For the 52 weeks ended 28 December 2014 Massmart’s total sales of R78.2 billion increased by 10.4% over the prior comparable year. Comparable stores’ sales growth was 7.5% with product inflation of 4.8%. Group EBITDA of R2.9 billion, before foreign exchange movements, grew by 6.7% while operating profit, excluding foreign exchange movements and interest, grew by 4.3%.

CFO_Hans

Our year at a glance

During the year, the South African economy continued to struggle as labour in a number sectors went on strike forcing the level of unemployment to around 25%. In addition, fluctuating fuel costs, the country’s power crisis, the weakening Rand and some Food commodity deflation in the second half of the year, exacerbated the already fragile trading environment. The slowdown in credit extension, specifically unsecured credit, coupled with an increase in the level of household debt to disposable income, led to moderate growth in consumer spending. These factors affected all consumers, but the lower- and middle-income consumers were most impacted.
These challenging conditions for consumers resulted in strong performances in Massbuild and Makro being offset by a lesser performance in Game SA and difficult trading conditions in Wholesale Food.
2014 was an important year from an investment perspective as we continued to acquire properties out of which our key stores operate; we expanded our Food Retail offering in our existing structure across three divisions; and increased our African footprint. These investments resulted in increased employment, depreciation and finance costs and reduced the growth in occupancy costs.
During the year, the relationship with Walmart has continued to deliver great benefits to Massmart which are unique and will assist Massmart to form a competitive advantage. As a shareholder, Walmart has greatly assisted the Group with its strategic journey into Food Retail; the roll out of our supply chain and logistics strategy; and the introduction of Every Day Low Price (EDLP).

Impact of the 53rd week

In line with most international retailers, Massmart runs its internal accounting and administrative timetable using the retail calendar which treats each financial year as an exact 52-week period. This has the effect of a day per year being ‘lost’ which is then caught up every seventh year by including a 53rd week in that financial year. This is not an ‘artificial’ week – the Group’s earnings and cash are higher as a result of trading during this extra week. The pro forma financial effects, for which the Directors of Massmart are responsible, are provided for illustrative purposes only, to show the effect of the additional week of trading in the prior year on the financial information of Massmart, allowing for a comparison of the 52-week periods. The pro forma financial effects have been prepared using accounting policies that comply with IFRS and the financial effects have been compiled from the audited financial information for the 53 weeks ended December 2013. In deriving our 52-week comparative, we have excluded the 53rd week. The pro forma 52-week period results have been reviewed by independent external auditors, Ernst & Young Inc. and their unmodified review report is available for inspection at the Company’s registered office. The review was performed in accordance with ISAE 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus for the year ended 29 December 2013.

On a high level, the estimated impact of the 53rd week was as follows:

 

Sales Operating profit before foreign exchange movements and interest of Profit before taxation Headline earnings of
R1,472.7 million R151.0 million R145.7 million R103.0 million

 

Johannes_label

 
+ Summary Consolidated Income Statement

 

52 weeks 52 weeks 53 weeks
December 2014 December 2013 52 week December 2013
Rm (Audited) (Pro forma) % change (Audited)
Revenue 78,319.0 71,035.3 10.3 72,512.9
Sales 78,173.2 70,790.7 10.4 72,263.4
Cost of sales (63,610.8) (57,733.8) (10.2) (58,926.4)
Gross profit 14,562.4 13,056.9 11.5 13,337.0
Other income 145.8 244.6 (40.4) 249.5
Depreciation and amortisation (846.6) (731.1) (15.8) (731.1)
Impairment of assets (24.6) (41.6) 40.9 (41.6)
Employment costs (6,109.0) (5,357.5) (14.0) (5,423.5)
Occupancy costs (2,678.8) (2,544.5) (5.3) (2,555.3)
Other operating costs (3,033.3) (2,693.1) (12.6) (2,750.3)
Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 2,084.7
Foreign exchange (loss)/gain (49.8) 67.8 67.8
Operating profit before interest 1,966.1 2,001.5 (1.8) 2,152.5
Finance costs (386.8) (278.4) (38.9) (283.8)
Finance income 41.5 28.6 45.1 28.7
Net finance costs (345.3) (249.8) (38.2) (255.1)
Profit before taxation 1,620.8 1,751.7 (7.5) 1,897.4
Taxation (483.4) (512.6) 5.7 (555.3)
Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1
Profit attributable to:
Owners of the parent 1,079.8 1,180.0 (8.5) 1,283.0
Non-controlling interests 57.6 59.1 (2.5) 59.1
Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1
Basic EPS (cents) 497.8 543.9 (8.5) 591.4
Diluted basic EPS (cents) 492.9 538.1 (8.4) 585.1
Dividend (cents):
- Interim 146.0 146.0 - 146.0
- Final 275.0 275.0 - 275.0
- Total 421.0 421.0 - 421.0
+ Sales
Total Group sales increased by 10.4%
R78.2 billion
(Dec 2013: R70.8 billion)
Total comparable sales
7.5%
(Dec 2013: 3.8%)
Africa sales in Rands grew by 16.2% becoming
8.1%
of total sales
(Dec 2013: 7.7%)

 

Total Group sales for the December 2014 financial year increased by 10.4% to R78.2 billion and comparable stores’ sales growth was 7.5%. A store is considered comparable in its 13th month of trading and is removed from the calculation of comparable sales from the first day of the month of closure. Other than Cellular, the Group maintained or grew market share in each major category in which it trades during the year.

 

CFO_sales_2

index_grey SA Sales index_blue Rest of Africa sales

 

 

 

Aligning to our strategy of owning key properties, owned store sales as a percentage of total sales have increased to
30.7%
(Dec 2013: 27.3%)

 

 

 store-sales
index_grey Owned store sales
index_blue Leased store sales

 

 

Further information on the Group’s sales can be found in note 5 of the Group Annual Financial Statements

+ Inflation

Product inflation was 4.8% suggesting real comparable volume growth of 2.7%

December 2014 December 2013
52 weeks (Audited) 53 weeks (Audited)
Group product inflation  4.8  2.7
Food and liqour inflation  5.1  4.1
Home improvement inflation  6.0  3.7
General merchandise inflation  3.6  0.1

 

 

 

+ Gross profit
The Group’s gross profit % increased to
18.6%
(Dec 2013: 18.4%)

 

The increase in gross profit is as a result of a combination of an increased contribution from Game Africa and improved margin performance in Massbuild, Masscash Retail and Makro. These were partially offset by a soft gross margin performance in Masscash Wholesale due to some commodity deflation; difficult trading conditions in Game; and a greater Food contribution at lower margins across the Group.
The Group’s gross margin is dependent upon the sales mix across the Divisions and the trading aggression occasioned by competitor activity. In a positive economic cycle, it should increase marginally owing to the increased contribution from the higher-margin Massbuild Division, as well as a higher proportion of General Merchandise sales. The opposite would be the case in a negative economic cycle. Gross profit also includes rebates and other forms of income earned from suppliers as well as on-going revenue from sales of cellular products and airtime.

