7.6%) 20 183– Finance costs (210 189) (176 369) 19.2% (364 970)

Profit from associates and joint ventures 281 – –

Profit before taxation 388 094 615 725 (37.0%) 1 031 125Taxation (105 762) (165 046) (35.9%) (284 185)

Total profit for the year, net of tax 282 332 450 679 (37.4%) 746 940

Other comprehensive income Items that may be subsequently reclassified to profit or loss – Exchange differences on translating foreign subsidiaries (92) – 44

Other comprehensive income for the year, net of taxation (92) – 44

Total comprehensive income for the year 282 240 450 679 (37.4%) 746 984

Profit attributable to: – Equity holders of the parent 266 453 436 472 718 723– Non-controlling interests 15 879 14 207 28 217Total comprehensive income attributable to: – Equity holders of the parent 266 361 436 472 718 767– Non-controlling interests 15 879 14 207 28 217Earnings per share (cents) – Basic 31.0 50.7 83.6– Diluted 31.0 50.7 83.6

* Refer to note 2.

Condensed consolidated statement of comprehensive income



Condensed consolidated statement of financial position Restated * Restated * As at As at As at 31 August 31 August 28 February 2019 2018 2019 R’000 R’000 R’000

ASSETS Non-current assets 3 696 261 3 480 638 3 672 379

Property, plant and equipment (including right-of-use assets) 2 992 284 2 881 144 2 994 756Intangible assets 463 261 387 957 447 112Investment in associates and joint ventures 15 589 – –Deferred taxation 225 127 211 537 230 511

Current assets 6 587 606 6 661 332 6 849 048

Inventories 4 339 208 4 358 618 5 115 579Trade and other receivables 1 366 541 1 211 878 1 354 016Loans receivable 224 544 185 375 198 317Taxation receivable – 1 667 3 704Cash and cash equivalents 657 313 903 794 177 432

Total assets 10 283 867 10 141 970 10 521 427

EQUITY AND LIABILITIES Equity and reserves 2 023 532 1 825 142 1 885 604

Share capital 6 155 554 6 155 554 6 155 554Retained earnings 495 650 289 207 344 888Other reserves (4 627 672) (4 619 619) (4 614 838)

Non-controlling interest 78 088 61 282 64 125

Total equity 2 101 620 1 886 424 1 949 729

Non-current liabilities 3 141 341 2 940 751 2 852 220

Lease liability 2 355 016 2 479 576 2 443 204Loans payable 743 750 424 604 346 000Contingent consideration 20 559 36 571 40 797Deferred taxation 22 016 – 22 219

Current liabilities 5 040 906 5 314 795 5 719 478

Trade and other payables 3 517 033 3 727 728 4 294 456Lease liability 306 492 281 341 309 317Loans payable 154 923 172 093 170 989Employee-related obligations 165 684 127 365 163 933Deferred revenue (contract liability) 40 239 61 771 43 798Contingent consideration 22 704 20 956 23 548Taxation payable 5 178 49 863 54 967Bank overdraft 828 653 873 678 658 470

Total equity and liabilities 10 283 867 10 141 970 10 521 427

* Refer to note 2.



Condensed consolidated statement of changes in equity Retained Non- Share earnings/ Other controlling capital (loss) reserves interest Total R’000 R’000 R’000 R’000 R’000

As previously reported 6 155 554 97 481 (4 622 043) 55 147 1 686 139Adjustment for IFRS 16 – (134 576) – (4 052) (138 628)

Restated balance at 28 February 2018 * 6 155 554 (37 095) (4 622 043) 51 095 1 547 511Profit/total comprehensive income for the year – 436 472 – 14 207 450 679Change in ownership interest in subsidiary – (630) – 1 965 1 335Share-based payment expense – – 2 424 – 2 424Dividends paid – (109 540) – (5 985) (115 525)

Restated balance at 31 August 2018 * 6 155 554 289 207 (4 619 619) 61 282 1 886 424Profit/total comprehensive income for the year – 282 251 44 14 010 296 305

