Statement of comprehensive income

Total Group sales growth increased by 10.4% over the prior year, with comparable sales growth of 7.5%. Product inflation was 4.8%, suggesting real comparable volume growth of 2.7%.

General Merchandise’s inflation increased to 3.6%, Food and Liquor’s inflation increased to 5.1% and Home Improvement inflation increased to 5.9%. Sales in our African businesses represented 8.1% of total sales and increased by 16.2% in Rands.

During the year, 28 stores were opened and 12 were closed, resulting in a total of 392 stores at December 2014. Net trading space increased by 3.9% to 1,539,295m².

The Group’s gross margin of 18.6% is higher than that of the prior year of 18.4%. This is driven by an increased Africa contribution at a higher gross margin and improved gross margins in Makro, Massbuild and Masscash Retail. These were marginally offset by a soft gross margin performance in Masscash Wholesale due to some commodity deflation; difficult trading conditions in Game South Africa; and a greater Food contribution at lower margins across the Group.

Total operating expenses (excluding foreign exchange movements) increased by 11.7% over the prior year. Comparable operating expenses were well controlled and increased by 7.1%. Employment costs, the Group’s most significant cost, increased by 14.0%, largely due to the opening of the new stores (detailed above) which led to an 8.3% increase in full time equivalents; and the incremental cost of the new share scheme implemented towards the end of 2013. Occupancy costs increased by 5.3%. Included in this figure are the costs of services such as electricity, rates and taxes, which increased by approximately 15%. The lower occupancy cost is a result of the Group’s acquisitions of some of its key properties during the last two years. The 15.8% increase in depreciation results from the acquisition of these properties and the opening of new stores and distribution centres.

Included in operating profit is a net realised and unrealised foreign exchange translation loss of R49.8 million (December 2013: R67.8 million gain).

Excluding foreign exchange movements, EBITDA of R2.9 billion increased over the prior year by 6.7%.

Net interest paid of R345.3 million increased mainly as a result of the Group’s capital expansion programme and higher interest rates. At R2.9 billion, the Group’s average borrowings are higher than the prior year’s figure (December 2013: R2.0 billion). The net additional medium-term funding in the 2014 financial year amounted to R1.2 billion.

The Group’s effective tax rate of 29.8% (December 2013: 29.3%) is in line with expectations.

The non-controlling interests comprise store managers’ holdings in Masscash stores and non- controlling interests in acquired Masscash businesses.

Headline earnings and Headline EPS each decreased by 10.2% over the prior year.  Adjusting for the effect of the foreign exchange movements in both years results in a decrease in headline earnings and a decrease in headline EPS of 3.5%.


Statement of financial position

Working capital was managed effectively in all Divisions other than in Massdiscounters where, due to the soft sales, we only made some progress. Inventory days for the Group at December 2014 were in line with the prior year at 64 days.

The net book value of property, plant and equipment increased by 20.9% compared to December 2013, as a result of acquiring some of our key properties and the investment in new stores. The Group’s gearing ratio (debt:equity) increased to 44.5% (December 2013: 29.7%). The annual rolling return on equity was 21.0% at December 2014 (December 2013: 24.8%). Excluding foreign exchange movements, this figure was 21.7% (December 2013: 23.9%).


Statement of cash flows

Operating cash generated amounted to R2.7 billion. The 53rd week in the prior year resulted in a calendar shift which accounts for a significant swing in the movement of working capital. This, coupled with the increase in debtors (mainly timing related), gave rise to the slightly softer working capital performance. Total capital expenditure of R2.2 billion comprises: R0.9 billion on replacement expenditure; R0.9 billion on property acquisitions; and R0.4 billion on expansionary expenditure, and is in line with expectation. The ‘Investment to expand operations’ includes, amongst others, the acquisition of 12 Masscash Wholesale properties; the Makro Strubens Valley and Builders Warehouse Northriding stores; and the Massmart Head Office complex.