Kuseni-Dlamini-Group-Chairman

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I AM PLEASED TO REPORT THAT MASSMART DELIVERED SOLID RESULTS AND MARKET SHARE GAINS ACROSS ITS DIVISIONS.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MASSMART CONTINUES TO PRIDE ITSELF ON ITS COMMITMENT TO INNOVATION AND EXCELLENCE, IN EVERYTHING THAT WE DO. WE ENCOURAGE ALL OUR COLLEAGUES TO CONTRIBUTE SMART IDEAS THAT DRIVE EXCELLENCE AND GOOD CUSTOMER SERVICE.
 

Although the year under review was very challenging and difficult for most businesses, including ours, across different sectors of the market, I am pleased to report that Massmart delivered solid results and market share gains across its Divisions.

This means that our customers, the pillars of our business, continue to trust us to help them save money and live better. Total and comparable sales grew by 8.4% and 6.7% respectively while Group operating profit excluding foreign exchange change movements and interest, went up by 14.1%.

These impressive results were delivered by our team of committed colleagues across our 403 stores in South Africa and the other 12 countries across Africa in which we operate. Our teams delivered these encouraging results in an environment marked by low growth in most developed markets and slowing growth across Emerging Markets, especially China which has been a major source of demand for African commodities during the super cycle.

Growth in Africa has been tempered by falling commodity prices and declining foreign investment. The anaemic growth in South Africa of 1.3% underscored the challenges in the local economy and society. Growth is key. South Africa needs to elevate growth to a national strategic priority and get all social partners to play a very positive, active and constructive role in the growth of the local economy. Growth is everyone’s problem.

Government, business and labour leaders must all be accountable for what they do or do not do to drive the growth and expansion of the local economy. They must account for, and be held accountable for, their actions and inaction. We need high inclusive growth to create and retain decent jobs, alleviate poverty, reduce inequality and fund our education and healthcare systems. At Massmart, we employ over 48,000 colleagues across our businesses.

If the economy had grown higher than it did, we would have employed more people. The even weaker outlook for growth in 2016 is a serious cause for concern that requires innovative interventions to boost local and foreign investor confidence. South Africa and Africa have what it takes to grow their economies and societies out of unemployment, poverty and inequality.

Bold, courageous and decisive leadership and interventions that create an investor-friendly climate is what is needed to unlock the full growth potential of our economies and societies. Massmart will continue to work and partner with governments and other stakeholders to actively promote and positively contribute to the growth and development of the economy and society.

We are proud of the work of our Supplier Development Programme which invests in, and partners with, entrepreneurs in manufacturing and agriculture, whose various products end up on the shelves of our stores. The manufacturing and agriculture sectors are key to the attainment of the job creation and growth targets set in our National Development Plan (NDP).

Massmart will continue to play an active and meaningful role in the successful implementation of the NDP. Our stores in Africa actively look for, and partner with, local suppliers to source goods from the local economies in all the countries in which we operate. This is Massmart’s philosophy.

We want countries and communities to be better off for us having been there. We believe in shared value. We want to constantly expand the circle of beneficiaries from our business activities in the countries and communities in which we operate.

Operating environment

The operating environment facing Massmart and other retailers is marked by declining consumer confidence which is at a 14-year low. CPI is range-bound and the outlook for Food inflation indicates a likely increase as the impact of the drought takes its toll. The manufacturing sector is in a technical recession. This does not augur well for job creation and retention. We need to redouble our efforts to retain existing jobs and create new ones.

The four increases in interest rates since our last IAR, accumulating to an increase of 125 basis points, will impact on consumers and their spending power and patterns. The regulatory and legislative environment continues to be in flux and to exert its impact on business. We need smart regulations that enable businesses to be globally competitive so that they can maximise their contribution to growth and development.

Africa

double dip of commodities prices and US Dollar strength. As if that was not enough, we have also seen weak and volatile currencies across different African markets with the US Dollar becoming a de facto currency in some African markets. The resilience of African markets has been tested and so has the Africa Rising narrative which has been a dominant theme in local and global investment circles over the past few years. The increasing diversification of African economies has insulated Africa from the worst effects of the decline in the price of commodities and pedestrian global and local economic growth. Africa is better off today than it was 10-15 years ago. That’s a good sign. We need sustained, highly-inclusive and job-rich growth to be part of the ‘new normal’ in Africa.

The deepening of democracy and rule of law across Africa augurs well for the long-term growth prospects of the continent. However, there are disturbing trends in some countries where some presidents orchestrate changes in constitutions against the will of their people to enable them to run third and further terms in office. Growth and investment in Africa are also threatened by terrorist movement in East and West Africa.