Profit for the year, net of taxation – 282 251 – 14 010 296 261Other comprehensive income for the year,net of taxation – – 44 – 44Change in ownership interest in subsidiary and acquisitions – (48 560) – (3 003) (51 563)Share-based payment expense – – 4 737 – 4 737Dividends paid – (178 010) – (8 164) (186 174)

Restated balance at 28 February 2019 * 6 155 554 344 888 (4 614 838) 64 125 1 949 729Profit/ total comprehensive income for the year – 266 453 (92) 15 879 282 240

Profit for the year, net of taxation – 266 453 – 15 879 282 332Other comprehensive income for the year,net of taxation – – (92) – (92)Change in ownership interest in subsidiary and acquisitions – 179 – 7 267 7 446Share-based payment expense – – 410 – 410Treasury shares acquired – – (13 152) – (13 152)Dividends paid – (115 870) – (9 183) (125 053)

Balance at 31 August 2019 6 155 554 495 650 (4 627 672) 78 088 2 101 620

* Refer to note 2.



Condensed consolidated statement of cash flows Restated * Restated * Six months to Six months to Year to 31 August 31 August 28 February 2019 2018 2019 R’000 R’000 R’000

Cash flow from operating activities 398 546 503 948 585 716

Cash inflow from trading operations 876 854 1 001 074 1 860 725Movement in working capital (22 808) (111 477) (403 526)Finance income received 8 524 13 745 20 183Finance costs paid (193 863) (161 198) (349 979)Taxation paid (145 108) (122 671) (239 988)Dividends paid (125 053) (115 525) (301 699)

Cash flow from investing activities (261 435) (222 187) (549 721)Additions to property, plant and equipment and intangible assets – To maintain operations (73 730) (37 466) (147 850)– To expand operations (139 958) (118 610) (246 659)Proceeds on disposal of property, plant and equipmentand intangible assets 4 279 3 615 9 313Acquisition in business combination and subsidiaries,net of cash acquired (36 026) (69 726) (164 525)Investment in joint ventures (16 000) – –

Cash flow from financing activities 172 907 (224 130) (489 663)

Purchase of treasury shares (13 152) – –Contingent consideration paid (29 672) (23 133) (23 133)Change in ownership interest in subsidiaries (899) – (50 439)Long-term loans repaid (531 250) (75 000) (150 000)Receipt of long-term loans 900 000 – –Lease liability repayment (152 120) (125 997) (266 091)

Net increase/(decrease) in cash and cash equivalents 310 018 57 631 (453 668)Foreign currency (320) – 145Cash and cash equivalents at beginning of year (481 038) (27 515) (27 515)

Cash and cash equivalents at end of year (171 340) 30 116 (481 038)

* Refer to note 2.



Earnings per share

Restated * Restated * Six months to Six months to Year to 31 August 31 August 28 February 2019 2018 2019 R’000 R’000 R’000

Reconciliation of profit for the year to headline earnings Profit attributable to equity holders of the parent 266 453 436 472 718 723Net loss/(profit) on disposal of property, plant and equipment and intangible assets (77) 16 (15)Taxation 22 (4) 4

Headline earnings 266 398 436 484 718 712

Earnings per share (cents) – Basic 31.0 50.7 83.6– Diluted 31.0 50.7 83.6Headline earnings per share (cents) – Basic 31.0 50.7 83.6– Diluted 31.0 50.7 83.6

* Refer to note 2.

Six months to Six months to Year to 31 August 31 August 28 February 2019 2018 2019 ’000 ’000 ’000

Reconciliation of shares in issues to weighted average number of shares in issue Total number of shares in issue at beginning of the period 860 084 483 860 084 483 860 084 483Treasury shares/ shares issued during the year weighted for the period outstanding (157 533) – –

Total weighted number of shares in issue at the endof the period 859 926 950 860 084 483 860 084 483Share options – 109 710 6 115

Total diluted weighted number of shares in issueat the end of the period 859 926 950 860 194 193 860 090 598



Segmental information

The Group has identified two reportable segments being Retail and Wholesale.

