In a trading environment that became increasingly difficult during the six months to June 2016, Massmart’s total sales were R42.3 billion, an increase of 8.7% over the prior period. Comparable stores’ sales growth was 6.4%, with product inflation of 5.8%.
Effective margin management and satisfactory expense control resulted in Group trading profit, excluding foreign exchange movements and interest, growing by 13.5% to R902.8 million, while headline earnings increased by 19.0% to R320.6 million.
The sales performances across our major product categories reflect the economic pressures within the South African consumer environment, with total Food & Liquor sales growing at 13.2% for the period while General Merchandise and DIY total sales grew by only 3.4%. Despite some extreme currency weakness and challenging operating environments, total sales growth from our non-South African stores was robust at 23.2% (16.5% in constant currencies).
Nine stores were opened, including one outside South Africa, during the six months and these represent new space growth of 2.4%. Our focus on optimising the Group’s store footprint continued with seven under-performing stores being closed, resulting in an overall net space decrease of 0.1%. Our portfolio of 405 stores includes 38 outside South Africa and these represent 9.3% of the Group’s sales.
South African environment
As expected, the South African consumer economy weakened during the six months under review. This became particularly evident from April as Food price increases accelerated and the weaker Rand began impacting prices of imported General Merchandise. These pressures, coupled with negligible economic growth, severely constrained consumers’ discretionary spending on durable goods to support spending on non- and semi-durables. We anticipate that this situation will make trading for the remainder of 2016 difficult.
Consequently, Massmart’s sales growth softened in General Merchandise and DIY. By contrast, Food and Liquor sales’ growth accelerated with higher inflation but also due to very effective trading and positive price-gaps to competitors across our Retail and Wholesale businesses.
The recent rains however, may be an early indication that crops planted later this year will be harvested successfully, potentially resulting in lower prices across most commodity categories in early 2017. If sustained, the recent Rand strength should start reducing General Merchandise price pressure and, provided the consumer confidence levels increase, we may see better sales of appliances, hi-tech, multimedia and home improvement products in 2017.
Our businesses focused intensely on sourcing well-priced merchandise and formulating deals that offer our customers exceptional value, resulting in market share growth across all major categories. We remain driven by our commitment to Saving People Money So They Can Live Better, and estimate that we saved customers approximately R783 million during the period.
Many countries in Sub-Saharan Africa continue to struggle with the dual challenges of a strong US Dollar and weaker commodity prices. A few countries saw severe currency weakness which was compounded by shortages of foreign currency needed to settle imports into those countries.
Despite this, sales in our non-SA stores remain robust with total sales growth of 23.2% (and 16.5% in constant currencies) and represent average annual sales of R207.8 million per store.
Non-SA sales currently represent 22.1% of Game’s total sales, 8.5% of Massbuild and 13.4% of Masscash Wholesale respectively. We continue to seek new store opportunities across selected African countries and later this year we expect to open a new store in Nigeria, with three further non-SA store openings planned for 2017.
Massmart’s performance depends on our 45,500 colleagues whose dedication, commitment and hard work ensure that our in-store experience consistently exceeds the expectations of our customers. We would like to thank every colleague for their customer service and support, including those in our offices and distribution centres, knowing that part of the Group’s steadily improving performance comes from their efforts.
With effect from 31 August 2016, our lead non-Executive Director, Chris Seabrooke, handed over the chairman roles of the Audit and Risk Committees to Moses Kgosana and will also cease to be a member of both committees after 16 years of membership. The Board would like to pay tribute to the effective and valuable role Chris played as chairman of these key sub-committees over the past five years. Chris remains deputy chairman of the Board, chairman of the Remuneration committee and a member of the Nomination committee.
On behalf of the Board
Guy Hayward Johannes van Lierop
Chief Executive Officer Chief Financial Officer
24 August 2016