Democracy and peace are key ingredients to growth and development. The democratic and peace projects need to be harnessed and deepened across Africa. Notwithstanding the current challenges facing the African marketplace, we remain confident on the medium- to long-term prospects of African economies.

Strategy

The Group is delivering on its strategy. At the core of our strategy is growing our penetration of the Food Retail market through Makro, Masscash Retail and Game, who have both delivered improved performances, which we are very confident will be sustained into the future. Masscash Retail continues to outperform its peers in terms of price and value perception.

Secondly, our strategy also focuses on growing our DIY/Home Improvement footprint in South Africa and Africa through Massbuild. We opened a Builders Warehouse store in Lusaka, Zambia, in 2015 which was well received by our customers and the authorities alike.

Thirdly, the profitable growth and expansion of business across Africa is a key part of our strategy. Our path to Africa is through our Game, Builders Warehouse and Masscash Wholesale formats.
Fourth, ecommerce is also crucial to our strategy. Our different teams are leading the charge in innovating across formats to enable our customers to have more convenience in shopping with us in ways that make the shopping experience as hassle free as possible. We are pleased with the progress we have made in this space and will continue to position ourselves in the forefront of innovation.

At the heart of all four of these priorities is improving the profitability of the business, which remains a constant focus point.

Board and Executive changes

The Board of Massmart continues to work efficiently in providing strategic oversight and supporting our Executive team in the execution of Group Strategy. Guy Hayward, our CEO, and his Executive team continue to do a commendable job in positioning Massmart as a trusted and admired retailer of note.

During the year under review, Moses Kgosana joined the Board and became a member of our Audit and Risk Committees. Moses is a welcome addition to our Board and has already started making a valuable contribution.

Another notable development was the resignation of Shelley Broader from the Board which was linked to her resignation from the Walmart organisation. Shelley was an invaluable member of the Board who made an immense contribution to the Board and the entire Massmart organisation. We wish her well in her new endeavours.

We were pleased to welcome Johannes van Lierop who joined Massmart as our Chief Financial Officer and a member of the Board. He brings a wealth of experience in international business and first-hand experience of working and living in Africa.

Lastly, in February 2016, we announced the appointment of Enrique Ostalé to the Board. He has also become a member of our Nomination and Remuneration Committees, and we welcome him to our Board.

Governance

Massmart is committed to good corporate governance. Our Board is actively engaged and encourages management to profitably grow Massmart in the best interest of all stakeholders. I am delighted to report that most of the Directors attended most Board and Committee meetings. Our Board conducts regular reviews of our effectiveness, composition, strategy, structure and the talent within Massmart.

Our Board’s diversity is one of Massmart’s strengths. From global retail experience to race, gender, business experience and length of service, Massmart’s Board is well-positioned to add value to the business. The debates are enriched by the mosaic of perspectives and experiences which the different Board members bring.

Dedicated to value

Massmart continues to pride itself on its commitment to innovation and excellence, in everything that we do. We encourage all our colleagues to contribute smart ideas that drive excellence and good customer service.

From operating for less so that we can sell for less, to understanding our different customers’ unique and generic needs, we continue to lead the way in helping our customers to save more so that they can live better. We are proud to have the lowest operating cost as a proportion of sales in the retail industry.

We believe in making well-considered and informed choices to shape a better future for our business and stakeholders alike. We are fully committed to sustainable business practices and continuously monitor and measure our impact on the planet, people and our communities at large. We want Massmart to be a powerful and positive force for good in the economy and society at large.

Our people come first. We believe in empowering them to live their dreams. An inspired and motivated team is key to excellent customer service and value creation. We invest immensely in the development of our colleagues so that they have the skills and experiences they need, to advance their careers and add value to our customers.

We believe in doing well by doing good. Good business is at the core of our philosophy and strategy. We continue to make good savings in energy and water consumption across our business. With the drought experienced in 2015 we took a decision to sell water at cost and made donations to communities that experienced severe water shortages.

Conclusion

We are very committed to continue to execute our strategy and deliver on our promises. Although the outlook for 2016 is challenging, we are determined to stay on course and deliver value and benefit to shareholders and stakeholders respectively.

I would like to thank my Board colleagues, management, staff and our various stakeholders for their support, without which it would have been difficult to deliver the good results contained in this Integrated Annual Report. We look forward to your continued support.

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Kuseni Dlamini
Chairman
1 April 2016