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Massmart Holdings Ltd - Audited Consolidated Results for the year ended 30
June 2002
Massmart, is a unique, managed portfolio of nine wholesale or retail chains,
each focused on high-volume, low margin, low cost distribution of mainly
branded consumer goods for cash, in eight countries in Southern Africa.The
Group is the third largest distributor of consumer goods in Southern Africa,
the leader in general merchandise and liquor and the fourth largest in food.
44% increase in Sales to R16 709m
95% increase in Trading Profit to R539m
67% increase in Headline Earnings to R362m
44% increase in Headline Earnings before Acquisitions to R305m
67% increase in Headline EPS to 183,2c
97% increase in Cash Flow from Operations to R677m
Overview
In every respect, Massmart experienced the best year in its twelve year
history.
The Jumbo, Browns, Weirs and Furnex acquisitions, contributed to Massmart`s
11th consecutive half-year of record sales and headline earnings growth.
The highlights of the year were:
Fifty-three week sales exceeding R16bn, profits exceeding R500m and cash
from operations exceeding R600m, for the first time.
Pre-interest operating profit as a percentage of sales at 3,2% exceeding 3%
for the first time.
Record sales, trading profits and pre- and post-interest trading margins in
all divisions.
Comparable store and comparable member sales growth of 22%.
Non-South African sales approaching R1,4bn.
The earnings accretive R528m acquisition, enhancement of profitability and
almost total integration, of three major businesses.
The segmentation of the group`s nine chains into four coherent divisions,
based on similar target markets and business models.
The refinement of Massmart`s 2002 to 2005 growth strategies and the
establishment of a Vision for Growth.
The establishment of several strategic alliances with key suppliers.
An exceptional growth of sales, profits and returns from both Game and Dion,
resulting primarily from new superior leadership and a re-structured
executive team in Massdiscounters.
Sustained high performance by Makro, resulting in profit before tax of 2,9%
of sales and a four-year compound annual growth in profit before interest
and tax of 36%, with no new stores opened over that period.
An excellent performance from CCW and the total integration of Browns and
Weirs to form CBW.
Notwithstanding conservative Massmart accounting policies, an improved
result from Jumbo.
Collaboration with the South African Revenue Services to reach rapid
conclusion on the outcome of the R18m VAT fraud perpetrated on Shield.
A solid trading performance from Shield, culminating recently in the
formation of Masstrade and the integration of Furnex under one management
team in a new head office.
The unbundling of Wooltru with effect from the 26th June 2002, resulting in
the percentage of Massmart shares held by the public and institutional
investors rising from 20% to 58%.
The strengthening of the board with the appointment of three new non-
executive directors, two of whom are independent.
The strengthening of governance with the formation of the King and Risk Sub-
Committees of the Board.
Strategy and Implementation
Massmart is dedicated to creating shareholder value through high quality,
strategically aligned, organic and acquisitive 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.
This strategy 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.
The successful implementation of this strategy is entirely dependent on the
13 570 people who choose to devote their intellect, energy, passion and
commitment to Massmart every day. We are deeply indebted to them.
Operating Performance
The South African wholesale and retail economy improved steadily throughout
the financial year, as improving real personal disposable income fuelled
consumer confidence, which reached seven-year highs in the second quarter of
2002.
Competitive activity was nevertheless aggressive.
Massmart`s growth rate accelerated throughout the year. Sales before
acquisitions grew 23%. Sales of general merchandise grew 28% with food and
liquor growth enhanced by the acquisitions, at 60% and 36% respectively.
Massmart registered significant gains in market share in many categories.
Operating profit before tax and before acquisitions at R445m, compares to
R276m last year. The impact of inflation on the group`s pre-tax profits in
the second half was estimated to be approximately R20m.
The performance of each chain was enhanced by specific Group initiatives in
the areas of procurement, cost reduction, market penetration and executive
development.
Massdiscounters comprises retail general merchandise discounters Game (54
stores) and Dion (11 stores). Aggressive procurement, merchandising and
advertising resulted in comparable store sales growth of 27%. This together
with sound expense, margin and asset control resulted in excellent progress
towards the division`s targeted profit before tax return on sales of 5%.
