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MASSMART HOLDINGS LIMITED
DEDICATED TO VALUE RETAILING
AUDITED RESULTS FOR THE YEAR TO 30 JUNE 2000
MASSMART IS A MANAGEMENT GROUP, INVESTED IN A PORTFOLIO OF FOCUSED RETAIL AND
WHOLESALE DISTRIBUTION FORMULAE, EACH RELIANT ON OPERATIONAL EXCELLENCE AS THE
FOUNDATION OF PRICE LEADERSHIP, IN THE DISTRIBUTION OF MAINLY BRANDED CONSUMER
GOODS.
TURNOVER: R10 635M: UP 19%
TRADING PROFIT: R246M: UP 63%
PROFORMA HEADLINE EARNINGS: R132M: UP 53%
PROFORMA HEADLINE EPS: 84,5C: UP 38%
CASH FLOW FROM OPERATIONS: R73M: DOWN 55%
PORTFOLIO
MASSDISCOUNTERS
A CHAIN OF 64 DISCOUNT STORES, OFFERING A WIDE RANGE OF GENERAL MERCHANDISE
UNDER THE DION AND GAME BANNERS, TO VALUE SEEKING CONSUMERS IN SOUTH AFRICA,
NAMIBIA, BOTSWANA AND ZAMBIA.
MAKRO
A CHAIN OF 14 LARGE WAREHOUSE CLUB OUTLETS SITUATED IN SOUTH AFRICA AND
ZIMBABWE, TRADING IN FOOD, LIQUOR AND GENERAL MERCHANDISE AT WHOLESALE PRICES.
SHIELD
A VOLUNTARY BUYING ASSOCIATION ASSISTING 266 INDEPENDENT WHOLESALERS AND 240
INDEPENDENT RETAILERS TO PROCURE FOOD MORE EFFICIENTLY IN SOUTH AFRICA,
NAMIBIA, BOTSWANA, LESOTHO AND SWAZILAND.
CCW
A PERI-URBAN AND RURAL CHAIN OF 18 CASH-AND-CARRY WAREHOUSES, LOCATED IN SOUTH
AFRICA, LESOTHO AND NAMIBIA, DISTRIBUTING BASIC FOOD AND GROCERIES TO LOWER
INCOME
CONSUMERS.
LISTING ON THE JSE
FOLLOWING A DECADE OF GROWTH AND DEVELOPMENT, THE LISTING OF MASSMART ON THE
JOHANNESBURG STOCK EXCHANGE AND THE ADEQUATE CAPITALISATION OF THE GROUP WERE
SUCCESSFULLY ACCOMPLISHED ON 4 JULY 2000 BY RAISING R500M THROUGH THE PRIVATE
PLACING OF 40 MILLION SHARES AT 1250C PER SHARE. THE OFFER WAS ALMOST TWICE
OVERSUBSCRIBED.
THE LOW LIQUIDITY RESULTING FROM TIGHTLY HELD SHARES WILL BE RECTIFIED IN DUE
COURSE BY FURTHER CAPITAL RAISINGS FOR ORGANIC EXPANSION AND ACQUISITIONS WHICH
CONFORM TO THE GROUP'S STRATEGIC CRITERIA.
ENVIRONMENT
DRIVEN BY NUMEROUS FACTORS, THE EVOLUTION OF A NEW SOUTH AFRICAN CONSUMPTION
PROFILE CONTINUED UNABATED DURING THE PAST YEAR, WITH AMPLE EVIDENCE THAT
UPPER, MIDDLE AND LOWER INCOME CONSUMERS ARE ALTERING THEIR PATTERNS, RATE AND
MODES OF CONSUMPTION IN DIFFERENT WAYS.
RETAIL SALES GROWTH INCREASED, APPROACHING 9% IN THE SECOND HALF OF THE
FINANCIAL YEAR. PREDICTED REAL GROWTH OF ALMOST 3% WILL RESULT IN NOMINAL
GROWTH FOR THE FULL YEAR OF 7%. NON-DURABLES SHOWED MINIMAL REAL GROWTH BUT
HIGHER INFLATION. IN THE SECOND HALF, FOOD PRICES ROSE BY OVER 6% FOLLOWING
SUPPLY-SIDE SHOCKS. SEMI-DURABLES AND DURABLES SHOWED REAL SALES GROWTH BETWEEN
4% AND 7% WITH DEFLATION IN SOME CATEGORIES.*
THE COMPETITIVE TENSIONS IN SOUTH AFRICAN RETAIL ARE EXACERBATED BY EXCESS
RETAIL SPACE AND CAPACITY. THIS HAS RESULTED IN CONTINUED CONSOLIDATION AND
RATIONALISATION, WHICH IS UNLIKELY TO ABATE IN THE NEAR FUTURE.