+ Operating expenses and other income
Comparable operating expenses well controlled and increased by
7.1%
(Dec 2013: 7.2%)
This was lower than the comparable sales growth of 7.5%
Total operating expenses increased by
11.7%
higher than the sales growth of 10.4%

 

The movement in operating expenses has largely been driven by the acquisition of some of our key stores and the roll out of new stores during the year, the proliferation of our Food Retail offering and the expansion of our African footprint.
During the year, 28 stores were opened and 12 were closed, resulting in a total of 392 stores at December 2014. Net trading space increased by 3.9% to 1,539,295m².

Click here for more information on the store activities within the four Divisions.

 

+ Operating profit before interest

Operating-Profit

 

2013
  • Operating profit before interest and forex of R1,933.7 million
1 Sales-related gross margin
  • Total Group sales for the December 2014 financial year increased by 10.4%
2 Price-and-mix-related gross margin
  • A strong trading performance in Makro and Massbuild; offset by:
  • Greater Food contribution across the Group
  • A softer margin performance in Massdiscounters attributable to clearance activities
  • Deflation in some of our Food commodities
3 Other income
  • Comprises royalties and franchise fees from in-store third parties, third party rental income, fair value movements on investments carried at fair value, dividend income, management and administration fees, distribution income, and general commission
  • Prior year included insurance proceeds
  • Other income is shown in more detail in note 5 of the Group Annual Financial Statements
4 Employment costs
  • Total increase of 14.0% / Comparable increase of 8.5%
  • 48.1% of total operating expenses / 7.8% of sales
  • Increase in staff (Full-Time Equivalents) of 7.6% to +/- 47,000 FTE’s
  • Includes an IFRS 2 Share-based Payment charge of R127.9 million (2013: R126.2 million). Incremental cost of the new scheme introduced in the second half of 2013 was R50.9 million. The Group’s Employee Share Incentive Schemes are described in more detail in note 29 of the Group Annual Financial Statements.
5 Occupancy costs 
  • Total increase of 5.3% / Comparable increase of 3.6%
  • 21.1% of total operating expenses / 3.4% of sales
  • 3.9% increase of net new trading space to a total of 1,539,295m
  • Electricity, rates and taxes increased by approximately 15% Property acquisitions resulting in a reduction in the growth of occupancy costs
  • Includes operating lease expense of R1.9 billion. The Group’s operating lease commitments are described in more detail in note 32 of the Group Annual Financial Statements
6 Depreciation, Amortisation
and Impairment of Assets 
  • Depreciation growth of 15.8% is greater than sales growth of 10.4%
  • 6.9% of total operating expenses / 1.1% of sales
  • The opening of new stores, DC’s and the acquisition of key properties is driving the increase. Rate of increase should reduce significantly from 2015
  • The impairment of assets in the current year relates to the impairment of tangible assets in the Masscash Division as a result of store closures. The impairment also includes the write-down on reclassification to non-current assets classified as held for sale of a Masscash store for which a sales agreement had been entered into at year end. Further details on this impairment can be found in note 6 of the Group Annual Financial Statements
7 Other operating costs 
  • Total increase of 12.6% / Comparable increase of 7.8%
  • 23.9% of total operating expenses. 3.9% of sales
  • Credit card commission increased by 15.5%
  • Includes insurance, bad debts, travel, credit card commission, repairs and maintenance, pre-opening costs, security costs, IT research and maintenance costs, professional fees, advertising and marketing, stationery and consumables. Combined, this category represents the most manageable or variable costs.
  • This category of expenses will continue to receive intense management focus
  • Also included is the cost of the bank intercharge fee which has now been decreased by the SARB and should result in a saving of approximately R55 million in 2015. Significant items, included in other operating costs, can be found in note 8 of the Group Annual Financial Statements
2014
  • Operating profit before interest and forex of R2,015.9 million
  • Increase of 4.3%

 

 

+ Annualised benefit of property acquisitions made over the last 2 years

_property-acquisitions

+ Foreign exchange (loss)/ gain

The Group is primarily exposed to foreign exchange losses and gains through its foreign currency and Rand denominated loans to its African subsidiaries, and its US Dollar denominated current liability to Walmart. The Group hedges all firm commitments relating its foreign denominated trading liabilities by taking out foreign exchange contracts (FEC’s). The Group naturally hedges its African loans by lending to its subsidiaries in various African countries in various African currencies, thereby spreading its foreign exchange exposure across a broad basket of currencies. In addition, the Group limits its exposure to any one currency by funding a portion of the African subsidiaries’ start-up capital via in-country bank loans.
Whilst the weakening of the Rand against the average basket of African currencies resulted in a foreign exchange gain in the African subsidiaries, it was the strengthening of the US Dollar against the average basket of African currencies that resulted in a net loss on the Group’s loans to its African subsidiaries.

Further detail on the Group’s foreign exchange risk management can be found in note 40 of the Group’s Annual Financial Statements
Further details regarding the Group’s foreign exchange exposure can be found in note 7 of the Group’s Annual Financial Statements.

 

Breakdown of foreign exchange (loss)/gain

7. Foreign exchange (loss)/gain
December 2014 December 2013
Rm 52 weeks 53 weeks
Foreign exchange (loss)/gain from loans to African operations  (35.0)  73.1
Foreign exchange gain arising from an investment in a trading and logistics structure  4.8  22.3
Foreign exchange loss arising from the translation of foreign creditors  (19.6)  (27.6)
Total  (49.8)  67.8

 

Reconciliation between Trading profit before interest and Operating profit before foreign exchange movements and interest

52 weeks 52 weeks 53 weeks
December 2014 December 2013 December 2013
Rm (Audited) (Pro forma) (Audited)
Trading profit before interest and taxation  2,061.7  1,994.4  2,145.4
Impairment of assets  (24.6)  (41.6)  (41.6)
Loss on disposal of business -  (1.8)  (1.8)
BEE transaction IFRS 2 charge  (21.2)  (17.3)  (17.3)
Operating profit before foreign exchange movements and interest  2,015.9  1,933.7  2,084.7

 

 

