PSG Konsult Finansiële Beplanning is ‘n goedgekeurde finansiële diensteverskaffer.PSG Konsult Financial Planning is an authorised financial services provider. www.psgkonsult.co.za

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EDITOR HANNES BARNARD | BLOEMFONTEIN STOCKBROKERS | +27 (87) 820 4844 | Hannes.Barnard@psgkonsult.co.za

MACRO ENVIRONMENTEUROPE

Policymakers in Europe are facing weak growth and high unemployment, struggling with the issue of whether additional monetary stimulus will do more harm than good. ECB president Mario Draghi may advance a controversial plan for ECB to buy Spanish and Italian government bonds to win time for the region to tackle the debt crisis. This Government Bond purchase programme will not rescue the Euro, but will maintain the ECB's credentials as an ination-fighting central bank presiding over a stable currency. The “Draghi plan” not

U.S.

Ben Bernanke remains highly concerned about stagnation in labour markets, advancing the case for another round of bond purchases by the US Central Bank. The Federal Reserve has so far taken some aggressive action to prop up the US economy; including the purchase of Treasury and mortgage-backed bonds worth $2, 3 trillion. With Q2 GDP at 1, 5% vs. 2% in Q1, much more needs to be done. Unemployment at 8,3% has been unchanged since January.

But all is not “doom and gloom”. House prices, previously a drag on the economy, are no longer falling. In fact, higher home builder stock prices are signalling confidence in the new home market.

only helped turn around market conditions in Spain and Italy, but has also turned market sentiment. Europe remains the key risk to financial markets and Economists were divided about whether the bank would cut its main refinancing rate from 0, 75% to a record low 0, 5% at the next meeting. We certainly think extra monetary stimulus should be encouraged.

CHINA

Weak demand from China continues to put commodity prices under pressure.

Spot iron ore prices at USD90/t and hard coking coal prices at USD191/t are down 35% and 19% respectively for the year to date. It is therefore understandable that global mining houses such as Anglo American and BHP Billiton would be under pressure. The Chinese government is well aware of their weak economic growth and has eased monetary policy. Unfortunately it has been slow in coming and one wonders if there are perhaps other factors at play preventing more aggressive actions by the Peoples Bank of China.

Deutsche Bank expects GDP growth to rebound in the Q4, but it is obvious that Europe is putting Chinese exports under pressure.

We are nevertheless confident about a pick-up in commodity prices during the Q4 and look forward to a far better performance from our mining companies.

SOUTH AFRICA

GDP grew by 2, 5% in the first half of 2012, compared to the first half of 2011. The economy continues to be negatively affected by weak export demand and slowing government spending.

Ination dropped to a 14 month low in July. At 4,9%, it came in well below the expected 5,2% figure. Although it is well within the Reserve Bank target, the recent spike in global oil and food prices might argue against the need for further rate cuts.

The IMF's report on SA was released during the month. Unemployment was highlighted as an increasing problem that could lead to social and political unrest, a clear threat to macro-economic stability. They further highlighted the large increase in public sector employment not being a solution for unemployment. This, together with many other factors, have already resulted in credit rating agencies cutting their outlook on SA credit from stable to negative.

SAB MILLER

We also trimmed our positions in SAB Miller for similar reasons. It is trading on a historic price to earnings (PE) ratio of 28 times. In other words, at current earnings it will take us 28 years to get our capital back, invested at current price.

SAB Miller is a great company, but at these valuations we can do better elsewhere.

PSG Konsult Finansiële Beplanning is ‘n goedgekeurde finansiële diensteverskaffer.PSG Konsult Financial Planning is an authorised financial services provider. www.psgkonsult.co.za 2

“I am out of step with present conditions.” - Warren Buffet, Letter to partners, October 1967

Warren Buffet made this comment 2 years before the crash of '69. The point is - when people like Warren Buffet think share prices are over-valued, markets can still continue to rise and make a fool of you. The important lesson though is that he knew something was wrong and was not prepared to participate in the madness. The rest is history !!

MARKETS

WOOLWORTHS HOLDINGS LTD

The continued exceptional perfomance of certain retailers has not only resulted in some extreme valuations, but it has also affected my sleeping patterns. After an exceptional performance by Woolworths Holdings, we decided to sell our entire position. On a 4,4% earnings yield versus its long term average of± 8%, it has become just too expensive.

TIGER BRANDS

We reduced our position in Tigerbrands as we expect a negative impact on their margins from the sharp rise in global food prices. Consumers are facing increasing headwinds that will see more of them shopping down to cheaper brands from the opposition. Sluggish sales combined with reducing margins will result in the kind of earnings which markets don't appreciate.