IN THIS ENVIRONMENT THE CONSUMER AT ALL LEVELS IS AWARE OF AND DEMANDING
BLATANT VALUE.
*SOURCE: ECONOMETRIX
PERFORMANCE
MASSMART'S TURNOVER GROWTH, 3.6% OF WHICH WAS ATTRIBUTABLE TO THE FIVE STORES
OPENED DURING THE YEAR, EXCEEDED THAT REPORTED BY COMPETITORS AND THE RETAIL
LIAISON COMMITTEE, IMPLYING A GROWTH OF MARKET SHARE. FOOD GREW 18%, LIQUOR 20%
AND GENERAL MERCHANDISE, INCLUDING APPAREL, 20%. SAME-STORE TURNOVER GROWTH
INCREASED STEADILY THROUGHOUT THE YEAR ENDING 13% UP. SECOND-HALF TURNOVER GREW
AT A LOWER RATE AS THE ANNIVERSARIES OF NEW STORE OPENINGS WERE REACHED.
IMPROVED PROCUREMENT, TIGHT CONTROL OF COSTS, WORKING CAPITAL AND SHRINKAGE AND
THE ACHIEVEMENT OF PLANNED MERGER SYNERGIES IN MASSDISCOUNTERS, RESULTED IN
GROUP MARGIN IMPROVEMENTS AHEAD OF THE GROWTH IN TURNOVER.
AT THE START OF THE FINANCIAL YEAR A POLICY WAS ADOPTED TO FUND EACH DIVISION
ANNUALLY WITH CAPITAL EQUAL TO ITS LONG-TERM ASSETS. THE OBJECTIVE WAS TO
ENHANCE WORKING CAPITAL MANAGEMENT AND ENABLE CONSISTENT REPORTING OF
DIVISIONAL PROFIT BEFORE TAX. ON THIS BASIS THE DIVISIONS EARNED NET INTEREST
OF R24M, AS IMPLIED BY THE TRADING PROFIT BEFORE TAX TABLE.
EACH OF THE DIVISIONS PRODUCED RECORD TURNOVER AND PROFITS AND, IN SO DOING,
ACHIEVED OR MOVED CLOSER TO THEIR TARGETED RETURNS.
INCOME STATEMENT
NOTES 2000 1999 % CHANGE
RM RM
TURNOVER 10,635 8,916 19
MASSDISCOUNTERS 3,845 3,209 20
MAKRO 3,923 3,395 16
SHIELD 1,724 1,481 16
CCW 1,143 831 38
TRADING PROFIT BEFORE INTEREST 1 246 151 63
AS A % OF TURNOVER 2,3% 1,7% 35
MASSDISCOUNTERS 121 51 137
MAKRO 55 44 25
SHIELD 39 34 15
CCW 31 22 41
CORPORATE OVERHEADS AND RELATED
EXPENSES 2 (35) (7)
EXCEPTIONAL ITEMS 3 (10) 116
NET FINANCING COSTS (57) (69) 17
PROFIT BEFORE TAX 144 191 (25)
TAXATION 4 (37) 38
PROFIT AFTER TAX 107 229 (53)
ASSOCIATE COMPANY 1
MINORITIES (4) (3)
ATTRIBUTABLE INCOME 104 227 (54)
HEADLINE EARNINGS 110 47 134
PROFORMA HEADLINE EARNINGS
(BEFORE CONVERTIBLE
DEBENTURE INTEREST(AFTER TAX)) 132 86 53
HEADLINE EPS (CENTS) 79.5 41.4 92
PROFORMA HEADLINE
EPS (CENTS) 5 84.5 61.4 38
DILUTED HEADLINE EPS (CENTS) 79.3 61.4 29
ATTRIBUTABLE EPS (CENTS) 74.8 200.1 (63)
DIVIDEND PAID (CENTS) 9.4 - -
BALANCE SHEET
PROFORMA ACTUAL ACTUAL
NOTES 2000 2000 1999
RM RM RM
CAPITAL EMPLOYED
SHAREHOLDERS' EQUITY 6 1,027 549 44
MINORITY INTERESTS 15 15 12
LONG TERM LIABILITIES
AND PROVISIONS 93 93 534
TOTAL 1,135 657 590
EMPLOYMENT OF CAPITAL
LONG TERM ASSETS 492 492 416
DEFERRED TAX 223 223 243
INVENTORIES 1,356 1,356 1,135
ACCOUNTS RECEIVABLE 820 825 645
NET CASH AND BANK / (SHORT TERM
BORROWINGS) 395 (88) 184
ACCOUNTS PAYABLE AND PROVISIONS (2,151) (2,151) (2,033)
TOTAL 1,135 657 590
CASH FLOW STATEMENT
CASH INFLOW FROM TRADING 264 175
WORKING CAPITAL MOVEMENT (191) (14)
CASH OUTFLOW FROM OTHER
OPERATING ACTIVITIES (85) (76)
EXCEPTIONAL ITEMS - 306
CASH OUTFLOW FROM INVESTING ACTIVITIES (158) (958)
CASH (OUTFLOW) / INFLOW FROM
FINANCING ACTIVITIES (102) 620
OPENING CASH AND CASH EQUIVALENTS 184 131
CLOSING CASH AND CASH EQUIVALENTS (88) 184
STATEMENT OF CHANGES IN EQUITY
OPENING BALANCE 44 223
EXCHANGE DIFFERENCES 2 1
INTANGIBLES WRITTEN-OFF (14) (803)
DEFERRED TAXATION ON TRADEMARKS
WRITTEN-OFF - 135
RETAINED INCOME 86 227
SHARES ISSUED 431 261
CLOSING BALANCE 549 44
PRODUCTIVITY
SALES PER SQUARE METER (R'000) 25 24
SALES PER EMPLOYEE (R'000) 984 869
NOTES
1 RESULTS FOR BOTH YEARS INCLUDE THE IMPACT OF NEW ACCOUNTING POLICIES
REQUIRED IN TERMS OF GENERALLY ACCEPTED ACCOUNTING PRACTICE, ALIGNING MASSMART
CLOSER TO INTERNATIONAL ACCOUNTING STANDARDS.
