Wrap Text
Unaudited Interim Condensed Consolidated Results for the 26 week period ended 31 August 2014
Pick n Pay Stores Limited
Registration number: 1968/008034/06
JSE share code: PIK
ISIN: ZAE000005443
Unaudited interim condensed consolidated results
for the 26 week period ended 31 August 2014
Measured progress in a challenging market
Review of operations
Key financial indicators
26 weeks to 26 weeks to
31 August 1 September %
2014 2013 change
Total till sales R37.4 billion R35.0 billion 7.1
Turnover R32.1 billion R30.1 billion 6.8
Gross profit margin 17.7% 17.9%
Trading profit R386.6 million R317.5 million 21.8
Trading profit margin 1.2% 1.1%
Profit before tax R366.8 million R271.8 million 35.0
Profit before tax margin 1.1% 0.9%
Basic earnings per share 54.39 cents 40.05 cents 35.8
Headline earnings per share 53.98 cents 40.81 cents 32.3
Interim dividend per share 19.60 cents 14.80 cents 32.4
Results summary
Pick n Pay delivered a substantially improved profit performance for the half-year ending
31 August 2014, demonstrating sustained progress against our plan to improve the business.
A determined focus on cost control and operating efficiency is strengthening our business and
is continuing to drive our profit growth in a challenging trading environment. Trading profit
increased by 21.8% on last year. Improved working capital management resulted in stronger cash
balances and a considerable saving on net interest paid, driving profit before tax up 35.0% on
last year. The profit before tax margin is 1.1%, up from 0.9% last year.
Headline earnings per share are 32.3% up on the same period last year. The Group declared an
interim dividend of 19.60 cents, up 32.4% on last year.
Turnover growth of 6.8% reflects the growing financial pressure faced by customers in a very
competitive market. Our core customers are becoming increasingly price sensitive in the face
of rising utility, transport and commodity prices and higher borrowing costs. The situation is
even more challenging in the emerging markets which Boxer serves, where unemployment remains a
major concern and there is considerable reliance on social grants.
We supported our customers over the period through substantive investment in price, containing
food price increases at 6.7%, against CPI food inflation of 8.4%. This price investment is
reflected in a decrease in our gross margin from 17.9% to 17.7%. We are encouraged by the
progress we are making in improving our business. Our supply chain and store operations are
simpler and more effective. As a result, operating costs and like-for-like stock holdings are
lower. Centralisation of our administrative functions means better support for our stores, and
benefits our customers through improved availability, better service and more innovation.
Operational review
Growth in a competitive market
We opened 46 new stores over the period, bringing Pick n Pay and Boxer to a number of
communities in which we had not traded before. We are on track to create more than 3 000 new
jobs this financial year, a significant contribution to the national priority of building
employment, training and skills. To improve the quality of our estate, we closed five
under-performing stores and invested R110 million on improving existing stores.
The Group now has 1 117 stores, comprising 665 company-owned stores and 452 franchise stores,
across multiple retail formats and six southern African countries. In addition 52 stores, four
of which trade under the Pick n Pay brand, are operated in Zimbabwe by our associate, TM
Supermarkets.
Our space growth over the period was behind that of our sector. We are determined that new
space should deliver acceptable and sustainable returns, and have reviewed our plans against
this requirement. By using the flexibility available across our Pick n Pay and Boxer formats,
and the opportunity to satisfy the growing demand for convenience, we are confident that we
can grow sustainably. We will therefore accelerate our opening programme, with more than 80
new stores planned to open in the second half of the year.
Improved financial control and operational efficiencies
We are pleased with the enhanced efficiencies and cost reductions that are being achieved
through our investment in centralised category-based procurement, distribution, administration
and related systems. In the first half of this year we completed the rollout of our fully
integrated forecast and replenishment system, and substantively improved our two main distribution
centres. We implemented a specialised high-density picking area (pick tunnel) in our Philippi
Distribution Centre in the Western Cape, significantly increasing the efficiency of handling
slow-moving and single-item units. This has increased the capacity of the facility from 8 000 line
items to 14 500, enabling us to centralise an additional 50 suppliers in the Western Cape. We have
implemented the EWM SAP warehousing system in our Longmeadow Distribution Centre in Gauteng. This
system had been introduced successfully at Philippi, and we expect it to contribute to a 40%
increase in picking efficiency at Longmeadow by the end of the financial year. Notwithstanding
the costs associated with these two initiatives, we reduced our distribution costs in both
facilities compared to the same period last year.
Our improved systems have enabled more effective inventory management, with stock levels reduced
by two days in the distribution centres and the total value of stock on hand being down 6% on a
like-for-like basis. Stock availability remains a challenge, and while we have seen a 2%
improvement over the period, we continue to work closely with suppliers to achieve further
improvement.
We have reduced trading expenses as a percentage of sales by 0.2 percentage points, from 17.7%
to 17.5%, largely through improved labour scheduling and productivity at store level, and a
more streamlined support office function following the head office restructure in the previous
financial year.
Investing in our customer offer
As well as driving profit growth, cost and operational improvements strengthen our ability to
enhance the shopping trip for customers. This is crucial to our strategic aim of sales-led
growth. Lower costs enable us to invest more in the customer offer in a period of high
inflation. Internal food inflation for the half-year was held to 6.7%, compared to food CPI
of 8.4%.
