Wrap Text
Massmart - Reviewed consolidated results for the 52 weeks ended June 2006
Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1940/014066/06)
(Share code: MSM)
(ISIN: ZAE000029534)
("Massmart" or "the company")
Dedicated to Value
Reviewed consolidated results for the 52 weeks ended June 2006
Massmart is a managed portfolio of ten wholesale and retail chains, each focused
on high volume, low margin, low cost distribution of mainly branded consumer
goods for cash, through 228 outlets, and one buying association serving 478
independent retailers and wholesalers, in 11 countries in sub-Saharan Africa.
The Group is the third largest distributor of consumer goods in Africa, the
leading retailer of general merchandise, liquor and home improvement equipment
and supplies, and the leading wholesaler of basic foods.
* Sales increase 15% to R30 286 million
* Trading profit increases 37% to R1 341 million
* Headline earnings increase 28% to R837 million
* Headline earnings before acquisitions increase 20% to R780 million
* Headline EPS increases 28% to 419,3 cents
* Cash flow from operations increases 45% to R1 807 million
* Dividend increases 15% to 210 cents per share
Overview
We are delighted to report on a year of remarkable strategic, structural and
operational progress which culminated in record sales, profits, cash flow and
profitability. This is Massmart"s 35th consecutive half year of real sales
growth over 8% and our 16th consecutive half year of headline earnings per share
growth, which has compounded at 31,1% over the past five years.
The highlights of the year were:
* Record sales of R30,3 billion, 5,4% of which was from 21 foreign stores.
* Comparable store sales grew 5,5% and sales before acquisitions grew 8,3%.
* Consumer credit sales comprised 1,2% of Group sales.
* Trading profit grew 36,7% to R1,3 billion.
* Pre- and post-interest operating profit margins increased to 4,4% and 4,3%
respectively.
* Full year cash flow from operations rose 44,9% to exceed R1,8 billion.
* Rolling twelve-month return on equity increased from 41,8% to 43,5%.
* The store network was increased to 228 (922 855 square metres) with the
opening of 17 new stores and the acquisition of two stores with combined
estimated annual sales of R1,8 billion.
Strategic overview and progress
The management of Massmart remains devoted to the strategy which has ensured the
Group"s progress for 18 years: aggressive organic and acquisitive growth; value-
adding collaboration between focussed trading entities; and incentivisation for
alignment.
Medium-term performance is guided by our "Vision for Growth," a rolling three-
year internal financial target resulting from implementation of the above
strategies, given effect through specific plans and objectives for the growth of
sales, cash flows profits and profitability. Latterly, these activities have
been underpinned by the imperative to reduce operating expenses, leverage
management capabilities and facilitate shareholder understanding, by simplifying
the structures and processes of the Group.
It is clear that the importance of acquisition as the primary driver of
Massmart"s sales and profit growth is declining. Having achieved the requisite
critical mass, Massmart"s exciting three-year growth plans are not reliant on
acquisitions.
Increasingly, sales growth is being driven by expeditious new store development,
innovative merchandising and marketing, and the refinement of the positioning of
the retail proposition to customers. This trend is reflected in the fact that
46% of last year"s growth was organic, compared to 33% of Massmart"s growth
since 1988.
The growth of profits and operating margins is being driven by improving
operating efficiencies, increasing the participation of higher margin
merchandise, and emphasising the growth and development of higher margin
business models in the portfolio. Over the past three years the 25,5%
improvement in operating margins has resulted from each of these, the latter
reflected in a decline in the sales participation of the lower margin food and
liquor categories from 59,0% to 49,4% in favour of the higher margin general
merchandise and home improvement categories.
The "Vision for Growth 2008" announced last August called for a number of
strategic, structural and operational performance improvements, and the opening
of 35 new stores, which would generate estimated sales of
R3,2 billion by June 2008. Given our progress to date, it is clear that this
objective will be comfortably exceeded. During the past year 17 new stores were
opened and two acquired with combined estimated sales of R2 billion by 2008.
"Vision for Growth 2009" was formulated early in 2006. This three year strategy
contains plans for the unrelenting pursuit of competitive advantage and
operating efficiencies, and the opening of 58 stores which will generate
additional estimated sales of R6,5 billion by June 2009. Of these, 27 stores
will be opened in the current year generating estimated annualised sales of R2,0
billion.