Intergroup/ Retail Wholesale consolidation TotalSix months to 31 August 2019 R’000 R’000 R’000 R’000

External customers 10 736 899 1 110 743 – 11 847 642Inter-segment – 6 990 307 (6 990 307) –

Total turnover 10 736 899 8 101 050 (6 990 307) 11 847 642Cost of sales (8 406 705) (7 514 168) 6 750 205 (9 170 668)

Gross profit 2 330 194 586 882 (240 102) 2 676 974Other income 593 893 22 176 (30 059) 586 010

Total income 2 924 087 609 058 (270 161) 3 262 984Other expenses (excluding depreciationand amortisation) (2 026 196) (635 878) 266 599 (2 395 475)Depreciation and amortisation (227 582) (50 449) – (278 031)

Operating profit 670 309 (77 269) (3 562) 589 478Net finance costs (152 628) (49 037) – (201 665)Share of profit from associates and joint ventures 281 – – 281

Profit/(loss) before tax 517 962 (126 306) (3 562) 388 094

Earnings before interest, tax, depreciation and amortisation (EBITDA) 897 891 (26 820) (3 562) 867 509Capital expenditure (182 005) (31 683) – (213 688)

Total assets 8 138 119 5 075 892 (2 930 144) 10 283 867

Total liabilities 5 592 910 3 819 732 (1 230 395) 8 182 247

Total income margin 27.2% 7.5% 27.5%EBITDA margin 8.4% (0.3%) 7.3%Operating margin 6.2% (1.0%) 5.0%



Intergroup/ Retail Wholesale consolidation TotalRestated six months to 31 August 2018 * R’000 R’000 R’000 R’000

External customers 9 600 518 864 425 – 10 464 943Inter-segment – 6 569 466 (6 569 466) –


Gross profit 2 301 766 620 531 (315 496) 2 606 801Other income 489 029 27 842 (45 204) 471 667

Total income 2 790 795 648 373 (360 700) 3 078 468Other expenses (excluding depreciationand amortisation) (1 758 385) (646 707) 354 129 (2 050 963)Depreciation and amortisation (206 366) (38 268) – (244 634)

Operating profit 826 044 (36 602) (6 571) 782 871Net finance costs (121 664) (45 482) – (167 146)Share of profit from associates – – – –

Profit/(loss) before tax 704 380 (82 084) (6 571) 615 725

Earnings before interest, tax, depreciation and amortisation (EBITDA) 1 032 410 1 666 (6 571) 1 027 505Capital expenditure (130 346) (25 730) – (156 076)

Total assets 7 822 474 5 039 029 (2 719 533) 10 141 970

Total liabilities 5 504 399 3 933 076 (1 181 929) 8 255 546

Total income margin 29.1% 8.7% 29.4%EBITDA margin 10.8% 0.0% 9.8%Operating margin 8.6% (0.5%) 7.5%

* Refer to note 2.

Dis-Chem Pharmacies Interim condensed consolidated financial results 201936Dis-Chem Pharmacies interim condensed consolidated financial results for the six months ended 31 August 201912

Intergroup/ Retail Wholesale consolidation TotalRestated 12 months to 28 February 2019 * R’000 R’000 R’000 R’000

External customers 19 643 739 1 776 284 – 21 420 023Inter-segment – 12 745 625 (12 745 625) –


Gross profit 4 592 226 1 214 616 (584 009) 5 222 833Other income 1 034 346 47 942 (72 030) 1 010 258

Total income 5 626 572 1 262 558 (656 039) 6 233 091Other expenses (excluding depreciationand amortisation) (3 725 449) (1 265 479) 624 666 (4 366 262)Depreciation and amortisation (409 707) (81 210) – (490 917)

Operating profit 1 491 416 (84 131) (31 373) 1 375 912Net finance costs (251 519) (93 268) – (344 787)Share of profit from associates – – – –

Profit/(loss) before tax 1 239 897 (177 399) (31 373) 1 031 125

Earnings before interest, tax, depreciation and amortisation (EBITDA) 1 901 123 (2 921) (31 373) 1 866 829Capital expenditure (303 548) (90 961) – (394 509)

Total assets 7 585 905 5 262 217 (2 326 695) 10 521 427

Total liabilities 5 083 895 4 236 282 (748 479) 8 571 698

Total income margin 28.6% 8.7% 29.1%EBITDA margin 9.7% 0.0% 8.7%Operating margin 7.6% (0.6%) 6.4%

* Refer to note 2.

