Audited summary financial statements for the 2015 financial period

Notes to the financial information
for the period ended 1 March 2015

 

1.  

BASIS OF PREPARATION AND ACCOUNTING POLICIES  
 

The summary Group financial statements for the period ended 1 March 2015 are prepared in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, and the requirements of the Companies Act applicable to summary financial statements. The Listings Requirements require abridged reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The summary Group financial statements does not include all the information required by IFRS for full financial statements and should be read in conjunction with the 2015 integrated annual report. The accounting policies applied in the preparation of the Group financial statements, from which the summary Group financial statements were derived, are in terms of International Financial Reporting Standards and are consistent with the accounting policies applied in the preparation of the previous Group annual financial statements. These results have been audited by KPMG Inc., whose unqualified report is available for inspection at the registered office of the Company. The auditor’s report does not necessarily cover all of the information contained in this financial report. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor’s work, they should obtain a copy of that report together with the accompanying financial information from the registered office of the Company. These financial statements have been prepared by the Finance Division under the supervision of the Chief Finance Officer, Mr Bakar Jakoet CA(SA).
 

2.  

RELATED PARTIES  
 

During the year, certain companies within the Group entered into transactions with each other. These intra-group transactions are eliminated on consolidation. For further information please refer to note 27 of the 2014 integrated annual report.
 

3.  

REVENUE  
    52 weeks  
1 March  
2015  
Rm  		 52 weeks  
2 March  
2014  
Rm  
  Turnover   66 940.8   63 117.0  
  Finance income   59.4   44.3  
  Bank balances and investments   40.9   32.3  
  Trade and other receivables   13.9   8.2  
  Staff loans and other   4.6   3.8  
  Other trading income   602.9   500.6  
  Franchise fee income   294.4   311.2  
  Operating lease income   67.3   77.8  
  Commissions and other income   241.2   111.6  
    67 603.1   63 661.9  
 

4.  

SHARE CAPITAL  
    52 weeks  
1 March  
2015  
Rm  		 52 weeks  
2 March  
2014  
Rm  
  Authorised      
  800 000 000 (2014: 800 000 000) ordinary shares of 1.25 cents each   10.0   10.0  
  Issued      
  487 322 321 (2014: 480 397 321) ordinary shares of 1.25 cents each   6.0   6.0  
    000’s   000’s  
  The number of shares in issue at the end of the period is made up as follows:      
  Treasury shares held in the share trust   1 746.9   1 974.5  
  Shares issued under the forfeitable share plan   6 925.0   —  
  Shares held outside the Group   478 650.4   478 422.8  
  Total shares in issue at end of period   487 322.3   480 397.3  
 

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.  

The movement in the number of shares in issue in the current period was as a result of 6 925 000 shares issued in June 2014, at an issue price of R57.31 per share to various trading subsidiaries. The subsidiaries then used these shares, during August 2014, in order to meet share obligations under the Group’s new employee forfeitable share plan (FSP), as approved by the shareholders in February 2014. These shares are now held in a nominee account on behalf of the participants. 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 Group’s compound annual growth in headline earnings per share. Should the employment conditions or performance conditions not be met, the shares (or portion thereof) are forfeited. The fair value of the shares awarded to participants was R55.59.  

The movement in the number of shares in issue in the current year was caused solely by the above mentioned share issue.  
  Directors’ interest in shares  
    52 weeks  
1 March  
2015  
%  		 52 weeks  
2 March  
2014  
%  
  Beneficial   0.9   0.9  
  Non-beneficial   27.5   27.5  
    28.4   28.4  
  The directors’ interest in shares is their effective direct shareholding in the Company (excluding treasury shares and shares issued under the FSP) and their effective indirect shareholding through Pick n Pay Holdings Limited RF (excluding treasury shares).  
 

5.  

OPERATING SEGMENTS  
    South  
Africa  
Rm  		 Rest of  
Africa  
Rm  		 Total  
operations  
Rm  
  2015        
  Total segment revenue   64 574.2   3 681.9   68 256.1  
  External revenue   64 574.2   3 028.9   67 603.1  
  Direct deliveries*   —   653.0   653.0  
  Segment external turnover   63 911.9   3 028.9   66 940.8  
  Profit before tax**   1 016.2   189.0   1 205.2  
  Other information        
  Statement of comprehensive income        
  Finance income   54.3   5.1   59.4  
  Finance costs   119.0   —   119.0  
  Depreciation and amortisation   845.2   24.3   869.5  
  Share of associate’s income   —   14.3   14.3  
  Statement of financial position        
  Total assets   13 636.7   1 069.8   14 706.5  
  Total liabilities   11 304.9   271.5   11 576.4  
  Additions to non-current assets   1 061.8   43.5   1 105.3  
  2014        
  Total segment revenue   60 925.9   3 241.5   64 167.4  
  External revenue   60 925.9   2 736.0   63 661.9  
  Direct deliveries*   —   505.5   505.5  
  Segment external turnover   60 381.0   2 736.0   63 117.0  
  Profit before tax**   692.7   140.4   833.1  
  Other information        
  Statement of comprehensive income        
  Finance income   40.1   4.2   44.3  
  Finance costs   143.5   0.4   143.9  
  Impairment loss on intangible assets   104.1   —   104.1  
  Depreciation and amortisation   923.1   25.3   948.4  
  Share of associate’s income   —   32.0   32.0  
  Statement of financial position        
  Total assets   12 995.6   1 109.0   14 104.6  
  Total liabilities   11 064.1   337.9   11 402.0  
  Additions to non-current assets   1 233.8   26.2   1 260.0  
  * Direct deliveries are issues to franchisees directly by Group suppliers, these are not included in revenue on the statement of comprehensive income.  
  ** Segmental profit before tax is the reported measure used for evaluating the Group’s operating segments’ performance. On an overall basis the segmental profit before tax is equal to the Group’s reported profit before tax. The rest of Africa segment’s segmental profit before tax comprises the segment’s trading result and directly attributable costs only. No allocations are made for indirect or incremental cost incurred by the South African segment relating to the rest of Africa segment. 
 

6.  

HEADLINE EARNINGS RECONCILIATION  
    52 weeks  
1 March  
2015  
Rm  		 52 weeks  
2 March  
2014  
Rm  
  Profit for the period   861.7   583.7  
  Profit attributable to forfeitable share plan shares   (6.5)  —  
  Basic earnings for the period   855.2   583.7  
  Adjustments:   (7.4)  78.9  
  (Profit)/loss on sale of property, plant and equipment   (10.4)  5.5  
  Tax effect of profit/(loss) on sale of property, plant and equipment   3.0   (1.6) 
  Impairment of intangible assets   —   104.1  
  Tax effect of impairment of intangible assets   —   (29.1) 
  Adjustments attributable to forfeitable share plan shares   —   —  
 

Headline earnings  

 847.8   662.6  
 

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 2015 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 R67.3 million.