Environment
The buoyant state of the South African consumer economy throughout the past
financial year is well reflected in the FNB/BER Consumer Confidence Index, which
registered its highest ever four consecutive quarters over the period, soaring
to its highest level in recorded history in the first quarter of 2006. This
confidence was manifest in an average annual growth of retail industry sales at
constant 2000 prices of 6,9% in the second half of 2005 and, ahead of
expectations at 9,6% in the first five months of 2006.
General business confidence mirrored that of consumers in all but the last
quarter, when a slowdown in the growth of vehicle sales and house prices was
accompanied by a correction to the stock market and a temporary deterioration of
the Rand.
Against this backdrop, all but the most incompetent retailers prospered. Most
retailers reported high rates of comparable store sales growth, many embarked on
aggressive new store programmes and those who could, extended credit to a
voracious market. The consolidation of South African retail continued apace and,
with national chains now the major participants in every retail category other
than liquor, competition for the most part was aggressive but rational.
We are hopeful that the good intentions and tentative pronouncements of the
President, the Minister of Safety and Security and the Commissioner of Police
will reverse our experience of the rising trend in crime, which seriously
affects this company and the day to day experience of millions of ordinary South
Africans, whose lives and the quality thereof are constantly threatened by it.
Performance
Acquisitions, comprising Federated Timbers, De La Rey and Servistar, Cell Shack
and two cash and carry outlets contributed sales of R2,1 billion. Comparable
sales growth was depressed by the impact of the stronger Rand on foreign sales.
General merchandise grew 3,2%, home improvement 158,4% and food and liquor 9,0%.
Massmart"s 1,2% estimated average inflation on selling prices was the weighted
average of 2,4% deflation in general merchandise, 3,5% inflation in home
improvement and 4,3% inflation in food and liquor.
Industry statistics and the reported sales of major competitors indicate that
Massmart gained market share, particularly in appliances, household electronics,
computers, home improvements and liquor, which each grew well ahead of the
Group"s sales growth.
Store pre-opening costs of R38,2 million were offset by positive foreign
exchange movements of R33,3 million to produce a 23,7% growth of trading profit
before acquisitions to R1,2 billion. Headline earnings per share before
acquisitions grew 20,4% to 391 cents per share.
Operational review - Continuing operations
As previously
Restated reported
June 2006 June 2005 June 2005
Rm (Reviewed) (Reviewed) % change (Audited)
Sales 29 805,7 25 381,5 17,4 25 632,8
Massdiscounters 7 994,9 7 396,6 8,1 7 396,6
Masswarehouse (note 7 661,1 7 178,8 6,7 7 066,4
15)
Massbuild (note 15) 3 892,8 1 509,5 157,9 1 509,5
Masscash 10 256,9 9 296,6 10,3 9 660,3
Trading profit
before interest and 1 333,5 992,3 34,4 1 021,2
tax
As a % of sales 4,5 3,9 4,0
Massdiscounters 546,4 466,4 17,2 488,2
Masswarehouse (note 288,3 173,6 66,1 176,7
15)
Massbuild (note 15) 290,4 144,4 101,1 144,6
Masscash 208,4 207,9 0,2 211,7
Trading profit 1 412,7 1 013,9 39,3 1 043,8
before tax*
As a % of sales 4,7 4,0 4,1
Massdiscounters 576,4 465,4 23,9 487,2
Masswarehouse (note 317,9 192,6 65,1 196,7
15)
Massbuild (note 15) 296,8 148,8 99,5 149,0
Masscash 221,6 207,1 7,0 210,9
The above results exclude Furnex from both years.
*Trading profit before tax is after interest income but before corporate
interest paid of R111,4 million (2005: R41,8 million) and asset impairments.
Massdiscounters - comprises retail general merchandise discounters Game (70
stores), which trades in South Africa, Namibia, Botswana, Zambia, Uganda,
Mozambique, Mauritius, and Nigeria, and Dion (10 stores), which trades in the
Gauteng province of South Africa. Divisional comparable store sales grew 2,1%
despite estimated deflation of 1,5%.
New store development was aggressive throughout the year. The Africa portfolio
was increased to nine with the opening of a new store in Nigeria, two large Game
outlets were opened in George and Vanderbijlpark and six new small format Game
stores were opened in Makado, Shelley Beach, Wonderpark, Ermelo, Worcester and
Ladysmith. In addition two stores were refurbished. Initially lacklustre
comparable store sales growth responded well to aggressive merchandise and
marketing initiatives in the second half to register a 7,3% growth in the final
quarter.