Makro is a 12 store warehouse club, trading in food, liquor and general
merchandise. Comparable store sales growth of 16% and excellent control of
margins, assets and costs resulted in a strong growth of profits,
approaching the company`s targeted profit before tax return on sales of 3%.
The anticipated benefits of revised trading strategies and the SAP Retail
software implementation have encouraged Makro to raise the medium term
targeted profit before tax return on sales to 4%.
Masscash comprises wholesale cash and carry outlets CCW (21 food and liquor
outlets), Browns (11 food and liquor outlets), Weirs (11 food and liquor
outlets) and Jumbo (6 food and cosmetics outlets). Comparable store sales
growth of 29% and the effect of 3 stores opened in the previous year,
resulted in strong sales growth in CCW. The performance of the Jumbo, Browns
and Weirs chains is reported on below. Margins, expenses, shrinkage and
working capital were well controlled resulting in the division exceeding its
targeted return on sales of 3,5%.
Masstrade comprises voluntary buying organisations Shield (serving 400
independent food traders) and Furnex (serving 415 independent furniture and
appliance traders). Despite a major new system implementation, the
restructuring of the staff complement and the VAT fraud, Shield`s sales and
profits improved in the second half as new members were recruited and
debtors were well controlled. Post-interest profits were reduced by a
decapitalisation, in line with group policy to fund only fixed assets with
equity. The division remains committed to its targeted return on sales of
3%. The R18m payment to SARS, arising out of the fraud perpetrated on
Shield, has been included in headline earnings but treated as an exceptional
item at a Group level and excluded from Shield`s trading results, to prevent
distortion of the latter. All legal avenues are being pursued to recover
this amount. The performance of Furnex is reported on below.
(Audited) (Audited)
30 June 30 June
2002 2001
Rm Rm % Change
Trading Profit Before Tax 549,8 291,9 88,4
As a % of Sales 3,3 2,5
Massdiscounters 178,0 84,4 110,9
Makro 130,0 98,4 32,1
Masscash 185,6 62,8 195,5
Masstrade 56,2 46,3 21,4
Acquisition Performance and Integration
Combined full year sales from the 6 Jumbo, 11 Browns and 11 Weirs stores
totalled R2,6bn, contributing pre-tax profits of R117m, R72m after
acquisition financing costs. This profit, together with the R23m pre-tax
profit (R11m after acquisition financing costs) produced by Jumbo in the
three months to June 2001, validates Massmart`s acquisition criteria and the
R483m transaction.
Jumbo`s performance was enhanced by a strengthening of management; the
refurbishment of the Crown Mines store; new marketing and promotional
activity and enhanced asset management. Jumbo is in the final stages of
integration some six months ahead of plan and details of its growth
strategies will be announced during 2003. Appropriate merchandising and the
rapid adoption of the trading policies and controls of CCW by the management
of the Browns and Weirs stores, resulted in their rapid and total
integration into the Group.
Furnex, purchased for R45m with effect from 1st January 2002, generated
sales of R297m and pre-tax profit of R9m for the six months, R6m after
acquisition financing costs. The major aspects surrounding the integration
of Furnex and Shield to form Masstrade will be completed by the end of 2002
with full integration targeted by June 2003.
Growth Vision
Buoyed by the successful achievement of the strategic objectives established
in 1990, the Massmart 2002 to 2005 Strategic Review culminated in a Vision
for Growth that would result in sales approaching R30bn and operating profit
of R1bn by June 2005, assuming performance commensurate with the Group`s
historic track record.
The sales growth target will be realised through: real sales growth from
existing outlets, significant new store development opportunities for CBW
and Jumbo in South Africa and Game in Africa; expansion into new categories
and formats; and selected acquisitions that conform to Massmart`s strategic
and acquisition criteria. Improved efficiencies throughout the supply chain
and inter divisional collaboration will enable margin growth to exceed sales
growth.
This Vision for Growth will be realised by Massmart attracting, developing,
retaining and leading the best available talent in South African
distribution.
