Divisional Operational Review

  26 weeks   26 weeks     Comparable   52 weeks  
  December   December   Period % Estimated June  
  2010 % of 2009 % of % sales % sales 2010 % of
Rm (Reviewed) sales (Reviewed) sales growth growth inflation (Audited) sales
Sales 27,375.8   24,153.5   13.3 7.3 (2.9) 47,451.0  
Massdiscounters 6,993.9   6,114.4   14.4 9.0 (8.2) 12,164.9  
Masswarehouse 6,593.3   5,955.7   10.7 7.8 (1.2) 11,501.2  
Massbuild 3,782.4   3,189.9   18.6 11.8 0.3 6,366.9  
Masscash 10,006.2   8,893.5   12.5 4.2 (1.3) 17,418.0  
Trading profit before interest and tax 1,284.7 4.7 1,161.3 4.8 10.6     2,027.8 4.3
Massdiscounters 473.6 6.8 396.2 6.5 19.5     612.8 5.0
Masswarehouse 397.1 6.0 360.5 6.1 10.2     685.4 6.0
Massbuild 189.5 5.0 139.9 4.4 35.5     260.5 4.1
Masscash 224.5 2.2 264.7 3.0 (15.2)     469.1 2.7
Trading profit before tax 1,355.6 5.0 1,229.1 5.1 10.3     2,190.9 4.6
Massdiscounters 486.6 7.0 412.8 6.8 17.9     660.4 5.4
Masswarehouse 422.4 6.4 382.1 6.4 10.5     743.2 6.5
Massbuild 209.8 5.5 154.1 4.8 36.1     291.7 4.6
Masscash 236.8 2.4 280.1 3.1 (15.5)     495.6 2.8

Trading profit excludes foreign exchange movements. A detailed reconciliation between trading and operating profit can be found below the ‘Additional information’ table over the page

Massdiscounters – comprises the 97-store General Merchandise retail discounter Game, which trades in South Africa, Botswana, Ghana, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Tanzania, Uganda and Zambia; and the 12-store Hi-tech retailer DionWired.

Divisional comparable store sales increased by 9.0% with estimated deflation of 8.2%. Total sales increased by 14.4% and trading profit before tax increased by 17.9%. Game SA and DionWired traded well with low double-digit comparable sales growth while Game Africa’s comparable sales growth was negative in Rands but positive in local currencies.

Two Game stores were converted into Game Foodco in the Western Cape and are trading above expectations. A third Cape store will be converted shortly.

The Division completed December 2010 overstocked by some R300 million as a result of lower than expected Christmas sales and the stock buffer implemented during the commissioning of the Gauteng Regional Distribution Centre (RDC) in July 2010. The new RDC increased this period’s rent by R18 million.

Six Game stores, including one in Lilongwe, Malawi, and one DionWired store were opened, increasing trading space by 5.7%. In addition to our South African store expansion, we anticipate opening four stores in Africa in the 2012 financial year.

Masswarehouse – comprises the 14-store Makro warehouse club trading in Food, General Merchandise and Liquor in South Africa (and two Zimbabwean stores, not consolidated in the Group results).

Divisional comparable store sales increased by 7.8%, with estimated deflation of 1.2%. Trading profit before tax increased by 10.5%.

Total sales increased by 10.7% with the opening in October 2010 of the new Makro Vaal store, which increased trading space by 9.0%. This new format store, which is performing ahead of expectations, includes a full range Fresh offering and new butchery layout more suited to the retail customer. New store pre-opening costs of R13 million were incurred during the period.

In February 2011, the Division sold the two Makro Zimbabwe stores to OK Zimbabwe. We remain on schedule to open Makro stores in Nelspruit, Polokwane and Milnerton, Cape Town, in the first-half of the 2012 financial year.

Massbuild – comprises 80 stores, trading in DIY, Home Improvement and Builders Hardware, under the Builders Warehouse, Builders Express and Builders Trade Depot brands in South Africa.

Divisional comparable store sales increased by 11.8% with estimated inflation of 0.3%. Total sales increased by 18.6% and trading profit before tax increased by 36.1%.

The Division has performed well in a difficult market. Whilst the metrics of the South African residential market have stabilised, there is little reason to believe the market has grown. Our market share gains have come through a superior customer offering in all respects.

Three Builders Warehouse stores and two Builders Express stores were opened or acquired, and one Builders Trade Depot store was closed, resulting in net trading space increasing by 3.3%. We expect to open our first African Builders Warehouse store, in Gaborone, Botswana, in July 2011. After being unable to reach agreement with the Namibian authorities, discussions concerning the acquisition of the building materials business, Pupkewitz, have been terminated.

Masscash – comprises 79 Wholesale and 26 Retail Cash and Carry stores trading in South Africa, Botswana, Lesotho, Mozambique, Namibia and Swaziland, and Shield, a voluntary buying association.

Divisional comparable store sales increased by 4.2% with estimated deflation of 1.3%. Total sales increased by 12.5% and trading profit before tax decreased by 15.5%.

As we have seen in previous economic cycles, Food deflation made trading challenging. Whilst volumes increased and trading margins were maintained, growth in comparable sales was below cost increases with the resultant pressure on profitability. With a 25% exposure to commodities, the Wholesale division was particularly adversely impacted. This performance was buffered slightly by the results from the Retail division and its new acquisitions. As the Retail division continues its aggressive growth, we are investing in management capacity, resulting in cost growth exceeding sales growth.

The Division now has annualised Retail sales of R3.5 billion, comprising 26 stores, 11 of which are already branded Cambridge.

Two new Wholesale Cash and Carry stores and six new Retail Cash and Carry stores were opened or acquired. Net trading space increased by 8.7%.