Excellent expense and working capital control, and a R17,6 million positive
foreign exchange movement, enabled the division to grow trading profits well
ahead of sales growth. In the core categories of appliances, home electronics
and computers, sales growths substantially exceeded those reported by major
competitors.
With a trading profit return on sales of 7,2%, the division has exceeded its
medium-term target of 7% moving closer to its international benchmark of 7,4%.
Masswarehouse - comprises the 14-store Makro warehouse club trading in food,
general merchandise and liquor in South Africa and Zimbabwe. Divisional
comparable store sales grew 4,1% with estimated inflation of 2,4%.
Innovative merchandising, new cardholder recruitment and the use of Makro"s
considerable Customer Relationship Management capability to pursue high quality
sales, was underpinned by excellent inventory and expense management. The result
was an excellent growth on the previous years" trading profit, which was
depressed by costs associated with the opening of two new stores, both of which
are performing ahead of expectations.
New accounting standards demanded the inclusion of the two Zimbabwean outlets
which were deconsolidated in 2001 following constraints on the repatriation of
dividends and management fees. This inclusion, which is not material to the
division"s result, applies hyperinflationary accounting standards.
The Masswarehouse trading profit return on sales of 4,1% exceeds its medium-
term target of 4%, and compares to its international benchmark of 5%.
Massbuild - comprises 65 outlets, trading in DIY, home improvement and builders
hardware, under the Builders Warehouse, Tile Warehouse, Federated Timbers,
Servistar and De La Rey brands in the major metropolitan areas of South Africa.
Divisional comparable store sales grew 12,9% with estimated inflation of 3,5%.
Following extensive analysis of the market and Massmart"s assets in home
improvement, it was decided to rationalise the five existing brands under one
major brand "Builders", trading through three distinctive specifically targeted
retail formats, with the positioning of each sub-brand captured in its buy-line:
* "Builders Warehouse - Home Improvement A-Z", comprising Builders Warehouse,
Tile Warehouse and De La Rey
* "Builders Express - Home and Garden Centre", comprising Servistar
and
* "Builders Trade Depot - Building Material Supplies", comprising Federated
Timbers
The strategic rationale for doing this, the precise market positioning of the
formats and the optimum national footprint, were clarified in a strategy that
will dictate the direction of the division for the next three to five years.
Massmart"s early impact on the acquired businesses and the opening of four new
Builders Warehouse outlets enabled the division to register the Group"s highest
levels of sales growth, comparable sales growth and profit growth, although the
latter was depressed by costs associated with enhanced managerial structures,
integration, systems and new stores.
Massbuild"s trading profit return on sales of 7,5% compares to its medium-term
target of 8% and its international benchmark of 10%.
Masscash - comprises 62 CBW and seven Jumbo wholesale cash and carry outlets
trading in South Africa, Lesotho, Namibia, and Botswana, and voluntary buying
organisation Shield (serving 478 independent food outlets). Divisional
comparable store sales grew by 8,8% with estimated inflation of 4,3%.
Increasing inflation in the second half, more coordinated purchasing and tight
control of expenses, enabled CBW to produce an excellent result with profit
growth over twice its double digit sales growth and profitability in excess of
the divisional return on sales target.
The further imposition of Massmart"s management structures and processes in
Jumbo and the re-launch of the flagship Crown Mines store in late February
contributed to an improved second half performance, although full year profits
were depressed by the investment in store development and professional
management structures and processes necessary for the repositioning of the
chain.
The focus in Shield remained on the preservation of assets and the
implementation of the processes and controls necessary to mitigate risk. While
depressing sales growth, this approach continued to result in an improvement in
the state of the short-term debtor"s book.
Given the potential conflict of the roll-out of smaller Game stores with the
customers of Furnex, the latter was disposed of with effect from 1 March 2006.
Masscash"s trading profit return on sales of 2,2% compares with its medium-term
target and its international benchmark of 3%.
Acquisitions
In October 2005, The Competition Commission recommended the prohibition of
Massmart"s acquisition of 84,1% of Moresport for R403,8 million, first announced
on 26 April 2005. In April 2006 The Competition Tribunal upheld this decision.