Segmental information continued



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 3August 2019 R’000 R’000 R’000

Financial liabilities at fair value through profit and loss – Contingent consideration – – 43 263

August 2018


February 2019


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 12.3% (2018: 11.4%) used to determine the present value of the future cash flows.

As at As at As at 31 August 31 August 28 February 2019 2018 2019 R’000 R’000 R’000

Reconciliation of recurring Level 3 fair value movements: Opening balance 64 345 76 249 76 249Payments (29 672) (23 133) (23 133)Interest 3 682 4 411 7 588Release to other income (1) – – –Fair value adjustment 4 908 – 3 641

Closing balance 43 263 57 527 64 345(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 periods ended August 2019, August 2018 and February 2019.


Additional information

31 August 31 August 28 February 2019 2018 2019

Ordinary shares in issue (000’s): 860 084 483 860 084 483 860 084 483Closing share price (R/share) 22.25 33.83 25.80Six-month (12 month) share price (high) (R/share) 28.08 38.00 38.00Six-month (12 month) share price (low) (R/share) 19.85 25.57 24.00Net asset value per share (WANOS) (cents/share) 244.40 219.33 226.69Net asset value per share (actual shares at year-end) (cents/share) 244.35 219.33 226.69



Notes to the provisional condensed consolidated results1. These interim condensed consolidated financial results for the six months ended 31 August 2019 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 Pronoucements 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 conjuction with the Group’s annual financial statements as at 28 February 2019.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 2019, except for the adoption of IFRS 16 Leases which is shown in note 2. None of the other new standards, interpretations and amendments effective as of 1 March 2019 have had a material impact on the annual consolidated financial statements of the Group or the interim condensed consolidated financial statements of the Group.

2. Restatement of comparative figures

The Group adopted IFRS 16, 'Leases' in the current financial period and elected to apply the standard on the full retrospective approach 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 2018). The Group has used the expendient where the Group is not required to reassess whether a contract is, or contains a lease. The impact of adopting IFRS 16 resulted in most of the Group's leases being brought onto the statement of financial position as a finance lease with a corresponding right-of-use asset (reflected in property, plant and equipment). The current operating lease costs in the statement of comprehensive income have been replaced by depreciation of the right-of-use asset and finance costs in relation to the finance liability. The operating lease obligation in the statement of financial position was reduced to Rnil.The Group has adopted a new accounting policy for leases as: At inception, the Group assesses whether a contract is or contains a lease. The Group recognises a right-of-use (ROU) asset and lease liability at the commencement date of the lease. The ROU asset is measured based on the present value of the lease payments, initial direct costs incurred when entering in the lease less any lease incentives received. The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset. An impairment review in undertaken for any right-of-use asset that shows indicators of impairment and an impairment loss recognised against any ROU lease assets that are impaired. The lease liability is measured at the present value of the lease payments net of cash lease incentives that are not paid at the balance date. Lease payments are apportioned between the finance charges and reduction of the lease liability using the incremental borrowing rate implicit in the lease to achieve a constant rate of interest on the remaining balance of the liability. Lease payments for buildings exclude service fees and other costs.