We recognise that our customers are increasingly price sensitive in this current market and
are shopping around for the best deals. We responded through the launch of Pick n Pay Brand
Match at the end of August. Customer feedback and the results to date have been very
encouraging. Brand Match is strengthening confidence in the competitiveness of our prices,
and building even greater loyalty in Pick n Pay.
We have improved the quality of our fresh, perishable and pre-packaged convenience ranges.
Through our “Fresh Promise” we have reaffirmed our commitment to the quality of our fresh
produce, and this has been positively received by our customers. We have used smart shopper
insight to enhance our in-store offer, and have added new value-added areas into stores,
such as biltong bars and fresh flowers.
Customers are seeking greater convenience. As a result, our smaller, more convenient stores
have out-performed our larger hypermarket format. However, hypermarkets remain a valuable
part of our business, attracting a large number of customers and generating significant
revenue for the Group. There are substantial opportunities to improve their efficiency and
offer for customers, and we are developing an overall strategy as well as an individual plan
for each hyper. We have already refitted three larger stores as part of this strategy. We
have appointed a member of our senior management team, Neal Quirk, as the head of our
Hypermarket business. Neal’s focus and operational expertise will ensure that trading
densities improve through better use of space and stronger customer focus.
Our clothing business delivered strong growth over the period, through both an expanded
range and additional space allocations in our supermarkets.
We continue to invest in our online business, which we believe will become an increasingly
valuable asset in the future of South African retail. We have built confidence in the
online experience, through improved availability, quality and reliability and as a result,
we have delivered 37% growth in customers over last year.
We continue to innovate, offering our customers a wide range of value-added services aimed
at increased convenience and lower household costs. Mobile money, our partnership with MTN,
continues to perform well. The service has 1.8 million customers, 400 000 of whom use money
transfers regularly and 250 000 utilise their mobile money account as their low-cost bank
account.
Our smart shopper loyalty programme was recently voted the best loyalty programme in South
Africa for the second year running at the Sunday Times Top Brands awards. More than 10% of
South Africans now have a smart shopper card, with 10 cards swiped every second that our
doors are open. Loyalty sales account for 65% of our turnover, with the value of a smart
shopper basket consistently and meaningfully growing ahead of a non-loyalty basket. Our
smart shopper programme is a key differentiator for Pick n Pay, and we are determined to
keep it relevant and meaningful for customers. We have built on the point of sale
enhancements introduced last year, with the introduction of targeted promotions,
personalised cash off vouchers and a number of new partners. As a result, our smart
shoppers are more engaged than ever, with redemptions of customer offers up 42% over last
year. We have given back R1.5 billion in smart shopper points since the inception of the
programme.
Rest of Africa: establishing a second engine of growth
We continue to strengthen our position outside South Africa with established franchise
businesses in Botswana, Lesotho, Namibia and Swaziland, and a growing company-owned business
in Zambia. These operations have performed well over the period. Segmental revenue is up
15.0% to R1.7 billion, with like-for-like growth of 7.8%. Segmental profit has grown by
43.0% to R135.1 million, partly driven by the Group’s strategic decision to exit
Mozambique and Mauritius last year.
TM Supermarkets, the Group’s 49% held investment in Zimbabwe, has had a more difficult time
over the period, with our share of their income falling by 22.9% to R11.1 million. This
reflects significant deflation in Zimbabwe, resulting in price decreases across a broad
range of categories. We remain confident of the prospects for this business, which has
embarked on a substantial store refurbishment programme.
We continue to actively examine opportunities for sustainable growth outside South Africa.
As a result, we plan to extend our operations in the medium term by opening stores in Ghana,
one of the most rapidly growing markets in Africa. We are also close to completing our
analysis of the opportunities available to us in Nigeria. Our approach outside our borders
remains measured, and no investment will be undertaken without a comprehensive understanding
of a market and its supply chain capacities.
Creating a high-performance team
We are beginning to benefit from our new talent-spotting and performance management processes.
We are investing more in training and development to ensure we have the right skills and
capabilities in place, and are continuously reviewing our head office structure to ensure we
offer an efficient and effective support function for our stores.
We have made a number of new senior management appointments from within the talent pool at
Pick n Pay. This strengthens our decision-making capacity and demonstrates our commitment to
recognising and developing talent within the business, and rewarding successful leadership.
In addition, Jonathan Muthige has joined Pick n Pay as our head of human resources,
replacing Isaac Motaung, who is retiring after 42 years of incredible service to our business.
Jonathan will add momentum and experience to our determination to make Pick n Pay the employer
of choice wherever we operate.
Doing good is good business
We remain determined to play a strong and positive role in the communities we serve and in
the prosperity of the country as a whole. We have expanded the number of Pick n Pay Women’s
Walks in association with Pink Drive, helping to increase public awareness of breast cancer.
We have increased our support for Community Food Gardens and other community programmes. On
sustainability, we have exceeded our target to reduce our energy use by 30% against a 2008
baseline. Our overall climate change strategy has been recognised by our inclusion in the
renowned CPD Global Leaders Index and the international Dow Jones Sustainability Index.
