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

Release Date: 17/10/2018 07:05
Code(s): DCP     PDF:  
 
Wrap Text
Reviewed interim condensed consolidated results for the six months ended 31 August 2018

Dis-Chem Pharmacies Limited   
("Dis-Chem" or "the Company")
(Incorporated in the Republic of South Africa)
(Registration number 2005/009766/06)
Share code: DCP
ISIN: ZAE000227831

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

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 2018. 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 2018. 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.

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 2018. 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 2019. 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 2018. 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 2018.

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

Dividends declaration
Notice is hereby given that a gross interim cash dividend of 20.69678 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 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 16.55742 cents per share to those shareholders who are not exempt from paying
dividend tax. Dis-Chem's tax reference number is 9931586144.

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 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.

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 2018.
On behalf of the Board



Ivan Saltzman                                         Rui Morais
Chief Executive Officer                               Chief Financial Officer

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 
                                                             
                                                                                          
                                                                                            Restated*                        Restated*
                                                             Six months to             Six months to                          Year to   
                                                                 31 August                 31 August                      28 February   
                                                                      2018                      2017                             2018   
                                                                (Reviewed)                (Reviewed)   Six-month           (Reviewed)   
                                                                     R'000                     R'000    % change                R'000 
                                                                       
Revenue from contracts with customers                           10 464 943                 9 568 612         9.4           19 479 553   
Cost of sales                                                  (7 858 142)               (7 197 358)         9.2         (14 710 016)   
Gross profit                                                     2 606 801                 2 371 254         9.9            4 769 537   
Other income                                                       471 667                   340 307        38.6              686 271   
Total income                                                     3 078 468                 2 711 561        13.5            5 455 808   
Other expenses                                                 (2 373 467)               (2 060 587)        15.2          (4 330 728)   
Operating profit                                                   705 001                   650 974         8.3            1 125 080   
Net financing costs                                               (76 664)                  (85 572)      (10.4)            (160 082)   
- Finance income                                                     9 223                     4 660                           28 321   
- Finance costs                                                   (85 887)                  (90 232)                        (188 403)   
Profit before taxation                                             628 337                   565 402        11.1              964 998   
Taxation                                                         (168 577)                 (155 999)         8.1            (266 696)   
Profit/Total comprehensive income for the year, net of
tax                                                                459 760                   409 403        12.3              698 302   
Profit attributable to:                                                                                                                 
- Equity holders of the parent                                     445 011                   402 877                          684 254   
- Non-controlling interests                                         14 749                     6 526                           14 048   
Earning per share (cents)                                                                                                               
- Basic                                                               51.7                      46.8                             79.6   
- Diluted                                                             51.7                      46.8                             79.6   
* Refer to note 2                                                                                                                       