Dis-Chem Pharmacies Interim condensed consolidated financial results 201940 Dis-Chem Pharmacies interim condensed consolidated financial results for the six months ended 31 August 201916

The impact of the standard is shown below:

August 2018IFRS 16impact

AdjustedTotal

(previously stated)

R’000 R’000 R’000

Statement of financial position Non-current assets Property, plant and equipment 1 213 619 1 667 525 2 881 144Deferred taxation 154 095 57 442 211 537Equity and reserves Retained earnings 432 817 (143 610) 289 207Non-controlling interest 65 379 (4 097) 61 282Non-current liabilities Lease liability 618 723 1 860 853 2 479 576Operating lease obligation 226 695 (226 695) –Current liabilities Lease liability 15 014 266 327 281 341Trade and other payables (current portion of operating lease obligation) 3 755 539 (27 811) 3 727 728

Statement of comprehensive income Other expenses (2 373 467) 77 870 (2 295 597)– Occupancy costs 226 684 – Depreciation (148 814)

Net financing costs (76 664) (90 482) (167 146)– Finance income – – Finance costs (90 482)

Taxation (168 577) 3 531 (165 046)

(2 618 708) (9 081) (2 627 789)

Earnings per share (cents) 51.7 (1.0) 50.7EBITDA – retail segment 832 559 199 851 1 032 410EBITDA – wholesale segment (25 167) 26 833 1 666

Statement of cash flows Cash flow from operating activities Cash inflow from trading operations 791 315 209 759 1 001 074Finance costs paid (70 716) (90 482) (161 198)Cash flow from financing activities Lease liability repayment (6 720) (119 277) (125 997)

Notes to the provisional condensed consolidated results continued


February

2019IFRS 16impact

AdjustedTotal

(previously stated)

R’000 R’000 R’000

Statement of financial position Non-current assets Property, plant and equipment 1 370 310 1 624 446 2 994 756Deferred taxation 169 745 60 766 230 511Equity and reserves Retained earnings 497 165 (152 277) 344 888Non-controlling interest 68 101 (3 976) 64 125Other reserves (4 614 836) (2) (4 614 838)Non-current liabilities Lease liability 620 724 1 822 480 2 443 204Operating lease obligation 236 375 (236 375) –Current liabilities Lease liability 22 593 286 724 309 317Trade and other payables (current portion of operating lease obligation) 4 325 818 (31 362) 4 294 456

Statement of comprehensive income Other expenses (5 015 225) 158 046 (4 857 179)– Occupancy costs 462 365 – Depreciation (304 319)

Net financing costs (162 254) (182 533) (344 787)– Finance income – – Finance costs (182 533)

Taxation (291 040) 6 855 (284 185)

(5 468 519) (17 632) (5 486 151)

Earnings per share (cents) 85.4 (1.8) 83.6EBITDA – retail segment 1 494 120 407 003 1 901 123EBITDA – wholesale segment (58 283) 55 362 (2 921)

Statement of cash flows Cash flow from operating activities Cash inflow from trading operations 1 428 516 432 209 1 860 725Finance costs paid (167 446) (182 533) (349 979)Cash flow from financing activities Lease liability repayment (16 415) (249 676) (266 091)


The movement in the right-of-use asset and lease liability (including amounts previously disclosed as such) are as follows:

August 2019 August 2018 February 2019

ROU assetLease

liability ROU assetLease

liability ROU assetLease

liabilityOpening balance 2 249 906 2 752 521 2 248 802 2 694 266 2 248 802 2 694 266Additions (including acquisitions) 59 170 59 170 192 648 192 648 324 346 324 346Depreciation (176 281) – (158 599) – (323 242) –Foreign currency 1 746 1 937 – – – –Finance costs – 121 470 – 120 605 – 243 100Payments – (273 590) – (246 602) – (509 191)

Closing balance 2 134 541 2 661 508 2 282 851 2 760 917 2 249 906 2 752 521

Many of the store and warehouse leases across the Group contain extension options. In many cases these terms are not reflected in measuring the lease liability until management is reasonably certain they will be exercised.