+ EBITDA and EBITDAR

EBITDA and EBITDAR

             
  December 2014   December 2013       December 2013
  52 weeks   52 weeks       53 weeks
Rm (Audited)   (Pro forma)   % change   (Audited)
               
Operating profit before foreign exchange  2,015.9    1,933.7   4.3%    2,084.7
Depreciation and amortisation  846.6    731.1   15.8%    731.1
Impairment of assets  24.6    41.6   40.9    41.6
EBITDA  2,887.1    2,706.4   6.7%    2,857.4
Occupancy costs  2,678.8    2,544.5   5.3%    2,555.3
EBITDAR  5,565.9    5,250.9   6.0%    5,412.7
               

 

 

 

+ Net finance costs
Net finance costs increased by
38.2%
Higher average borrowings at
R2.9 billion
(Dec 2013: R2.0 billion)
Net additional medium-term funding obtained in 2014
8.1%

 

In addition to the main drivers already highlighted, the increase in finance costs is also attributable to higher interest rates, the acquisition of some of the remaining non-controlling interest in entities within the Masswarehouse and Masscash Divisions, and the payment of contingent consideration on historic business combinations in the Masscash Division.
Further details regarding the Group’s finance costs and interest rate risk exposure and management can be found in note 9 and note 40 of the Group’s Annual Financial Statements respectively.
The Group’s gearing ratio (debt:equity) increased to 44.5% (Dec 2013: 29.7%).
Further details regarding the Group’s capital risk management can be found in note 40 of the Group’s Annual Financial Statements

 

+ Taxation and tax rate reconciliation
December 2014 December 2013
Rm (Audited) (Audited)
The rate of taxation is reconciled as follows:
Standard corporate taxation rate  28.0  28.0
Non-taxible income and disallowed expenses  2.8  (2.0)
Allowances on lease premiums and improvements  (0.1)  (0.3)
Assessed loss not utilised  2.0  1.4
Other-including foreign tax adjustments  (2.9)  2.2
Effective tax rate  29.8  29.3

 

The main reason for the rate being above the standard 28% is the fact that we have continued to adopt a conservative approach to our tax as well as the fact that the old Employee Share Incentive Scheme cost is a disallowable expense. We expect Massmart’s future effective tax rate to remain just below 30%.
Massmart is unconcerned about any specific element of historical tax risk in the Group, but there remains the uncertainty that material adjustments arising from potentially unfavourable tax assessments of previous tax returns, some of which have not yet been assessed by SARS and other African tax authorities, could impact future tax charges.
More information relating to taxation can be found in note 10 of the Group’s Annual Financial Statements.

Deferred taxation

The deferred taxation asset arises primarily from numerous temporary differences, including tax deductions on trademarks, the operating lease liability arising from the lease-smoothing accounting policy, and unutilised assessed losses. This net asset will reduce over time as the associated tax benefits are utilised. Net deferred tax increased from R585.5 million at December 2013 to R600.9 million at December 2014.
More information relating to deferred taxation can be found in note 18 of the Group’s Annual Financial Statements.

+ Summary Consolidated Statement of Comprehensive Income
52 weeks 52 weeks 53 weeks
December 2014 December 2013 52 week December 2013
Rm (Audited) (Pro forma) % change (Audited)
Profit for the year  1,137.4  1,239.1  (8.2)  1,342.1
Items that will not subsequently be re-classified to the income statement:  (8.9)  5.7  5.7
Post retirement medical aid actuarial (loss)/gain  (8.9)  5.7  5.7
Items that will subsequently be re-classified to the income statement:  (55.6)  55.8  55.8
Foreign currency translation reserve  (53.7)  47.2  47.2
Cash flow hedges  1.4  7.0  7.0
Revaluation of listed shares  (3.7)  4.7  4.7
Income tax relating to components of other comprehensive income  0.4  (3.1)  (3.1)
Total other comprehensive (loss) / income for the year, net of tax  (64.5)  61.5  61.5
Total comprehensive income for the year  1,072.9  1,300.6  (17.5)  1,403.6
Total comprehensive income attributable to:
     Owners of the parent  1,015.3  1,241.5  1,344.5
     Non-controlling interests  57.6  59.1  59.1
Total comprehensive income for the year  1,072.9  1,300.6  (17.5)  1,403.6

Further information on the movements in other comprehensive income can be found in note 23 of the Group’s Annual Financial Statements.

+ Headline earnings

The main reason for the decrease in earnings and headline earnings is the increase in employment, occupancy, depreciation and amortisation, and interest costs already discussed.
Dilutive headline EPS is determined after taking into account potentially dilutive shares of 2.1 million (Dec 2013: 2.3 million shares) that arose due to the higher weighted-average Massmart share price during this financial year in comparison to the exercise price of the Employee Share Incentive Scheme grants.
The impairment of assets in the current year relates to the impairment of tangible assets in the Masscash Division as a result of store closures. The impairment also includes the write-down on reclassification to non-current assets held for sale of a Masscash store for which a sales agreement had been entered into at year end. Further details on this impairment can be found in note 6 of the Group Annual Financial Statements.
Headline earnings is described in more detail in note 12 of the Group’s Annual Financial Statements.

52 weeks 52 weeks 53 weeks
December 2014 December 2013 52 week December 2013
Rm (Audited) (Pro forma) % change (Audited)
Reconciliation of profit for the year to headline earnings
Profit for the year attributable to owners of the parent  1,079.8  1,180.0  1,283.0
   Impairment of assets  24.6  41.6  41.6
   Loss on disposal of fixed assets  1.4  11.9  11.9
   Loss on disposal of business -  1.8  1.8
   Total tax effects of adjustments  (0.3)  (3.8)  (3.8)
Headline earnings  1,105.5  1,231.5  (10.2)  1,334.5
Headline earnings before foreign exchange (taxed)  1,141.4  1,182.7  (3.5)  1,285.7
Headline EPS (cents)  509.7  567.7  (10.2)  615.2
Headline EPS before foreign exchange (taxed) (cents)  526.2  545.2  (3.5)  592.7
Diluted headline EPS (cents)  504.7  561.6  (10.1)  608.6
Diluted headline EPS before foreign exchange (taxed) (cents)  521.1  539.4  (3.4)  586.4

 