2 INCLUDED IN THESE EXPENSES IS AN AMOUNT OF R33M (1999: R6M) ARISING OUT OF
THE RESTRUCTURING OF CERTAIN PROPERTY EXPENSES. THE NET IMPACT OF THIS
RESTRUCTURING ON HEADLINE EARNINGS AFTER TAKING INTO CONSIDERATION THE
FINANCIAL BENEFITS CONTAINED THEREIN IS A COST OF R7M (1999: R1M).
3 EXCEPTIONAL ITEMS IN THE CURRENT YEAR INCLUDE ASSET WRITE-OFFS AND RESTRAINT
OF TRADE PAYMENTS.
4 THE CURRENT YEAR'S AVERAGE TAX RATE HAS BEEN REDUCED BY CERTAIN NON-TAXABLE
INCOME.
5 PROFORMA HEADLINE EPS HAS BEEN CALCULATED BY DIVIDING THE PROFORMA HEADLINE
EARNINGS BEFORE CONVERTIBLE DEBENTURE INTEREST (AFTER TAX) BY THE
WEIGHTED-AVERAGE NUMBER OF SHARES THAT WOULD HAVE BEEN IN ISSUE HAD THE
DEBENTURES BEEN CONVERTED AT THE BEGINNING OF THE YEAR.
6 THE IMPACT OF THE 4 JULY 2000 MASSMART LISTING AND CAPITAL RAISING OF R500M
HAS BEEN EXCLUDED FROM THE ACTUAL BALANCE SHEET AND RESULTS. THE PROFORMA
BALANCE SHEET SHOWS THE IMPACT OF NET CAPITAL RAISED OF R478M.
2000 1999 % CHANGE
RM RM
TRADING PROFIT BEFORE TAX 270 159 70
AS A % OF TURNOVER 2,5% 1,8% 39
MASSDISCOUNTERS 97 19 411
MAKRO 89 67 33
SHIELD 48 43 12
CCW 36 30 20
STRATEGIC PROGRESS
MASSMART'S PROGRESS OVER THE PAST YEAR WAS ENTIRELY ATTRIBUTABLE TO THE
SUCCESSFUL IMPLEMENTATION OF THE GROUP'S STRATEGY.
EACH OF THE DIVISIONS SHARPENED THEIR FOCUS THROUGH DEDICATED MANAGEMENT TEAMS
COMMITTED TO OFFERING THEIR TARGET CUSTOMERS DISCERNIBLE VALUE.
- MAKRO'S TRADING AGGRESSION AND INNOVATION RESULTED IN THE HIGHEST RATE OF
SAME-STORE GROWTH IN THE GROUP, WITH A RESULTANT IMPROVEMENT IN PROFITS AND
PROFITABILITY.
- MASSDISCOUNTERS SUCCESSFULLY CONCLUDED THE MERGER AND RATIONALISATION OF
GAME AND DION, ACHIEVING SOUND SALES GROWTH AND SIGNIFICANT PROGRESS TOWARDS
ACCEPTABLE RETURNS, WITH FURTHER BENEFITS STILL TO EMERGE IN THE COMING YEAR.
- SHIELD INVESTED IN AN ECOMMERCE INITIATIVE THAT IMPROVES THE EFFICIENCY OF
TRANSACTIONS FOR THE COMPANY AND ITS CUSTOMERS. ITS SUCCESSFUL LAUNCH
ESTABLISHES A PLATFORM FOR ACCELERATED GROWTH OF CUSTOMERS AND TRANSACTIONS.
