Retailer Woolworths Holdings (WHL) reported a 20% increase in headline earnings per share to 40.2 cents for the six months ended December 31 from 33.5 cents a year earlier.

The group's revenue was 10.5% higher at R5.58 billion from R5.05 billion, while operating profit grew 22.3% to R550 million from R449.98 million before.

The group declared a cash distribution of 13 cents per share in lieu of an ordinary interim dividend for the six months ended 31 December 2003.

The payment will be made by way of a reduction in the share premium account, it said. The distribution was 23.8% higher than that of 10.5 cents at the interim stage in 2002, maintaining interim cover at 3.1 times earnings.

Woolworth's net debt to equity ratio rose to 29.2.% from 18.8% a year earlier, largely driven by the growth in its debtors book.

The group said the rise in operating profit was attributable to higher interest income on its larger debtors book as well as good expense control.

Clothing and Home Division sales rose by 10.9%, and by 7.9% on a comparable store basis in South Africa. Women's wear, lingerie, footwear and accessories performed particularly well, with women's wear continuing to gain significant market share, the retailer said.

Children's wear, in particular, had been impacted by price deflation in the market at entry-price level. Homeware, meanwhile, was showing early signs of improvement on the back of more exciting goods, better values and modernisation of the shopping experience in key stores.

The Foods Division had exceeded expectations, Woolworths said, with sales growing by 17.7% overall, or 7.0% on a comparable store basis in South Africa.

The group's convenience store expansion programme had performed beyond expectations and seven new stores were opened over the six months.

Woolworths' Financial Services Division had achieved substantial growth of 25.8% over the year-earlier period in its store card, credit card and personal loan books, offsetting the impact of falling interest rates.

Bad debts were well managed and the net bad debt experience remained low, the group stated.

While franchise operations in South Africa had performed well over the period, achieving high growth levels, those offshore had been negatively impacted by the appreciation of the rand.

The franchise in Saudi Arabia had been terminated, as previously announced, with closure costs and the impact of stock cancellations being fully provided for during the period.

At the group's Australian subsidiary Country Road, sales fell 7% to A$98.6 million from A$106 million a year earlier, a performance the group said was "disappointing" in Australian dollar terms.

Expenses had been well controlled and an operating profit of A$1.0 million was achieved, down from A$1.6million previously, despite extremely competitive trading conditions.

Country Road would be moving to a retail format, with an improved design process and shorter lead times, the group said. The transition over the next six months would build the foundation for future growth.

Looking ahead, Woolworths said the lower interest rate environment should encourage retail spending, but would negatively impact income from its debtors book.

Therefore management was projecting "conservative" earnings growth for the second half of the financial year.

I-Net Bridge 12 February 2004