Wrap Text
Unaudited Interim Condensed Consolidated Results for the 26 week period ended 31 August 2014
Pick n Pay Holdings Limited RF
Registration number: 1981/009610/06
JSE share code: PWK
ISIN: ZAE000005724
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 R385.7 million R317.0 million 21.7
Trading profit margin 1.2% 1.1%
Profit before tax R365.9 million R271.3 million 34.9
Profit before tax margin 1.1% 0.9%
Basic earnings per share 26.72 cents 19.86 cents 34.5
Headline earnings per share 26.51 cents 20.24 cents 31.0
Interim dividend per share 9.40 cents 7.20 cents 30.6
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 21.7% 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 34.9% on last year. The
profit before tax margin is 1.1%, up from 0.9% last year.
Headline earnings per share are 31.0% up on the same period last year. The Group declared an
interim dividend of 9.40 cents, up 30.6% 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 5.4% 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 29.6% to 28.7%, 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 34.5% from 19.86 to 26.72 cents per share.
Headline earnings per share (HEPS) increased 31.0% from 20.24 to 26.51 cents per share.
Profits on the sale of assets, net of tax, of R1.1 million have been deducted from headline
earnings, against an add-back of losses on the sale of assets, net of tax, of R2.0 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 2 389.9
Cash and cash equivalents 965.4 1 340.3
Current liabilities (9 166.0) (9 163.3)
Net working capital (1 337.6) (1 482.4)
We are pleased with the improvement in net working capital of R144.8 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 R319.5 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 9.40 cents per share, 30.6% 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.
Raymond Ackerman
Chairman
15 October 2014
Dividend declarations
Pick n Pay Holdings Limited RF - Tax reference number: 9050/141/71/3
Number of shares in issue: 527 249 082
Notice is hereby given that the directors have declared an interim dividend (number 66) of 9.40 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 1.41000 cents per share, leaving shareholders who are not exempt from dividends
tax with a net dividend of 7.99000 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 statements of comprehensive income
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 (5 616.2) 5.4 (5 330.7) (10 532.4)
Employee costs (2 818.6) 5.3 (2 677.9) (5 326.5)
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 (619.4) 7.4 (576.5) (1 011.5)
Trading profit 385.7 21.7 317.0 1 008.1
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 365.9 34.9 271.3 830.9
Tax (104.9) 30.8 (80.2) (249.4)
Profit for the period 261.0 36.6 191.1 581.5
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 256.2 33.4 192.1 645.0
Profit for the period attributable to: 261.0 36.6 191.1 581.5
Equity holders of the Company 137.9 34.1 102.8 312.9
Non-controlling interest 123.1 39.4 88.3 268.6
Total comprehensive income for the period attributable to: 256.2 33.4 192.1 645.0
Equity holders of the Company 135.4 31.1 103.3 347.2
Non-controlling interest 120.8 36.0 88.8 297.8
cents cents cents
Basic earnings per share 26.72 34.5 19.86 60.61
Diluted basic earnings per share 25.79 32.3 19.50 59.10
Headline earnings per share 26.51 31.0 20.24 68.83
Diluted headline earnings per share 25.59 28.7 19.88 67.13
Consolidated statements 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 95.5 92.0
Retirement scheme assets 94.3 12.0 85.1
Deferred tax assets 206.9 205.4 212.1
5 723.7 5 543.1 5 739.9
Current assets
Inventory 4 153.6 3 950.9 3 979.8
Trade and other receivables 2 709.4 2 389.9 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 13 224.2 14 104.6
EQUITY AND LIABILITIES
Capital and reserves
Share capital 6.6 6.6 6.6
Share premium 120.8 120.8 120.8
Treasury shares (102.9) (91.7) (95.3)
Retained earnings 1 297.3 1 166.8 1 377.3
Foreign currency translation deficit (7.2) (9.1) (3.6)
Attributable to equity holders of the Company 1 314.6 1 193.4 1 405.8