+ Summary Consolidated Statement of Financial Position
December 2014 December 2013 %
Rm (Audited) (Audited) change
ASSETS
Non-current assets  11,018.3  10,111.8
Property, plant and equipment  7,239.2  5,988.1  20.9
Goodwill and other intangible assets  2,958.7  2,928.8
Investments and other financial assets  158.2  522.8
Deferred taxation  662.2  672.1
Current assets  17,870.1  16,036.1
Other current financial assets  229.3 -
Inventories  11,228.8  10,115.5  11.0
Trade, other receivables and prepayments  4,288.3  3,712.5  15.5
Taxation  56.3  12.0
Cash and bank balances  2,067.4  2,196.1
Non-current assets classified as held for sale  18.0 -
Total  28,906.4  26,147.9
EQUITY AND LIABILITIES
Total equity  5,527.2  5,369.6
Equity attributable to owners of the parent  5,334.4  5,173.0  3.1
Non-controlling interests  192.8  196.6
Non-current liabilities  3,236.8  2,206.4
Interest-bearing borrowings  2,133.9  1,178.7
Deferred taxation  61.3  86.6
Other non-current liabilities and provisions  1,041.6  941.1
Current liabilities  20,142.4  18,571.9
Trade, other payables and provisions  18,518.9  17,101.2  8.3
Taxation  208.3  331.3
Bank overdrafts  584.0  607.8
Other current liabilities  831.2  531.6
Total  28,906.4  26,147.9

 

+ Acquisition of subsidiaries and properties

During the current year, aligned to our strategy of owning our key properties, the Group acquired control of 15 key properties which had previously been leased by the Group. The cash consideration paid amounted to R784.9 million and the acquisitions were accounted for as asset acquisitions. In addition the Group acquired control of an entity within the Masscash Division that held a Fresh Food business.
The net cash purchase price of the Fresh Food business, of R11.5 million, gave rise to goodwill of R9.7 million. No contingent consideration liabilities were raised on any of these acquisitions and none of these acquisitions changed the Group’s store profile.
Acquisition of subsidiaries are described in more detail in note 4 of the Group’s Annual Financial Statements.

+ Acquisition of businesses

During this same period, the Group also acquired two Liquor businesses in the Massdiscounters Division. Both of these acquisitions were aligned to the Group’s strategy of rolling out Retail Food and Liquor. Together these acquisitions amounted to a net cash purchase price of R2.9 million and gave rise to goodwill of R2.4 million.
During the current year, final payments of R90 million, included in working capital movements, were made to settle contingent consideration liabilities raised on historical business combinations in the Masscash division.

+ Tangible and intangible assets
Increased by Acquisition of key strategic properties of the Group for Completed construction of our flagship Mozambique Builders Warehouse store for Impairment to property, plant and equipment of
14.4% R784.9 million R91.7 million R24.6 million
Goodwill increase of
R10.9 million No impairment
due to the acquisition of Fresh and Liquor businesses partially offset by foreign exchange movements  to goodwill in the current year

More information relating to property, plant and equipment, goodwill and intangible assets can be found in note 13, 14 and 15 respectively of the Group’s Annual Financial Statements.

+ Investments and other financial assets

During February 2014, the Group’s participation in an international treasury, shipping and trading business of R117.4 million terminated, and as a result, the investment was realised.
The Group sells extended warranties and places general insurance through vehicles facilitated by Mutual & Federal. In addition, the Group will sell credit life insurance through a vehicle by arrangement with Guardrisk. This cell arrangement was capitalised in the current year with no life products sold during the current financial year. The Group’s investments in insurance cell captives amounted to R125.2 million (Dec 2013: R100.3 million) at year end.
The Group also holds other listed and unlisted investments to the value of R10.1 million (Dec 2013: R14.2 million).
More information relating to investments can be found in note 16 of the Group’s Annual Financial Statement.
At year end, interest-free Employee Share Trust Loans of R37.6 million (Dec 2013: R46.7 million) are owed by participants in terms of the old Massmart Employee Share Incentive Schemes, R15.1 million of which is reflected in other current financial assets in the current year.
The finance lease deposit of R21.9 million was reversed during the 2014 financial year, upon acquisition of one of the property companies referred to earlier, that houses the Makro Strubens Valley store.
At year end the property loan of R215 million raised in 2013 was transferred from non-current investments and other financial assets to other current financial assets. During the prior financial year the Group purchased a property where transfer was not effected at year end. Due to the delay, the Group placed the purchase price on deposit with the seller honouring the transaction. Upon transfer, during February 2015, the property was recorded by the Group as land and buildings and the loan asset was paid to the seller.
More information relating to investments and other financial assets can be found in note 17 and 17.1 of the Group’s Annual Financial Statements.
www.massmart.co.za/iar2014/groupafs
More information relating to the fair value of the above investments can be found in note 39 of the Group’s Annual Financial Statements.

+ Fair value hierarchy

For financial instruments traded in an active market (level 1), fair value is determined using stock exchange quoted prices. For other financial instruments (level 2), appropriate valuation techniques, including recent market transaction and other valuation models, have been applied and significant inputs include market yield curves and exchange rates. For non-current assets classified as held for sale (level 3) fair value has been determined based on the sale agreement. The table below reflects financial instruments and non-current assets classified as held for sale carried at fair value, and those financial instruments and non-current assets classified as held for sale that have carrying amounts that differ from their fair values, in the Statement of Financial Position.

Rm Dec 2014
(Audited)
Level 1 Level 2 Level 3 December 2013
(Audited)
Level 1 Level 2 Level 3
Financial assets at fair value through profit or loss  155.1 -  155.1 -  235.4 -  235.4 -
- Investment in cell captives and other  125.2 -  125.2 -  217.7 -  217.7 -
- FEC asset  29.9 -  29.9 -  17.7 -  17.7 -
Designated cash flow hedge  13.7 -  13.7 -  8.8 -  8.8 -
- FEC asset  13.7 -  13.7 -  8.8 -  8.8 -
Loans and receivables  30.3 -  30.3 -  34.9 -  34.9 -
- Employee share trust loans  30.3 -  30.3 -  34.9 -  34.9 -
Available-for-sale financial assets  8.4  8.4 - -  12.1  12.1 - -
- Other listed investments  8.4  8.4 - -  12.1  12.1 - -
Non-current assets classified as held for sale  22.0 - -  22.0 - - - -
Assets measured at fair value  229.5  8.4  199.1  22.0  291.2  12.1  279.1 -
Financial liabilities at amortised costs  2,653.0 -  2,653.0 -  1,724.8 -  1,724.8 -
- Medium-term loan and bank loans  2,653.0 -  2,653.0 -  1,724.8 -  1,724.8 -
Financial liabilities at fair value through profit or loss  4.5 -  4.5 -  1.9 -  1.9 -
- FEC liability  4.5 -  4.5 -  1.9 -  1.9 -
Designated cash flow hedge  2.2 -  2.2 -  0.8 -  0.8 -
- FEC liability  2.2 -  2.2 -  0.8 -  0.8 -
Liabilities measured at fair value  2,659.7 -  2,659.7 -  1,727.5 -  1,727.5 -
There were no transfers of financial instruments between Level 1 and Level 2 fair value measurements during the year ended December 2014 and no transfers into, or out of, Level 3.