Conclusion: More to come
The Group is encouraged by this improved profit performance. Good expense control and improved
operational efficiency is delivering higher returns and strengthening the capacity of the
business to deliver on our strategy of customer-focused, sales-led growth. We are impatient
to lead more change in Pick n Pay and accelerate progress on our plan. A great deal of hard
work remains to be done under increasingly challenging economic conditions, but we intend to
sustain the momentum we have built up over the past 18 months.
Financial review
Turnover
Group turnover increased by 6.8% to R32.1 billion (2013: R30.1 billion). Total sales growth
has slowed over the period, due in part to lower growth from net new space. New stores
contributed 2.8% to our turnover growth, compared to 4.4% in the prior year. Net trading
space grew by 1.6% over the period. We are pleased, however, with the improvement in our
like-for-like turnover growth, which has increased to 4.0% from 2.7% for the year ended
February 2014. The Group demonstrated stronger growth at overall point of sale level, with
owned and franchise stores collectively growing till sales by 7.1%, with like-for-like
growth of 4.7%.
Gross profit
Gross profit of R5.7 billion is 5.8% up on last year. The gross margin has decreased from
17.9% to 17.7%, reflecting our ongoing commitment to keeping prices as low as possible for
our customers in challenging economic times.
Other trading income
Certain elements of trading income previously included under cost of merchandise sold (within
gross profit) were reclassified during the 2014 financial year and disclosed separately. This
was done to improve the visibility of all other trading income, specifically commissions
received. The prior period has been restated to align with the current year disclosures, please
refer to note 6 of the summarised financial information presented in the notes section. The
15.4% increase in other income is largely attributable to the increase in commissions received,
which reflects the launch of a number of new initiatives, such as mobile money and the sale
of iTunes vouchers, which attracted high commissions on launch.
Trading profit
The trading profit margin improved from 1.1% to 1.2%, due to improved expense control and
operating efficiency. Trading expenses increased by 5.3% and as a percentage of turnover
decreased from 17.7% to 17.5%. The Group contained like-for-like expense growth (removing
the impact of new and closed stores) at 3.0%, against CPI growth for the period of 6.3%.
We are very pleased with the meaningful and sustainable progress being made across all
areas of the business.
* Employee costs increased by 5.3% over the period, with like-for-like growth contained at
3.0%, notwithstanding new store growth and a wage rate increase in line with CPI. The
Group remains resolutely focused on reducing labour costs in the business through improved
productivity and efficiencies.
* Occupancy costs have increased by 12.9%, reflecting our space growth since the beginning
of September last year. Like-for-like occupancy costs are up 8.3%, reflecting above-CPI
regulatory increases in rates and taxes.
* Costs of operations are down 0.1% on last year, and down 3.0% on a like-for-like basis.
This is mainly due to reduced amortisation and depreciation charges as a result of assets
impaired in the prior year. Our operational teams have improved the cost of opening new
stores and improved the efficiencies of existing stores. We have exceeded our target to
reduce our energy usage by 30.0% against our 2008 baseline, which is saving the business
money in the face of increasing energy costs.
* Merchandise and administration costs have increased by 7.4% or 8.8% on a like-for-like
basis. The main driver in this category is bank charges. As South Africa’s largest
acceptor of electronic tender, we are sensitive to increases in bank charges, particularly
as our customers move from debit cards to hybrid cards. The Reserve Bank has taken action
to reduce bank inter-change fees with the benefits expected to flow in the 2016 financial
year.
Interest
The net interest expense of R33.9 million is R21.0 million better than the prior year’s
expense of R54.9 million. Improved working capital management, particularly our focus on
optimising inventory levels, has resulted in stronger cash balances and enabled the
repayment of short-term debt under our DMTN programme.
Tax
The tax rate improved from 29.5% to 28.6%, as a result of our increased profit margin
and with no change in the value of our non-deductible expenses.
Earnings per share
Basic earnings per share (EPS) increased 35.8% from 40.05 to 54.39 cents per share.
Headline earnings per share (HEPS) increased 32.3% from 40.81 to 53.98 cents per
share.
Profits on the sale of assets, net of tax, of R2.0 million have been deducted from
headline earnings, against an add-back of losses on the sale of assets, net of tax,
of R3.6 million in 2013.
Financial position
Sunday, Sunday,
31 August 1 September
2014 2013
Rm Rm
Inventory 4 153.6 3 950.7
Trade and other receivables 2 709.4 2 390.1
Cash and cash equivalents 965.4 1 340.3
Current liabilities (9 162.7) (9 157.2)
Net working capital (1 334.3) (1 476.1)
We are pleased with the improvement in net working capital of R141.8 million,
particularly in the context of the store expansion programme. Inventory has increased
by R202.9 million or 5.1%, with like-for-like inventory (excluding the impact of
new stores) decreasing by 6.0%, mainly due to efficiencies derived from our supply chain
channel, including the benefits from our enhanced forecast and replenishment system.
The increase in trade and other receivables of R319.3 million relates both to new
franchise stores and a reduction in our bad debt provision. On a like-for-like basis,
our cash position is R425.1 million stronger, which is testament to the good work being
done in respect of inventory management and improved control over both capital and
operating expenditure. The decrease in cash and cash equivalents of R374.9 million is
after the repayment of R800 million of short-term debt over the last 12 months.