- CCW CONTINUED ON ITS EXPANSION PATH WITH THE OPENING OF THREE STORES AND THE
STRENGTHENING OF SYSTEMS AND MANAGEMENT TO SUPPORT FUTURE GROWTH.
CONCURRENTLY, FORMALISED COLLABORATION BETWEEN THE CHAINS SAW THE REALISATION
OF PROCUREMENT AND COST SYNERGIES. INITIAL SUCCESS IN THESE AREAS INDICATES
THAT THE BENEFITS OF INTRA-GROUP INITIATIVES WILL MANIFEST THEMSELVES OVER THE
NEXT TWO YEARS IN IMPROVED OPERATING INCOME AND PROFITABILITY.
THE SUCCESS OF THE STRATEGY HAS BEEN UNDERPINNED BY AN IMPROVEMENT IN THE
CALIBRE, STRUCTURE AND PROCESSES OF MASSMART'S LEADERSHIP AND MANAGEMENT.
PROSPECTS
THE LAUDABLE EFFORTS OF THE SOUTH AFRICAN MONETARY AUTHORITIES HAVE POSITIONED
THE COUNTRY FOR A SLOW BUT CONTINUED ECONOMIC RECOVERY. RETAIL SALES ARE
RESPONDING IN SYMPATHY.
MASSMART'S COMPLIMENTARY PORTFOLIO OF LOW-COST TRADING
FORMULAE, MERCHANDISE CATEGORIES, CONSUMER SEGMENTS AND GROWTH OPTIONS HAS
POSITIONED THE GROUP FOR CONTINUED GROWTH AT RELATIVELY LOWER RISK. IN AN
IMPROVING ECONOMY, MASSMART WILL PROSPER.
THE LISTING OF MASSMART HAS ENABLED THE GROUP TO RAISE
CAPITAL AT A COST FOUNDED ON ITS OWN PERFORMANCE AND PROSPECTS. WHEN NECESSARY,
THIS FACILITY WILL BE USED TO FUND AGGRESSIVE ORGANIC GROWTH OR VALUE-ACCRETIVE
ACQUISITIONS.
IN THE COMING YEAR, AN UNWAVERING COMMITMENT TO INNOVATIVE VALUE MERCHANDISING,
NEW STORE DEVELOPMENT IN AND BEYOND SOUTH AFRICA AND THE FURTHER REALISATION OF
GROUP-WIDE SYNERGIES, WILL ENSURE A CONTINUED GROWTH OF SHAREHOLDER VALUE.
DIVIDENDS
DIVIDEND POLICY
THE MASSMART DIVIDEND POLICY GOING FORWARD WILL BE TO DECLARE AND PAY ANNUAL
DIVIDENDS REPRESENTING A DIVIDEND COVER RATIO OF APPROXIMATELY THREE TIMES,
UNLESS CIRCUMSTANCES DICTATE OTHERWISE. ALTHOUGH MASSMART'S PROFITABILITY IS
HEAVILY WEIGHTED TOWARDS THE FIRST HALF OF THE YEAR, I.E. THE SIX MONTHS TO
DECEMBER, BOTH INTERIM AND FINAL DIVIDENDS WILL BE PAID IN APPROXIMATELY EQUAL
PROPORTIONS.
CASH DIVIDEND
NOTICE IS HEREBY GIVEN THAT AN ORDINARY DIVIDEND OF 9.4 CENTS PER SHARE IN
RESPECT OF THE PERIOD ENDED 30 JUNE 2000 HAS BEEN DECLARED PAYABLE TO THE
HOLDERS OF ORDINARY SHARES REGISTERED IN THE BOOKS OF THE COMPANY AT THE CLOSE
OF BUSINESS ON FRIDAY, 8 SEPTEMBER 2000. DIVIDEND CHEQUES WILL BE POSTED ON OR
ABOUT 15 SEPTEMBER 2000.
ON BEHALF OF THE BOARD
MARK J LAMBERTI - EXECUTIVE CHAIRMAN
STEVE LEGGATT - CHIEF FINANCIAL OFFICER
15 AUGUST 2000
DIRECTORATE: M.J LAMBERTI (EXECUTIVE CHAIRMAN), D.G BARRETT* (EXECUTIVE), C.A
HALL, W. KIRSH, S. LEGGATT* (EXECUTIVE), J.D NEWTON, M.J RUBIN, F. SCHUKKEN**,
C.S SEABROOKE.
*BRITISH, **NETHERLANDS
MASSMART HOLDINGS LTD - COMPANY REGISTRATION NUMBER - 1940/014066/06,
REGISTERED OFFICE - MASSMART HOUSE, 16 PELTIER DRIVE, SUNNINGHILL EXT 6, 2157.
WWW.MASSMART.CO.ZA
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