OPERATIONS REVIEW (March 2009)

The business was constrained by inadequate working capital which ultimately caused the few opened

branches to operate at below 15% capacity. Margins were under severe pressure from high US$

denominated operating expenses. For the better part of period under review, the Group was operating

from 22 branches out of a total of 52 branches. Foreign currency trading licensing requirements introduced

in October 2008 coupled with the business' lack of foreign currency reserves resulted in limited trading until

January 2009.

The Red Star Holdings Limited Group's business units consists of Red Star Wholesalers (Private) Limited

(Red Star), Advance Wholesalers (Private) Limited (Advance), R Chitrin and Company Zimbabwe (Private)

Limited (R Chitrin) and Red Star Distributors Zambia Limited (RSDZL).

Overall Group performance was adversely affected by the socio-political and economic challenges in

Zimbabwe as well as the global financial and economic downturn in Zambia. Regionally, Zambia appeared to

have been adversely affected more especially its mining and financial sectors. The Mine Workers Union of

Zambia reported that about 8 200 jobs had been lost in the sector since December 2008 and the banks

significantly slowed down lending.

The introduction of multi-currencies in Zimbabwe during the last quarter to 28 March 2009 tamed inflation,

improved product availability, stabilized prices and improved capacity utilization. However, the economy

was severely affected by the effects of liquidity essential to create consumer demand and lack of working

capital to procure stock in response to consumer demand. Banks were still struggling to raise enough

deposits to lend their clients. The lack of spending power and depressed demand on products impacted

negatively o our retail volumes.

In Zambia, the Kwacha depreciated against the United States Dollar (US$), inflation fell and interest rates

marginally increased.

The South African economy freely benefited from commodity shortages in the region especially in

Zimbabwe, following the liberalization of the economy in October 2008. Resultantly, the local manufacturing

sector may be threatened with de-industrialisation due to the steep competition posed by highly efficient and

low cost South African and global manufacturers.

Overall, the Group in US$ terms made a loss of US$874 thousand from US$10.9 million turnover. Red Star

and RSDZL incurred the largest losses.