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Massmart Holdings Ltd.
Registration Number - 1940/014066/06,
JSE Code - MSM. ISIN - ZAE000029534.
Dedicated to Value Retailing
Consolidated Results for the 26 weeks to 23 December 2001.
Massmart is a unique managed portfolio of focused high volume, low margin,
wholesale and retail distribution formats. Each is reliant on operational
excellence as the foundation of price leadership in the sale of mainly
branded consumer goods for cash, to the mass markets of Southern Africa.
Sales: R8 020m Up 33%, Trading Profit: R297m Up 57%, Headline Earnings:
R202m Up 42%, Headline Earnings before acquisitions: R188m Up 32%,
Headline EPS: 102,5c Up 41%, Cash Flow from Operations: R687m Up 63%
Overview
Aided by the inclusion of the Jumbo, Browns and Weirs acquisition for the
first time, Massmart produced its 10th consecutive half-year of real sales
and headline earnings growth.
The most noteworthy features of the period were:
Record sales, trading profits and pre- and post-interest trading margins
in all segments.
Comparable store and comparable member sales growth of 14%.
Strong cash generation.
Non South African sales of R566m.
An impressive growth in profit and trading margin by Massdiscounters.
Progress with the restructuring of Shield, manifest in improved member
retention and an 8% growth of sales from comparable members.
The re-opening of Makro Woodmead on 25 October 2001, 25 weeks after its
destruction by fire on 6 May 2001.
The integration and strongly improved performance of the Browns and Weirs
chains.
Continued high profitability and steady progress with the formulation of a
growth strategy in Jumbo.
The acquisition of Furnex for R45m, now subject only to approval by the
Competition Commission.
The refinement of the Group's segmental reporting and disclosure.
Strategy
Massmart is dedicated to creating shareholder value through high quality
acquisitive and organic sales growth, which renders superior operating
margins, cash flow and returns on capital.
Massmart's performance relies on the achievement of two major objectives.
The first - growth through aggressive development of a portfolio of
focused chains; the second - collaboration between the chains to create
value in addition to that which they could achieve as stand alone
entities. Together they constitute the Group's "Chain and Channel"
strategy, which emphasises the imperative for the management of each chain
to be dedicated to the needs of a well defined target market, while
concurrently participating in collaborative activities which enhance value
by leveraging the resources, influence and talent of the Group. The
delicate balance between these seemingly contrary objectives is ensured by
structures, processes and incentives which fuel entrepreneurship at the
expense of bureaucracy.
Environment
Despite the events of 11 September 2001, the "War Against Terrorism" and
turbulent global financial markets, consumer confidence in South Africa,
as measured by the Stellenbosch Bureau for Economic Research, remained
stable during the second half of 2001.
Relative to the same period last year, South African consumers enjoyed
lower interest and tax rates with most of the factors which diverted
discretionary spending away from retail, now part of the base. The
dominant economic feature of the period was the deterioration in the value
of the Rand, which bottomed at R13,85 to the Dollar in mid- December.
Central Statistical Services reported a nominal retail sales growth of
10,0% and a real sales growth of 5,8% in October and 8,8% and 4,4%
respectively in November. The Retail Liaison Committee reported nominal
retail sales growths of 9,6% in October, 10,2% in November and 9,4% in
December.
Integration of Jumbo, Browns and Weirs
Sales of R1 233m from the 11 Browns, 11 Weirs and 6 Jumbo outlets
contributed pre-tax profits of R42m.
Jumbo traded well throughout the period. A start has been made with the
implementation of a structure that will strengthen executive competence
and capacity, clarify responsibility and authority and facilitate the
definition of a sustainable competitive strategy. An integrated store
development, merchandise and marketing response is being formulated. This
will include more aggressive pricing and investment in assets and people,
to improve customer service, efficiency, control and succession.
The Browns and Weirs results are a tribute to the pre-acquisition analysis
and the rapid post-acquisition implementation by CCW management. The
institution of decentralised buying and pricing authorities, together with
profit sharing incentives for branch managers, has ensured appropriate
trading practices, improving performance and high motivation.
Notwithstanding some strengthening of the management team, the executive
structure of CCW is still inadequate for the enlarged company and a number
of senior appointments are imminent.
Furnex Acquisition
Massmart's acquisition of Furnex for R45m, effective from 1 January 2002,
was announced on 18 December 2001.
