Contents ABOUT THIS REPORT 1 OUR GOVERNANCE 52 Corporate governance report 52 OVERVIEW Board of directors 66 Salient features 2 Remuneration report 72 Who we are 4 Creating value 6 ANNEXURES 1 Retail footprint 79 OUR PERFORMANCE 8 2 Shareholder analysis 80 Chairman’s letter 10 3 Share performance 81 Chief executive officer’s report 12 4 Summarised group structure 82 Chief financial officer’s report 14 5 Shareholders’ diary 83 Audited summarised consolidated financial statements 18 6 Board meeting attendance 84 OPERATIONAL REVIEW 28 CORPORATE INFORMATION IBC Clothing and general merchandise 28 Furniture, appliances and electronics 40 Building materials 44 FinTech 48 THIS REPORT forms part of the integrated report suite and should be read together with the full audited annual financial statements and About this corporate social responsibility report, which are available on the company’s website at report www.pepkor.co.za. The Pepkor Holdings Limited (Pepkor or the group) 2018 integrated report focuses on the group’s strategy and its ability to create long-term sustainable value. To review the group comprehensively, this report should be read All references to Pepkor, the group, the company or the business refer together with the audited annual financial statements and the to Pepkor Holdings Limited and its underlying subsidiaries. These corporate social responsibility report. subsidiaries include all operating businesses. The group listed on the Johannesburg Stock Exchange Limited (JSE) With the group’s long history and scale of operations in Africa, it has on 20 September 2017. The 2018 financial year therefore represents taken due regard of all legislation and regulations in the countries its first full year as a listed company and much progress has been of operation. Being listed on the JSE and, as a guiding principle, the made in establishing and developing integrated reporting. The group group also reviews its business practices against King IV. aims to enhance disclosures and application of integrated reporting principles as it matures and as deemed appropriate. Forward-looking information This integrated report contains certain forward-looking statements In preparing this report, the following principles were which relate to the financial position and results of the operations considered and applied: of the group. These statements are solely based on the view and The Companies Act, No. 71 of 2008, as amended (Companies Act) considerations of the directors. These statements, by nature, involve risk and uncertainty, relate to The JSE Listings Requirements events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from The International Financial Reporting Standards (IFRS) those in the forward-looking statements include, but are not limited to, global and national economic and market conditions, interest The King IV Report on Corporate Governance for South Africa, 2016 (King IV) and foreign exchange rates, gross and operating margins achieved, competitive conditions and regulatory factors. These forward- The International Integrated Reporting (<IR>) Framework as looking statements have not been reviewed or reported on by the issued by the International Integrated Reporting Council (IIRC) group’s external auditors. Materiality, which determines the context and extent of disclosure Responsibility and assurance of any material issues relating to the businesses or the group. The board, is ultimately responsible for overseeing the integrity of the integrated report. This was achieved through setting up A responsible approach towards sustainability (environmental, appropriate teams and structures to undertake the reporting social, governance) practices has been part of the group’s underlying process and the review and approval of the integrated report. businesses for many years and still underpins the fundamental approach to business practices. The group continues to evaluate External assurance obtained in the current year was limited to relevant and group-wide material issues. the audit opinion on the group annual financial statements and In determining the material issues, matters that could have a the group’s broad-based black economic empowerment (B-BBEE) significant impact on the ability of the group to create sustainable contributor level status. value for stakeholders are considered. Approval of the integrated report Scope and boundary The board acknowledges its responsibility to ensure the integrity of The scope of the report includes all subsidiaries and operating the integrated report. The directors confirm they have reviewed the businesses and covers the reporting period 1 October 2017 to content of the integrated report and believe it is a fair presentation 30 September 2018. of the performance of the group in accordance with the International The audited annual financial statements were approved for release <IR> Framework and best practice. on 23 November 2018. There were no significant restatements from prior periods other than those described in note 30 to the annual Going concern financial statements. This