Mr Price interim earnings up

The interim dividend was set at 40.2 cents per share - an increase of 10.1% over the comparable period and is based on a maintained interim cover of 2.2 times. The group aims to maintain its cover of 1.9 times at year end.

The group reported retail sales growth of 18.6% to R3.9 billion and comparable sales growth was 8.9%. Profit from operating activities increased by 14.9% to R300.4 million and the operating margin was 7.7% of retail sales against last year's 8.0%.

CEO Alastair McArthur said that headline earnings per share and fully diluted headline earnings per share were negatively affected by a secondary tax on companies (STC) charge which arose from the final dividend for the 2008 financial year being declared and paid in the current period. In the comparative period the distribution from share premium did not attract STC.

This resulted in a 32.2% increase in taxation to R113.8 million and an effective tax rate of 34.5%. Reported earnings were also impacted by certain share trusts utilising company grants of R150.5 million to acquire shares in the second half of the prior financial year to partially cover options awarded. This resulted in a reduction in net finance income but also a lower weighted average number of shares in issue.

"In view of the serious economic downturn, we are particularly pleased with this performance," said McArthur. "There is little question that South African consumers are cash-strapped as consequence of food price increases, rising fuel and debt servicing costs, healthcare and municipal rates. Consumer confidence is now well below the 25 year average."

This has dramatically affected sales in the retail sector, which have been in a downward trend since late 2006 and have reflected a decrease in real terms since the beginning of the calendar year.

"The past six months have been some of the most challenging we have experienced," McArthur said.

"We believe that positioning ourselves as a value retailer has been strategically sound and this, taken together with the fact that we are still a predominantly cash business, has enabled us to withstand the effects of these economic headwinds better than most," McArthur said. "We have also tightly managed our costs and debtors collections. As a consequence, the group has performed well in this difficult climate."

The group has opened 66 new stores and has created in excess of 750 new jobs in the last 12 months. At the end of September the group had 925 stores and employed almost 10,000 full-time associates.

McArthur said: "Our balance sheet remains strong with cash resources of R365.5 million. Our business model, which generates strong cash flows, with 84.1% of sales in the current period being for cash, will finance our future growth."

The debtors book has grown from R542.3 million at the previous year end to R609.6 million, an increase of 12.4%. The group is reaping the rewards of the focus placed on collections and the strategic decision taken to grant credit cautiously.

Market information shows that the balances of accounts that are up to date in terms of repayments are higher than the industry average, with a corresponding lower value in the arrear categories, he added.

Despite the economic hardships being experienced by consumers and the relative immaturity of the debtors book, bad debts net of recoveries (excluding collection costs) decreased from 8.6% of debtors balances at year end to 7.1%. The book remains adequately provided for at the end of the reporting period.

Looking ahead, McArthur said that while it was uncertain when the economic crisis would start to show signs of abating and consumer confidence would be restored, the group would continue to enhance its value proposition to customers.

"We expect the second half to be much like the first in terms of difficult trading conditions. However, we are well placed to gain further market share with our fashionable products at everyday low prices. Growth in earnings for the year should be achieved, provided there is no further marked deterioration in spending patterns," concluded McArthur.

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