COMMENTARY

group overview

In our latest annual report we indicated that this year would undoubtedly be a tough year as consumers have to contend with high interest rates, high inflation and high levels of consumer debt.

Trading conditions in the first half of this year have been difficult. Retail turnover increased by 2,9% to R3,8 billion. Gross margins for the period were the same as the previous year. Diluted headline earnings per share reduced by 1,3% to 227,7 cents per share whilst headline earnings per share reduced by 2,7% to 229,5 cents per share.

The group’s operating margin for the period reduced to 22,2% from 23,5%.

The interim dividend has been maintained at 118,0 cents per share.

trading divisions

Trading conditions for the period have remained challenging and costs have been curtailed to levels appropriate to the expected turnover levels. Whilst total turnover growth was 2,9%, the Foschini division had negative growth of 4,2% whilst the remainder of the group grew by 8%. Product inflation averaged approximately 6% for the period.

Retail turnover and growths in the various trading divisions were as follows:

Total same store turnover reduced by 2,5%. Cash sales as a percentage of total sales increased to 36,8% from 35%.

Our @home division continues to expand and increased its store base by five stores to 66 during the period, growing its turnover by 6,1% to R219,5 million. Same store growth in this competitive sector was -4,9%.

Exact! grew its store base by five stores during the period to 187 stores, growing its turnover by 4,8% to R352,4 million. Same store growth was 2,0%.

The Foschini division increased its store base by 14 stores to 414 stores during the period with turnover of R1 467,3 million. Same store turnover reduced by 8,8%.

The new management in our Foschini division is now fully entrenched in the business, and whilst it takes time to turn a business of this size, we expect the fortunes of this business to improve in the next year.

The Markham division continues to trade well in the current climate with turnover growth of 12,6% and same store growth of 6,1%. This division is now bearing the fruit of the repositioning exercise towards a younger and more fashionable customer which was undertaken in the past few years. This division increased its store base by 10 stores to 211 stores.

The jewellery division comprising American Swiss Jewellers, Sterns and Matrix continues to perform better than expected in the current climate with turnover growth of 3,9% and a reduction in same store turnover of 1,7%. This division increased its store base by 16 stores to 342 stores.

The sports division, trading as Totalsports, Sportscene and DueSouth traded satisfactorily with turnover growth of 9,8% and same store growth of 3,2%. Ongoing focus remains on leveraging World Cup 2010 where we are the partner of choice for some of the major brands. This division increased its store base by 15 stores to 234 stores.

FG Financial Services – our retail debtors’ book, which amounts to R2,5 billion, increased by 10,0%. Because of our conservative approach to new account openings prior to the NCA, the performance of our debtors’ book continues to be satisfactory with net bad debt as a percentage of debtors’ book increasing marginally to 8,5% from 8,3%. We have made a start, with positive results, in offering new customers a 12-month account as an alternative to the current 6-month option.

rcs group

RCS Group provides a range of broader financial services to both customers of the group, as well as to customers of retailers outside the group. This group consists of two separate business units namely transactional finance and fixed term finance. At present the transactional finance business comprises the RCS general-purpose card and other private label card programmes. The fixed term finance business comprises RCS Personal loans and RCS Home Loans. This division experienced a challenging six months with net bad debt costs and provisions increasing significantly in line with current market trends. The quality of new business written has improved with positive results becoming evident in the division’s debtors’ roll-rates and vintage graphs.

This division has huge growth potential for the future, and in order to lessen its dependency on its shareholders for funding, this division is in the process of arranging long-term funding from the debt-capital markets.

Our group’s shareholding in this division is 55% with the balance being held by The Standard Bank of South Africa Limited.

prospects

Retail turnover for the first four weeks of the second half has improved with turnover growth of 12%. Costs remain tightly controlled. We expect that the retail environment will continue to be difficult for the remainder of the year as consumers have to contend with high interest rates and high inflation. The second half of the year is heavily dependent on Christmas trading which this year, given global economic and financial conditions, is more difficult to predict.

preference dividend announcement

Dividend No. 144 of 3,25% (6,5 cents per share) in respect of the six months ending 31 March 2009 has been declared, payable on Monday, 30 March 2009 to holders of 6,5% preference shares recorded in the books of the company at the close of business on Friday, 27 March 2009.

The last day to trade (“cum” the dividend) in order to participate in the dividend will be Friday, 20 March 2009. Foschini Limited preference shares will commence trading “ex” the dividend from the commencement of business on Monday, 23 March 2009 and the record date, as indicated, will be Friday, 27 March 2009.

Preference shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Monday, 23 March 2009 to Friday, 27 March 2009, both dates inclusive.

interim ordinary dividend announcement

The directors have declared an interim ordinary dividend of 118,0 cents per ordinary share payable on Monday, 5 January 2009 to ordinary shareholders recorded in the books of the company at the close of business on Friday, 2 January 2009.

The last day to trade (“cum” the dividend) in order to participate in the dividend will be Tuesday, 23 December 2008. Foschini Limited ordinary shares will commence trading “ex” the dividend from the commencement of business on Wednesday, 24 December 2008 and the record date, as indicated, will be Friday, 2 January 2009.

Ordinary shareholders should take note that share certificates may not be dematerialised or rematerialised during the period Wednesday, 24 December 2008 to Friday, 2 January 2009, both dates inclusive.

Certificated ordinary shareholders are reminded that all entitlements to dividends with a value less than R5,00 per certificated shareholder will be aggregated and the proceeds donated to a registered charity of the directors’ choice, in terms of the articles of association of the company.