Pick n Pay South Africa, which owns 49 percent of TM Supermarkets says the local unit was experiencing a sustained market share growth but exchange losses and hyperinflation continue to weigh on the parent company.
Despite gaining market share, Pick n Pay South Africa took a 39,2 percent knock on its share of income from the Zimbabwe- based associate after accounting for exchange losses and hyperinflation.
Share of associate income amounted to R66,3 million (US$3,6 million) down from R109,0 million (US$5,9 million) for the 52 weeks ended March 1, 2020.
This is after the parent company accounted for increased foreign exchange losses at R79,4 million up from R42,1 million prior year comparative.
Forex losses on translation of TM’s foreign debt reduced the parent company’s earnings by R79,4 million, according to chief executive officer Richard Brasher in a presentation this week.
Excluding forex losses and the provisions of IAS 29 Hyperinflation accounting the local associate also recorded a 32,4 percent decline in revenue to R102,5 million from R151,1 million for the comparable prior year.
The South Africa-based parent company, however, had to impair R173,6 million of its investment in TM Supermarkets resulting in a negative impact on the Group’s profit before tax by R107,3 million.
Brasher said hyperinflation assets were tested for impairment resulting in a R173,6 million capital impairment loss.
Risk of further devaluation is however limited to the current carrying value of the investment of R50,4 million, according to Brasher.
Commenting on the trading environment, chief finance officer Lerena Olivier said TM Supermarkets continues to trade in an exceedingly difficult hyperinflationary environment.
However, the local unit had still managed to record a “strong trading performance” in a difficult environment with “sustained market share growth”.
Brasher said over the past 18 months, TM Supermarkets, has grappled with severe currency shortages, currency devaluation, high levels of inflation, shortages of fuel and other staple goods, and shortages of power and water.
“The financial performance of TM Supermarkets reflects these significant challenges.”
Brasher said although the business was expected to benefit from a shift in consumer spending from discretionary sectors to non-discretionary products, principally food, the impact of any such shift is outweighed by the negative impact on consumer spending resulting from the shutdown of large parts of the economy, and the consequent reduction in the payment of wages and salaries.
The exchange rate as at May 13, 2020 was 1 USD = 18,3381 ZAR.