| Wed 26 May 2010, 8:01 | | MPC - Mr Price Group Limited - Delivers strong results in tough conditions |
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MPC
MPC
MPC - Mr Price Group Limited - Delivers strong results in tough conditions
Mr Price Group Limited
Registration number 1933/004418/06
Incorporated in the Republic of South Africa
ISIN: ZAE 000026951
JSE share code: MPC
("Mr Price" or "the group" or "the company")
Mr PRICE DELIVERS STRONG RESULTS IN TOUGH CONDITIONS
Profit from operating activities up 20%
Core headline earnings per share up 21%
Cash flow from operations up 30%
Final dividend increased by 37%
Durban 26 May 2010- South Africa experienced negative GDP growth from the
fourth quarter of 2008 and tentatively emerged from the recession in the third
quarter of 2009. Despite the difficult trading environment, the group has
continued to capture market share as measured by the Retailers` Liaison
Committee (RLC) and achieved sales growth of 10.0% to R9.5 billion. Comparable
sales, which include sales of expanded and relocated stores in like-for-like
locations, increased by 8.2%.
CEO and Deputy Chairman Alastair McArthur said "Our business model is not built
simply on low prices. Value and fashion appeal are key parts of the formula and
we strive to delight our customers with our fashionable products at everyday low
prices. Past performance has shown that as long as we execute well, the
strategy is sound, both in good and poor trading conditions."
Good fashion interpretations and merchandise calls resulted in lower markdowns
with the gross profit percentage increasing from 39.0% to 39.9%. Expenses were
well controlled and weighted average space growth was 4.5%. Operating profit
increased by 19.9% to R991.5 million and the operating margin increased from
9.6% to 10.5% of retail sales. Net finance income was positively affected by
increased cash balances, despite the repo rate decreasing and contributed to
profit after net finance income increasing by 20.6%.
Core headline earnings per share, which is a reflection of true trading
performance, grew by 21.0%, while, after accounting for the once-off effect of
the unbundling of the export partnerships, headline earnings per share were up
9.9%.
The Apparel chains increased sales and other income by 13.1% to R6.9 billion and
operating profit by 18.3% to R980.3 million. The operating margin increased from
14.0% to 14.6%. Mr Price once again delivered an excellent trading result,
having now gained market share for 48 consecutive months and grew sales by 15.9%
with profits well ahead of the previous year. Miladys` annual sales were down
1.3%, with profits lower than the previous year but the chain showed an improved
performance in the second half. Mr Price Sport increased sales by 19.1% to
R437.0 million and exceeded internal profitability targets.
The Home chains` performance continued to be hampered by consumers` lower
expenditure on discretionary home purchases. Sales and other income increased by
3.3% to R2.8 billion and operating profit by 21.5%. The operating margin
increased from 3.1% to 3.7%. Mr Price Home recorded sales of R1.9 billion, an
increase of 2.6% and gained considerable market share in the second half of the
year. Operating profit improved due to an increased gross profit percentage and
tight expense control. Sales in Sheet Street increased by 4.9% to R846.4 million
with profits in line with the previous year.
The cash flows associated with 83.9% of sales being for cash has resulted in the
financial position strengthening, and the group ended the year with cash
resources of R1.2 billion. "Remaining a predominantly cash retailer has also
been a fundamental part of the model," explained McArthur.
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."
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 26/05/2010 08:01:03 Produced by the JSE SENS Department.
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