Furnex is a voluntary buying organisation assisting 415 independent
retailers of appliances, home electronics and furniture throughout South
Africa, with procurement and a limited range of marketing services.
Massmart's knowledge of the identical Shield business model and the
Group's expertise in the procurement of appliances and home electronics
provides opportunities for value creation.
The acquisition extends Massmart's geographic and product reach with a
familiar business model and satisfies all strategic and acquisition
criteria.
The only outstanding suspensive condition, the ruling of the Competition
Commission, is expected before the end of April 2002.
Portfolio and Segmental Reporting
The Jumbo, Browns and Weirs acquisitions and the yet to be approved Furnex
acquisition are closely aligned to Massmart's vision and strategic focus,
resulting in them strongly complementing the existing portfolio in both
product depth and geographic reach.
Massmart's nine chains, now in seven countries, under six management
teams, comprise four coherent segments, constituted on the basis of
similar target markets and business models. Accordingly the Group will be
managed within the following structure where the synergies of each segment
can be exploited in complete accord with Massmart's Chain and Channel
strategy.
Retail Game(54 stores)
MASSDISCOUNTERS General Merchandise - RSA, Botswana, Namibia,
(Discounters) Zambia
Sales R2,6b Dion (11 stores)
General Merchandise - RSA
Retail/Wholesale Makro (14 outlets)
MAKRO General Merchandise/Food/Liquor - RSA,
(Warehouse Clubs) Zimbabwe
Sales R2,1b
Wholesale CCW (22 outlets) Food/Liquor - RSA, Lesotho,
MASSCASH Namibia
(Cash & Carry) Browns (11 outlets) Food/Liquor - RSA
Sales R2,3b Weirs (11 outlets) Food/Liquor - RSA
Jumbo (6 outlets) Cosmetics/Food - RSA
Wholesale Shield (381 members) Food - RSA, Botswana,
MASSTRADE Namibia, Swaziland
(Buying groups) Furnex (415 members) Furniture/Appliances -
Sales R1,0b RSA
Effective 1 January 2002
Massdiscounters, the retail discount division, and Makro, the warehouse
club division, will be unchanged. A new third division called Masscash
will house CCW, Browns, Weirs and Jumbo, all cash and carry businesses
targeted at lower income consumers. The fourth division, to be called
Masstrade, will house Shield and Furnex, both buying associations that
assist independent retailers and wholesalers with procurement and
marketing.
Operating Results
It has been suggested by market commentators that the deterioration in the
exchange rate resulted in consumers buying forward during December, in
anticipation of price increases. Detailed analysis of the growth trends,
by month, of individual product categories within Massmart's businesses,
indicates that this was marginal. Subsequent sales growth confirms this.
We experienced strong growth where we promoted most aggressively.
Group sales growth exceeded that reported by national statistics and
competitors, resulting in a growth of market share. Food grew 51%, liquor
25% and general merchandise including apparel 21%. Retail credit sales
were 2% of Massmart's sales.
The performance of each chain was enhanced by specific group initiatives
in the areas of procurement, cost reduction, market penetration and
executive development.
Massdiscounters (Retail) - Aggressive procurement, merchandising and
advertising resulted in comparable store sales growth of 16%. This
together with sound expense and asset control resulted in good progress
towards the division's targeted returns.
Makro (Retail/Wholesale) - Comparable store sales growth of 9% and
excellent control of margins, assets and costs resulted in a strong growth
of profits. The major SAP Retail software implementation is now complete
and benefits will accrue over the coming years.
Masscash (Wholesale) - Comparable store sales growth of 27% and the effect
of last year's opening of new outlets in Rustenburg, Vryburg and
Bloemfontein produced strong sales growth in CCW. Margins, expenses,
shrinkage and working capital were well controlled.
The performance of the Jumbo, Browns and Weirs chains is reported on
separately.
Masstrade (Wholesale) - Shield's sales and profits improved as quality
business was secured and debtors were impeccably controlled. Post-interest
profits were depressed by a decapitalisation, in line with group policy to
fund only fixed assets with equity.