The budgets for the current year, including four confirmed new store
openings, together with the acquisitions currently under consideration,
reflect sound progress towards this objective.
Prospects
Sound fiscal and monetary management has shielded South Africa from much of
the economic turbulence worldwide. There is reason for cautious optimism
over the coming year.
Within the South African retail and wholesale sector, the rationalisation of
assets, formats and outlets together with the clarification of the consumer
proposition, is resulting in a polarisation of profitability around those
predominantly cash based participants who adapt to efficiently satisfy the
evolving consumer profile with exceptional value. Within Africa,
traditionally underserved or exploited markets respond enthusiastically to
similar value.
Massmart intends remaining at the forefront of these seminal trends through
superior merchandising, cost control and asset management, with continuing
emphasis on cash generation and the acquisition and integration of
businesses that will benefit from our ownership.
Although we remain confident that Massmart will produce a real growth in
earnings per share at the forefront of the retail sector, shareholder`s
attention is drawn to the past year`s exceptional second half growth arising
from the acquisitions; an additional two months sales contribution from
Makro Woodmead; a 53rd week; and some inflationary pressure in selected
product categories. Second half growth in the current year is therefore
likely to be relatively muted.
Sales growth for the 7 weeks to Sunday 18th August is 30% and 37% including
Furnex.
Dividend Policy and Declaration
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.
Notice is hereby given that a final dividend of 36,0 cents per share in
respect of the year ended 30th June 2002 has been declared payable to the
holders of ordinary shares recorded in the books of the company on 13th
September 2002. The last date to trade cum-dividend will therefore be 6th
September 2002 and Massmart shares will trade ex-dividend from 9th September
2002. Payment of the dividend will be made on 16th September 2002. Share
certificates may not be dematerialised or rematerialised between 9th
September 2002 and 13th September 2002, both days inclusive.
On behalf of the board
Mark J Lamberti - Executive Chairman
Guy Hayward - Chief Financial Officer
21 August 2002
Directorate: M.J Lamberti (Executive Chairman),C.S Seabrooke(Deputy
Chairman), D.G Barrett*, G.R.C Hayward, W Kirsh, S Leggatt*,I.N Matthews,
D.N.M Mokhobo, M Msimang, M.J Rubin, F Schukken**, C.S Seabrooke, (alternate
D.C Doijer**) . *United Kingdom, ** Netherlands.
Massmart Holdings Ltd. JSE Code - MSM.ISIN - ZAE000029534. Company
Registration Number - 1940/014066/06, 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 FOR THE YEAR ENDED 30 JUNE
(Audited) (Audited)
2002 2001
Rm Rm % Change
Sales 16709,2 11568,4 44,4
Massdiscounters 5285,2 4183,9 26,3
Makro 4459,8 3903,0 14,3
Masscash 4730,3 1784,6 165,1
Masstrade 2233,9 1696,9 31,7
Trading Profit Before Interest 538,8 277,0 94,5
As a % of Sales 3,2 2,4
Massdiscounters 209,4 114,3 83,2
Makro 109,8 70,7 55,3
Masscash 167,2 54,9 204,6
Masstrade 52,4 37,1 41,2
Goodwill Amortisation (39,7) (9,1)
Exceptional Items (note 1) 5,2 (30,6)
Net Interest (Paid) / Received (14,1) 9,4
Profit before Tax 490,2 246,7 98,7
Taxation (164,4) (63,0) 161,0
Profit after Tax 325,8 183,7 77,4
Associate Company (1,2) (0,1)
Minorities (2,9) (3,9)
Net Profit for the Year 321,7 179,7 79,0
Headline Earnings Adjustments (after
Tax and Minorities)
Exceptional Items (1,3) 22,6
