Page:  1 2 3 4

Report to stakeholders

Chief Finance Officer's report

FINANCIAL POSITION

The financial position of the Group as at 3 March 2013 was impacted by the change in reporting close-off date due to the changeover to a 52-week reporting calendar. During the additional days a net cash outflow of R1.1 billion was recorded which related mainly to the payment of trade creditors. Although cash balances were reduced this did not have an impact on the net working capital of the Group.

When reviewing the Group’s financial position it is more appropriate to consider the movement in net working capital in order to eliminate cut-off impacts and ensure year-on-year comparability. The net working capital decrease, during the period under review as illustrated in the table below, is discussed in the context of the relevant statement of financial position items.

Inventory

• Provisioning of the new Western Cape distribution centre in Philippi;
• Expanding our store footprint;
• Ensuring that our customer offering is accessible and convenient; and
• Increase in imported merchandise to strengthen the customer offering in our Hypermarkets.

If these factors are taken into account, our inventory levels are in line with those of the comparable period.

Trade and other receivables

The increase of R240 million in trade and other receivables relates to the change in reporting cut-off and 39 new franchise stores. Franchise receivables were well controlled, but our exposure to emerging market franchisees has resulted in an increase in our provision for bad debts of R111.2 million.

Cash and capital management

The Group’s liquidity position is reviewed continually. Working capital management is critical in maintaining a sustainable and cost-effective capital structure. The Group utilises interest-bearing borrowings to fund specifically identified capital expenditure. All capital expenditure is reviewed through a rigorous requisition and approval process.

The net interest expense of R88.5 million (2012: R95.6 million) was well controlled. The R1.2 billion proceeds from the sale of Franklins during September 2012 strengthened our cash position.

Cash outflows during the period related to the settlement of loan funding of R250 million and capital expenditure of
R1.3 billion. More than half of capital expenditure consisted of expanding our store base and improving the customer experience in existing stores, as detailed below.

Capital commitments to the value of R1.8 billion are planned for the next financial period. More than half will be focused on an increase in our footprint and convenience offering to the customer. This includes adding trading space via more than 100 stores. All future capital commitments will be funded by internal funding, the rollover of our Domestic Medium Term Note (DMTN) programme and longer-term borrowings, where appropriate.

Page:  1 2 3 4