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                                                                        Restated*           Restated*
                                                                                      As at                As at                As at   
                                                                                  31 August            31 August          28 February   
                                                                                       2018                 2017                 2018   
                                                                                 (Reviewed)           (Reviewed)           (Reviewed)   
                                                                                      R'000                R'000                R'000   
ASSETS                                                                                                                                  
Non-current assets                                                                1 755 671            1 496 540            1 664 700   
Property, plant and equipment                                                     1 213 619            1 098 357            1 182 394   
Intangible assets                                                                   387 957              247 127              300 461   
Deferred taxation                                                                   154 095              151 056              181 845   
Current assets                                                                    6 661 332            4 935 977            5 470 665   
Inventories                                                                       4 358 618            3 578 075            3 947 937   
Trade and other receivables                                                       1 211 878            1 074 026            1 118 855   
Loans receivable                                                                    185 375               88 945              113 876   
Taxation receivable                                                                   1 667                9 164                9 998   
Cash and cash equivalents                                                           903 794              185 767              279 999   
Total assets                                                                      8 417 003            6 432 517            7 135 365   
EQUITY AND LIABILITIES                                                                                                                  
Equity and reserves                                                               1 968 752            1 460 533            1 630 992   
Share capital                                                                     6 155 554            6 155 554            6 155 554   
Common control reserve                                                                    -            (990 991)                    -   
Retained earnings/(loss)                                                            432 817          (3 704 030)               97 481   
Other reserves                                                                  (4 619 619)                    -          (4 622 043)   
Non-controlling interest                                                             65 379               27 290               55 147   
Total equity                                                                      2 034 131            1 487 823            1 686 139   
Non-current liabilities                                                           1 306 593            1 446 406            1 388 846   
Finance lease obligation                                                            618 723              625 450              621 543   
Operating lease obligation                                                          226 695              194 579              213 198   
Loans payable                                                                       424 604              571 000              499 605   
Contingent consideration                                                             36 571               55 377               54 500   
Current liabilities                                                               5 076 279            3 498 288            4 060 380   
Trade and other payables                                                          3 755 539            2 852 113            3 262 280   
Employee-related obligations                                                        127 365              123 734              146 014   
Deferred revenue (contract liability)                                                61 771               99 893               81 292   
Contingent consideration                                                             20 956               22 769               21 749   
Finance lease obligation                                                             15 014                3 944                9 943   
Loans payable                                                                       172 093              200 424              198 798   
Taxation payable                                                                     49 863               33 783               32 790   
Bank overdraft                                                                      873 678              161 628              307 514   
Total equity and liabilities                                                      8 417 003            6 432 517            7 135 365   
                                        
* Refer to note 2

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*                                       6 140 554   (4 043 701)     (990 991)             -        23 581   1 129 443   
Profit/Total comprehensive       
income for the year                                             -       402 877             -             -         6 526     409 403   
Shares issued during the year                              15 000             -             -             -             -      15 000   
Dividends paid                                                  -      (63 206)             -             -       (2 817)    (66 023)   
Restated balance at 31 August 2017*                     6 155 554   (3 704 030)     (990 991)             -        27 290   1 487 823   
Profit/Total comprehensive       
income for the year                                             -       281 377             -             -         7 522     288 899   
Change in ownership interest in       
subsidiary                                                      -        50 179             -             -        26 104      76 283   
Transfer to other reserves                                      -     3 631 052       990 991   (4 622 043)             -           -   
Dividends paid                                                  -     (161 097)             -             -       (5 769)   (166 866)   
Restated balance at       
28 February 2018*                                       6 155 554        97 481             -   (4 622 043)        55 147   1 686 139   
Profit/Total comprehensive       
income for the year                                             -       445 011             -             -        14 749     459 760   
Change in ownership interest in       
subsidiary                                                      -         (135)             -             -         1 468       1 333   
Share-based payment expense                                     -             -             -         2 424             -       2 424   
Dividends paid                                                  -     (109 540)             -             -       (5 985)   (115 525)   
Balance at 31 August 2018 (reviewed)                    6 155 554       432 817             -   (4 619 619)        65 379   2 034 131   
* Refer to note 2                                                                                                                


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                                        Six months to    Six months to        Year to
                                                                                            31 August        31 August    28 February
                                                                                                 2018             2017           2018
                                                                                           (Reviewed)       (Reviewed)     (Reviewed)
                                                                                                R'000            R'000          R'000
                
Cash flow from operating activities                                                           384 671          187 061        348 473
                  
Cash inflow from trading operations                                                           791 315          746 355      1 323 624
Movement in working capital                                                                 (111 477)        (257 733)      (295 931)
Finance income received                                                                        13 745            4 660         23 836
Finance costs paid                                                                           (70 716)         (77 768)      (164 424)
Taxation paid                                                                               (122 671)        (162 430)      (305 743)
Dividends paid                                                                              (115 525)         (66 023)      (232 889)
Cash flow from investing activities                                                         (222 187)        (189 726)      (396 050)
Additions to property, plant and equipment and intangible                
assets                                                                                                                              
- To maintain operations                                                                     (37 466)         (41 305)       (78 242)
- To expand operations                                                                      (118 610)        (131 504)      (295 586)
Proceeds on disposal of property, plant and equipment and                
intangible assets                                                                               3 615               83          1 123
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                                                         (104 853)        (100 835)      (107 577)
                