The parties and their advisors are of the view that the Commission and the
Tribunal erred in their analysis and decisions, failing to show how the merged
entity could possibly undermine competition or impinge negatively on any
stakeholder, none of whom were opposed to the transaction.
Massmart wished to proceed with the appeal against the Tribunal"s decision but
it was possible that a ruling would only be handed down in September 2006 or
later, 16 months or more after the transaction was entered into. This presented
the Sellers (Vestacor, Nedbank and Moresport management) with a diminution of
relative value and with challenges relating to the management and growth of
Moresport within the constraints of a sale agreement. The Seller"s position
became untenable and they decided not to proceed with an appeal. The parties
therefore agreed to terminate all agreements between them with effect from May
2006.
Sustainability
Board leadership
During May 2006 the Board announced that Grant Pattison would be appointed Chief
Executive Officer Designate with effect from 1 June 2006 and would succeed Mark
Lamberti as Chief Executive Officer when the latter"s contract expired on 30
June 2007. The Board also announced that on 1 July 2007, Mark Lamberti would be
appointed non-executive Chairman of the Board and Christopher Seabrooke,
currently independent non-executive Chairman, would be appointed non-executive
Deputy Chairman, retaining his position as lead independent non-executive
director.
These decisions were a consequence of a succession process which commenced some
years ago and we are pleased to have devised an innovative, inclusive approach,
which enabled all key decision makers to reach an informed, confident, unanimous
conclusion in a realm where few worthy precedents exist.
Empowerment Transaction
On 14 July 2006, shareholders approved a R1 billion, company funded transaction
whereby shares equivalent to approximately 10% of Massmart"s issued share
capital pre-dilution will be issued to two trusts representing approximately 14
500 members of Massmart"s permanent general staff and previously disadvantaged
managers in South Africa. 83% of all beneficiaries are previously disadvantaged
individuals.
The transaction which extends dividend and voting rights to general staff, and
voting rights to previously disadvantaged managers, will cost the company R235
million over six years representing a 2% dilution to shareholders. During the
current year the transaction will reduce earnings by 18,6 cents per share.
This transaction, the most significant in Massmart"s history, was motivated by
the Board"s firm belief that Massmart has a responsibility to contribute towards
the redress of the economic divide. Together with our commitment to create
sustainable employment, this transaction will assist thousands of previously
disadvantaged South Africans to live a better life, as their participation as
equity owners enables them to accumulate wealth aligned with the progress and
success of the company.
HIV/AIDS
In addition to our considerable investment in the prevention of HIV/AIDS through
education and training, we have attempted to mitigate the impact of the AIDS
pandemic by providing free medical attention and Anti-retroviral medication to
members of our staff who are HIV-positive.
Massmart"s people
Throughout the past year, in every division, store, department and office, the
people of Massmart dedicated themselves to the simple but challenging objective
of improving the experience of the tens of millions of customers who shop in our
stores. The way we choose to do this is not easy. Our founding promise of low
price can only be sustained by very high volumes, increased productivity and
lower costs, and very often our hardest and most important work takes place when
non-retailers are at leisure.
We never take this for granted.
The contribution of each of our 22 000 Massmart colleagues is manifest not only
in these outstanding results but also in the considerable progress we made
towards enhancing the Group"s portfolio for sustained performance in the future
and we thank every one of you.
Prospects
In justifying its 0,5% August 2006 increase of the repo rate, the Reserve Bank
cited concerns about food and fuel inflation, and the strength of consumer
spending on credit. While rate increases and food and fuel inflation can be
expected to subdue discretionary spending over the coming months, it is very
difficult to predict the likely impact of excessive consumer credit on retail
sales.
Firstly, known private sector credit extension statistics represent the average,
and secondly there is a dearth of data on consumer"s exposure to retailers"
credit. The feared scenario is obviously that higher rates and commodity prices
will result in broad-based default and a precipitous fall in consumer
expenditure. There is no hard evidence to support this outlook and indeed recent
trends, including the excellent trading for the first eight weeks of the current
financial year suggests a promising Christmas season, which will include the
sales of 12 new stores planned to open before then.
Our current view is therefore that Massmart will enjoy a good first half and
will comfortably exceed its budgeted earnings per share for the year to June
2007 with earnings growth well ahead of sales growth.
For the eight weeks to 20 August 2006, total sales grew 12,9% and comparable
store sales grew 10,9%, with profit growth significantly ahead of sales growth
and last year.