 

More information relating to the fair value measurement of these assets and liabilities reflected above can be found in note 39 of the Group’s Annual Financial Statements.

+ Inventories
Inventory days increased to
64.4 days
(Dec 2013: 63.7 days)
Increased by
11.0%
ahead of sales growth, mainly due to opening new stores in the second half of the year

 

Inventory was well managed within the Group other than the over-stocked position in Massdiscounters given the slower comparable store sales in Game SA. As a percentage of total inventory, General Merchandise of R5.1 billion (Dec 2013: R4.6 billion) is marginally lower than last year at 45.4% (Dec 2013: 45.5%). The Massdiscounters overstocked position is in this category. Food at R3.3 billion (Dec 2013: R2.9 billion) is the second largest inventory category in the Group but with the fastest stock-turns.
More information relating to inventories can be found in note 19 of the Group’s Annual Financial Statements.

 

Composition of total inventories (%):

Inventories
index_green Food
index_beige Liquor
index_blue General merchandise
index_grey Home improvement

 

 

 

+ Total trade, other receivables and prepayments
Debtors’ days remain well controlled at
9 days
Increase of                          _
15.5% 
is ahead of sales                    _
Allowance for doubtful debt
5.2%
of total trade receivables
(Dec 2013: 5.0%)

 

Excluding the timing impact of closing our retail year end a day ahead of that of the prior year; the fair value movement of our open foreign exchange contracts; and the increase in amounts due from Walmart, trade and other receivables increased in line with sales. There is no significant concentration of trade debtors. Trade debtors is a key area of focus for management.
Trade, other receivables and prepayments are described in more detail in note 20 of the Group’s Annual Financial Statements.
More information on the Group’s credit risk exposure and management can be found in note 40 of the Group’s Annual Financial Statements.

+ Non-current liabilities

Interest-bearing liabilities include medium-term bank loans and medium-term loans. This balance increased substantially during the financial year as two sets of R500 million five-year, fixed-rate loans were raised at rates of 8.4% and 8.6% respectively and a R600 million five-year, fixed rate loan was raised at 8.2%. The largest non-interest-bearing liability is the net operating lease liability of R912.5 million (Dec 2013: R822.2 million) arising from the lease-smoothing adjustment and which will be released over the remaining period of the Group’s operating leases. The increase in the operating lease liability is in most part due to the renewal of existing leases during the current year at higher rates and the roll-out of new stores.
More information relating to non-current liabilities can be found in note 24 of the Group’s Annual Financial Statements.
More information relating to the Group’s liquidity risk management can be found in note 40 of the Group’s Annual Financial Statements.
At year end, the actuarial valuation of the Group’s potential unfunded liability arising from post-retirement medical aid contributions owed to current and future retirees amounted to R101.7 million (Dec 2013: R84.2 million), R2.7 million of which has been reflected as a current provision.
The Group’s onerous lease provision decreased from R18 million to R16 million at the end of the current year.
Further information relating to non-current provisions can be found in note 25 of the Group’s Annual Financial Statements.

 

Medium-term loan of Medium-term bank loans of Capitalised finance leases of Operating lease liability arising from
the lease-smoothing adjustment of
R600
million
R1,521.7
million
R12.2
million
R912.5
million
(Dec 2013: R600 million)  (Dec 2013: R562.1 million)  (Dec 2013: R16.6 million)  (Dec 2013: R822.2 million)

 

+ Trade and other payables and provisions
Trade creditor days decreased from 76 days to
75 days

 

The figure is representative of the Group’s supplier terms. More information relating to trade and other payables can be found in note 26 of the Group’s Annual Financial Statements.
Contingent liabilities raised on historical business acquisitions settled during the current financial year amounted to R90 million.
The Supplier Development Fund, a separate entity created in line with the judgement of the Competition Appeal Court at the time of the Walmart transaction, had a closing balance of R157.2 million (Dec 2013: R202.5 million) and is reported on annually to the Competition Tribunal highlighting our expenditure and achievements.
More information relating to current provisions and other can be found in note 27 of the Group’s Annual Financial Statements.

+ Other current liabilities
Included within other current liabilities are
medium-term loans of
R249.7 million
(Dec 2013: R152.7 million)

Included within other current liabilities are medium-term loans of R249.7 million (Dec 2013: R152.7 million), the majority of which relates to foreign variable-rate bank loans.
Also included is the current portion of medium-term bank loans and capitalised finance lease liabilities of R576.7 million (Dec 2013: R374.3 million).
More information relating to ‘other current liabilities’ can be found in note 28 of the Group’s Annual Financial Statements.

+ Contingent liabilities

The Group and our subsidiaries are party to a variety of legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business. While the results of these proceedings, claims and inquiries cannot be predicted with certainty, management believes that the final outcome of the foregoing will not have a material adverse effect on the Group’s financial position.

Lease exclusivity

For the past two years we have defended several legal actions filed against our Massdiscounters/Game division by three of the major food retailers in South Africa and a prominent property fund also located in South Africa. These interdictory actions for injunctive relief are based on contractual and delictual theories of law relating to exclusivity and restrictive usage clauses in separate lease agreements between the relevant landlord and Game on the one hand, and one or more of the major food retailers on the other. These disputes arise when one or more of these retailers are co-located in a particular shopping center with a Game store that seeks to offer a limited fresh food offering. Along with other legal defences, we have asserted that the blanket enforcement of these clauses by the major food retailers contravenes South African competition law. In October 2014, Massmart lodged a formal complaint with the South African Competition Commission and requested the Commission to initiate a formal investigation into this behaviour. In December 2014, the Commission notified us that they would proceed with a formal investigation of our claims, together with similar complaints raised by other stakeholders. The various proceedings, including the Commission’s investigation, are on-going. If the conclusion of these proceedings is not in our favour – in whole or in part – then a key Group strategy in certain localities in South Africa could be delayed or curtailed.

+ Commitments

More information relating to these capital expenditure commitments can be found in note 31 of the Group’s Annual Financial Statements.
Massmart has the right of first refusal on the sale of any shares by the non-controlling interest holders in various Masscash stores. Historically Massmart has exercised this right. All capital commitments will be funded using current facilities.

