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Massmart’s profit down in the first half of 2014

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JOHANNESBURG – Weak economic growth, and the related pressures on household consumption, have dampened Massmart’s performance.

The company released its reviewed consolidated results for the 26 weeks ended 29 June 2014 today. While sales are up by 10.2%, operating profit (before foreign exchange movements and interest) is down by 3.8%.

Product inflation within the Group stood at 4.8%. Prices for the group’s products have been rising slower than overall consumer inflation, which has risen from 5.8% in January 2014 to 6.6% in June 2014.

The Massdiscounters Division took a significant hit on profits, with trading profit down by 78.8%.

The company attributes this to weak sales in Game South Africa, where comparable stores sales barely moved, with growth at 0.4%.

However, the introduction of dry groceries and fresh produce in 55 Game stores led to food sales growing at 20.1%.

Makro’s sales increased by 12.2%, with in-store inflation of 5.5%. Its trading profit before interest and tax increased by 7.8%.

The Massbuild division grew total sales by 14.2%, with in-store inflation of 5.3%.

Masscash sales increased by 8.7% and with in-store inflation increasing by 5.0%.

The 3.8% fall in the group’s operating profit is traced to higher interest paid on property acquisitions and exchange rate losses.

Massmart has also been engaged in litigation involving access to retail space in shopping malls. Some of its grocery competitors have signed exclusive leases with shopping malls, which prevent the property owners from entering into leases with Massmart or any other grocery retailer.

Where those property developers have entered into leases with Massmart, its retail competitors have taken the company to court.

“To date, we have been served with, or have had threats of, legal actions at multiple Game stores. We will vigorously defend these actions as we believe the blanket enforcement of these clauses to be intuitively anti-competitive. In addition, we will shortly lodge a formal complaint with the Competition Commission against each retailer who has filed legal action against us,” the company said in a statement.

Massmart operates in 12 sub-Saharan countries through 381 stores.

Performance outside South Africa was strong, with sales increasing by 16.7% in Rand terms. Sales from other African countries represent only 7.8% of total sales.

The company announced that Ilan Zwarenstein will step down as Group Finance Director with effect from 28 February 2015.

Massmart has declared a dividend of 146.00 cents per share, to be paid from income reserves.

eNCA 28 August 2014

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