Distribution and dividend policy
Massmart"s dividend policy is to declare and pay an interim and final dividend
representing a two times dividend cover unless circumstances dictate otherwise.
It should be noted that the accounting changes processed retrospectively to the
2005 financial figures reduced the reported dividend growth. In the absence of
any further material accounting changes, the future dividend growth should more
closely approximate growth of headline earnings.
Notice is hereby given that a final dividend of 80 cents per share in respect of
the period ended 25 June 2006 has been declared payable to the holders of
ordinary shares recorded in the books of the company on Friday, 15 September
2006. The last day to trade cum dividend will therefore be Friday, 8 September
2006 and Massmart shares will trade ex dividend from Monday, 11 September 2006.
Payment of the dividend will be made on Monday, 18 September 2006. Share
certificates may not be dematerialised or rematerialised between Monday, 11
September 2006 and Friday, 15 September 2006, both days inclusive.
On behalf of the Board
Mark J Lamberti Guy Hayward
Deputy Chairman and Chief Executive Officer Chief Financial Officer
23 August 2006
Balance sheet
Restated As
previously
reported
June 2006 June 2005 June 2005
Rm (Reviewed) (Reviewed) % (Audited)
change
Assets
Non-current assets 3 034,1 2 769,6 2 741,7
Property, plant and
equipment 944,3 802,6 17,7 918,9
Goodwill and other
intangible assets 1 298,7 1 261,4 1 149,9
Investments and loans 381,6 275,1 278,7
Deferred tax 409,5 430,5 394,2
Current assets 6 584,3 5 363,6 5 347,5
Inventories 3 221,0 2 677,0 20,3 2 658,0
Accounts receivable and
prepayments 1 921,7 1 844,7 1 848,4
Cash and bank balances 1 441,6 841,9 841,1
Total 9 618,4 8 133,2 8 089,2
Equity and liabilities
Total equity 1 952,4 1 559,0 1 652,7
Equity attributable to
equity holders of the
parent 1 901,8 1 521,3 25,0 1 616,2
Minority interest 50,6 37,7 36,5
Non-current liabilities 1 133,8 744,5 741,7
Non-current liabilities -
interest-bearing 519,7 140,0 139,8
Other non-current
liabilities and provisions 516,9 504,4 504,4
Deferred tax 97,2 100,1 97,5
Current liabilities 6 532,2 5 829,7 5 694,8
Accounts payable and
accruals 6 291,9 5 295,9 18,8 5 166,0
Bank overdraft and short-
term borrowings 240,3 533,8 528,8
Total 9 618,4 8 133,2 8 089,2
Income statement
As previously
Restated reported
Year ended Year ended Year ended
June 2006 June 2005 June 2005
Rm (Reviewed) (Reviewed) % change (Audited)
Continuing operations
Revenue 30 129,1 25 517,1 18,1 25 764,8
Sales 29 805,7 25 381,5 17,4 25 632,8
Cost of sales (note (24 650,0) (21 202,0) 16,3 (21 988,7)
7)
Gross profit 5 155,7 4 179,5 23,4 3 644,1
Depreciation and
amortisation (202,9) (157,5) 28,8 (155,9)
Impairment of assets
(note 12) (5,4) - -
Employment costs (2 079,0) (1 656,7) 25,5 (1 634,0)
Occupancy costs (740,5) (644,0) 15,0 (643,3)
Net operating costs (799,8) (729,0) 9,7 (189,7)
Operating profit 1 328,1 992,3 33,8 1 021,2
Finance costs (95,9) (69,1) 38,8 (67,7)
Finance income 63,7 48,9 30,3 48,5
Net interest paid (32,2) (20,2) 59,4 (19,2)
Profit before 1 295,9 972,1 33,3 1 002,0
taxation
Taxation (note 13) (444,6) (307,5) 44,6 (310,9)
Profit for the year
from continuing 851,3 664,6 28,1 691,1
operations
Discontinued
operations:
Net profit/(loss) for
the year (note 16) 3,7 (82,1) (82,1)
Loss on disposal (1,8) - -
(note 16)
Profit for the year 853,2 582,5 46,5 609,0
Attributable to:
Equity holders of the
parent 828,5 580,1 42,8 606,8
Minority interest 24,7 2,4 2,2
853,2 582,5 609,0
Basic EPS (cents) 415,3 291,5 42,5 304,9
Basic EPS from
continuing operations 414,3 332,8 346,2
(cents)
Basic EPS from
discontinued
operations (cents) 1,0 (41,3) (41,3)