Long-term loans repaid                                                                       (75 000)         (76 000)      (153 410)
Contingent consideration paid                                                                (23 133)         (22 941)       (22 941)
Finance lease repayment                                                                       (6 720)          (1 894)        (6 226)
Change in ownership interest in subsidiary                                                          -                -         75 000
                
Net increase/(decrease) in cash and cash equivalents                                           57 631        (103 500)      (155 154)
Cash and cash equivalents at beginning of year                                               (27 515)          127 639        127 639
                
Cash and cash equivalents at end of year                                                       30 116           24 139       (27 515)
                
EARNINGS PER SHARE

                                                                                                          Restated*        Restated*
                                                                                     Six months to    Six months to          Year to
                                                                                         31 August        31 August      28 February
                                                                                              2018             2017             2018
                                                                                        (Reviewed)       (Reviewed)       (Reviewed)
                                                                                             R'000            R'000            R'000
               
Reconciliation of profit for the year to headline earnings                                                                          
Profit attributable to equity holders of the parent                                        445 011          402 877          684 254
Net loss/(profit) on disposal of property, plant and equipment                
and intangible assets                                                                           16             (78)             (25)
Taxation                                                                                       (4)               23                7
              
Headline earnings                                                                          445 023          402 822          684 236
              
                                                                                                                                   
Earnings per share (cents)                                                                                                         
- Basic                                                                                       51.7             46.8             79.6
- Diluted                                                                                     51.7             46.8             79.6
Headline earnings per share (cents)                                                                                                 
- Basic                                                                                       51.7             46.8             79.6
- Diluted                                                                                     51.7             46.8             79.6
               
* Refer to note 2               
                                                                                     Six months to    Six months to          Year to
                                                                                         31 August        31 August      28 February
                                                                                              2018             2017             2018
                                                                                        (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                             860 084 483      859 273 673      859 273 673
Shares issued during the year weighted for the period              
outstanding                                                                                      -          788 777          799 703
                
Total weighted number of shares in issue at the end of the                                              860 062 450      860 073 376
period                                                                                 860 084 483
Share options issued during the period                                                     109 710                -                -
              
Total diluted weighted number of shares in issue at the end of              
the period                                                                             860 194 193      860 062 450      860 073 376
              
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                                                9 600 518            864 425                    -       10 464 943   
Inter-segment                                                             -          6 569 466          (6 569 466)                -   
Total turnover                                                    9 600 518          7 433 891          (6 569 466)       10 464 943   
Cost of sales                                                   (7 298 752)        (6 813 360)            6 253 970      (7 858 142)   
Gross profit                                                      2 301 766            620 531            (315 496)        2 606 801   
Other income                                                        489 029             27 842             (45 204)          471 667   
Total income                                                      2 790 795            648 373            (360 700)        3 078 468   
Other expenses (excluding depreciation and
amortisation)                                                   (1 958 236)          (673 540)             354 129       (2 277 647)   
Depreciation and amortisation                                      (75 459)           (20 361)                   -          (95 820)   
Net finance costs                                                  (46 264)           (30 400)                   -          (76 664)   
Profit/(loss) before tax                                            710 836           (75 928)             (6 571)           628 337   
Earnings before interest, tax, depreciation and
amortisation (EBITDA)                                               832 559           (25 167)             (6 571)           800 821   
Capital expenditure                                               (130 346)           (25 730)                   -         (156 076)   
Total assets                                                      6 446 516          4 747 462         (2 776 975)         8 417 003   
Total liabilities                                                 3 952 676          3 612 125         (1 181 929)         6 382 872   
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/                             
                                                                     Retail          Wholesale        consolidation            Total   
Restated six months to 31 August 2017 (reviewed)*                     R'000              R'000                R'000            R'000                                                     
External customers                                                8 746 467            822 145                    -        9 568 612   
Inter-segment                                                             -          5 637 759          (5 637 759)                -   
Total turnover                                                    8 746 467          6 459 904          (5 637 759)        9 568 612   
Cost of sales                                                   (6 620 092)        (5 894 438)            5 317 172      (7 197 358)   
Gross profit                                                      2 126 375            565 466            (320 587)        2 371 254   
Other income                                                        352 034             15 339             (27 066)          340 307   
Total income                                                      2 478 409            580 805            (347 653)        2 711 561   
Other expenses (excluding depreciation and
amortisation)                                                   (1 726 740)          (578 755)              336 676      (1 968 819)
Depreciation and amortisation                                      (69 295)           (22 473)                    -         (91 768)   
Net finance costs                                                  (53 154)           (32 418)                    -         (85 572)   
Profit/(loss) before tax                                            629 220           (52 841)             (10 977)          565 402   
Earnings before interest, tax, depreciation and
amortisation (EBITDA)                                               751 669              2 050             (10 977)          742 742   
Capital expenditure                                               (108 385)           (64 424)                    -        (172 809)   
Total assets                                                      5 255 101          4 057 387          (2 879 971)        6 432 517   
Total liabilities                                                 3 133 450          2 725 018            (913 774)        4 944 694   
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%   