Shareholder distribution
The Board declared an interim dividend of 19.60 cents per share,32.4% up
on last year.
We would like to thank our whole team for their efforts in refocusing the Group, and
for all their hard work which has delivered this improved result.
Gareth Ackerman Richard Brasher
Chairman Chief Executive Officer
15 October 2014
Dividend declarations
Pick n Pay Stores Limited -
Tax reference number: 9275/141/71/2
Number of shares in issue: 487 322 321
Notice is hereby given that the directors have declared an interim dividend
(number 93) of 19.60 cents per share out of income reserves.
The dividend declared is subject to dividend withholding tax at 15%.
There is no secondary tax on companies (STC) to be taken into account when
determining the dividend tax to withhold.
The tax payable is 2.94000 cents per share, leaving shareholders
who are not exempt from dividends tax with a net dividend of 16.66000 cents
per share.
Dividend dates
The last day of trade in order to participate in the dividend (CUM dividend) will be
Friday, 5 December 2014.
The shares will trade EX dividend from the commencement of business on Monday,
8 December 2014 and the record date will be Friday, 12 December 2014. The dividends will
be paid on Monday, 15 December 2014.
Share certificates may not be dematerialised or rematerialised between Monday,
8 December 2014 and Friday, 12 December 2014, both dates inclusive.
On behalf of the board of directors
Debra Muller
Company Secretary
15 October 2014
Consolidated statement of comprehensive income
for the period ended
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
31 August 1 September 2 March
2014 Change 2013 2014
Rm % Rm Rm
Revenue 32 452.6 7.2 30 278.0 63 661.9
Turnover 32 110.6 6.8 30 067.6 63 117.0
Cost of merchandise sold (26 424.7) 7.0 (24 693.8) (52 077.1)
Gross profit 5 685.9 5.8 5 373.8 11 039.9
Other trading income 316.0 15.4 273.9 500.6
Trading expenses (5 615.3) 5.3 (5 330.2) (10 530.2)
Employee costs (2 818.6) 5.3 (2 677.9) (5 326.3)
Occupancy (897.0) 12.9 (794.3) (1 613.9)
Operations (1 281.2) (0.1) (1 282.0) (2 580.5)
Merchandising and administration (618.5) 7.4 (576.0) (1 009.5)
Trading profit 386.6 21.8 317.5 1 010.3
Profit/(loss) on sale of property, plant and equipment 3.0 (5.2) (5.5)
Impairment loss on intangible assets - - (104.1)
Interest received 26.0 35.4 19.2 44.3
Interest paid (59.9) (19.2) (74.1) (143.9)
Share of associate’s income 11.1 (22.9) 14.4 32.0
Profit before tax 366.8 35.0 271.8 833.1
Tax (104.9) 30.8 (80.2) (249.4)
Profit for the period 261.9 36.7 191.6 583.7
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurement in retirement scheme assets 1.7 4.7 57.1
Items that may be reclassified to profit or loss
Exchange rate differences on translating foreign operations (6.5) (3.7) 6.4
Other comprehensive income, net of tax (4.8) 1.0 63.5
Total comprehensive income for the period 257.1 33.5 192.6 647.2
Cents Change % Cents Cents
Basic earnings per share 54.39 35.8 40.05 122.01
Diluted basic earnings per share 53.52 34.8 39.69 120.21
Headline earnings per share 53.98 32.3 40.81 138.51
Diluted headline earnings per share 53.12 31.3 40.45 136.46
Consolidated statement of financial position
Unaudited Unaudited Audited
as at as at as at
31 August 1 September 2 March
2014 2013 2014
Rm Rm Rm
ASSETS
Non-current assets
Property, plant and equipment 3 947.8 3 980.7 4 039.3
Intangible assets 1 016.3 959.5 987.6
Operating lease assets 145.8 116.3 132.8
Investment in associate 177.0 148.3 165.9
Participation in export partnerships 26.9 25.4 25.1
Loans 108.7 95.1 92.0
Retirement scheme assets 94.3 12.0 85.1
Deferred tax assets 206.9 205.4 212.1
5 723.7 5 542.7 5 739.9
Current assets
Inventory 4 153.6 3 950.7 3 979.8
Trade and other receivables 2 709.4 2 390.1 2 841.1
Cash and cash equivalents 1 285.4 1 340.3 1 540.3
Derivative financial instruments - - 3.5
8 148.4 7 681.1 8 364.7
Total assets 13 872.1 13 223.8 14 104.6
EQUITY AND LIABILITIES
Capital and reserves
Share capital 6.0 6.0 6.0
Share premium - - -
Treasury shares (162.7) (140.1) (145.7)
Retained earnings 2 709.7 2 458.6 2 849.1
Foreign currency translation deficit (13.3) (16.9) (6.8)
Total shareholders’ interest 2 539.7 2 307.6 2 702.6
Non-current liabilities
Borrowings 741.1 772.3 747.1
Operating lease liabilities 1 108.6 986.7 1 042.7
1 849.7 1 759.0 1 789.8
Current liabilities
Trade and other payables 9 069.0 8 231.1 8 085.1
Bank overdraft and overnight borrowings 320.0 - 670.0
Borrowings 40.2 829.6 737.8
Tax 45.9 80.2 111.2
Provisions 4.5 9.6 8.1
Derivative financial instruments 3.1 6.7 -
9 482.7 9 157.2 9 612.2
Total equity and liabilities 13 872.1 13 223.8 14 104.6
Net asset value - cents per share 613.6 543.1 645.6
(property valued based on directors’ valuation)
Consolidated statement of changes in equity
for the period ended 31 August 2014
Foreign Total
currency Share-
Share Share Treasury Retained translation holders'