 

December 2014 December 2013
52 weeks 53 weeks
Rm (Audited) (Audited)
Commitments in respect of capital expenditure approved by directors:
Contracted for  864.1  1,249.3
Not contracted for  1,155.1  783.4
 2,019.2  2,032.7

 

+ Summary Consolidated Statement of Changes in Equity
Ordinary Other Equity attributable Non-
share Share general Retained to owners controlling
Rm capital premium reserves profit of the parent interests Total
Balance as at December 2012 (Audited)  2.2  752.1  323.3  3,662.1  4,739.7  175.6  4,915.3
Dividends declared - - -  (913.4)  (913.4) -  (913.4)
Total comprehensive income - -  61.5  1,283.0  1,344.5  59.1  1,403.6
Changes in non-controlling interests - -  3.8 -  3.8  (7.2)  (3.4)
Distribution to non-controlling interests - - - - -  (30.9)  (30.9)
IFRS 2 charge and Share Trust transactions - -  129.0  (121.8)  7.2 -  7.2
Treasury shares acquired -  (8.8) - -  (8.8) -  (8.8)
Balance as at December 2013 (Audited)  2.2  743.3  517.6  3,909.9  5,173.0  196.6  5,369.6
Dividends declared - - -  (914.0)  (914.0) -  (914.0)
Total comprehensive income - -  (64.5)  1,079.8  1,015.3  57.6  1,072.9
Changes in non-controlling interests - -  (27.6) -  (27.6)  (11.0)  (38.6)
Distribution to non-controlling interests - - - - -  (50.4)  (50.4)
IFRS 2 charge and Share Trust transactions - -  125.1  (27.4)  97.7 -  97.7
Treasury shares acquired -  (9.9)  (0.1) -  (10.0) -  (10.0)
52 weeks ended December 2014 (Audited)  2.2  733.4  550.5  4,048.3  5,334.4  192.8  5,527.2

 

+ Summary Consolidated Statement of Cash Flows
52 weeks 53 weeks
December 2014 December 2013
Rm (Audited) (Audited)
Operating cash before working capital movements  2,983.4  2,984.0
Working capital movements  (295.1)  752.6
Cash generated from operations  2,688.3  3,736.6
Taxation paid  (683.4)  (732.8)
Net interest paid  (345.3)  (255.1)
Investment income -  79.2
Dividends paid  (914.0)  (913.4)
Cash inflow from operating activities  745.6  1,914.5
Investment to maintain operations  (857.4)  (780.2)
Investment to expand operations  (1,322.1)  (1,306.8)
Investment in subsidiaries  (14.4) -
Proceeds on disposal of property, plant and equipment  32.5  25.6
Proceeds on disposal of assets classified as held for sale -  2.5
Other net investing activities  14.9  (247.4)
Cash outflow from investing activities  (2,146.5)  (2,306.3)
Cash inflow from financing activities  1,349.7  293.0
Net decrease in cash and cash equivalents  (51.2)  (98.8)
Foreign exchange movements  (53.7)  47.2
Opening cash and cash equivalents  1,588.3  1,639.9
Closing cash and cash equivalents  1,483.4  1,588.3

 

+ Working capital movements
December 2014 December 2013
52 weeks 53 weeks
Rm (Audited) (Audited)
Net movement in working capital  (295.1) 752.6
Increase in inventories  (1,112.4)  (424.0)
Increase in trade receivables  (697.8)  (30.7)
Increase in trade payables  1,658.3  1,254.6
Decrease in provisions  (143.2)  (47.3)

 

The reduction in working capital is primarily as a result of the 53 week comparative, the effect of which in the prior and current year is approximately R500 million.
Net capital expenditure amounted to 2.8% (Dec 2013: 3.3%) of sales. Net capital expenditure excluding business and property acquisitions amounted to 1.6% (Dec 2013: 1.8%) of sales.
Due to the high levels of trading experienced over the December holiday period, the Group banks a large amount of cash in the month, while majority of the payments to suppliers only occur after year-end. This explains the large cash and bank balances reflected in the Statement of Financial Position in both 2014 and 2013.
The Group continually refurbishes its older stores and, where possible, builds its own stores. In doing so the Group incurred expenditure of R2,179.5 million (Dec 2013: R2,087 million). Of this, R857.4 million (Dec 2013: R780.2 million) was replacement capital expenditure, while the balance of R1,322.1 million (Dec 2013: R1,306.8 million) was invested in new capital assets, including new stores and distribution centres. The increase in expansionary capital assets can largely be attributed to the property acquisitions already mentioned, as well as the construction of our flagship Mozambique Builders Warehouse store for
R91.7 million.
Capital expenditure, excluding property acquisitions for the next 12 months is budgeted to slow down as we begin to realise some of the benefits of the investments we have made during the last few years. We will continue to invest in line with the Group’s strategic drive to: own more of our key stores; roll out Food Retail stores; grow online; increase our rate of expansion in Africa; and open more lower-income Home Improvement stores in South Africa.
Further information relating to the movements in the Statement of Cash Flows can be found in note 38 of the Group’s Annual Financial Statements.

+ Capital Expenditure Acceleration
expenditure
index_green Businesses acquired (Rm)
index_beige Property acquisitions (Rm)
index_blue Investment to expand operations (Rm)
index_grey Investment to maintain operations (Rm)
index_blue_stroke Total capex as a % of sales
index_grey_stroke Total capex as a % of sales excludingbusiness and property acquisitions

 

 

 

 

Segmental review

The Group is organised into four Divisions for operational and management purposes, being Massdiscounters, Masswarehouse, Massbuild and Masscash. Massmart reports its operating segment information on this basis. The principal offering for each Division is as follows:

  • Massdiscounters (Game, DionWired) – General Merchandise discounter and Food retailer
  • Masswarehouse (Makro and The Fruitspot) – Warehouse club trading in Food, General Merchandise and Liquor
  • Massbuild (Builders Warehouse, Builders Express, Builders Trade Depot, Builders Superstore) – Home Improvement retailer and Building Materials supplier
  • Masscash (Cash and Carry, Cambridge Food, Shield) – Food wholesaler, retailer and buying association

No single customer represented more than 10% of any of one of the Divisions’ revenue in the current or prior financial year.