6 months ended December 6 months Year to
2001 ended June 2001
December
(Unaudited) 2000 % (Audited)
Rm (Restated & Change Rm
Unaudited)
Rm
Trading Profit 297,5 188,9 57,5 291,9
Before Tax 3,7 3,1 2,5
As a % of
Sales
Massdiscounter 117,4 71,3 64,7 84,4
s 84,5 71,2 18,7 98,4
Makro 69,1 21,1 227,5 62,8
Masscash 26,5 25,3 4,7 46,3
Masstrade
Prospects
Global economic trends, regional socio-political developments and the
deterioration of the Rand/Dollar exchange rate will affect Southern
African consumers and business confidence and exert both direct and
indirect upward pressure on the prices of goods. Whether and when this
will result in volume declines is difficult to predict given the expected
positive impact of the 2002 Budget on the South African consumer.
In these conditions, the imperative to respond to changing consumer needs
with exceptional value is paramount. Massmart will achieve this through
superior merchandising, cost control and asset management, with continuing
emphasis on cash generation.
Shareholders are reminded that Massmart's second half earnings growth may
be below that of the first. The reasons for this are the group's
traditional seasonality and the inclusion of Jumbo's earnings for the
quarter to June 2001.
In the absence of a sharp deterioration of the Southern African economy,
we remain confident that Massmart will produce a real growth in earnings
per share at the forefront of the retail sector.
Sales growth for the 34 weeks to 17 February 2002 is 37%.
Dividend Policy
Massmart's dividend policy is to declare and pay an interim dividend
representing a four times dividend cover but a total annual dividend of
three times cover, unless circumstances dictate otherwise.
Dividend
Notice is hereby given that an interim dividend of 25,0 cents per share in
respect of the six months to December 2001 has been declared payable to
the holders of ordinary shares recorded in the books of the company on 15
March 2002. The last date to trade cum-dividend will therefore be 8 March
2002 and Massmart shares will trade ex-dividend from 11 March 2002.
Payment of the dividend will be made on 18 March 2002. Share certificates
may not be dematerialised or rematerialised between 4 March 2002 and 15
March 2002, both days inclusive.
On behalf of the Board
Mark J Lamberti - Executive Chairman Guy Hayward - Chief Financial Officer
22 February 2002
Directorate: M.J Lamberti (Executive Chairman),
D.G Barrett* (Executive), G.R.C Hayward (Executive), W. Kirsh,
S. Leggatt* (Executive), I.N Matthews, J.D Newton, M.J Rubin,
F. Schukken** (alternate D.C Doijer**), C.S Seabrooke
*British, **Netherlands.
Registered Office - Massmart House, 16 Peltier Drive, Sunninghill Ext 6,
2157
Company Secretary: R.A McKee
For more information: www.massmart.co.za
INCOME STATEMENT
6 months ended 6 months Year to
December 2001 ended June 2001
December
(Unaudited) 2000 % (Audited)
Rm (Restated & Change Rm
Unaudited)
Rm
Sales 8 020,2 6 010,0 33,4 11 568,4
Massdiscounters 2 615,5 2 253,2 16,1 4 183,9
Makro 2 143,3 2 091,0 2,5 3 903,0
Masscash 2 255,0 717,1 214,5 1 784,6
Masstrade 1 006,4 948,7 6,1 1 696,9
Trading profit 297,3 189,8 56,6 277,0
before interest
As a % of Sales 3,7 3,2 2,4
Massdiscounters 135,0 89,8 50,3 114,3
Makro 75,6 59,6 26,8 70,7
Masscash 62,2 19,3 222,3 54,9
Masstrade 24,5 21,1 16,1 37,1
Goodwill (17,3) - (9,1)
Amortisation 15,7 (19,7) (30,6)
Exceptional Items (8,7) 6,9 9,4
(note 1)
Net Interest
(Paid)/Received
Profit before Tax 287,0 177,0 62,1 246,7
Taxation (87,4) (46,2) (63,0)
Profit after Tax 199,6 130,8 52,6 183,7
Associate Company (2,0) 0,8 (0,1)
Minorities (2,4) (3,4) (3,9)