Diluted basic EPS 404,4 281,5 43,7 294,6
(cents)
Diluted basic EPS
from continuing
operations (cents) 403,4 321,3 334,4
Diluted basic EPS
from discontinued
operations (cents) 1,0 (39,8) (39,8)
Dividend (cents):
- Interim 130,0 111,0 17,1 111,0
- Final 80,0 72,0 11,1 72,0
- Total 210,0 183,0 14,8 183,0
Reconciliation of net
profit for the year
to headline earnings
Net profit
attributable to
equity holders of the 828,5 580,1 606,8
parent
Impairment of assets
(note 12) 3,8 72,4 72,4
Write-off costs
incurred on 3,3 - -
acquisition (note 14)
Loss on disposal of
discontinued
operation (note 16) 1,8 - -
Profit on disposal of
fixed assets (0,8) (0,6) (0,6)
Headline earnings 836,6 651,9 28,3 678,6
Headline EPS (cents) 419,3 327,6 28,0 341,0
Diluted headline EPS
(cents) 408,3 316,4 29,0 329,3
IFRS and other adjustments
Year ended June June 2005 June 2004
2005
(Reviewed) (Reviewed) (Reviewed)
Equity attributable to
Net profit for the equity holders of the
Rm year parent
As previously reported 606,8 1 616,2 1 429,8
(26,7) (94,9) (80,1)
IFRS 2 Share-based (17,0) - -
Payment (note 2)
IAS 21 The Effects of
Changes in Foreign 1,4 (9,5) (10,5)
Exchange Rates (note 3)
IAS 27 Consolidated and
Separate Financial 1,4 3,8 7,1
Statements (note 4)
Extended warranty (note (12,5) (72,3) (59,8)
5)
Valuation of financial
assets - (16,9) (16,9)
(note 6)
580,1 1 521,3 1 349,7
Cash flow statement
As previously
Restated reported
Year ended Year ended Year ended
June 2006 June 2005 June 2005
Rm (Reviewed) (Reviewed) (Audited)
Cash inflow from trading 1 546,8 1 136,5 1 148,7
Working capital movement 260,4 110,5 97,9
Cash flow from 1 807,2 1 247,0 1 246,6
operations
Taxation paid (487,4) (337,5) (334,4)
Net interest paid (32,7) (22,0) (21,0)
Investment income 34,6 35,2 35,2
Dividends paid and share
premium distribution (402,8) (416,4) (416,4)
Cash inflow from
operating activities 918,9 506,3 510,0
Net replacement of fixed (170,2) (251,0) (250,7)
assets
Investment in fixed (184,1) (157,6) (156,4)
assets
Businesses acquired - (685,0) (685,0)
Disposal of subsidiary 25,7 - -
Other investing (130,9) (16,9) (16,9)
activities
Cash outflow from
investing activities (459,5) (1 110,5) (1 109,0)
Cash inflow/(outflow)
from financing 506,0 (22,6) (22,6)
activities
Net increase/(decrease)
in cash and cash 965,4 (626,8) (621,6)
equivalents
Foreign exchange losses
taken to statement of 6,1 5,4 5,4
changes in equity
Opening cash and cash
equivalents 404,8 1 026,2 1 025,2
Closing cash and cash
equivalents 1 376,3 404,8 409,0
Statement of changes in equity
Year ended June 2006 (Reviewed) Equity
attribu
General t-able
to
non- equity
Ordinary distr- holders
ibut
share Share able Retaine of the Minority
Rm capital premium reserve d parent interest Total
profit
Opening 2,0 209,4 122,1 1 187,8 1 37,7 1 559,0
balance 521,3
Exchange
difference
s and
hyperinfla
tion - - 9,7 - 9,7 - 9,7
movements
Dividends
paid and
share
premium
distributi - - - - (402,8)
on (402,8) (402,8)
Profit for
the year - - - 828,5 828,5 24,7 853,2
Changes in
minority
interests
and
distributi
on to - - - - - (11,8) (11,8)
minorities
Release of
deferred
taxation
on - - (5,8) 5,8 - - -
trademarks
Reduction
of
deferred - - - (33,7) (33,7) - (33,7)
tax asset
Shares - 71,5 - - 71,5 - 71,5
issued
Net
movement - (18,3) - - (18,3) - (18,3)
of
treasury
shares
Share
trust loss - - 17,4 (91,8) (74,4) - (74,4)
Total 2,0 262,6 143,4 1 1 50,6 1 952,4
493,8 901,8
Year ended June 2005 (Reviewed)
Opening
balance as
previously 2,0 356,4 101,5 969,9 1 429,8 31,7 1 461,5
reported
Prior period
adjustment - - 10,2 (90,3) (80,1) 1,7 (78,4)
Opening
balance 2,0 356,4 111,7 879,6 1 349,7 33,4 1 383,1
restated
Exchange
differences
and
hyperinflatio
n
movements - - (0,6) - (0,6) - (0,6)
Dividends
