Mr Price CEO Alastair McArthur on the retailer's pleasing results in the negative consumer climate.

Bruce Whitfield:
Well, better than expected results out of Mr Price today, it reported not only stronger revenues but better than expected profit growth as well but if there was a disappointment it was in the home division which has been growing aggressively with its new bigger format stores. The chief executive of Mr Price joins us from Cape Town, his name is Alastair McArthur, and Alastair under some pretty tough circumstances for domestic consumers, we saw it in the second Standard Bank trading update in three months today. Profit growth of 15 percent must be pretty pleasing?

Alastair McArthur:
It is and I think you know the answer Bruce to it is as a value retailer we have seen downturns before and while we share a lot of customers with a lot of other retailers they tend to come and shop more with us. That applies to Mr Price materials that shot the lights out, less so in the Home, but that is more of a discretionary spend and those customers would feel the impact of interest rates earlier than the Mr Price customer because 55 percent of our home shoppers have got credit cards and so in the high LSM’s so they would feel those interest-rates impacting earlier.

Bruce Whitfield:
But certainly the fact that you are predominantly a cash retailer is certainly something I am sure that is counting in your favour.

Alastair McArthur:
Yes absolutely you know when we introduced credit it was really just to put it to the Home because there were more expensive items in there to do a room out and we had to because of the same brand put it into Mr Price but we have never aggressively sold it, it is there as a convenience, and you know only 16 percent of our sales are on credit so we are not exposed to this credit crunch.

Bruce Whitfield:
But there has been a rise in bad debts which must be causing you if not sort of financial discomfort a little bit of potentially psychological discomfort in a company which for so many years has been purely cash.

Alastair McArthur:
Well you know the one bad debt figure was historically in 2007 financial year 1.6 and 4.5 which is ridiculously low and that was the Milady's book which we have a far more responsible customer in dealing with credit and as you go into the market in the cash division you are going to be very aware of the fact of the situation in the country and our rejection rates are up at 70 so we are really not exposed to it and our cash balance ended up at 465-million that is after buying back R150-million's worth of our own shares so we are still very cash rich and we can fund any of our expansion internally without going into gearing.

Bruce Whitfield:
But seven out of 10 customers who come through your door and ask for credit you tell them terribly sorry but we can't do that for you.

Alastair McArthur:
Exactly.

Bruce Whitfield:
What does that do though for the relationship? Does that not sort of turn people away and maybe leave a bit of a bad taste in the mouth?

Alastair McArthur:
That has worried me and the National Credit Act has been largely responsible for that I'm not saying that it is a bad thing I think it is probably a responsible thing to do. Yes we have thought about that but we do give our customers good solid information as to why we are saying no in their interest but nevertheless I do worry about it yes.

Bruce Whitfield:
But you're not being dissuaded from the credit model? You are going to continue pursuing that theoretically when things calm down a bit?

Alastair McArthur:
Not necessarily. I think that now that I have seen what can happen so quickly in a changing environment I don't think we ever going to go onto the front foot. We'll rather leave it as a payment method, as a service to customers than actively pursue taking on debt.

Bruce Whitfield:
That is an interesting take there because you went into it quite tenuously, you were very cautious with it, you have had some bad experience with it, and now you are pulling back and saying you know what that is not the model for us.

Alastair McArthur:
That is correct, 84 percent of our entire business is cash and the customer responds to that value and I don't think that - I think the customer has seen interest rates once before at 25 percent maybe some younger customers haven't and they are very aware of what can happen to their livelihoods and homes and second cars etc so we really choose not to be part of that and the great value retailers around the globe really are not credit orientated.

Bruce Whitfield:
How cautious are you about the current environment? Here we have got a scenario where we have got GDP growth in the first quarter of 2.1 percent, the CPIX number at 10.4 percent today, Cees Bruggemans the chief economist at FNB saying he is expecting CPIX to peak at 12 percent. Does that make you sleep a little bit more uneasily at night?

Alastair McArthur:
What was interesting, we have a franchise division and I was in New Zealand and Australia very recently and both the ministers of finance in both countries said separately but in the same week that if you have got rising global food prices, fuel and electricity costs, to raise interest rates would actually damage economies because those three factors in themselves would subdue economic activity and so I think we tend to be taking a different stance and it looks like we will have one, maybe another two, interest-rate hikes which I think is going to go over the top of it. I don't think the effect of those three things, global problems that I have mentioned, have really impacted yet to the full extent in this country.

Bruce Whitfield:
Alastair McArthur, a very valuable contribution, thank you very much indeed, the chief executive of Mr Price.