Value & fashion appeal are key parts of formula, Mr Price CEO

27 May '10

5 min read

Sound inventory management and lower capital expenditure contributed to cash flows from operating activities improving by 30% and exceeding R1 billion for the year. Aided by Project Redgold, stock turn improved from 5.5 to 5.9 times and gross inventories were R71.8 million lower than last year.

There was a continued aggressive focus on credit management and risk processes in response to tougher economic conditions. An improved collections strategy, coupled with a conservative credit granting philosophy resulted in the company maintaining its leading position with regard to the state of its credit portfolio, as highlighted by benchmarking services to which it subscribes. Net bad debt amounted to 3.7% of credit sales or 7.0% of the debtors' book and the provision for impairment is 9.1%.

As a consequence of the group's current cash balances, its cash-generative business model and the board's confidence regarding future performance, the dividend cover has been reduced from 1.9 to 1.6 times. Accordingly, the final dividend has increased by 36.6% to 126.8 cents per share, with the annual dividend being 173.0 cents per share, an increase of 30.1%.

Both the economy and consumers' disposable income remain under pressure. Although interest rates are at a 30-year low and inflation has decreased to within target range, cost pressures exist in relation to electricity, rates and fuel. “Consumer confidence is increasing, but this is not yet reflected in South African retail sales data and the expected slow pace of the recovery will mean another tough trading year lies ahead,” said McArthur.

The group is cautiously optimistic given the success achieved in the second half of the year by initiatives undertaken to improve performance as well as the recovery prospects of the divisions hardest hit by the recession. The group will continue to look for trading space opportunities and in order to maintain its historical track record of sales growth, will give consideration to new business concepts and opportunities, including acquisitions should the business fit be right.

Said McArthur: “Trading beyond South Africa's borders represents an exciting growth opportunity for the group. We have had great success with a franchising strategy in Africa and are now considering different models in countries with large potential, including joint ventures and corporate stores which will allow more rapid expansion, better control and improved profitability. We are also dealing with multiple logistics challenges in the various regions. We are proceeding with confidence but are taking care to minimise the risk that comes with international operations.”

Mr Price Group