Unaudited interim condensed consolidated results for the 26 week period ended 31 August 2014

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 
26 weeks to 
31 August 
 2014 
Rm 		 Unaudited 
26 weeks to 
1 September 
2013 
Rm 		 Audited 
52 weeks to 
2 March 
 2014 
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 
 

Unaudited 

   South 
Africa 
Rm  		Rest of 
Africa 
Rm  		Total 
operations 
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** 

   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 
26 weeks to 
31 August 
2014 
Cents 
per share 		   Unaudited 
26 weeks to 
1 September 
2013 
Cents 
per share 		 Audited 
52 weeks to 
2 March 
 2014 
Cents 
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 
31 August  
2014 
Rm 		     Unaudited 
26 weeks to 
1 September 
2013 
Rm 		 Adjustment 
Rm 		 Unaudited 
26 weeks to 
1 September 
2013 
As previously 
stated 
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 
31 August  
2014 
Rm 		     Unaudited 
26 weeks to 
1 September 
2013 
Rm 		 Adjustment 
Rm 		 Unaudited 
26 weeks to 
1 September 
2013 
As previously 
stated 
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 
31 August 
 2014 
Rm 		     Unaudited 
26 weeks to 
1 September 
2013 
Rm 		 Adjustment 
Rm 		 Unaudited 
26 weeks to 
1 September 
2013 
As previously 
stated 
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 R275million. 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 
31 August
2014 
Rm 		     Unaudited 
26 weeks to 
1 September 
2013 
Rm 		 Adjustment 
Rm 		 Unaudited 
26 weeks to 
1 September 
2013 
As previously 
stated 
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 
31 August  
2014 
Rm 		     Unaudited 
26 weeks to 
1 September 
2013 
Rm 		 Adjustment 
Rm 		 Unaudited 
26 weeks to 
1 September 
2013 
As previously 
stated 
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 
31 August  
2014 
Rm 		     Unaudited 
26 weeks to 
1 September 
2013 
Rm 		 Adjustment 
Rm 		 Unaudited 
26 weeks to 
1 September 
2013 
As previously 
stated 
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. 

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