Our financial highlights:

R84,731.8 m
UP BY 8.4%
2014: R78,173.2m
Operating profit before forex and interest
R2,300.2 m
 UP BY 14.1%
2014: R2,015.9
Operating profit
before interest
R2,150.4 m
UP BY 9.4%
2014: R1,966.1 m
Headline earnings before forex (taxed)
R1,229.8 m
 UP BY 7.7%
2014: R1,141.4 m
Headline earnings after forex (taxed)
R1,118.8 m
 UP BY 1.2%
2014: R1,105.5 m
Dividend per share
258.2 cents
 DOWN BY 38.7%
2014: 421.0 cents

Financial performance

Total Group sales increased by 8.4% over the prior year, with comparable sales growing by 6.7%. Product inflation was 3.0%, suggesting real comparable volume growth of 3.7%. Inflation in General Merchandise, Food & Liquor and Home Improvement decreased to 2.5%, 3.2% and 3.8% respectively. Our African businesses represented 8.4% (2014: 8.1%) of total sales and increased by 12.6% in Rands.

During the year, 21 stores were opened, including five in Africa, and 10 were closed, resulting in a total of 403 stores at December 2015. Net trading space increased by 0.7% to 1,550,719m².
The Group’s gross margin of 18.9% is slightly higher than that of the prior year of 18.6%. Most of this is the portfolio effect where our highest margin business, Massbuild, grew sales fastest but also from better margin management in Game.

Total operating expenses increased by 9.3% over the prior year and comparable expenses increased by only 6.0%. Employment costs, the Group’s biggest cost category, increased by 11.1% (with a comparable increase of 7.7%), partly due to new stores which led to a 1.7% increase in full-time equivalent personnel. Despite new stores in 2014 and 2015, occupancy costs increased by only 7.0% showing the benefit of acquiring key lease-held stores over the past three years. Depreciation and amortisation increased by 11.8% over the prior year, while other operating expenses increased by 7.0%. The cost of our investment in IT infrastructure is included in this category.

Included in operating profit are net realised and unrealised foreign exchange losses of R149.8 million (2014: R49.8 million loss). As our African footprint has expanded, so too has our exposure to foreign currency fluctuations and in response, we are actively managing the value and currency of our foreign-denominated loan balances, where practicable, and we take out foreign exchange contracts on select exposures. All foreign exchange denominated inventory orders are however automatically covered forward.

Excluding foreign exchange movements, earnings before interest, tax, depreciation and amortisation (EBITDA) of R3.3 billion increased over the prior year by 13.3%.

Average interest-bearing debt increased to R3.5 billion (2014: R2.9 billion). The Group’s strategy to own key properties and continued store expansion have been drivers of the balance, more specifically, three property transactions in the second half of 2014, which occurred at an aggregate cost of R737.5 million. Over and above these acquisitions, property, plant and equipment has increased by R878.6 million during the current year as the Group continued to invest in new stores and to refurbish existing stores. The result is that net finance costs have grown to R475.3 million (2014: R345.3 million), partly aggravated by two interest rate increases during 2015.

The Group’s effective tax rate of 30.2% (2014: 29.8%) is in line with expectations.
Headline earnings and Headline EPS increased by 1.2% and 1.3% respectively over the prior year. Adjusting for the effect of the foreign exchange movements in both years, Headline earnings and Headline EPS increased by 7.7% and 7.8% respectively.


Financial position

Although inventories have increased year-on-year as a result of new stores, effective inventory management resulted in inventory days decreasing from 64 days to 63 days. Despite the 9.5% increase in trade and other receivables, debtors’ days have remained stable at 9 days.

The net book value of property, plant and equipment increased by 12.1% since 2014, mainly as a result of our investment in new stores and the refurbishment of some of our existing stores.

The Group’s gearing ratio (average debt:equity) increased to 54.6% (2014: 44.5%) for the reasons explained above. The annual rolling return on equity was 20.4% for 2015 (2014: 21.0%). Excluding foreign exchange movements, this figure was 22.4% (2014: 21.7%).

Cash generated from operations amounted to R3.8 billion, an improvement of 39.7% on the prior year and driven by improved profitability and working capital management. Total capital expenditure of R1.7 billion comprises: R1.0 billion on replacement expenditure including store refurbishments and our IT systems’ investment; and R0.7 billion on expansionary expenditure, and is in line with expectations.