Directors Note
The Group faced a challenging economic environment during the year 2017 in Kenya, its largest market, because of drought, high-energy prices, an extended electioneering period and a credit crunch caused by a reduction in bank lending to the private sector. As a result, Kenya’s GDP in the first half of 2017 dropped to 5.0% compared to 6.3% for the same period in the previous year. The second half of 2017 saw the GDP reduce to 4.4% as the Country concluded its election cycle.
The formal retail sector in Kenya had further challenges that depressed its overall performance. These factors
included:
 Over supply of formal retail property leading to cannibalization;
 Collapse of key anchor tenants that reduced customer footfall into shopping malls by over 60%; and
 Increased competition and change in customer shopping trends.
The Group also faced disruptions in its supply chain following the decision by Mr Price to reduce trading margins, which led to cash flow constraints that negatively affected performance of all brands. Thereafter, Mr Price initiated the purchase of the Mr Price brand and withdrew supply of product ahead of the busy Christmas period.
Consequently, the Group’s revenues declined by KES 303M compared to the prior year. The MR Price brand alone contributed a decline of KES 324M with a margin loss of KES 154M as a result of discontinued supply of stock by the Franchisor. In addition, MR Price fixtures and inventory impairment amounted to KES 150.6M with an overall loss contribution of 78% to the bottom line. The business bore further impairment from discontinued operations of the Babyshop store at the Junction Mall and the Angelo store at the Sarit Centre of KES 15M. On the other hand, the F&F brand continued to post positive results across the chain with a Revenue of KES 131M in 2017.
The Board took drastic cost cutting actions in order to counter the drop in revenue including but not limited to a reduction in staff levels and back office operations. The full impact of these savings will be recorded in 2018.
Operating costs are reported at KES 1.4B up from KES 1.3B in 2016. The increase in the operating costs by 8.1% is attributed to the new stores launched in 2016 whose full year impact was recorded in 2017.
Following the Shareholders’ approval on Thursday, 5th April 2018 to dispose of the MR Price brand, the Board is confident that its new strategy for the period 2018 to 2021 will return the business to sustainable profitability. As
part of the strategy, the Board has appointed a transaction advisor to restructure the capital base of the Group with a view to protecting and ensuring that existing brands are optimally traded.

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