paid and
share premium
distribution - (195,3) - (416,4) - (416,4)
(221,1)
Profit for
the year - - - 580,1 580,1 2,4 582,5
Changes in
minority
interests and
distribution
to minorities - - - - - 1,9 1,9
Release of
deferred
taxation on
trademarks - - (6,0) 6,0 - - -
Shares issued - 18,8 - - 18,8 - 18,8
Net movement
of treasury - 29,5 - - 29,5 - 29,5
shares
Share trust
loss - - 17,0 (56,8) (39,8) - (39,8)
Total 2,0 209,4 122,1 1 1 521,3 37,7 1 559,0
187,8
Additional information
As
previously
Restated reported
Year ended Year ended Year ended
June 2006 June 2005 June 2005
Rm (Reviewed) (Reviewed) (Audited)
Net asset value per share (cents) 946,0 762,0 809,6
Ordinary shares (000"s):
- In issue 201 041 199 641 199 641
- Weighted-average 199 507 199 010 199 010
- Diluted weighted-average 204 886 206 060 206 060
Capital expenditure
- Authorised and committed 183,0 114,6 114,6
- Authorised not committed 143,0 230,5 230,5
Acquisition commitment - 480,0 480,0
Contingent liabilities - 1,5 1,5
Operating lease commitments
(2006 - 2022) 5 977,2 4 862,1 4 862,1
US dollar exchange rates - year end 7,48 6,73 6,73
- average 6,42 6,21 6,21
Notes
1. The Group adopted International Financial Reporting Standards (IFRS)
effective for the reporting period ended 30 June 2006. Comparative results have
been restated.
2. In accordance with IFRS 2 Share-based Payment, the Group has recognised an
expense in the income statement for share options granted to employees, with a
corresponding credit to equity, representing the fair value of outstanding
employee share options. The fair value at grant date is charged to profit or
loss over the relevant vesting periods, adjusted to reflect actual and expected
vesting levels. Fair value is determined using the Binomial model. The IFRS 1
First-time Adoption of International Financial Reporting Standards exemption was
elected, resulting in the inclusion of equity instruments granted after 7
November 2002 that vested after 1 January 2005 in the valuation. The current
year IFRS 2 charge is R17,4 million (2005: R17,0 million), with no tax relief.
3. International Accounting Standard (IAS) 21 The Effects of Changes in Foreign
Exchange Rates introduced the concept of "functional currency". This change
primarily affected the accounting for the African operations of Massdiscounters,
where there was a reclassification of certain foreign exchange gains and losses
from the income statement to the foreign currency translation reserve (FCTR) in
the balance sheet. The IFRS 1 exemption was elected, which had the effect of
eliminating the FCTR on the date of transition to IFRS (being 1 July 2004).
4. IAS 27 Consolidated and Separate Financial Statements removed the exclusion
of a subsidiary from consolidation when there are severe long-term restrictions
that impair a subsidiary"s ability to transfer funds to the parent. As a result,
Makro Zimbabwe has been consolidated retrospectively. Makro Zimbabwe operates in
a hyperinflationary environment, and thus the principles of IAS 29 Financial
Reporting in Hyperinflationary Economies have been applied. The financial impact
on net profit attributable to equity holders of the parent for June 2006 is a
loss of R1,1 million (R1,4 million profit in 2005).
5. The Group amended its accounting policy for the treatment of extended
warranty protection provided on the sale of goods and products. This was done
with guidance from Financial Accounting Standards Board (FASB) technical
bulletin FTB 90-1 Accounting for Separately Priced Extended Warranty and Product
Maintenance Contracts which clarified that revenue from separately priced
extended warranty contracts should be deferred and recognised in income on a
straight-line basis over the contract period.