capital premium shares earnings deficit interest
Unaudited Rm Rm Rm Rm Rm Rm
At 3 March 2013 6.0 - (139.4) 2 562.6 (13.2) 2 416.0
Total comprehensive income for the period - - - 196.3 (3.7) 192.6
Profit for the period - - - 191.6 - 191.6
Exchange rate differences on translating foreign operations - - - - (3.7) (3.7)
Remeasurement in retirement scheme assets - - - 4.7 - 4.7
Transactions with owners - - (0.7) (300.3) - (301.0)
Dividends paid - - - (328.2) - (328.2)
Share repurchases - - (10.6) - - (10.6)
Net effect of settlement of employee share options - - 9.9 (6.8) - 3.1
Share options expense - - - 34.7 - 34.7
At 1 September 2013 6.0 - (140.1) 2 458.6 (16.9) 2 307.6
Total comprehensive income for the period - - - 444.5 10.1 454.6
Profit for the period - - - 392.1 - 392.1
Exchange rate differences on translating foreign operations - - - - 10.1 10.1
Remeasurement in retirement scheme assets - - - 52.4 - 52.4
Transactions with owners - - (5.6) (54.0) - (59.6)
Dividends paid - - - (70.2) - (70.2)
Share repurchases - - (35.1) - - (35.1)
Net effect of settlement of employee share options - - 29.5 (20.6) - 8.9
Share options expense - - - 36.8 - 36.8
At 2 March 2014 6.0 - (145.7) 2 849.1 (6.8) 2 702.6
Total comprehensive income for the period - - 263.6 (6.5) 257.1
Profit for the period - - - 261.9 - 261.9
Exchange rate differences on translating foreign operations - - - - (6.5) (6.5)
Remeasurement in retirement scheme assets - - - 1.7 - 1.7
Transactions with owners - - (17.0) (403.0) - (420.0)
Dividends paid - - - (366.8) - (366.8)
Share repurchases - - (122.7) - - (122.7)
Net effect of settlement of employee share options - - 105.7 (75.5) - 30.2
Share-based payments expense - - - 39.3 - 39.3
At 31 August 2014 6.0 - (162.7) 2 709.7 (13.3) 2 539.7
Consolidated statement of cash flows
for the period ended
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
31 August 1 September 2 March
2014 2013 2014
Rm Rm Rm
Trading profit 386.6 317.5 1 010.3
Depreciation and amortisation 427.3 478.8 948.4
Share-based payment expense 39.3 34.7 71.5
Movement in net operating lease liabilities 52.9 51.4 90.8
Movement in provisions (3.6) 9.6 (0.9)
Fair value adjustments 6.6 3.6 (6.6)
Cash generated before movements in working capital 909.1 895.6 2 113.5
Movements in working capital 943.9 1 386.6 780.7
Movements in trade and other payables 983.9 1 357.1 1 229.1
Movements in inventory (171.7) 45.8 31.6
Movements in trade and other receivables 131.7 (16.3) (480.0)
Cash generated by trading activities 1 853.0 2 282.2 2 894.2
Interest received 26.0 19.2 44.3
Interest paid (59.9) (74.1) (143.9)
Cash generated by operations 1 819.1 2 227.3 2 794.6
Dividends paid (366.8) (328.2) (398.4)
Tax paid (136.3) (113.1) (270.2)
Cash generated by operating activities 1 316.0 1 786.0 2 126.0
Cash flows from investing activities
Investment in intangible assets (67.6) (103.8) (289.2)
Investment in property, plant and equipment (281.4) (453.9) (882.4)
Purchase of operations (50.9) - (103.3)
Proceeds on disposal of intangible assets 1.6 - 11.1
Proceeds on disposal of property, plant and equipment 27.8 15.2 38.2
Loans (advanced)/repaid (16.7) 3.5 6.5
Participation in export partnerships (1.8) (9.9) 3.0
Retirement obligation (6.8) 5.1 (4.0)
Cash utilised in investing activities (395.8) (543.8) (1 220.1)
Cash flows from financing activities
Borrowings (repaid)/raised (703.6) 397.9 280.9
Share repurchases (122.7) (10.6) (45.7)
Proceeds from employees on settlement of share options 0.8 0.6 1.3
Cash (utilised in)/generated by financing activities (825.5) 387.9 236.5
Net increase in cash and cash equivalents 94.7 1 630.1 1 142.4
Cash and cash equivalents at beginning of period 870.3 (269.9) (269.9)
Effect of exchange rate fluctuations on cash and cash equivalents 0.4 (19.9) (2.2)
Net cash and cash equivalents at end of period 965.4 1 340.3 870.3
Consisting of:
Cash and cash equivalents 1 285.4 1 340.3 1 540.3
Bank overdraft and overnight borrowings (320.0) - (670.0)
Notes to the financial information
for the period ended 31 August 2014
1. Basis of preparation and accounting policies
The condensed consolidated interim financial statements are prepared in accordance
with International Financial Reporting Standards, IAS 34 Interim Financial Reporting,
the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by Financial Reporting Standards Council and
the requirements of the Companies Act of South Africa. The accounting policies applied
in the preparation of these interim financial statements are in terms of International
Financial Reporting Standards and are consistent with those applied in the financial
statements for the 52 weeks ended 2 March 2014. These interim financial statements
have been prepared by the Finance Division under the supervision of the Chief Financial
Officer, Mr Bakar Jakoet CA(SA), and have not been audited or reviewed by the Group’s
external auditors, KPMG Inc.
