For the year ended 27 December 2015 Massmart’s total sales were R84.7 billion, an increase of 8.4% over the prior year. Comparable stores’ sales growth was 6.7% and product inflation 3.0%, reflecting continued good volume growth.
Pleasingly, Group operating profit, excluding foreign exchange movements and interest, grew by 14.1% to R2.3 billion. This performance was achieved by effective margin management and good expense control across all Divisions, as well as margin recovery in Game. Higher net interest paid from funding significant property acquisitions in 2012-14, and an adverse movement in foreign exchange translations, resulted in headline earnings increasing by 1.2% to R1.1 billion while headline earnings, excluding foreign exchange movements, increased by 7.7%.
During the year, 21 stores were opened, including five outside South Africa, representing new space growth of 4.2%. Ten stores were closed, resulting in a net space increase of 0.7%. Our total portfolio of 403 stores includes 38 stores outside South Africa at December 2015. We continue to carefully review store lease renewals and are closing stores we consider incapable of achieving sustainable profitability.
South African environment
In our June 2015 results commentary we voiced our concerns about the deteriorating South African consumer economy. Unfortunately the outlook has weakened considerably and we anticipate further negative pressures, including poor economic growth, higher inflation from the weaker Rand, and higher interest rates. The impact of the drought across large parts of South Africa is likely to be severe, potentially causing the price of a basic monthly shopping basket to increase.
It is too early to tell whether the very welcome recent efforts to avoid a domestic economic recession and a potential credit ratings downgrade will be successful. Regardless, the global environment remains a significant detractor with weakening economic growth across all our trading partners, compounded by low international commodity prices for most key mineral exports from Africa.
As with most local retailers, Massmart’s sales growth slowed in the latter period to December 2015, in our case caused mainly by softening sales in General Merchandise and DIY. By contrast Food sales’ growth accelerated on the back of effective trading in Masscash Retail and Wholesale. Average Food inflation remained steady but is expected to increase in the early part of 2016.
The weaker Rand and declining upper-income consumer confidence levels will adversely impact sales of large appliances, hi-tech, multimedia and home improvement products. Our businesses are responding with an intense focus on sourcing well-priced merchandise and formulating deals that offer our customers exceptional value. We remain driven by our commitment to Saving Customers Money So They Can Live Better.
Many countries in sub-Saharan Africa are struggling with economic challenges from the stronger US Dollar and weaker commodity prices, which also bring currency weakness and volatility, and shortages of foreign currency. Most currencies strengthened against the Rand in the latter part of 2015. Despite this, sales in our non-SA stores remain robust with total sales growth in local currencies of 13.8% (12.6% in Rands) and comparable sales growth of 5.6% (4.8% in Rands).
Non-SA sales currently represent 19.7% of Game’s total sales, 6.2% of Massbuild and 12.9% of Masscash Wholesale respectively. We remain excited, but measured, about the long-term growth opportunities across selected African countries and expect to open five new stores outside South Africa during 2016.
The retail and wholesale environments in South Africa and many African countries have recently been difficult. This places additional pressure on our 48,000 colleagues whose dedication and hard work ensure Massmart’s ability to consistently exceed the expectations of the customers who shop in our stores. It is as a direct result of the commitment of our staff that Massmart has been able to report this improved financial performance. We would like to thank every one of them for their customer service and support.
During 2016 we anticipate finalising the insourcing of several categories of employees currently employed by labour-brokers. We anticipate that this decision, which we consider to be the right thing to do for those employees, will place some pressure on our employment costs.
We are pleased to announce the appointment of Mr. Enrique Ostale to the Board of Directors of Massmart with effect from 24 February 2016. Enrique is the President and Chief Executive Officer of the WalMart Latam, India and Africa Region. During 2015 there were separate announcements concerning the appointments of Messrs. Johannes van Lierop and Moses Kgosana, as well as the resignations of Mrs. Shelley Broader and Mr. Ilan Zwarenstein.
On behalf of the Board
Guy Hayward Johannes van Lierop
Chief Executive Officer Chief Financial Officer
24 February 2016