As Massmart, we recognise that our ongoing success is linked to the value we are able to create for all our stakeholders in times of prosperity and in times of challenge. While 2017 was an incredibly tough year economically,
I am pleased to report that, thanks to our strong leadership team and business model, we weathered the storm and continued to deliver benefits to our shareholders, customers, employees and suppliers, and to the societies in which we operate.

A challenging operating environment

I am satisfied, given the difficult trading environment, with our results for 2017, which saw sales increase to R92.1 billion for the 52-week period and to R93.7 billion for the 53-week period. But perhaps more notable was that management again demonstrated a remarkable ability to control costs, resulting in comparable costs decreasing by 1.3% year-on-year.
South Africa, which accounts for 91.7% of the Group’s total sales, had a very difficult 2017. Political uncertainty and economic volatility had a negative effect on both consumer and business confidence. This in turn had a negative impact on discretionary spend, which affected our sales.

In December 2017, a change in leadership of the governing party, the African National Congress, and subsequently of the country, has unleashed a sense of optimism in South Africa that is in stark contrast to the uncertainty and pessimism that characterised the 2017 financial year.

We welcome the appointment of the new economic cluster ministers and as Massmart we stand ready to work with the Government of President Cyril Ramaphosa, South Africa’s fourth democratically elected President, in championing inclusive economic growth and job creation in South Africa. The country now needs to show bold and decisive leadership to urgently resolve challenges facing our state-owned enterprises and to work to not only avoid a further ratings downgrade but also towards regaining an investment grade rating for the country.

We are watching with keen interest the green shoots that are emerging in the South African economy, which will enable us, with the structure, business and cost base that we have, to ride the wave of better prospects going forward.

I am encouraged by the results achieved by our African businesses (ex-SA). Expressed in constant currencies, sales growth from our ex-SA markets was 3.5%. However, as a result of currency weaknesses, comparable sales growth in Rands was 0.8%.

Looking forward, we are optimistic about Africa’s growth as a result of an upturn in commodity prices and positive winds of change politically. The clear message coming through from new heads of state in key African economies is that they are open for business.

A clear commitment to our strategy

We remain committed to our strategy and this, I believe, is what contributed to our positive results in 2017.
We are pleased with the growth of our Food & Liquor business in South Africa (up 2.4%). It is an important part of our growth strategy and we have been growing our market share consistently over the last few years. While Durable sales were soft, we managed to grow market share in this important area of our businesses, which augurs well for our growth prospects going forward.

On the ecommerce front, we are leading the charge amongst the big retailers in South Africa and the growth in our online sales is a vindication of this (up 47% in 2017). This is an important part of our growth strategy going forward, and we continue to invest in this aspect of our business to ensure our competitive advantage. We need to continue to innovate in order to improve the customer’s experience.

We will continue to focus on growing beyond South Africa. We believe we have a good growth platform in terms of the businesses that we have, and the stores that were opened in Africa in 2017. We plan to open at least 20 new stores between 2018 and 2020, growing our ex-SA space by more than 35%.

 

Shared value, a pre-requisite for sustainability

The concept of shared value is at the very core of our business as it directly correlates to our long-term sustainability. We choose to be a powerful force for good across our value chain and aim to have a positive and lasting impact on the communities in which we operate, and on the environment.

It makes me immensely proud when I see Massmart spring into action to provide support to communities in times of crisis. In early 2017, when a huge fire destroyed the homes of 10,000 people in the informal settlement of Imizamo Yethu, we partnered with the Gift of the Givers to provide effective disaster relief to those who lost their homes. Similarly when devastating fires destroyed large sections of Knysna and the surrounding areas, resulting in thousands of people being displaced, our teams at Makro and Game sent six truckloads of supplies to the affected communities within 48 hours.

With drought affecting many parts of South Africa, it has driven home the need for all South Africans, and especially businesses, to be more water conscious. As a Group we are focusing our efforts on implementing water saving measures. We have also reviewed every aspect of our operations in the Western Cape with a view to improving water efficiency and water savings on an ongoing basis.