Non-controlling interest 1 221.8 1 108.5 1 290.6
Total shareholders’ interest 2 536.4 2 301.9 2 696.4
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 9 072.3 8 237.2 8 091.3
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 -
9 486.0 9 163.3 9 618.4
Total equity and liabilities 13 872.1 13 224.2 14 104.6
Net asset value - cents per share
(property valued based on directors’ valuation) 576.6 502.2 605.5
Consolidated statement of changes in equity
for the period ended 31 August 2014
Attributable to equity holders of the Company
Foreign Total
currency Non- Share-
Share Share Treasury Retained translation controlling holders
capital premium shares earnings deficit Total interest interest
Unaudited Rm Rm Rm Rm Rm Rm Rm Rm
At 3 March 2013 6.6 120.8 (89.3) 1 222.4 (7.1) 1 253.4 1 157.4 2 410.8
Total comprehensive income for the period - - - 105.3 (2.0) 103.3 88.8 192.1
Profit for the period - - - 102.8 - 102.8 88.3 191.1
Exchange rate differences on translating foreign operations - - - - (2.0) (2.0) (1.7) (3.7)
Remeasurement in retirement scheme assets - - - 2.5 - 2.5 2.2 4.7
Transactions with owners - - 1.3 (164.6) - (163.3) (137.7) (301.0)
Dividends paid - - - (177.2) - (177.2) (151.0) (328.2)
Share repurchases - - (4.1) (1.6) - (5.7) (4.9) (10.6)
Net effect of settlement of employee share options - - 5.4 (3.7) - 1.7 1.4 3.1
Share options expense - - - 18.7 - 18.7 16.0 34.7
Movement in treasury shares - - - (0.8) - (0.8) 0.8 -
At 1 September 2013 6.6 120.8 (88.0) 1 163.1 (9.1) 1 193.4 1 108.5 2 301.9
Total comprehensive income for the period - - - 238.4 5.5 243.9 209.0 452.9
Profit for the period - - - 210.1 - 210.1 180.3 390.4
Exchange rate differences on translating foreign operations - - - - 5.5 5.5 4.6 10.1
Remeasurement in retirement scheme assets - - - 28.3 - 28.3 24.1 52.4
Transactions with owners - - (7.3) (24.2) - (31.5) (26.9) (58.4)
Dividends paid - - - (38.0) - (38.0) (31.0) (69.0)
Share repurchases - - (5.4) (13.6) - (19.0) (16.1) (35.1)
Net effect of settlement of employee share options - - (1.9) 6.7 - 4.8 4.1 8.9
Share options expense - - - 19.9 - 19.9 16.9 36.8
Movement in treasury shares - - - 0.8 - 0.8 (0.8) -
At 2 March 2014 6.6 120.8 (95.3) 1 377.3 (3.6) 1 405.8 1 290.6 2 696.4
Total comprehensive income for the period - - - 138.8 (3.4) 135.4 120.8 256.2
Profit for the period - - - 137.9 137.9 123.1 261.0
Exchange rate differences on translating foreign operations - - - - (3.4) (3.4) (3.1) (6.5)
Remeasurement in retirement scheme assets - - - 0.9 0.9 0.8 1.7
Transactions with owners - - (7.6) (218.8) (0.2) (226.6) (189.6) (416.2)
Dividends paid - - - (194.9) - (194.9) (168.1) (363.0)
Shares repurchases - - (12.1) (58.6) - (70.7) (52.0) (122.7)
Net effect of settlement of employee share options - - 4.5 13.5 - 18.0 12.2 30.2
Share options expense - 20.8 - 20.8 18.5 39.3
Movement in treasury shares - - - 0.4 (0.2) 0.2 (0.2) -
At 31 August 2014 6.6 120.8 (102.9) 1 297.3 (7.2) 1 314.6 1 221.8 2 536.4
Consolidated statements 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
Cash flows from operating activities
Trading profit 385.7 317.0 1 008.1
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 908.2 895.1 2 111.3
Movements in working capital 941.0 1 387.1 781.3
Movements in trade and other payables 981.0 1 357.6 1 229.7
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 1 849.2 2 282.2 2 892.6
Interest received 26.0 19.2 44.3
Interest paid (59.9) (74.1) (143.9)
Cash generated by operations 1 815.3 2 227.3 2 793.0
Dividends paid (363.0) (328.2) (397.2)
Tax paid (136.3) (113.1) (270.2)
Cash generated by operating activities 1 316.0 1 786.0 2 125.6
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 6.9
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) (1 219.7)
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 10.0 10.0 10.0
1.25 cents each
Issued
527 249 082 (2013: 527 249 082) ordinary shares of 6.6 6.6 6.6
1.25 cents each
26 362 454 of the unissued shares of the Company may be utilised, and is available, to settle the
Company’s obligations under the employee share schemes.
