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Financial results for the 26 weeks ending 25 December 2011

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Massmart delivers strong sales and earnings growth

  • Sales up 15%, headline earnings up 21,1% , underpinned by increase in cash generated from operations
  • Strong volume growth indicative of market share gains

Massmart saw sales increase 15% and earnings increase 21,1% during its first six months as a subsidiary of Walmart, helped by strong volume growth as well as the effect of the weakening Rand on the group’s African businesses.

The period saw Massmart investing in a number of areas, including a 6% increase in space growth (trading space is now a total of 1,323,734m² and stores stand at 330 following four store closures and 21 store openings), while investments in the building of food retail supply chain facilities and capability, combined with the integration with Walmart, contributed to a 14,4% increase in costs, as did above-inflation increases in local taxes and service costs.

With specific reference to the operating environment, there are signs that the health of the consumer is improving, underpinned by real wage increases and improving employment, although there are indications that the middle-income segment is over-indebted. Commenting on the results, Massmart CEO Grant Pattison said: “It has been a very busy six months, with management focused on maintaining operating momentum while also implementing the Walmart integration process. We are pleased with our trading performance, in particular an apparent gain in overall market share and are confident that the current period of investment will be good for the company.”

Strategic and Operational Review
The Rhino Cash and Carry acquisition, approved by the Competition Authorities at the end of 2011, will boost the group’s annualised retail sales while the Fruitspot acquisition, which was approved at the same time, will assist Makro with its procurement and distribution of fresh fruitand vegetables.The group has made good progress in the rollout of its Food Retail strategy, with the Foodco concept now in 15 SA Game stores, including Mozambique and Zambia, while five Makro storesnow include a Fresh offering.
Pattison highlighted Massmart-Walmart’s desire to continue building constructive relationships with government departments and to collaborate on initiatives that can be leveraged for mutual
benefit. Examples of these include partnerships with the Department of Basic Education, the South African National Defence Force, South African Police Services, the Department of Trade and Industry through the South African Bureau of Standards, the Department of Finance through South African Revenue Services and also the Department of Agriculture. “We have started working with the Department of Agriculture, exploring ways to apply Walmart’s expertise in other countries to integrate emerging farmers into the retail supply chain, while our work with the Department of Trade & Industry, through the SABS, is assisting in providing cost effective solutions to improve the safety and quality of locally manufactured goods,” he said.
A direct to farm programme has been initiated in Limpopo province where 20 emerging farmers on approximately 150 hectares of land have been identified to participate. Support offered will include the development of a training centre, a packhouse and a model nursery, supplemented by a wide range of agricultural extension services. A further opportunity has been identified in Mooi River and is in the early stages of development.
Prospects
For the 34 weeks to 19 February 2012, total sales increased by 15,1% and comparable sales by 9,2%, continuing the trends experienced at the close of the last financial period. Commenting on the group’s prospects, Pattison said: “The current trends of growth and capacity, including integration costs, will continue through to the end of the year, with sales performing well, but with operating margin under pressure.”
ENDS
Issued by Brunswick Group LLP
011 502 7300
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