The trends in national economic data confirm that South Africa has now transitioned from a traditional interest-rate tightening cycle into its first recession in 17 years, led by the global economy. It is therefore not surprising that real retail sales growth declined throughout this financial year, ending at -6,7% for the month of June 2009 and at -2,6% for the year to June 2009, despite the steady relaxation of interest rates from December 2008.

In the same period, a number of factors have complicated the interpretation of Massmart’s current underlying operating performance. The first is the inclusion of an extra week of trading in our 2008 financial results which should be excluded for meaningful comparison to the 2009 results. The second has been the recent weakness of African currencies against the Rand, which caused a large unrealised foreign exchange loss in Massdiscounters.

Excluding the effect of the currency volatility and the 53rd week in the prior year, sales increased by 10,7% (8,2% comparable), trading profit increased by 5,5%, and headline earnings increased by 3,8%.

Including the effect of the currency volatility but excluding the 53rd week in the prior year, sales increased by 10,7%, operating profit declined by 2,1%, and headline earnings declined by 4,3%.

Without these adjustments, sales increased by 8,4%, operating profit declined by 6,5%, and headline earnings declined by 8,5%.

Importantly, despite comparable sales growth declining from 11,9% in the first half to 4,5% in the second half, the business managed to achieve operating profit growth in both halves. This disciplined income statement management was supported by equally disciplined management of the balance sheet, particularly inventories, which ended the year only 2,8% higher than last year.

The business produced strong cash flows with cash generated from operations up by 6,0%.

Trading space increased by 3,8%, from opening seven new stores, acquiring 12 new stores, and closing or selling five stores.