Shield Bad Debt on VAT Settlement (11,1)
Goodwill Amortisation 39,2 9,1
Restraint of Trade Payments 7,9
Loss on Sale of Fixed Assets 5,2 4,6
Headline Earnings 361,6 216,0 67,4
Headline EPS (cents) 183,2 109,9 66,7
Diluted Headline EPS (cents) 181,9 109,8 65,7
Attributable EPS (cents) 163,0 91,4 78,3
Diluted Attributable EPS (cents) 161,8 91,3 77,2
Dividend (cents):
- Interim 25,0 15,0
- Final (declared and paid after the 36,0 21,0
financial year-end)
Ordinary Shares (000`s):
- In Issue 197 824 197 077
- Weighted-Average 197 339 196 529
- Diluted Weighted-Average 198 793 196 730
CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE
(Audited) (Audited)
2002 2001
Rm Rm % Change
Cash Inflow from Trading 637,7 335,6 90,0
Working Capital Movement 38,9 8,8
Cash Flow from Operations 676,6 344,4 96,5
Cash Outflow from Other Operating (103,9) (34,3) -
Activities
Dividends Paid (90,7) (48,0) 89,0
Investment In and Replacement of Fixed (110,1) (120,0) (8,3)
Assets
Other Investing Activities (86,5) (525,8) -
Net Financing Activities (233,9) 965,9 -
Opening Cash and Cash Equivalents 498,8 (83,4) -
Closing Cash and Cash Equivalents 550,3 498,8 10,3
STATEMENT OF CHANGES IN EQUITY
(Audited) (Audited)
2002 2001 %
Rm Rm Change
Opening Balance 1204,6 576,7 108,9
Exchange Differences 7,9 3,2
Dividends Paid (90,7) (29,5) 207,5
Net Profit for the Year 321,7 179,7 79,0
Shares Issued 5,5 474,5
Reduction of Deferred Tax Asset (38,3) -
Share Trust Income and Other 3,3 -
Closing Balance 1414,0 1204,6 17,4
ADDITIONAL INFORMATION
(Audited) (Audited)
2002 2001
Rm Rm % Change
Trading Profit Before Item Below: 645,0 360,0 79,2
- Depreciation (106,2) (83,0) 28,0
Trading Profit Before Interest 538,8 277,0 94,5
Capital Expenditure:
- Authorised and Committed 41,4 31,3
- Authorised not Committed 46,1 102,9
Contingent Liabilities (note 6) 258,0 225,6
Operating Lease Commitments 4693,3 4066,4
BALANCE SHEET AS AT 30 JUNE
(Audited) (Audited)
2002 2001
Rm Rm % Change
Assets
Property, Plant and Equipment 380,7 368,2 3,4
Goodwill 383,7 340,2 12,8
Investments and Loans 229,5 185,9 23,5
Deferred Tax 236,2 339,3 (30,4)
Inventories 1981,9 1555,7 27,4
Accounts receivable and Prepayments 1109,4 835,9 32,7
Cash and Bank Balances 623,5 518,2 20,3
Total 4944,9 4143,4 19,3
Equity and Liabilities
Shareholders` Equity 1414,0 1204,6 17,4
Minority Interests 12,7 11,1 14,4
Long Term Liabilities - Interest 236,6 6,9 -
Bearing
Other Long Term Liabilities and 34,2 58,8 -
Provisions
Deferred Tax 11,1 5,6 -
Accounts Payable and Accruals 3111,8 2839,2 9,6
Bank Overdraft and Short Term 124,5 17,2 -
Borrowings
Total 4944,9 4143,4 19,3
Net Asset Value per Share (cents) 714,8 611,2 17,0
NOTES
1. Exceptional items comprise net insurance proceeds received on assets
destroyed in the Makro Woodmead fire and CCW Maseru riots, the loss on
disposal of Sip `n Save, an impairment on the investment in Affinity Logic
and a bad debt relating to VAT settlement.
2. Included in trading profit is R3,4m in net realised foreign exchange
translation gains.
3. With the exception of depreciation on land and buildings applied for the
first time this year, 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. Due to Christmas trading, Massmart`s earnings are weighted towards the 6
months to December.
5. In light of the foreign currency situation in Zimbabwe, the results of
Makro Zimbabwe are not consolidated. Earnings are accounted for on a cash
received basis.
6. Included in contingent liabilities are obligations under FEC`s of R148,4m
(2001:R119,1m).
Date: 21/08/2002 07:00:01 AM Supplied by www.sharenet.co.za
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