Reducing our carbon footprint also remains a priority. To this end, every new Makro store we build is greener than the last one. Take for example our new Makro Riversands store, this is our greenest store yet and builds on the success of our Makro Carnival store.

Through our operations, we are determined to create opportunities for everyone to prosper. We achieve this by partnering with local suppliers, training our staff and by employing local talent.

We are heartened by the work that our Supplier Development Programme (SDP) has done in developing over thirty small or medium-sized enterprises (SMEs). Not only are these businesses vital to our supply chain, they have also helped substitute imports and are driving economic prosperity for their stakeholders. Worth noting is that one of our SME suppliers now exports to Walmart Chile. Their success has ignited our passion to help more SMEs gain access to Walmart’s supply chain and we have since presented a variety of merchandise manufactured by SDP participants to the Walmart merchandise community.

We are proactively addressing the skills shortage that South Africa as a country currently faces through our commitment to skills development and training. Our comprehensive approach addresses the skills needed at all levels of our business. Our learnership programme has helped prepare over 1,000 unemployed young people for work, by offering them training and work experience. Through Massmart Corporate University we train upcoming graduates, helping prepare them for roles across the Group. Further, our curated courses provide career growth opportunities for many of our employees. Our talent development initiative sees us partner with leading business schools such as the Gordon Institute of Business (GIBS) and ensures talented individuals can further their career prospect in the Group.

A focus on good corporate governance

Massmart has a relentless focus on good governance and we have put in place enhanced corporate governance structures to ensure this.

Our Board is actively engaged and committed to sound principles of good governance. Our Board diversity is one of Massmart’s strengths. The diversity of our Board in terms of race, gender, business experience and length of service ensures that it is well positioned to add value. During the year the Board adopted a race and gender diversity policy to guide its future appointment of Directors, with an aim to enhance our transformation efforts further.

During the year, we further refined our governance structures in line with the principles of the King IV Report on Corporate Governance for South Africa, 2016 (King IV). I am pleased to report that, for the year ended December 2017, the Board is satisfied that it has fulfilled its responsibilities in accordance with its charter, King IV and other applicable regulatory and legislative requirements. We regard our systematic focus on King IV as being essential to the sustainability of our business.

Our Board

I would like to take this opportunity to thank our Board for their strategic oversight and their support of the Executive team in the execution of the Group’s strategy.

During the period we had some changes to the Board.

In May, we welcomed Ms Susan Muigai and Mr Roger Burnley to the Board, following the resignations of Walmart-appointees Mr JP Suarez and Mr Andy Clarke from the Board. In July, Mr Chris Seabrooke announced his retirement as a non-Executive Director, Deputy Chairman of the Board, Chairman of the Remuneration Committee and a member of the Nominations Committee (with effect from 31 December 2017); however following Mr Moses Kgosana’s resignation as a non-Executive Director and Chairman of the Audit and Risk Committees, Chris agreed to remain on as a non-Executive Director and Chairman and member of the aforementioned Committees, also assuming the role of Chairman of the Audit and Risk Committees. We thank him for agreeing to remain on during this time. We are pleased to report that Ms Phumzile Langeni, who is currently Chairman of the Social and Ethics Committee, was appointed as a member of each of the Remuneration and Nominations Committees in November 2017.

Thanks to all our stakeholders

On behalf of the Board, I would like to thank Mr Guy Hayward, our CEO, and his world-class team who did a commendable job, characterised by exceptional expense control, in navigating a very challenging economic environment. Their commitment to high performance and innovation continues to deliver solid results.

I would also like to thank our 48,000 associates/employees across Massmart who, every day, wake up with the mission of helping our customers save money so they can live better. We are also deeply grateful to all our suppliers for their partnership, and of course to our customers who continue to support our business.

 

Kuseni Dlamini
Chairman
29 March 2018