Massmart Financial Results For 52 Weeks Ending 26 June 2011
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Results point to market share gains, possible early indications of improved consumer environment; positive sales update for first 8 weeks of the new financial year
Massmart has delivered a robust operational performance, underpinned by strong sales growth, market share gains, a healthy increase in operating profit and effective cost controls. All of this was achieved during an uncertain trading environment and one of the most eventful years in the group’s history.
The group has successfully settled most of its collective wage agreements for the 2012 financial year.
Total sales increased by 11,6% to R52, 950 million
Overall product deflation (-1,3%); general merchandise still in deflation while food & liquor show low inflation
Gross profit of 18,26%, higher than the prior year’s 17,9%
Operating profit up 10,3% to R2,059 million before transaction costs
Headline earnings before transaction costs increased by 10%
Headline EPS before transaction costs increased by 8,5%
Return on equity of 34,4%, excluding transaction costs, unchanged
Total cash dividend unchanged at 386 cents per share
Thuthukani dividend of 134 cents per share, equivalent to 100% of the ordinary dividend
Commenting on the results, Massmart CEO Grant Pattison said: “We are pleased to report solid results achieved in a difficult environment. The economy has been difficult to read for the past few months – the different Easter trading periods in 2010 and 2011 and the base effect of the 2010 FIFA World Cup have made interpretation of recent internal and external data difficult.
We believe we will only have a firm view following the first three months’ trading of this new 2012 financial year. Early indications are, however, that the consumer environment is perhaps slightly better than we may have thought.”
The group reported an 11,6% increase in sales as well as a 10,3% increase in trading profit to R2,059 million and a 10% increase in headline earnings, excluding transaction costs. Including these costs, operating profits declined by 13,7% and headline earnings decreased by 22,5%.
Strategic and Operational Review
Net trading space increased by 6% to a total of 1 280 936m²; total stores stand at 315 following closure of one store, opening of 22 stores and acquisition of six stores
Increase in space driven through opening of new stores and acquiring businesses – awaiting Competition Authorities approval for Rhino, Fruitspot acquisitions
Group inventory levels well controlled – a 10 % increase – below sales growth level
Strong volume growth in most major categories suggests market share gains
Foodco concept rolled out into four SA stores, one Mozambican store in July 2011
New Makro store with full Fresh offering opened in Vanderbijlpark
Additional focus on financial services with soft launch of Builders Warehouse credit card in partnership with RCS
Implementation of new systems to improve replenishment and space planning capabilities
Opening of new Massdiscounters Regional Distribution Centre (RDC) in Gauteng
Private label products continue to out-perform total sales, contributing 5,7% to total sales
Ongoing commitment to leadership and transformation evidenced by appointment of two director-level Black executives, improvement in EE and BEE scores
Walmart integration process underway.
Both Massbuild and Massdiscounters, which are largely exposed to general merchandise, benefitted from the low interest rate environment. Massdiscounters, which includes Game and DionWired, reported a 9,6% increase in total sales, despite product deflation of -7.3%, and an 18,4% increase in trading profit. Game Africa’s improved sales performance (in local currency terms) reflects a tentative recovery in African economies.
Massbuild’s strong trading performance is indicative of market share gains since residential housing statistics suggest a declining market, with little sign of recovery at this stage. The division delivered a 21,6% increase in trading profit.
Masswarehouse, which is exposed to general merchandise, food and liquor, delivered a solid performance with total sales growth of 10,6% and an 8,1% increase in trading profit. Opening costs of the new store in Vanderbijlpark affected Makro’s profit growth.
Food Wholesale business Masscash’s total sales increased by 12,7%. Profits declined by 20% as product deflation impacted margins and higher costs from the investment in Cambridge, the new Food Retail format.
Total sales increased by 13,5% and comparable sales increased by 7,1% for the 8 weeks to 21 August 2011, indicating either further market share gains or a possibly healthier than expected consumer.
Commenting on the group’s prospects post the Walmart transaction, Pattison said he expected the benefits of the relationship would only show through in the group’s 2013 financials and beyond.
“The process of integration with Walmart has just begun, but there is certainly plenty of medium- and long-term opportunity on the African continent to save people money so they can live better.
“Despite the difficult and uncertain socio-political and economic environments, both locally and globally, we believe we have the plans in place to deliver another solid performance in the year to June 2012,” said Pattison.
The Board received a binding offer on 24 October 2010, which it subsequently accepted on 26 November 2010. This was followed by approval from the necessary authorities and Massmart shareholders. The transaction became effective on 20 June 2011, after receiving Competition Tribunal approval with four voluntary conditions. Subsequently, three departments of the South African Government and one of the Unions have filed a Review and an Appeal respectively, that is set down to be heard on 20 and 21 October 2011. Separately the Competition Commission of Namibia also appealed the unconditional approval granted by that country’s high Court and that matter has been set down to be heard on 17 October 2011. The group’s legal teams are confident about the merged entities’ strong legal position.
Massmart is a managed portfolio of four divisions, each focused on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash, through 315 stores in 13 countries in and around sub-Saharan Africa.
The Group is the second largest distributor of consumer goods in Africa, the leading retailer of general merchandise, liquor and home improvement equipment and supplies, and the leading wholesaler of basic foods.