Attributable Income 195,2 128,2 52,3 179,7
Headline Earnings 6,7 14,5 36,3
Adjustments
(Note 1)
Headline Earnings 201,9 142,7 41,5 216,0
Headline EPS (cents) 102,5 72,8 40,8 109,9
Diluted Headline EPS 101,9 72,7 40,2 109,8
(cents) 99,1 65,4 51,5 91,4
Attributable EPS 98,5 65,3 50,8 91,3
(cents)
Diluted Attributable
EPS (cents)
25,0* 15,0* 66,7 15,0
Dividend (cents): 21,0*
- Interim
- Final
197 206 197 077 197 077
Ordinary Shares 197 079 195 984 196 529
(000's): 198 193 196 211 196 730
- In Issue
- Weighted-Average
- Diluted Weighted-
Average
* Declared and paid
after the accounting
period
CASH FLOW STATEMENT
6 months 6 months Year to
ended ended June 2001
December December
2001 2000 (Audited)
(Restated & Rm
(Unaudited) Unaudited)
Rm Rm
Cash Inflow from Trading 388,8 238,1 335,6
Working Capital Movement 298,2 183,7 8,8
Cash Flow from Operations 687,0 421,8 344,4
Cash Outflow from Other Operating (53,3) (24,2) (34,3)
Activities
Dividends Paid (41,4) (16,1) (48,0)
Investment In and Replacement of (62,6) (104,2) (120,0)
Fixed Assets
Other Investing Activities (12,9) (19,5) (525,8)
Net Financing Activities (254,6) 458,4 965,9
Opening Cash and Cash Equivalents 498,8 (83,4) (83,4)
Closing Cash and Cash Equivalents 761,0 632,8 498,8
STATEMENT OF CHANGES IN EQUITY
Opening Balance 1 204,6 576,7 576,7
Exchange Differences 16,7 1,9 3,2
Dividends paid (41,4) - (29,5)
Attributable Income 195,2 128,2 179,7
Shares Issued / Converted - 475,7 474,5
Other 1,0 - -
Closing Balance 1 376,1 1 182,5 1 204,6
ADDITIONAL INFORMATION
Trading Profit Before Items Below: 330,6 215,0 331,9
-Dividends Received 15,4 13,3 28,1
-Depreciation (48,7) (38,5) (83,0)
Trading Profit Before Interest 297,3 189,8 277,0
Capital Expenditure:
-Authorised and Committed 5,2 5,1 31,3
-Authorised not Committed 15,9 33,5 102,9
Contingent Liabilities (note 5) 151,0 162,8 225,6
Operating Lease Commitments 3 905,9 4 028,6 4 066,4
(2003-2013)
BALANCE SHEET
December 2001 December June
2000 2001
(Unaudited) (Restated
Rm & (Audited)
Unaudited) Rm
Rm
Assets
Property, Plant and Equipment 375,2 378,0 368,2
Intangible Assets 323,9 - 340,2
Investments and Loans 209,3 172,3 185,9
Deferred Tax 299,1 261,1 339,3
Inventories 2 151,4 1 487,1 1 555,7
Accounts Receivable and Prepayments 1 265,6 994,8 835,9
Cash and Bank Balances 793,9 688,7 518,2
Total 5 418,4 3 982,0 4 143,4
Equity and Liabilities
Shareholders' Equity 1 376,1 1 182,5 1 204,6
Minority Interests 14,0 15,5 11,1
Long Term Liabilities - Interest 310,4 9,5 6,9
Bearing 41,6 65,4 58,8
Other Long Term Liabilities & 5,5 3,3 5,6
Provisions 3 636,8 2 654,6 2 839,2
Deferred Tax 34,0 51,2 17,2
Accounts Payable and Accruals
Bank Overdraft and Short Term
Borrowings
Total 5 418,4 3 982,0 4 143,4
Net Asset Value per Share (cents) 697,8 600,0 611,2
Notes
1. Exceptional items comprise profit on assets destroyed in the Makro
Woodmead fire and the loss on disposal of Sip `n Save. The adjustment to
headline earnings of R6,7m represents the net after-tax exceptional profit
of R10,6m and the goodwill amortisation.
2. Included in trading profit is R4,7m in net realised and unrealised
foreign exchange translation gains.
3. These financial statements have been prepared on a basis consistent
with prior periods, in accordance with South African Statements of
Generally Accepted Accounting Practice.
4. In light of the foreign currency crisis in Zimbabwe, the results of
Makro Zimbabwe are no longer consolidated. Earnings are now accounted for
on a cash received basis. Comparative figures have been restated.
5. Included in contingent liabilities are obligations under FEC's of
R44,4m (2000:R57,8m)