Massmart delivers strong total sales growth

Massmart delivers strong total sales growth

FMCG SUPPLIER NEWS

Feb 28th, 08:08

Massmart delivered strong total sales for the six months to December 2012 which increased by 14.7% to R36,122.6 million. After adjusting for foreign exchange movements and Walmart transaction costs, including the R140m additional Supplier Development Fund charge related to the Competition Appeal Court ruling, headline earnings increased by 5.8% and operating profit by 6.1%.  

Comparable sales increased by 7.3% and product inflation increased to 3.7%, reflecting positive volume growth for Massmart, The Group also achieved a healthy 18.27% increase in gross margin, helped by improved gross margin performances in Massbuild and Makro and a higher contribution from Game Africa. Net trading space increased by 4.7%, with six stores closed, 13 stores opened and four acquired.

Despite the lower headline earnings Massmart maintained the dividend constant with the prior year, adjusting for the change in dividend tax legislation. A gross final cash dividend of 275 cents per share, has been declared.

Commenting on the results, Massmart CEO Grant Pattison said: “We are pleased with the Group’s trading performance, particularly given the difficult market conditions.

“The legal aspects of the Walmart transaction and the integration activities are complete and we are now more focussed on improving our operations and implementing our strategic agenda.

“Our key strategic focus is on ‘saving you money, so you can live better’ and becoming Africa’s most trusted retailer,” he said, adding that value extracted from integration would be invested in price, for the benefit of consumers.

Pointing to the significant investment that had been made in re-engineering Massmart’s supply chain, Pattison said the first phase was due for completion by the end of 2013. “By then, we will have completed three Massdiscounters Regional Distribution Centres (RDCs), three Makro regional warehouses, one Cambridge Distribution Centre (DC) and one Massbuild national DC. The benefits of these investments, alongside investments in skills and systems, should be seen in the next five to ten years as the network is optimised.”

The first phase of Massmart’s investments in Retail Food has been completed in Cambridge, Game Foodco, Makro Fresh and Saverite, said Pattison. “We have successfully established ourselves into the Food Retail market with an estimated presence of R10 billion. From this base, the Food Retail business should grow in size and profitability, from organic growth and conversions.

“We continue to expand Game and Builders Warehouse into Africa. Both formats have approved several new sites in existing African markets. Game sites have also been approved in Angola and Kenya, both of which are new markets for Massmart.

“The Supplier Development Fund, which increased from R100 million to R240 million following the ruling set down by the Competition Appeal Court, is operational and we’ve already made significant progress in creating opportunities for local suppliers of wine, paint and chemical manufacture, and fresh produce.

“The first harvest from our direct farm programme has already delivered more than 500 tons of fresh produce to our stores. Our black-owned wine brands initiative has proved a success and has included listing the Bayede! and Seven Sisters wine brands in Walmart operations in China and the United States. The performance of Xchem, a manufacturer of adhesives and sealants, and Kurhula Paints has exceeded expectations. Xchem products are set to be rolled out in Gauteng after a successful five-store trial in Pretoria. We have doubled our order of paint from Kurhula who had previously never had the opportunity to supply the formal retail market.”

The Competition Appeal Court had also ruled that 503 employees that had previously been retrenched at Game be re-instated. Of the 316 employees who responded to this offer, 237 have been re-instated and the remaining 79 have received various other benefits.

Divisional Performance

“At the end of the third quarter of calendar 2012, we could only see the effect of the South African labour unrest in our sales in the affected towns. We did however see a marked slow-down in sales from November, which was only interrupted for the last two weeks of Christmas trade. We assume the economic effect of that unrest started flowing into the broader economy in the fourth quarter,” said Pattison, reflecting on the consumer environment and its impact on operating performance.

“As consumer expenditure slowed, we saw increased discounting amongst retailers and the inevitable fight to hold or gain market share, which is positive for consumers.”

Massbuild and Masscash performed well, growing profit ahead of sales growth; Masswarehouse increased profits, although at a rate below sales growth, as they absorbed the opening costs of two new Makro stores; and Massdiscounters’ profits declined as comparable sales increased by only 2.6%.

Sales in Massmart’s African businesses (predominantly Game Africa) represented 7.3% of total sales, increasing by 9.5% in Rands and 9.0% in local currencies.

“Foodco continues to expand with 27 stores now in the format (including five in Africa), and is performing at or above expectations, while Builders Warehouse and Builders Express continue to transform the South African home improvement market,” said Pattison.

For the eight weeks to 17 February 2013, total sales increased by 11.4% and comparable sales by 5.7%, continuing the trends experienced towards the close of the financial year. Looking ahead, Pattison said he expected the consumer environment to remain difficult for the remainder of the financial year, which would impact sales growth. “It is our objective that if the sales trends continue, growth in the Group’s trading profit (excluding foreign exchange movements and Walmart costs) will equal sales growth.”