integrated report was approved by the The directors report that, after making enquiries, they have a board for distribution on 31 January 2019. reasonable expectation that the group has adequate resources to The annual financial statements have been prepared in accordance continue its operational existence for the foreseeable future. For this with IFRS. Financial information contained in the integrated report reason, they continue adopting the going concern basis in preparing was extracted from the audited annual financial statements. the annual financial statements. INTEGRATED REPORT 2018 // PEPKOR 1 W IE V ER Salient V O features Revenue growth EBITDA1 growth 10.9% 4.2% to R64.2bn to R7.1bn Growth in operating profit2 Excluding Including 10.7% one-off 1.9% one-off costs costs to R6.4bn to R5.9bn R5.3bn R18bn Cash generated Refinanced and from operations guarantees released Retail space Maiden dividend of Dividend 3.6% 27.8c cover of three growth per share declared times 1 Earnings before interest, taxation, depreciation, amortisation and capital items 2 Before capital items 2 PEPKOR // INTEGRATED REPORT 2018 Everything we do is focused on bringing value to our customers, from the way we select and source products to enabling customers to access our products and services, bringing it to them at the best quality and at the lowest possible prices. We believe in giving people, especially those with limited disposable income, the opportunity to live their lives with dignity, respect and pride. We have done this for more than 100 years and will continue to do so through our trusted brands. INTEGRATED REPORT 2018 // PEPKOR 3 We are the ho we are ho we W – largest non- continued W W IE grocery retailer V ER 1 V O in South Africa Pepkor delivers quality products at the best possible prices to customers, high growth and profitability for shareholders, and we are the employer of choice for our employees. Our purpose Our business Offering customers access To keep costs down so that to products and services they we can sell at the best prices, can afford, that are close to which is part of our down- their homes, and that will to-earth attitude. We make make a difference in their sure that we are efficient in lives. It’s also about growing what we do by using world- our people and our business. class systems and processes When people grow, their throughout all our operations. businesses grow – and ultimately our group grows. Our vision Our values To be the preferred Pepkor’s values and culture destination for delivering value are centred on the unwavering Dignity and respect to the African consumer and goal of improving the lives of all other stakeholders. our customers, who mostly find themselves in very Trust and credibility challenging circumstances. We strive to make their lives easier and better. Value and affordability 1 JSE General Retailers by revenue 4 PEPKOR // INTEGRATED REPORT 2018 12 African countries ANGOLA MALAWI MOZAMBIQUE NIGERIA UGANDA ZAMBIA ZIMBABWE 362 stores BOTSWANA LESOTHO NAMIBIA SOUTH AFRICA SWAZILAND 4 874 stores million 428 2.4 5 236 new stores 2 total retail space (m ) total stores opened during FY18 48 000 400 million+ employees transactions per annum INTEGRATED REPORT 2018 // PEPKOR 5 Creating value We place our customers at the centre of everything we do. Creating value – Our focus remains on our remarkable customers – satisfying their needs and helping to make their lives better and easier. Everyone, rich and poor, deserves the same access to products, services and friendly customer service from people who treat them with dignity and respect. continued PRODUCT W W The right product IE adding value to V customers’ lives ER V O Wanted and needed Value for products for family money and home Customer needs VARIETY Wide product and trends 1 billion variety PRODUCTS SOLD 400 million+ PRODUCT TRANsactioNS Expansive Efficient supply footprint chain CONVENIENCE PRICE ACCESSIBILITY AFFORDABILITY Variety of payment Global sourcing methods capability 5 230+ BEST POSSIBLE PRICE stores cost OF doiNG 2.4 million m2 BUSINESS retaiL space 25% Low cost of doing Retail business channels Innovation and Best possible CONVENIENCE technology price PRICE Accessible locations Best possible and enhanced price in product shopping category experience 6 PEPKOR // INTEGRATED REPORT 2018 The outcomes we achieve Operational businesses implement the group’s strategy in ways that are addressing the needs of our material and relevant to them while staying focused on their customers. stakeholders. TURNOVER R64.2bn FINANCIAL REFINANCED R18.0bn CapitaL REINVESTED R3.7bn Shareholders + suppliers + financiers MAIDEN DIVIDEND DECLARED R960m THE LARGEST PORTION OF OUR CUstomers ARE LOW- INcome EARNERS >> Our social investment strategy is integrated into our SOCIAL Giving back to business – to give customers the opportunity to save money and to help build CAPITAL build sustainable communities to be self-sustainable mostly through education. We help to provide communities dignity and respect to those most in need, by providing access to products.