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CEO AGM Statement
Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration Number: 1940/014066/06)
Share code: MSM
ISIN: ZAE000152617
(“Massmart")
CEO AGM Statement
Notwithstanding political uncertainty, both nationally and globally, South African
consumer spending has been relatively stable. The local economic environment has
been characterised by low, but positive, real wage growth, stable employment levels,
and rising inflation, albeit within the Reserve Bank’s targeted range.
In this environment, Massmart’s sales growth remained steady, although we have
experienced some softening of this growth in the last few weeks.
For the 20 weeks ended 11 November 2012, Massmart’s total sales growth was 16.2%
and comparable sales growth was 7.3%, with financial year-to-date sales inflation
running at 3.9%.
Total and comparable sales growths (and year-to-date inflation) in each Division
respectively are:
- 6.8%, 1.2% (0.4% inflation) in Massdiscounters;
- 25.6%, 8.3% (3.6% inflation) in Masswarehouse;
- 9.9% ,8.7% (2.8% inflation) in Massbuild; and
- 18.2%, 9.9% (6.6% inflation) in Masscash.
We have opened six stores since July 2012, a 3.3% increase in trading space. These
were two Makro stores, three Game stores and one Rhino store. We have also
converted four Game stores to Foodco, bringing the total to 24 Game Foodco stores.
Overall, sales growth in both Food and Home Improvement has been strong, while we
have seen some weakness in General Merchandise sales growth, particularly in the last
few weeks.
It appears that credit extension into the low- and middle-income markets may be near
saturation, although the middle- to upper-income markets still have some opportunity to
take on more credit.
The economic effect of labour unrest in other industry sectors has resulted in weaker
retail sales in certain of those affected regions, although not material to Group sales.
We are, of course, pleased that the legal challenges to the Walmart Transaction are
resolved and we are progressing well with the implementation of the associated
conditions. A total of 237 employees were re-instated in compliance with the
Competition Tribunal’s order and most of these employees have been in the Group’s
employ since May 2012. Arising from the Competition Appeal Court’s ruling on the
Supplier Development Fund, an additional non-cash charge of R140m will be raised in
the six months to December 2012.
The Integration process with Walmart is complete and whilst ongoing annual costs of
approximately R50m a year are expected from 2013 onwards, we will disclose these
costs separately for the last time to December 2012.
During the period we invested R37 million, including an R8 million contribution from the
Walmart Foundation, in socio-economic development projects. Recognising the impact
of under-nutrition we invested R26 million in nutrition projects, prioritising school nutrition
after consultation with the Department of Basic Education.
We initiated our 2012 Festive Season by donating three tons of Nutri-meal to Food Bank
South Africa. Other major projects during this period included donating food hampers to
families of SANDF members serving on external deployment and the provision of back-
to-school stationery hampers to children of police officers who have died in the line of
duty, both of these in partnership with our suppliers.
Shareholders and the investment community are reminded that in order to align with
Walmart’s financial year-end, Massmart will be changing its financial year-end to
December and will therefore be reporting a six-month financial period ending December
2012.
We have planned for Christmas trading to be at the levels of sales growth we have
experienced so far in this financial year. Rising food inflation should support food sales
growth, although the increased spending on food may likely put pressure on General
Merchandise sales. The Home Improvement market appears to be improving, albeit
slightly.
While the level of sales is pleasing and gross margins remain steady, the Group’s net
margins are unlikely to expand for the six months ending December 2012 or the year to
December 2013 as a consequence of cost pressures arising from our investments in
growth, high service-cost inflation and the investment in Food Retail.
Our next sales update will be released in early January 2013.
The information included in this statement has not been reviewed or reported on by
Massmart’s external auditors.
Johannesburg
21 November 2012
Sponsor: Deutsche Securities (SA) Proprietary Ltd
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