COMPANY NEWSThis month we look at Woolworths Holdings LTD. In SA, the group trades through Woolworths (Pty) Ltd. It offers a selected range of quality clothing, food, homeware, beauty and financial services under its own brand name. They also own Country Road Ltd, a leading clothing and homeware retailer listed on the Australian Stock Exhange.

WOOLWORTHS HOLDINGS LTD

The group had a good year with turnover up 11, 8% compared to the prior year and profit before tax and headline earnings per share up 24, 5% and 24, 4% respectively.

The group's return on equity increased from 44, 1% to 47, 1%.

A final dividend of 123 cents per share has been declared taking the total distribution to 198 cents: An increase of 38% on the prior year, ensuring that the full STC saving is distributed to shareholders.

PSG Konsult Finansiële Beplanning is ‘n goedgekeurde finansiële diensteverskaffer.PSG Konsult Financial Planning is an authorised financial services provider. www.psgkonsult.co.za 3

WOOLWORTHS

The group had a good year with turnover up 11, 8% compared to the prior year and profit before tax and headline earnings per share up 24, 5% and 24, 4% respectively. The group's return on equity increased from 44, 1% to 47, 1%.

A final dividend of 123 cents per share has been declared taking the total distribution to 198 cents: An increase of 38% on the prior year, ensuring that the full STC saving is distributed to shareholders.Clothing and footwear trading performance improved during the year and the second half saw us grow by 1, 2% above the market.

Clothing and General Merchandise's gross margin increased 0, 8% to 44, 5% due to franchise conversions, which together with good cost control saw segmental profit before tax up 25% and return on sales (after excluding unrealised net foreign exchange gains) increase by 1, 1% to 16, 7%. Food experienced strong growth for the year with sale up 11, 9% (7, 8% comparable) growing 1, 3% ahead of the market. Increased margin together with good cost control resulted in segmental profit before tax growth of 35, 5% and return on sales increasing 1, 0% to 5, 8%.

During the year the group acquired a further 34 South African franchise stores at a cost of R405 million. In total, 59 local stores have now been acquired at a cost of R 580 million and the remaining 16 will be acquired over the next seven years as the franchise agreements expire. In the rest of Africa we pursued our aim of converting from a franchise model and entered into a range of wholly-owned or joint venture arrangements across eight countries.

Total corporate retail space grew by 3, 6%, excluding franchise conversations.

COUNTRY ROAD

Australian dollar terms with comparable down 6, 6%, reecting the very challenging trading conditions in that country. Good inventory and cost control ensured that operating margin and profit were maintained broadly in line with the previous year. On 1st August Country Road announced that it had entered into an agreement to acquire the Australian Witchery Group from Gresham Private Equity for A$172 million. The acquisition will create one of Australia's largest speciality fashion retailers with complementary brands and a strong position in the mid to upper tier specialist retail sector, which will provide greater scale, a diversified revenue stream and industry leading margins.

Australia's apparel market is currently at a cyclical low, providing the opportunity for Country Road to consolidate its position ahead of the expected economic recovery. The transaction will be funded through a combination of acquisition debt of A$34 million raised from Australian banks and a A$92 million rights issue undertaken by Country Road. As majority shareholder in Country Road we have undertaken to exercise our rights.

WOOLWORTHS FINANCIAL SERVICES

The joint venture with ABSA performed well with the debtor's book increasing 8, 3% from the prior year.

The quality of the book remains strong with impairments increasing 0, 5% to 1, 9% of gross receivables, well below the target range of 3, 0% - in operating profits remaining broadly in line with the prior year with a return on equity of 23, 1%, ahead of our 22% target.

CONCLUSION

Risks in global financial markets remain high. We are therefore delighted in the fact that Mr Market has offered us these lucrative opportunities to increase our liquidity levels. I am confident that as in the past, our patience will be rewarded in the longer term as we continue to seek value in order to generate a real return above that of ination.

OUR OPINION Woolworths is currently trading at a historic price/earnings ratio of 23 times. The long term average is in the order of 14 times to 15 times earnings. Looking at the latest I-net consensus forecasts by analysts, Woolworths would only be trading at its longer term average in 2014. And then only if the company did not encounter any hiccups on the way; consumer continues to spend, rand remains firm and Country Road in Australia does well, etc. We do not think the recovery seen in Australia is sustainable. Similar to SA, their consumers are taking strain due to excessive debt. We maintain the view that retailers such as Woolworths, MR Price and Shoprite at current levels, are priced for perfection.

I have seen this movie before. So, ”Caveat Emptor”.

Free State Greetings

Hannes Barnard

Australian sales contracted 2, 6% on the previous year in

OUTLOOK

Trading for the first 8 weeks has been encouraging. We expect the upper end of the market to remain resilient whilst the economy as a whole remains subdued.

The Australian economy has shown signs of recovery and we have seen an improvement in trading in recent months.