2. Related party transactions
During the period, certain companies within the Group entered into transactions with
each other. These intra-group transactions are eliminated on consolidation. Related
parties are unchanged from those reported at 2 March 2014. For further information
please refer to note 27 of the 2014 Group financial statements and note 8 of the
2014 Company financial statements.
3. SHARE CAPITAL
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
31 August 1 September 2 March
2014 2013 2014
Rm Rm Rm
Authorised
800 000 000 (2013: 800 000 000) ordinary shares
of 1.25 cents each 10.0 10.0 10.0
Issued
487 322 321 (2013: 480 397 321) ordinary shares
of 1.25 cents each 6.1 6.0 6.0
24 019 866 of the unissued shares of the Company may be utilised to settle the
Company’s obligations under the employee share schemes. To date, 9 615 000 shares
have been issued, resulting in 14 404 866 remaining.
The holders of ordinary shares are entitled to receive dividends as declared and are
entitled to one vote per share at meetings of the Company.
During the 26 weeks ended 31 August 2014, 6 925 000 shares were issued with a value
of R57.31 per share to subsidiary companies within the Group to be utilised as share
based payments in terms of a forfeitable share plan (FSP) as approved by shareholders
at the extra ordinary general meeting held on 12 February 2014. Refer to note 8.
4. OPERATING Segments
South Rest of Total
Africa Afriica operations
Rm Rm Rm
Unaudited
2014
Total segment revenue 31 030.1 1 732.4 32 762.5
External revenue 31 030.1 1 422.5 32 452.6
Direct deliveries* - 309.9 309.9
Segment external turnover 30 688.1 1 422.5 32 110.6
Segmental profit** 231.7 135.1 366.8
Other information
Statement of comprehensive income
Interest received 23.5 2.5 26.0
Interest paid 59.9 - 59.9
Depreciation and amortisation 416.3 11.0 427.3
Share of associate’s income - 11.1 11.1
Statement of financial position
Total assets 12 853.1 1 019.0 13 872.1
Total liabilities 11 011.2 321.2 11 332.4
2013
Total segment revenue 29 046.9 1 506.1 30 553.0
External revenue 29 046.9 1 231.1 30 278.0
Direct deliveries* - 275.0 275.0
Segment external turnover 28 836.5 1 231.1 30 067.6
Segmental profit** 177.3 94.5 271.8
Other information
Statement of comprehensive income
Interest received 19.1 0.1 19.2
Interest paid 73.8 0.3 74.1
Depreciation and amortisation 469.2 9.6 478.8
Share of associate’s income - 14.4 14.4
Statement of financial position
Total assets 12 299.3 924.5 13 223.8
Total liabilities 10 382.8 533.4 10 916.2
* Direct deliveries are issues to franchisees directly by Group suppliers facilitated
through the Group’s supply chain, these are not included in revenue on the statement
of comprehensive income.
** Segmental profit is the reported measure used for evaluating the Group’s operating
segments performance. On an overall basis the segmental profit is equal to the Group’s
reported profit before tax. The Rest of Africa segment’s segmental profit comprises
the segment’s trading result and directly attributable costs only. No allocations are
made for indirect or incremental cost incurred by the South Africa segment relating to
the Rest of Africa segment.
5. EARNINGS PER SHARE
Unaudited Unaudited Audited
26 weeks to 26 weeks to 52 weeks to
31 August 1 September 2 March
2014 2013 2014
Cents Cents Cents
per share per share per share
Basic 54.39 40.05 122.01
Diluted basic 53.52 39.69 120.21
Headline 53.98 40.81 138.51
Diluted headline 53.12 40.45 136.46
Rm Rm Rm
5.1 Basic and headline earnings
Reconciliation between basic and headline earnings:
Basic earnings (profit for the period) 261.9 191.6 583.7
Adjustments: (2.0) 3.6 78.9
(Profit)/loss on sale of property, plant
and equipment (3.0) 5.2 5.5
Tax effect of profit/(loss) on sale of
property, plant and equipment 1.0 (1.6) (1.6)
Impairment of intangible assets - - 104.1
Tax effect of impairment of intangible assets - - (29.1)
Headline earnings 259.9 195.2 662.6
000’s 000’s 000’s
5.2 Number of shares
Weighted average number of ordinary
shares in issue 481 536.3 478 364.1 478 386.8
Diluted weighted average number of
ordinary shares in issue 489 333.6 482 680.7 485 577.4
Number of shares in issue 487 322.3 480 397.3 480 397.3
6. RECLASSIFICATIONS
6.1 Other trading income
In line with the reclassification for the 52 weeks ended 2 March 2014, trading income of R82.7 million
previously included under cost of merchandise sold has been reclassified and disclosed separately. This
has been done to improve the visibility of all other trading income, specifically commissions received.