3. Revenue from contracts with customers can be disaggregated between the following retail categories:

As at As at As at 31 August 31 August 28 February 2019 2018 2019 % % %

Dispensary 37 37 36Personal care and beauty 28 27 28Healthcare and nutrition 20 20 20Baby care 6 6 6Other 9 10 10

100 100 100

4. Dis-Chem enters into certain transactions with related parties including the rental of certain stores and warehouses on which rental of R71 million was incurred during the six-month period (2018: R66 million). The finance lease obligation relating to these leases amounted to R1 billion at 31 August 2019.

Amounts owing from MSDS No. 3 Proprietary Limited, Eleador Proprietary Limited and Mathimba Proprietary Limited at 31 August 2019 amounted to Rnil, Rnil and R22 million respectively (2018: R21 million, R3 million and R22 million respectively). Amounts owing to Josneo Proprietary Limited and Minlou Proprietary Limited at 31 August 2019 amounted to Rnil and R2 million respectively (2018: R12 million and R2 million respectively).Amounts owing from Dis-Chem Bothamed, Dis-Chem Namibia, Dis-Chem Swakopmund, Dis-Chem Dunes, Geniob and Origin Brands (all Proprietary Limited's) at 31 August 2019 amounted to R120 million (2018: R59 million).

5. There were no impairments of assets in the current and prior comparable period.

6. No shares were issed during the current and prior comparable period.

Notes to the provisional condensed consolidated results continued


7. During the current period, the Group acquired the following companies:• the acquisition of 65% of Mundel Gien Proprietary Limited (trading as Springbok Pharmacy), a pharmacy in

Alberton, for R32.5 million on 1 April 2019.• the acquisition of 50% of Health Window Proprietary Limited and 51% of Differenza Proprietary Limited,

pharmaceutical adherence businesses for R17.5 million, on 31 May 2019. • the acquisition of 100% of Culemborg Pharmacy Proprietary Limited, a pharmacy in Cape Town, for

R1 million on 1 March 2019.These are not categorised transactions in terms of the JSE Listing Requirements.The provisional fair values of the identifiable assets and liabilities of the company as at the date of acquisition of the subsidiaries were:

Springbok Differenza Culemborg Total R’000 R’000 R’000 R’000

Assets Property, plant and equipment 1 461 – – 1 461Right of use asset 24 726 – – 24 726Other intangibles 2 890 – – 2 890Trade and other receivables 2 815 279 116 3 210Inventories 34 332 – 503 34 835Bank – 359 291 650Tax receivable 1 242 52 – 1 294Deferred tax 366 11 – 377Liabilities Lease liability (24 726) – – (24 726)Loans (2 379) – – (2 379)Bank overdraft (1 646) – – (1 646)Trade and other payables (15 990) (175) (878) (17 043)

Total identifiable net assets at fair value 23 091 526 32 23 649Non-controlling interest at proportionate interest (8 082) (257) – (8 339)Goodwill arising on acquisition 17 491 1 261 968 19 720

Purchase consideration transferred 32 500 1 530 1 000 35 030

The goodwill comprises the value of expected synergies arising from the acquisition which is not separately recognised.From the date of acquisition, R82 million in revenue and R5.8 million in profit before tax was contributed to the Group from the above acquisitions.Health Window Proprietary Limited was purchased for R16 million and is a joint venture and equity accounted for in the Group.During the current year, the Group acquired an additional 5% interest in Dis-Chem Amanzimtoti and sold 15% interest in Dis-Chem Goodwood.

8. No material subsequent events have taken place since the reporting date.

9. These interim condensed consolidated financial results have neither been audited nor reviewed by the Group external auditors.

The directors take full responsibility for the preparation of these interim condensed consolidated financial results, which have been prepared under the supervision of Mr Rui Morais CA(SA), the Chief Financial Officer of the Group.


Definitions

Capital expenditure- to maintain operations

Capital expenditure incurred to maintain or replace assets e.g. the refurbishment of an existing store.

Capital expenditure- to expand operations

Capital expenditure for acquisitions or capital improvements to increase productive capacity e.g. the opening of a new store.