                                                                                                        Intergroup/                             
                                                                     Retail          Wholesale        consolidation            Total   
Restated twelve months to 28 February 2018 (reviewed)*                R'000              R'000                R'000            R'000        
External customers                                               17 906 653          1 572 900                    -       19 479 553   
Inter-segment                                                             -         11 481 381         (11 481 381)                -   
Total turnover                                                   17 906 653         13 054 281         (11 481 381)       19 479 553   
Cost of sales                                                  (13 538 580)       (12 063 447)           10 892 011     (14 710 016)   
Gross profit                                                      4 368 073            990 834            (589 370)        4 769 537   
Other income                                                        704 331             47 686             (65 746)          686 271   
Total income                                                      5 072 404          1 038 520            (655 116)        5 455 808   
Other expenses (excluding depreciation and
amortisation)                                                   (3 626 131)        (1 166 498)              635 353      (4 157 276)   
Depreciation and amortisation                                     (132 561)           (40 891)                    -        (173 452)
Net finance costs                                                 (101 945)           (58 137)                    -        (160 082) 
Profit/(loss) before tax                                          1 211 767          (227 006)             (19 763)          964 998   
Earnings before interest, tax, depreciation and
amortisation (EBITDA)                                             1 446 273          (127 978)             (19 763)        1 298 532   
Capital expenditure                                               (308 842)           (64 986)                    -        (373 828)   
Total assets                                                      5 253 133          4 332 658          (2 450 426)        7 135 365   
Total liabilities                                                 3 218 692          3 117 477            (886 943)        5 449 226   
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                                                                                                                                                      


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                                                                                     -         -    57 527   
August 2017                                                                                                                            
Financial liabilities at fair value through profit and loss                                                                            
- Contingent consideration                                                                                     -         -    78 146   
February 2018                                                                                                                          
Financial liabilities at fair value through profit and loss                                                                            
- Derivative liability                                                                                         -     1 500         -   
- Contingent consideration                                                                                     -         -    76 249   
                                           

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
                                                                                                2018           2017            2018
                                                                                          (Reviewed)     (Reviewed)      (Reviewed)
                                                                                               R'000          R'000           R'000
                          
Reconciliation of recurring Level 3 fair value movements:                                                                           
Opening balance                                                                               76 249         97 312          97 312
Payments                                                                                    (23 133)       (22 941)        (22 941)
Interest                                                                                       4 411          5 890          10 744
Release to other income (1)                          
                                                                                                   -        (2 115)        (10 735)
Fair value adjustment                                                                              -              -           1 869
                          
Closing balance                                                                               57 527         78 146          76 249

(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 2017.

