Our financial highlights:

R42,310.9 m
UP BY 8.7%
2015: R38,917.4 m
Operating profit before forex and interest
R944.3 m
 UP BY 19.2%
2015: R791.9 m
Operating profit
before interest
R819.1 m
UP BY 19.5%
2015: R685.2 m
Headline earnings before forex (taxed)
R406.0 m
 UP BY 14.2%
2015: R355.4 m
Headline earnings after forex (taxed)
R320.6 m
 UP BY 19.0%
2015: R269.3 m
Dividend per share
74.1 cents
 DOWN BY 49.2%
2015: 146.0 cents

Financial performance

Total Group sales for the six months to June 2016 increased by 8.7% over the prior period, with comparable sales growth of 6.4%. Product inflation was 5.8%, suggesting real comparable volume growth of 0.6%. Inflation in General Merchandise, Food & Liquor and Home Improvement increased to 6.1%, 6.2% and 3.6% respectively. Our non-SA businesses represented 9.3% (2015: 8.2%) of total sales and increased by 23.2% in Rands.

During the six months to June 2016, nine stores were opened and seven were closed, resulting in a total of 405 stores at June 2016. Net trading space decreased by 0.1% from December 2015 to 1,548,799m².

The Group’s gross margin of 19.3% is slightly higher than that of the prior year of 18.9%. The improved margin was mostly driven from business and category mix improvements. Total operating expenses increased by 11.2% over the prior period and comparable expenses increased by 7.5%.

Employment costs, the Group’s biggest cost category, increased by 9.4% (with a comparable increase of 8.1%), partly due to new stores which led to a 3.2% increase in fulltime-equivalent personnel, combined with the conversion of contractor staff into fulltime employees. Occupancy costs increased by 11.8%, mainly due to store openings since June 2015 and high increases in electricity and rates. Depreciation and amortisation increased by 16.2% over the prior period, primarily as a result of an increase in capital expenditure on higher depreciating assets like IT hardware and software. Other operating expenses increased by 9.7%. The cost of our investment in upgrading our IT infrastructure, as well as pre-store opening expenses for the Makro Carnival Mall store of R16.9 million, are included in this expense category.

The results for the period are favourably affected by a net insurance gain of R41.5 million arising from the excess of the insured replacement value over the net book value of the assets destroyed by the fire at the Jumbo Crown Mines store in February 2016.

Included in operating profit are net realised and unrealised foreign exchange losses of R125.2 million (2015: loss of R106.7 million). As our African footprint has expanded, so too has our exposure to foreign currency fluctuations which have been particularly volatile during this period. 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-denominated inventory orders are however automatically covered forward.

Excluding foreign exchange movements, earnings before interest, tax, depreciation and amortisation (EBITDA) of R1.5 billion increased over the prior period by 21.9%.

Net finance costs have grown to R279.2 million (2015: R234.8 million), mainly aggravated by two interest rate increases during 2016.

The Group’s effective tax rate of 30.1% is lower than the prior period’s 31.9%.

Headline earnings and Headline EPS increased by 19.0% and 19.3% respectively over the prior period. Adjusting for the effect of the foreign exchange movements in both periods, Headline earnings and Headline EPS increased by 14.2% and 14.5% respectively.


Financial position

Inventories have increased by 10.1% since June 2015, slightly higher than sales growth, mainly as a result of the new stores opened during the period and strategic inventory positions to maintain price competitiveness. Inventory days only increased by one day to 62 days. Trade and other receivables increased by 5.3% resulting in debtors’ days decreasing by one day to nine days. Creditors’ days decreased to 56.0 days (2015: 57.6 days) as we early-settled some foreign-denominated creditor balances in non-SA countries to limit potential currency volatility.

The net book value of property, plant and equipment increased by 7.9% over the prior period. Investment and expansionary expenditure have been focused on new stores, IT infrastructure and the refurbishment of existing stores.

The annual rolling return on equity was 22.4 % for the period (2015: 20.4%) and excluding foreign exchange movements, this figure was 24.5% (2015: 22.8%).

Operating cash utilised amounted to R2.4 billion, R0.8 billion higher than the prior period, primarily as a result of the movement in inventory and creditors discussed already. Total capital expenditure of R747.5 million comprises: R346.7 million on replacement expenditure including store refurbishments and our IT systems’ investment; and R400.8 million on expansionary expenditure, and is in line with expectation.