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Massmart - Results of the AGM and statement by the Chief Executive Officer
Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration Number 1940/014066/06)
Share Code: MSM & ISIN: ZAE000029534
("Massmart" or "the Company")
RESULTS OF THE ANNUAL GENERAL MEETING AND STATEMENT BY THE CHIEF EXECUTIVE
OFFICER
Approval of resolutions
Shareholders are advised that at the Massmart Annual General Meeting held on
Wednesday 23 November 2005, the requisite majority of shareholders passed all
the ordinary resolutions and the two special resolutions, as set out in the
notice of meeting dated 13 October 2005. The special resolutions will be lodged
with CIPRO for registration.
Chief Executive Officer"s statement
The text of the statement made by the Chief Executive Officer, Mark Lamberti, at
the Annual General Meeting follows:
"Environment
Thanks to the socio political transformation of our society and the exceptional
macro economic management of the economy, South African retail has now basked in
a glorious summer of consumer spending for over four years.
Year on year retail sales growth at constant 2000 prices as reported by Stats
South Africa peaked in October 2004 at 12.2%. Growth averaged a robust 6.7% in
the subsequent ten months to August 2005 albeit lower than the 9.1% recorded in
the previous comparable period. Low interest rates have enhanced consumer"s
propensity to incur debt and credit retailers have generally grown at a higher
rate than their cash counterparts.
Overview
Within this trading environment I am pleased to report to shareholders on
Massmart"s progress since our 2004 Annual General Meeting.
Your Group continues to sharpen its strategic focus and entrench its low expense
ethos, by rationalising brands and management structures within the divisions,
each of which occupies a leadership position in its segment and is achieving a
sound growth of high quality, mainly cash sales in merchandise categories, which
for the most part are still experiencing deflation. Group gross margins are
benefiting from improved procurement, faster growth in our higher margin
businesses and the avoidance of low margin, high risk business. Expenses and
working capital are well controlled. New stores, not yet open for twelve
months, are performing strongly. The acquisitions are performing ahead of
expectations and integration plans are being implemented effectively ahead of
schedule. This entire endeavour is being led by a competent, motivated
executive team who are dedicated to the achievement of "Vision 2008", our three
year plan to sustain the growth of profits and shareholder value.
All of the above is well described in the 2005 Annual Report, which documents
new standards of performance, disclosure, governance and includes our progress
on sustainability, a business philosophy to which we strongly subscribe.
Divisional Report
The following are the major developments in each of the divisions during the
first half of the financial year:
Massdiscounters - Our discount general merchandise division has successfully
launched its small town format in Machado and Shelley Beach, confirming the
sales and profit potential of this new growth vector over the next three years.
Africa beyond South Africa remains an important market and a new store will be
opened in Nigeria (our 11th African country) in the next few weeks. The Dion
branch in the Kollonade Centre has been refurbished and re-merchandised to test
the viability of a more upscale offering from this chain. Comparable store
growth in the division has been depressed by the weakness of foreign currencies
exacerbated by the effect of applying IFRS to the translation of foreign stores,
the discontinuation of certain high volume low margin products and the
anticipated deflection of sales from old outlets in close proximity to new
stores, which have enhanced our total market share and profitability. During
the first half of the current financial year 4 stores will be opened, increasing
the Division"s trading space by 5.6%. Despite Massdiscounters average deflation
of 3.3%, sound margin, expense and working capital management have ensured
divisional profit growth well in excess of sales growth.
Massbuild - Our home improvement division continues to produce superior growth
as existing and new Builders Warehouse stores enjoy ready acceptance by
consumers, and the recent acquisitions (Federated Timbers, Servistar and
Delarey) perform ahead of expectations. Plans for the rationalisation of brands
and formats are being clarified and the new store growth potential of this
division will be communicated to shareholders in the first quarter of 2006.
During the first half of the current financial year 2 stores will be opened,
increasing the Division"s trading space by 7.5%. With estimated inflation of 3%
across all product categories, Massbuild is producing the highest margins in the
Group as profits grow well ahead of sales growth.
Masswarehouse - The 12 store Makro warehouse chain continues to exert its
leadership in productivity of space and people. With no new stores being opened
in the current year (two were opened last year), the Division"s management is
focussed on the generation of high quality sales and improved expense and
working capital. With estimated inflation of 0.6% across all product categories
Masswarehouse"s profitability to date is significantly ahead of last year.
Masscash - Profit growth in our cash and carry food wholesale business CBW, has
been enhanced by the opening of 2 new stores, good volume growth from existing
stores and average cost price inflation moving from -2% in the comparable period
last year to 1% this year. A new management team and the refurbishment of the
flagship store have repositioned the Jumbo chain for enhanced profitability in
its competitive niche. Sales of the Shield and Furnex wholesale buying
associations have regressed, but profits have increased off a low base as high
risk low margin business was curtailed. To date Masscash has improved profits
well ahead of sales growth
Acquisition of Moresport by Massmart
In the week commencing the 30 January 2006, the Competition Tribunal will hear
the arguments of Massmart and those of the Competition Commission, which
recommended that the purchase of Moresport by Massmart be prohibited. The
Tribunal"s ruling is expected during the course of February 2006.
Conclusion
We believe that the growth of retail sales (more so credit sales) will decline
gradually over the coming year particularly if the South African Reserve Bank
raises interest rates.
With weighted deflation across the Group of 1.1%, sales for the 21 weeks to the
20th November grew 14.6%, sales before acquisitions grew 6.7% and comparable
store sales grew 4.2%.
These growth rates are depressed by our decision to curtail high volume, low
margin, high risk sales in Shield and Furnex. Excluding these companies, total
sales grew 19.1%, sales before acquisitions grew 10% and comparable store sales
grew 4.2%.
Within the current trading environment we are confident that consumers will
continue to respond favourably to Massmart"s low price offering which is founded
on a high volume, low expense, mainly cash business model. We anticipate half
and full year profit growth in excess of both sales growth and the profit growth
of last year."
The above information has not been reviewed or reported on by the Company"s
auditors.
Johannesburg
23 November 2005
Sponsor: Deutsche Securities (SA) (Proprietary) Limited
Date: 23/11/2005 12:33:11 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department