Grattan Kirk_Chief executive officer
		“Nothing changes if nothing changes.”

“The Group’s strategy to separate its activities into focused retail and financial services businesses started to deliver tangible benefits . . . Our like for like operating profit before debtors costs increased by 9,3%.”

Even though we operated in a tough environment during the year, we maintained our focus on implementing the strategy which we set in motion in the previous year. We now have two focused and standalone retail and financial services operations. Our priority is to fine tune these businesses to cement their positioning for long term value creation.

Financial overview

We are pleased to report a growth in revenue of 2,5% to R12,9 billion (2008: R12,6 billion). Whilst not significant growth, it does represent an increase in our share of the durable goods sector which declined 6,2% in the period under review. The Group’s strategy to separate its activities into focused retail and financial services businesses started to deliver tangible benefits, as the gross profit increased by 6,3% to R2,8 billion (2008: R2,6 billion). Accordingly, the gross profit margin improved to 30,5% from 28,6% a year ago. These results are underpinned by solid performances across all five operating divisions, as all brands, with the exception of Hi-Fi Corporation, performed in line with expectation.

Operating profit before debtors costs was R1 755 million, up 3,5% on 2008. If we exclude the R98 million in restructuring costs that the Group incurred this year, our like for like operating profit before debtors costs increased by 9,3%. This reflects the success we have achieved during the year in managing both our product margins and expenses.

Operating profit after debtors costs of R646 million (2008: R797 million) showed a decline of 18,9% on the previous year as a result of the restructuring costs of R98 million and a 23,5% increase in the bad debts charge to R1 109 million (2008: R898 million).

Balance sheet and cash flow

The balance sheet reflects net gearing of R639 million compared to R158 million at 31 August 2008. The gearing ratio of 13,2%, compared to 3,3% at 31 August 2008, continues to be very conservative and provides the Group with a healthy balance sheet to grow the business into its areas of strategic focus in the years ahead. 2009 also allowed us to consolidate our funding position by raising over R900 million in long term borrowings.

Traditional Retail

The durable goods market was severely impacted by the consumers’ limited ability to take on more debt during the year, with the sector down 6,2% in the period under review. The Traditional Retail division reported stable merchandise sales of R4,47 billion (2008: R4,49 billion). Facilitated by our focus on retail, the division became more effective in relation to its merchandise – buying the right quantities and ensuring that these products were distributed to the right place at the right time.

Despite ongoing inflationary pressures, Traditional Retail managed to increase its product margin and reduce its operating expenses, thereby delivering a 108% increase in operating profit (excluding restructuring costs of R29 million) to R231 million (2008: R111 million). Return on revenue at 4,4% is up from 2,1% in 2008.

The division made further progress with the centralisation of its logistics functions through the conclusion of a very successful pilot project in Bloemfontein. During September 2009 a second centralised facility in Phuthaditjhaba was opened. Traditional Retail will continue to aggressively roll out its centralised distribution model during the next two years in order to unlock further cost benefits while also enhancing the ‘Art of Service’.

Barnetts, Electric Express, Price ‘n Pride and Russells delivered positive top line growth while all chains, with the exception of Morkels, delivered higher operating profit despite the limitations on sales growth imposed by the very tough trading environment.

Looking forward, Traditional Retail will focus on ensuring the relevance of its brands in the southern African retail landscape, thus providing the Group with sustainable growth. This division is positioned to achieve its three-year return on revenue objective of 12,5% through better management of its margins as well as the ongoing focus on expenses and operating efficiencies.