The prior period has been restated to align with the current period disclosures.
Unaudited
26 weeks to
Unaudited Unaudited 1 September
26 weeks to 26 weeks to 2013
31 August 1 September As previously
2014 2013 Adjustment stated
Rm Rm Rm Rm
Gross profit 5 685.9 5 373.8 (82.7) 5 456.5
Other trading income 316.0 273.9 82.7 191.2
6.2 Trading expenses
The Group completed the centralisation of its buying, operational and finance support functions during the
previous period. As a result, the Group reviewed all allocations of trading expenses in the statement of
comprehensive income for the 52 weeks ended 2 March 2014 to ensure that it accurately reflected the new
operating costs structures within the Group. Trading expenses presented for the 26 weeks ended
1 September 2013 have been adjusted in line with the full-year classifications. The reclassifications had
no impact on information presented for prior financial period-ends as the centralised operating structures
and related cost implications have not been in effect during those periods.
Unaudited
26 weeks to
Unaudited Unaudited 1 September
26 weeks to 26 weeks to 2013
31 August 1 September As previously
2014 2013 Adjustment stated
Rm Rm Rm Rm
Trading expenses (5 615.3) (5 330.2) - (5 330.2)
Employee costs (2 818.6) (2 677.9) - (2 677.9)
Occupancy (897.0) (794.3) 75.3 (869.6)
Operations (1 281.2) (1 282.0) (108.9) (1 173.1)
Merchandising and administration (618.5) (576.0) 33.6 (609.6)
6.3 Provisions
In line with the reclassification for the 52 weeks ended 2 March 2014 and in order to improve disclosure,
provisions previously included under trade and other payables during the 26 weeks ended 1 September 2013
are now presented separately on the face of the statement of financial position and the related
adjustments made to the statement of cash flows.
6.4 Operating segments
Total segment revenue - Rest of Africa
In line with reclassifications done during the 52 weeks ended 2 March 2014, inter-segment revenue previously
disclosed of R90.1 million has been removed as this was actual intra-segment revenue between businesses
within the Rest of Africa segment.
Unaudited
26 weeks to
Unaudited Unaudited 1 September
26 weeks to 26 weeks to 2013
31 August 1 September As previously
2014 2013 Adjustment stated
Rm Rm Rm Rm
Total segment revenue - Rest of Africa 1 732.4 1 506.1 (90.1) 1 596.2
External revenue 1 422.5 1 231.1 - 1 231.1
Direct deliveries 309.9 275.0 - 275.0
Inter-segment revenue - - (90.1) 90.1
Segment external turnover
Segment external turnover presented previously inappropriately included direct deliveries of R275 million
under the Rest of Africa segment. This was not included in the total external turnover and therefore
resulted in the South Africa segment external turnover being understated by R275 million. In line with
reclassifications for the 52 weeks ended 2 March 2014, the prior year segment external turnover has been
restated to reflect the correct segmentation between the Rest of Africa and South Africa.
Unaudited
26 weeks to
Unaudited Unaudited 1 September
26 weeks to 26 weeks to 2013
31 August 1 September As previously
2014 2013 Adjustment stated
Rm Rm Rm Rm
Total segment external turnover 32 110.6 30 067.6 - 30 067.6
South Africa 30 688.1 28 836.5 275.0 28 561.5
Rest of Africa 1 422.5 1 231.1 (275.0) 1 506.1
Segmental profit
Segmental profit previously included internal administration fees between South Africa and the Rest of Africa
of R29.4 million. This was not eliminated and therefore resulted in an overstatement of segmental profit under
South Africa and an understatement of segmental profit under the Rest of Africa. The prior year segmental
profit has been restated to reflect the correct segmentation between South Africa and the Rest of Africa. No
such reclassification was required for the 52 weeks ended 2 March 2014.
Unaudited
26 weeks to
Unaudited Unaudited 1 September
26 weeks to 26 weeks to 2013
31 August 1 September As previously
2014 2013 Adjustment stated
Rm Rm Rm Rm
Total segmental profit 366.8 271.8 - 271.8
South Africa 231.7 177.3 (29.4) 206.7
Rest of Africa 135.1 94.5 29.4 65.1
Total assets
Total assets for the Rest of Africa presented previously excluded the Group’s investment in its associate,
TM Supermarkets, and therefore resulted in the Rest of Africa segment total assets being understated by
R148.3 million. The prior year total assets have been restated to reflect the correct segmentation between
South Africa and the Rest of Africa. No such reclassification was required during the 52 weeks ended