Creditors’ days

Creditor days estimates the average time it takes the business to settle its debts with trade suppliers. It is calculated as the average trade and other payables divided by the cost of goods sold for the period multiplied by 365 days.

Debtors’ days

The debtors’ days ratio measures how quickly cash is being collected from debtors. It is calculated as the average trade and other receivables divided by turnover for the period multiplied by 365 days.

Dividend payout ratio

The dividend pay-out ratio is the amount of dividends paid to stockholders relative to the amount of total net income of the company. The target ratio for Dis-Chem is between 40 and 50%.

Dividend per share (DPS)

Dividend per share is the payment to investors for each share of stock owned. It is calculated as earnings per share (EPS) multiplied by the pay-out ratio.

Earnings per share (EPS)Earnings per share is the portion of a company’s profit allocated to each outstanding share of common stock.

EBITDA

Earnings before interest, tax, depreciation and amortisation is a measure of the company’s operating performance. It is calculated as EBIT plus depreciation and amortisation.

EBITEarnings before interest and tax (EBIT) is a measure of the firm’s profit that includes all expenses except interest and income tax expense.

Gross profit margin

Gross profit margin is a financial metric used to assess the company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). It is calculated by dividing gross profit by revenues.

Headline earningsProfit attributable to holders of the parent adjusted for the after-tax effect of goodwill, impairment and certain other capital items.

Headline earnings per share (HEPS) The per share value of profit attributable to holders of the parent.

Inventory daysThe number of days of sales in inventory. It is calculated as the average inventory divided by cost of goods sold (COGS) multiplied by 365 days.

Like-for-like revenue growth

This is a measure of growth in sales, adjusted for new or divested businesses. Dis-Chem takes into account stores that have been open for at least two full financial years.

Net asset value per share (WANOS)This is the company’s total assets less its total liabilities, divided by its weighted number of shares outstanding.

Net asset value per share(actual shares at year-end)

This is the company’s total assets less its total liabilities, divided by its actual number of shares outstanding at year-end.

Operating margin

Operating margin is a measure of profitability. It indicates how much of each ZAR of revenues is left over after both cost of goods sold (COGS) and operating expenses are considered. It is calculated as operating profit divided by turnover.

Return on equity (ROE)

Return on equity (ROE) is a measure of profitability that calculates how many ZARs of profit a company generates with each ZAR of shareholders’ equity. It is calculated as profit attributable to the equity holders of the parent divided by the average shareholders’ equity.



Return on invested capital (ROIC)

A calculation to assess a company’s efficiency at allocating the capital under its control to profitable investments. It gives a sense of how well a company is using its money to generate returns.

Total working capital daysMeasures a company’s efficiency and short-term health. It is calculated as debtors’ days plus inventory days less creditors’ days.

Weighted average number of shares (WANOS)

This is a calculation that takes into consideration any changes in the number of outstanding shares over a specific reporting period.


Supplementary information

DirectorsIndependent non-executive directorsLM Nestadt (South African)MJ Bowman (South African)A Coovadia (South African)JS Mthimunye (South African)MSI Gani (South African)

Executive directorsIL Saltzman (South African) LF Saltzman (South African) RM Morais (South African) SE Saltzman (South African) (Alternate for LF Saltzman)

Company registration number2005/009766/06

Registered office23 Stag RoadMidrand1685

Company secretaryWT Green

Registered auditorsErnst & Young Inc.102 Rivonia RoadSandtonJohannesburg2196South Africa

JSE codeDCP

ISINZAE000227831

SponsorThe Standard Bank of South Africa Limited3rd Floor, East Wing30 Baker StreetRosebank2196Johannesburg

Transfer secretariesComputershare Investor Services Proprietary LimitedRosebank Towers15 Biermann AvenueRosebankJohannesburg2196South Africa

www.dischemgroup.co.za

Documents

Interim Condensed Consolidated Financial Results Dis-Chem Pharmacies Interim condensed consolidated ﬁ nancial results 2019 1 NOTES NOTES 2 Review of the period Ivan Saltzman 3 Wholesale