 

+ Operating segments
Rm Total Other Massdiscounters Masswarehouse Massbuild Masscash
For the 52 week year ended December 2014
Sales  78,173.2 -  17,955.2  21,554.8  10,822.8  27,840.4
Operating profit before foreign exchange movements and interest  2,015.9  (30.6)  180.7  1,044.3  537.6  283.9
Trading profit before interest and taxation  2,061.7 -  180.7  1,044.3  537.6  299.1
Net foreign exchange (loss)/ gain  (49.8)  (48.4)  (5.8) -  2.5  1.9
Net finance (costs)/income  (345.3)  (211.0)  (29.4)  44.4  (63.2)  (86.1)
Operating profit before taxation  1,620.8  (290.0)  145.5  1,088.7  476.9  199.7
Trading profit before taxation  1,716.4  (211.0)  151.3  1,088.7  474.4  213.0
Inventory  11,228.8  30.5  3,984.9  2,845.7  1,785.6  2,582.1
Total assets  28,906.4  (325.6)  7,985.5  7,689.0  5,027.7  8,529.8
Non-current asset held for sale  18.0  15.0 - -  3.0 -
Total liabilities  23,379.2  (4,366.5)  7,820.9  7,312.1  4,730.6  7,882.0
Net capital expenditure  2,147.0  967.8  542.2  70.3  296.8  269.9
Depreciation and amortisation  846.6  43.2  293.1  171.6  154.0  184.7
Impairment losses  24.6  9.4 - - -  15.2
Non-cash items other than depreciation and impairment  146.1  (16.2)  112.0  46.9  12.6  (9.2)
Cash flow from operating activities  745.6  (446.2)  473.4  (103.8)  707.4  114.8
Cash flow from investing activities  (2,146.5)  (980.8)  (545.0)  (70.1)  (296.8)  (253.8)
Cash flow from financing activities  1,349.7  1,163.0  112.9  161.8  (369.3)  281.3
Inventory days  64.4 -  107.6  57.1  84.6  37.1
Number of stores  392 -  153  19  100  120
Trading area (m2)  1,539,295 -  506,188  195,794  436,538  400,775
Trading area (m2) increase on December 2013 3.9% 0.0% 6.5% 0.0% 6.3% 0.3%
Average trading area per store (m2)  3,927 -  3,308  10,305  4,365  3,340
Distribution centre space (m2)  328,175 -  178,488  51,300  61,733  36,654
Distribution centre space (m2) increase on December 2013 1.3% - - - - 13.5%
For the 53 week year ended December 2013
Sales  72,263.4 -  16,740.6  19,675.1  9,583.6  26,264.1
Operating profit before interest and taxation  2,152.5  (37.9)  449.0  988.1  505.3  248.0
Trading profit before interest and taxation  2,145.4 -  366.6  990.2  507.6  281.0
Net finance (costs)/income  (255.1)  (349.6)  34.0  38.5  29.2  (7.2)
Operating profit before taxation  1,897.4  (387.5)  483.0  1,026.6  534.5  240.8
Trading profit before taxation  2,239.9 -  400.6  1,028.7  536.8  273.8
Inventory  10,115.5  12.6  3,647.3  2,618.2  1,597.0  2,240.4
Total assets  26,147.9  (2,614.7)  7,718.3  7,166.8  5,212.0  8,665.5
Total liabilities  20,778.3  (6,027.7)  7,522.2  6,587.8  4,857.4  7,838.6
Net capital expenditure  2,061.4  759.0  489.7  344.8  275.1  192.8
Depreciation and amortisation  731.1  33.9  256.4  145.4  121.2  174.2
Impairment losses  41.6 - -  2.1 -  39.5
Non-cash items other than depreciation and impairment  138.0  458.0  23.3  (352.2)  13.6  (4.7)
Cash flow from operating activities  1,914.5  399.4  990.1  273.9  356.9  (105.8)
Cash flow from investing activities  (2,306.3)  (1,424.0)  (490.6)  (385.2)  (275.2)  268.7
Cash flow from financing activities  293.0  819.4  (621.6)  209.3  1.4  (115.5)
Inventory days  64 -  109  59  92  35
Number of stores  376 -  143  19  92  122
Trading area (m2)  1,481,308 -  475,331  195,794  410,546  399,637
Trading area (m2) increase on December 2012 (excluding re-measurements) 4.8% 0.0% 7.7% 9.3% 3.7% 0.6%
Average trading area per store (m2)  3,940 -  3,324  10,305  4,462  3,276
Distribution centre space (m2)  323,813 -  178,488  51,300  61,733  32,292
Distribution centre space (m2) increase on December 2012 11.4% - - - 108.4% 3.2%
The ‘other’ column includes consolidation entries and various corporate functions.
All intercompany transactions have been eliminated in the above results.
Trading profit before taxation is earnings before corporate net interest, asset impairments, BEE transaction IFRS 2 charges, foreign exchange movements, loss on disposal of business, and assets classified as held for sale.
Net capital expenditure is defined as capital expenditure less disposal proceeds.

 

+ Geographic segments
Geographic segments
The Group’s four divisions operate in two principal geographical areas – South Africa and the rest of Africa.
December 2014 December 2013
52 weeks 53 weeks
Total South Africa Rest of Africa Total South Africa Rest of Africa
Sales  78,173.2  71,822.4  6,350.8  72,263.4  66,676.1  5,587.3
Segment assets (Total)  21,764.8  20,226.3  1,538.5  19,238.5  18,320.0  918.5
Segment assets (Non-current)  10,197.9  9,576.5  621.4  8,916.9  8,418.7  498.2
Net capital expenditure  2,147.0  1,936.6  210.4  2,061.4  1,891.9  169.5

 

More information relating to segmental reporting can be found in note 41 of the Group’s Annual Financial Statements.

 

+ Return on sales (ROS)

This ratio combines all of the key Income Statement elements, being sales, gross margin, supplier income, and expenses (including depreciation and amortisation), but excludes foreign exchange translation gains and losses. In addition, the largest asset investment in the Divisions is net working capital (being inventory and trade receivables), less the associated funding liability (in trade payables). The relative success of management’s impact on net working capital will therefore be reflected in changes to net finance costs or income from one year to the next. The reason foreign exchange translation gains and losses are excluded is because they are largely beyond management’s control, are volatile, and do not reflect the sustainable profitability of the Division or Group.

Decrease is due to:

  • Lesser performance in Game SA. Game SA sales were affected by the slowdown of the middle-income consumer spending, the global slowdown in General Merchandise, particularly electronics, and some insufficient operating discipline, including poor in-stock levels.
  • Difficult trading conditions in the Wholesale Food sector. The presence of strong independent traders in the Wholesale Food sector has resulted in a continued tough and competitive environment during 2014.
  • Increased Depreciation and Employment costs. Depreciation and Employment costs comprised 6.9% and 48.1% of total operating expenses respectively and the high increases are a consequence of: the Group’s annualisation of RDCs in 2013; the acquisition of key properties; the roll-out of new stores; and the continued roll-out of Food Retail in three Divisions.