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.
4. OPERATING SEGMENTS
South Rest of Total
Africa Africa operations
Unaudited Rm Rm Rm
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** 230.8 135.1 365.9
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 11 014.5 321.2 11 335.7
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** 176.8 94.5 271.3
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 12 299.7 924.5 13 224.2
Total liabilities 10 388.9 533.4 10 922.3
*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. BASIC, HEADLINE AND DILUTED 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 26.72 19.86 60.61
Diluted basic 25.79 19.50 59.10
Headline 26.51 20.24 68.83
Diluted headline 25.59 19.88 67.13
Rm Rm Rm
5.1 Basic and headline earnings
Reconciliation between basic and headline earnings:
Basic earnings (profit for the period) 137.9 102.8 312.9
Adjustments: (1.1) 2.0 42.5
(Profit)/loss on sale of property, plant and equipment (1.6) 2.8 3.0
Tax effect of profit/(loss) on sale of property, plant and equipment 0.5 (0.8) (0.8)
Impairment of intangible assets - - 56.0
Tax effect of impairment of intangible assets - - (15.7)
Headline earnings 136.8 104.8 355.4
Basic earnings (profit for the period) 137.9 102.8 312.9
Dilutive effect of share options (3.2) (1.2) (4.7)
Diluted basic earnings 134.7 101.6 308.2
Headline earnings 136.8 104.8 355.4
Dilutive effect of share options (3.2) (1.2) (5.3)
Diluted headline earnings 133.6 103.6 350.1
000’s 000’s 000’s
5.2 Number of shares
Weighted average number of ordinary shares in issue 516 170.7 517 564.5 516 247.1
Diluted weighted average number of ordinary shares in issue 522 231.5 520 970.6 521 495.3
Number of shares in issue 527 249.1 527 249.1 527 249.1
6. RECLASSIFICATIONS
6.1 Other trading income
In line with the reclassification done during 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 visibility of all other trading income,
specifically commissions received. The prior period has been restated to align with current
year 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 year. 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-period classifications. This reclassification 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 (5 616.2) (5 330.7) - (5 330.7)
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 (619.4) (576.5) 33.6 (610.1)
6.3 Provisions
In line with the reclassification done during 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 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 Rest of Africa. The prior year segmental
profit has been restated to reflect the correct segmentation between South Africa and 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 261.0 271.3 - 271.3
South Africa 125.9 176.8 (29.4) 206.2
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 Rest of Africa. No such reclassification was required during the 52 weeks ending
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 13 224.2 - 13 224.2
South Africa 12 853.1 12 299.7 (148.3) 12 448.0
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 are measured at fair
value through profit or loss, are categorised into level 2 of the fair value hierarchy and are 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 (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.
Number of stores
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
Board of directors
Non-executive
Raymond Ackerman (Chairman)
Wendy Ackerman
Gareth Ackerman
Independent non-executive
René de Wet
Hugh Herman
Jeff van Rooyen
Alternate directors
Suzanne Ackerman-Berman
Jonathan Ackerman
David Robins
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
Cape Town 7735
Promotion of Access to Information Act
Information officer: Penny Gerber
email address: pgerber@pnp.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
Telephone +27 800 11 22 88
email address: customercare@pnp.co.za
Online shopping
Tel +27 860 30 30 30
www.picknpay.co.za
Website
Pick n Pay: www.picknpay.co.za
Investor relations: www.picknpayinvestor.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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