COMMITMENTS

 
                                                                                       As at             As at               As at
                                                                                   31 August         31 August         28 February
                                                                                        2018              2017                2018   
                                                                                  (Reviewed)        (Reviewed)          (Reviewed)   
                                                                                       R'000             R'000               R'000   
Operating lease commitments                                                                                                          
- Within one year                                                                    450 299           396 303             437 145   
- Two to five years                                                                1 624 226         1 551 222           1 652 874   
- Over five years                                                                    954 533         1 056 864           1 064 360   
Finance lease commitments                                                                                                            
- Within one year                                                                     74 995            68 079              70 793   
- Two to five years                                                                  288 697           304 982             292 726   
- Over five years                                                                  1 161 107         1 268 942           1 187 783   
                                               

ADDITIONAL INFORMATION

 
                                                                 
                                                                                       31 August        31 August      28 February
                                                                                            2018             2017             2018   
Ordinary shares in issue:                                                            860 084 483      860 084 483      860 084 483   
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)              236.5            173.0            196.0   
Net asset value per share (actual shares at
year-end)                                                       (cents/share)              236.5            173.0            196.0   


NOTES 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 2018.

    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 2019.

2.  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.
    
    
                                                                               August 2017                                  Adjusted   
                                                                       (previously stated)                Restatement          Total   
                                                                                     R'000                      R'000          R'000                                                                           
    Statement of Financial Position                                                                                                    
    Trade and other receivables                                                  1 068 952                      5 074      1 074 026   
    Trade and other payables                                                   (2 845 702)                    (6 411)    (2 852 113)   
    Deferred taxation                                                              150 682                        374        151 056   
    Retained loss                                                                3 703 067                        963      3 704 030   
    Statement of Comprehensive Income                                                                                                  
    Revenue from contracts with customers                                        9 605 723                   (37 111)      9 568 612   
    Cost of sales                                                              (7 234 576)                     37 218    (7 197 358)   
    Gross profit                                                                 2 371 147                        107      2 371 254   
    Taxation                                                                     (155 969)                       (30)      (155 999)   
                                                                                 2 215 178                         77      2 215 255   
    Basic and diluted earnings per share (cents)                                      46.8                                      46.8   
    
                                                                             February 2018                                  Adjusted   
                                                                       (previously stated)                Restatement          Total   
                                                                                     R'000                      R'000          R'000   
    Statement of Financial Position                                                                                                    
    Trade and other receivables                                                  1 113 313                      5 542      1 118 855   
    Trade and other payables                                                   (3 255 259)                    (7 021)    (3 262 280)   
    Deferred taxation                                                              181 431                        414        181 845   
    Retained earnings                                                             (98 546)                      1 065       (97 481)   
    Statement of Comprehensive Income                                                                                                  
    Revenue from contracts with customers                                       19 560 462                   (80 909)     19 479 553   
    Cost of sales                                                             (14 790 890)                     80 874   (14 710 016)   
    Gross profit                                                                 4 769 572                       (35)      4 769 537   
    Taxation                                                                     (266 706)                         10      (266 696)   
                                                                                 4 502 866                       (25)      4 502 841   
    Basic and diluted earnings per share (cents)                                      79.6                                      79.6   
    
    
    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
                                                                                                  2018          2017           2018
                                                                                                     %             %              %
     
    Dispensary                                                                                      37            37             37
    Personal care and beauty                                                                        27            27             27
    Healthcare and nutrition                                                                        20            20             20
    Baby care                                                                                        6             6              7
    Other                                                                                           10            10              9
      
                                                                                                   100           100            100

3.  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).

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

5.  During the period, no shares were issued (2017: 810 810 shares worth R15 million).

    On 1 June 2018, 276 269 shares on the Forfeitable Share Plan and 1 325 970 options on the Share Appreciation
    Rights Plan were awarded and accepted.