 

ROS

All periods are 52-week periods, Dec 2013 is for 53 weeks.

+ Return on equity (ROE)

Massmart is committed to delivering superior returns to shareholders over the longer term.

Decrease is due to:

  • The reduction in the Group’s profitability (measured by ROS) coupled with the Group’s strategic significant investment in Food Retail, owned stores and supply chain were the main causes of the lower Group ROE. The Group’s on-going investment in new stores, owned stores and new businesses increased the size of the net asset value. As the Group’s profitability improves, and as the new stores, RDCs and businesses begin to trade optimally, the ROE is likely to improve to higher levels.

The Divisions are responsible for delivering operational returns, being their returns to their net working capital and non-current assets. In addition to these operational returns, Massmart, through the Board and Executive Committee, is responsible for delivering investment returns that will also include the book value of intangibles (specifically goodwill arising from the acquisition of businesses), as well as setting the Group’s gearing levels that will influence returns to shareholders and the overall risk profile. Depending on the purchase price, Retail and Wholesale acquisitions of subsidiaries tend to generate significant accounting goodwill owing to the relatively low net asset values of these business models.
The Divisions are recapitalised bi-annually by Massmart with interest-free shareholder funds that are equivalent to the book value of non-current assets in each Division. Each Division is funding its net working capital position through cash or interest-bearing debt, depending on the characteristics of that business model. This process enables divisional returns to be evaluated and compared on a consistent basis across the Group, and from one year to the next.

ROE

All periods are 52-week periods, Dec 2013 is for 53 weeks.

+ Gearing (or leverage)

Increase is due to:

  • The acquisition during the year of stand-alone, key strategic properties previously leased. This change does not represent a major financial shift, however, it will result in converting fixed long-term lease commitments, which are recorded off-balance sheet, to on-balance sheet assets or liabilities. Significantly, the Group acquired 12 Masscash stores and one property in Masswarehouse, Massbuild and Corporate alike. The acquisition of these properties has been covered in the ‘Acquisition of subsidiaries and properties’ paragraph, previously referred to.
  • Investment in new trading formats in East and West Africa, increased roll-out of Food Retail and opening more lower-income home improvement stores in South Africa.

As regards to financing any future acquisition of properties and businesses, depending on the target company’s cash profile and cash generation ability, this gearing ratio may be increased.

Gearing

All periods are 52-week periods, Dec 2013 is for 53 weeks.

+ Dividend cover

The Board believes that the current ratio is appropriate, given the Group’s current and forecast cash generation, planned capital expenditure and gearing levels.

Dividend

All periods are 52-week periods, Dec 2013 is for 53 weeks.

+ Related-party transactions

Related-party transactions comprise:

  • Transactions between the Company and its subsidiaries, which have been eliminated on consolidation and are thus not disclosed in this review
  • Compensation of key-management personnel
  • Transactions between the Group and Wal-Mart Stores, Inc. (its ultimate holding company)
  • The Group holds cash reserves on behalf of the Group’s previous Chairman’s Lamberti Education Foundation Trust
  • Loans to Executive Directors and Executive Committee members
  • The post-retirement medical aid liability, Massmart Pension Fund and Massmart Provident Fund which are managed for the benefit of past and current employees of the Group

More information on related-party transactions can be found in note 34 of the Group’s Annual Financial Statements.

+ Directors’ emoluments and how the Group measures performance

A detailed breakdown can be found in the Remuneration Report of this Integrated Annual Report. The ‘Directors’ emoluments’ information can also be found in note 35 of the Group’s Annual Financial Statements.

+ Accounting policies, critical judgements and key sources of estimation uncertainty

These audited summary consolidated year end results have been prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS, its interpretations issued by the IFRS Interpretations Committee, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, presentation and disclosure as required by International Accounting Standard (IAS) 34 Interim Financial Reporting, the JSE Limited Listings Requirements and the requirements of the Companies Act 71 of 2008 of South Africa.  The accounting policies and methods of computation used in the preparation of the audited summary consolidated results are in terms of IFRS and are consistent in all material respects with those applied in the most recent annual financial statements, as none of the amendments coming into effect in the current financial year have had an impact on the financial reporting of the Group. In the process of applying the Group’s accounting policies, management has made certain critical judgements that have a significant effect on the amounts recognised in the financial statements.
More detail on the Group’s accounting policies, critical judgments and key sources of estimation uncertainty is provided in note 1 and 2 of the Group’s Annual Financial Statements.

+ Going concern assertion

The Board has formally considered the going concern assertion for Massmart and its subsidiaries and believes that it is appropriate for the forthcoming financial year.
The going concern assertion can be found in the Directors’ report of this Integrated Annual Report.

 

The year ahead

The new year is proving to be an exciting one, as we continue to implement our strategic priorities and tackle our strategic, environmental and operational risks head-on. Our focus on targeting new customer groups; experimenting with new formats; increasing our Private Label offering; reducing the cost of our value-chain; increasing our property portfolio; and reducing the cost of our new store openings, is looking promising as total sales for the 13 weeks to 29 March increased by 9.5% (comparable sales increased by 7.4%).
A priority for us in the upcoming year is the regeneration of Game, despite its many challenges. We are confident that the introduction of Food Retail, the appointment of experienced key personnel, and the revision of our store segmentation and merchandise range will shrink the current overstock position and improve Game’s profitability.
As we continue to establish our Retail Food proposition in the market, the cyclicality experienced on General Merchandise and Wholesale Food platforms will reduce. To date, our competitors’ reactions to our growth in Food Retail suggests that we are on-track to becoming a major player in this market.
Our goal to aggressively roll-out our Massbuild formats, expand our African footprint and grow our online offering will require extensive capital investment for which we are well positioned.
We remain optimistic about the consumer environment in the upcoming year, although we are ever cognisant of the fragility of our market.

 

Appreciation

The Group is tremendously grateful to Ilan Zwarenstein for his significant contribution over the past decade, and especially the past three years, and for his management and development of a resilient and competent Finance team. This team maintains the robust financial control environment long established across the Group and continues to deliver high standards in reporting. It is already clear to me that Ilan’s significant influence will be missed and I am grateful to him for leaving in place a strong Finance organisation, making my transition into the role of Chief Financial Officer that much easier.
The contribution and efforts of the Group’s Finance teams, both at the Divisions and the Corporate Office, has again been outstanding. I want to express my deep appreciation for their continued commitment to the high standards they have set for themselves, and their determination in delivering those at all levels of the Group, to the benefit of all of our stakeholders.

 

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Johannes van Lierop
Chief Financial Officer
2 April 2015