Operational factors

The Gauteng Chipkins, Sea World and divisional office operations were successfully relocated to a single multi-purpose site in Linbro Park, Johannesburg. New premises for First Foods and Blue Marine in the Cape are currently under construction, with occupation planned for January 2009. However, capacity constraints persist at several branches.

We continue to flatten internal silos. Regions increasingly share market information while buying and sales departments are moving closer together to ensure we manage stock more efficiently and anticipate needs.

Improved inventory management and timely stock buy-in ahead of inflation helped to protect margins.

Innovations/investments

We invested R27 million in new facilities and equipment at our Johannesburg premises. As the economy slowed, capital expenditure was curtailed and fell below budget.

Risks

Credit risk is acute. Debtor’s risk in early 2008 was at its highest in two decades. We responded by rigorously enforcing credit terms. We prefer to take short-term pain rather than bankroll customers. We closed hundreds of accounts in the third quarter rather than compromise credit policy.

Stringent control adversely affected turnover. For the first time in years, we experienced a real decline in net turnover in the third quarter.

Crime remains a major risk. Several branches experienced significant stock shrinkage. The frequency of stock counts has been increased.

Skills shortages are another critical risk factor. We respond through constant training, staff development and internal promotion.

Sustainability factors

Our training investment of R5,3 million represents 0,2% of turnover, an increase of more than 50% over the year. A wide range of programmes is available, covering sales, financial and administrative skills and operational training.

Our First for Service continual improvement training programme has been accelerated. Training and internal promotion of talent are central to managing the skills shortage and our BEE effort.

Reduction of our carbon footprint is a key goal. Our George branch launched an initiative to become carbon neutral by piloting the use of recycled cooking oil converted to biodiesel and planting trees to offset our carbon emissions. The project is a prototype for the division.

Strong job growth over the last two years could not be sustained in a much-changed environment. The staff complement of 2 000 remained stable.

Cultural factors

The business benefits from an entrepreneurial culture and grass-roots empowerment. We have the best trained, best motivated people in the industry, backed by the best resources. They are free to make the most of these advantages by identifying and pursuing local opportunities. Closer integration of teams and growing cross-regional cooperation ensure improved information and knowledge sharing.

The future

Trading conditions may get worse before they get better. Industry consolidation is likely – among customers, competitors and suppliers. We are alert for acquisition opportunities that might fill the few remaining gaps in our service offering.

We will maximise all positives in a generally negative environment to derive advantage from our size and resources. In comparative terms our competitive position may improve as the credit squeeze increases in severity.

We will exploit the full-year effect of increased capacity, and warehousing and distribution efficiencies at our new Johannesburg operations. Similar increased capacity and efficiencies will be achieved early next year in Cape Town. Capacity constraints in Bloemfontein and KwaZulu-Natal are being addressed. Bloemfontein Sea World and Chipkins management teams have been merged and sales teams have been integrated. New Bloemfontein multitemperature facilities are planned.

A return to real volume growth was achieved in the final quarter of 2008. We plan to maintain momentum in 2009 and will seek double-digit growth in revenue and trading profit.