2 March 2014.
Unaudited
26 weeks to
Unaudited Unaudited 1 September
26 weeks to 26 weeks to 2013
31 August 1 September As previously
2014 2013 Adjustment stated
Rm Rm Rm Rm
Total assets 13 872.1 13 223.8 - 13 223.8
South Africa 12 853.1 12 299.3 (148.3) 12 447.6
Rest of Africa 1 019.0 924.5 148.3 776.2
7. FINANCIAL INSTRUMENTS
All financial instruments held by the Group are measured at amortised cost, with the exception of derivative
financial instruments and certain items included in trade and other payables. The latter is measured at fair
value through profit or loss, is categorised into level 2 of the fair value hierarchy and is considered to
be immaterial. Level 2 is defined as using inputs other than quoted prices that are observable for the asset
or liability either directly (as prices) or indirectly (derived from prices). The carrying value of all
financial instruments approximate their fair value.
8. ISSUE OF SHARES IN RESPECT OF FORFEITABLE SHARE PLAN
Pick n Pay Stores Limited issued 6 925 000 shares in June 2014, in order to meet the share obligations under
its new employee forfeitable share plan (FSP), which was approved by shareholders in February 2014. The FSP
brings our approach to providing share incentives in line with international best practice, further aligning
the interests of senior management with those of our shareholders.
The shares were awarded to FSP participants during August 2014. The participants, although benefiting from full
voting rights and full rights to any dividends declared, cannot dispose of their shares during a three-year
employment period. In addition, the shares are subject to further performance conditions linked to the
Pick n Pay Stores Limited Group's compound annual growth in headline earnings per share. Should the employment
condition or performance conditions not be met, the shares (or a portion thereof) are forfeited. Please refer
to our 2014 integrated annual report for further information.
The total employee cost in respect of the FSP is recognised on a straight-line basis over the employment period,
commencing on the award date. The current period expense is not material.
Store numbers report
February Converted Converted August
2014 Opened Closed -openings -closings 2014
Company owned
Pick n Pay 464 19 (2) 3 (3) 481
Hypermarkets 20 - - - - 20
Supermarkets 200 8 (1) 2 (2) 207
Clothing 88 7 (1) - - 94
Liquor 152 4 - 1 (1) 156
Pharmacy 4 - - - - 4
Boxer 179 5 (1) 1 - 184
Superstores 123 2 (1) 1 - 125
Hardware 19 1 - - - 20
Liquor 21 1 - - - 22
Punch 16 1 - - - 17
Total company owned 643 24 (3) 4 (3) 665
Franchise
Pick n Pay
Family 254 4 (1) 5 (3) 259
Mini Market 22 - (1) - (3) 18
Daily 1 - - - - 1
Express 21 10 - - - 31
Liquor 121 6 - 1 (1) 127
Clothing 14 2 - - - 16
Total franchise 433 22 (2) 6 (7) 452
Total Group stores 1 076 46 (5) 10 (10) 1 117
TM Supermarkets - associate 52 1 (1) - - 52
Total including associate 1 128 47 (6) 10 (10) 1 169
footprint outside south africa
(included in the number above)
Pick n Pay company-owned 8 - - - - 8
Boxer company-owned 5 - (1) - - 4
Pick n Pay franchise 33 2 (1) - - 34
TM Supermarkets - associate 52 1 (1) - - 52
Total 98 3 (3) - - 98
Corporate information
Pick n Pay Stores Limited
Registration number: 1968/008034/06
JSE share code: PIK
ISIN: ZAE000005443
Board of directors
Executive
Richard Brasher (CEO)
Richard van Rensburg (deputy CEO)
Aboubakar (Bakar) Jakoet (CFO)
Suzanne Ackerman-Berman
Jonathan Ackerman
Non-executive
Gareth Ackerman (Chairman)
David Friedland
David Robins
Independent non-executive
Hugh Herman
Lorato Phalatse
Ben van der Ross
Jeff van Rooyen
Audrey Mothupi
John Gildersleeve
Company Secretary
Debra Muller
email address: dmuller@pnp.co.za
Registered office
Pick n Pay Office Park
101 Rosmead Avenue
Kenilworth
Cape Town 7708
Telephone +27 21 658 1000
Facsimile + 27 21 797 0314
Postal address
PO Box 23087
Claremont 7735
Promotion of Access to Information Act
Information officer - Penny Gerber
email address: pgerber@pnp.co.za
Website
Pick n Pay: www.picknpay.co.za
Investor relations: www.picknpayinvestor.co.za
Transfer secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street
Johannesburg 2001
Postal address
PO Box 61051
Marshalltown 2107
Telephone +27 11 370 5000
Facsimile +27 11 688 5248
Auditors
KPMG Inc.
Attorneys
Edward Nathan Sonnenberg
Principal transactional bankers
Absa Limited
First National Bank
Jse Limited Sponsor
Investec Bank Limited
100 Grayston Drive
Sandton 2196
Investor relations
David North
email address: dnorth@pnp.co.za
Penny Gerber
email address: pgerber@pnp.co.za
Customer careline
Tel +27 800 11 22 88
email address: customercare@pnp.co.za
Online shopping
Tel +27 860 30 30 30
www.picknpay.co.za
Date: 16/10/2014 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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