The six months to June 2017 rank amongst the most difficult trading conditions in recent memory, not just in South Africa but in most of the 12 other African countries where we have stores. Three broad trends were strongly evident during the period: as a result of very weak consumer confidence levels, Food & Liquor performed relatively better than most discretionary items within the General Merchandise and Home Improvement categories; as most major commodities moved into deflation in South Africa, the wholesale / informal channel de-stocked aggressively; and the impact of weaker African currencies caused reported Rand sales growth to be lower from those countries.
Massmart’s total sales for the six months to June 2017 were R42.5 billion, an increase of 0.5% over the prior period, while comparable stores’ sales decreased by 1.6%, with product inflation of 3.2%. Total sales growth from our South African stores was 1.7% and comparable sales declined by 0.2%.
Currency weakness and challenging trading environments saw total sales from our ex-SA stores decline by 11.9% (but with a 2.6% increase in constant currencies*).
The difficult consumer environment demanded an intense focus on expense management which resulted in total expenses decreasing by 0.2% for the period, with comparable expenses being 1.0% lower. This achievement was however insufficient to neutralise the pressure from weaker sales and gross margin, and Group operating profit before interest declined by 6.6% to R765.1 million. Headline earnings increased by 2.5% to R328.6 million, benefiting partially from lower foreign exchange losses in 2017.
We increased market share in categories including small appliances, large appliances and DIY, and saw continued good performances in online sales with Makro and DionWired recording growths of 48% and 24% respectively.
Three stores were opened, including a new Game store in Ghana, representing new space growth of 1.2%. Our portfolio of 415 stores includes 40 outside South Africa producing 8.2% of the Group’s sales. We will open a further 15 new stores in the second half of 2017, increasing trading space by 4.1%.
South African environment
At the time of the release of Massmart’s December 2016 results, we expressed cautious optimism about the 2017 financial year which was predicated on signs of green shoots in the economy including: the drought ending resulting in declining Food inflation; a stronger Rand; potentially lower interest rates; and the improvement, at the time, in the SARB Leading Indicator. Our perspective contemplated a challenging first half, likely followed by an improving consumer environment which would be more supportive of a discretionary or non-Food retail cycle. The early signs that some of these positive influences were coming to bear were however affected by the negative economic impact of the political instability that also affected the country’s credit-rating.
The unfavourable impact on sales in discretionary product categories has been notable and is strongly linked to weak consumer confidence. The divergent sales performances across our major product categories reflects this, with total Food & Liquor sales growing at 3.8% for the period, while General Merchandise sales declined by 2.5% and Home Improvement sales increased by 1.7%.
Expressed in constant currencies*, total sales growth from our ex-SA stores was 2.6% whilst comparable sales growth was flat. Reflecting similar pressures on the consumer as seen in South Africa, the sales performance in Food was significantly better than in non-Food. Strong sales performances, in constant currencies*, were recorded in Nigeria and Kenya. The negative Rand sales growth from our ex-SA stores was weakest in January 2017 but has since improved steadily and is almost showing positive monthly growth.
Earlier this year we announced the resignations from the Board of Walmart-appointees JP Suarez and Andy Clarke and welcomed in their places Susan Muigai and Roger Burnley. In July we announced that with effect from 31 December 2017, our Deputy Chairman, Chris Seabrooke, will retire from the Board.
On behalf of the Board
Johannes van Lierop
* The constant currency information included in these reviewed interim condensed consolidated financial results has been presented to illustrate the Group’s underlying ex-SA business performance, in terms of sales growth, excluding the effect of foreign currency fluctuations. In determining the application of constant currency, sales for the prior comparable financial reporting period have been adjusted to take into account the average daily exchange rate for the current period. The table to the right depicts the percentage change in sales in both reported currency and constant currency for the given material currencies. The constant currency information incorporated in these reviewed interim condensed consolidated financial results has not been audited or reviewed or otherwise reported on by our external auditors. The constant currency information is the responsibility of the Directors of Massmart. It has been prepared for illustrative purposes only and due to its nature, may not fairly present Massmart’s financial position, changes in equity, results of operations or cash flows.
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