6. In terms of IAS 39 Financial Instruments: Recognition and Measurement,
certain financial assets have been present valued using the effective interest
rate method.
7. The results have been restated following Circular 9/2006 Transactions giving
rise to Adjustments to Revenue/Purchases, issued by SAICA in May 2006. This
circular provided clarity on the accounting treatment for cash discounts,
settlement discounts, rebates and extended payment terms which are in line with
the accounting treatment required by IAS 18 Revenue and IAS 2 Inventories. The
effect on the Group has been a reallocation increasing other operating costs and
reducing cost of sales by R586,0 million (2005: R523,1 million).
8. The results have been restated for the exclusion of Shield"s indirect sales.
The effect on the Group has been a decrease in sales and cost of sales of R371,7
million (2005: R363,7 million).
9. These financial statements have been prepared in accordance with IAS 34
Interim Financial Reporting, using accounting policies that are in line with
IFRS and consistently applied to prior periods, except for the change in
definition for segmental reporting for which the comparatives have been
restated. Refer to note 15.
10. The net realised and unrealised foreign exchange translation gains added to
trading profit amounted to R33,3 million (2005: R25,4 million).
11. The operating lease smoothing adjustment expensed in the period was R35,7
million after tax (2005: R53,7 million).
12. The impairment of assets in the current year relates to the write-off of IT
software at CBW, and in the prior year relates to the goodwill included in
discontinued operations.
13. The Group tax rate of 34,3% (2005: 31,6%) is high due to STC of 3,2% (2005:
2,2%) and the full impairment of the Game Mauritius deferred tax asset of R20,0
million.
14. Capital costs written off due to The Competition Tribunal prohibiting the
acquisition of Moresport.
15. For segmental reporting purposes, Massbuild, comprising Builders Warehouse,
Federated Timbers, De La Rey and Servistar, is now excluded from the
Masswarehouse division and disclosed separately. The Masswarehouse results on
the previous basis of reporting would have been:
Restated
June June
2006 2005
Trading Trading Trading Trading
Sales PBIT PBT Sales PBIT PBT
Masswarehouse 11 553,9 578,5 614,7 8 688,3 318,0 341,4
As previously
reported June
2005
Trading Trading
Sales PBIT PBT
Masswarehouse 8 575,9 321,3 345,7
16. Furnex (a division of Masscash) was disposed of effective 1 March 2006.
The sale was accounted for in accordance with IFRS 5 Non-Current Assets Held for
Sale and Discontinued Operations. Results from the discontinued operation were
as follows:
Discontinued Trading Goodwill
operations Sales profit impairment PBT Taxation PAT
June 2006
(8 months) 480,0 7,0 - 6,5 (2,8) 3,7
June 2005
(12 months) 928,6 (11,8) (72,4) (86,0) 3,9 (82,1)
Furnex was not affected by any restatements, and as such, only one set of
results have been presented for 2005.
17. During the year, the Group acquired two additional mid-term loans, amounting
to R500 million, to fund the acquisition of additional assets of the business at
an effective average interest rate of 8,81%. The effect of the above on both
earnings per share and headline earnings per share is a charge of 20,62 cents
per share.
18. Due to Christmas trading, Massmart"s earnings are weighted towards the six
months to December.
19. These results have been reviewed by independent external auditors Deloitte &
Touche and their unqualified review opinion is available for inspection at the
registered office.
Directorate: CS Seabrooke (Chairman), MJ Lamberti* (Deputy Chairman and Chief
Executive Officer), MD Brand, ZL Combi, GRC Hayward*,
JC Hodkinson**, P Langeni, IN Matthews, P Maw, DNM Mokhobo, S Nothnagel*, GM
Pattison*, MJ Rubin * Executive ** United Kingdom
Registered office: Massmart House, 16 Peltier Drive, Sunninghill Extension 6,
2191, Company secretary: A Cimring, Registered auditors: Deloitte & Touche
For more information: www.massmart.co.za
24 August 2006
Johannesburg
Sponsor to Massmart:
Deutsche Securities (SA) (Proprietary) Limited
Date: 24/08/2006 07:02:21 AM Supplied by www.sharenet.co.za
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