6.  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:

    Assets                                                                                            R'000       
    Property, plant and equipment                                                                       112   
    Trade and other receivables                                                                      11 952   
    Inventories                                                                                      17 091   
    Other intangibles                                                                                15 623   
    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                                                      31 980   
    Non-controlling interest                                                                              -   
    Goodwill arising on acquisition                                                                  37 370   
    Purchase consideration transferred                                                               69 350   
    
    The goodwill comprises the value of expected synergies arising from the acquisition which is not separately
    recognised.
    
    The previous owners of Bemax, to ensure an alignment of interest, will also be entitled to an additional payment
    of a percentage of Bemax's net profit after tax as long as they are still employed by Dis-Chem and meet certain
    performance conditions.
    
    During the current year, the Group sold 10% of their interest in Dis-Chem Jubilee Proprietary Limited for
    R1.3 million and 25% of their interest in Dis-Chem Ballito Lifestyle Proprietary Limited for an additional 5%
    interest in Dis-Chem Ballito Junction Proprietary Limited.
    
    In the prior year on 1 April 2017, the group acquired certain assets and liabilities of Optipharm Proprietary
    Limited, a pharmaceutical courier.
    
    The fair values of the identifiable assets and liabilities of the company as at the date of acquisition were:
    
    Assets                                                                                           R'000 
    Property, plant and equipment and software                                                      16 027   
    Trade receivables                                                                                8 767   
    Other intangibles                                                                              121 273   
    Cash and cash equivalents                                                                        5 082   
    Liabilities                                                                                              
    Finance lease                                                                                  (1 272)   
    Trade and other payables                                                                     (173 989)   
    Bank overdraft                                                                                (25 000)   
    Loan payable                                                                                  (10 000)   
    Deferred tax                                                                                  (33 849)   
    Total identifiable net assets at fair value                                                   (92 961)   
    Non-controlling interest at fair value                                                               -   
    Goodwill arising on acquisition                                                                 92 961   
    Purchase consideration transferred                                                                   -   
    
    The goodwill comprises the value of expected synergies arising from the acquisition which is not separately
    recognised.

7.  No material subsequent events have taken place since reporting date, except for the potential acquisition of
    Quenets Proprietary Limited and Springbok Proprietary Limited.
   
    Both acquisitions are awaiting Competition Commission approval and therefore control has not yet passed
    to Dis-Chem.

8.  These reviewed interim condensed consolidated results have been reviewed by independent external auditors,
    Ernst & Young Inc. and their unmodified review report is available for inspection at the Company's registered
    office. The review was performed in accordance with ISRE 2410, Review of Interim Financial Information
    Performed by the Independent Auditor of the Entity. Any reference to future financial performance included in
    this announcement has not been reviewed or reported on by the Group's external auditors.
   
    Shareholders are advised that in order to obtain a full understanding of the nature of the auditor's engagement,
    they should obtain a full copy of the auditor's report from Dis-Chem's registered office.

SUPPLEMENTARY INFORMATION

Directors
Independent non-executive directors
LM Nestadt                (South African)
MJ Bowman                 (South African)
A Coovadia                (South African)
JS Mthimunye              (South African)
MSI Gani                  (South African)

Executive directors
IL Saltzman               (South African)     
LF Saltzman               (South African)     
RM Morais                 (South African)     
SE Saltzman               (South African)    (Alternate for L F Saltzman)

Company registration number
2005/009766/06

Registered office
23 Stag Road
Midrand
1685

Company secretary
WT Green

Registered auditors
Ernst & Young Inc.
102 Rivonia Road
Sandton
Johannesburg
2196
South Africa

JSE code
DCP

ISIN
ZAE000227831

Sponsor
The Standard Bank of South Africa Limited
3rd Floor, East Wing
30 Baker Street
Rosebank
2196
Johannesburg

Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank
Johannesburg
2196

www.dischemgroup.com

Midrand                              17 October 2018
Date: 17/10/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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