| Wed 23 Nov 2011, 9:40 | | MSM - Massmart Holdings Limited - CEO Statement at Massmart AGM |
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MSM
MSM
MSM - Massmart Holdings Limited - CEO Statement at Massmart AGM
Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
Company registration No. 1940/014066/06
JSE Code: MSM
ISIN: ZAE0000152617
("Massmart")
CEO Statement at Massmart AGM
The South African economic cycle has moved into an inflationary phase. This
would usually provoke higher interest rates but sensibly, the country`s poor
growth outlook and the weak and uncertain global economic conditions, are
keeping interest rates on hold at these historically low levels.
Whilst the South African consumer environment is dominated by headlines of
consumers` over-indebtedness, the reality is that household debt as a percentage
of disposable income has improved to 2006 levels. At the same time, national
inflation has been low for most of the past few years, and the employed have
enjoyed above-inflation salary increases, all of these factors resulting in
higher levels of disposable income.
It is perhaps therefore, not surprising that national retail sales data
indicates a reasonably positive environment, which has also been reflected in
recent sales updates from most listed retailers.
We have seen a relatively strong sales performance in the Massmart Group. At 20
November, being the first 21 weeks of the 2011 financial year, Massmart`s total
sales growth was 15.2% and comparable sales growth was 8.8%, with year-to-date
sales inflation running at 0.8%.
Total and comparable sales growth in each Division is:
* 12.8%, 5.6% (5.4% deflation) in Massdiscounters;
* 17.3%, 10.0% (1.9% inflation) in Makro;
* 13.7%, 9.0% (0.2% inflation) in Massbuild; and
* 15.9%, 9.9% (4.9% inflation) in Masscash.
We have opened a net eight new stores in this financial year, representing a net
4.4% increase in space. Included in these numbers are three new Makro stores
(but two on a net basis), and our first Builders Warehouse store outside South
Africa, in Gaborone, Botswana. We have also opened three Cambridge stores and,
as of today, have 10 Game Foodco stores.
With regard to legally concluding the Walmart transaction, the processes
continue in both South Africa and Namibia, where we have completed legal
implementation of the transaction but the respective Competition authorities`
processes remain in various stages of appeal. Our legal representatives are
dealing with these appeals, whilst management continues to engage, or attempts
to engage, with opposing parties to understand better any remaining concerns.
We remain vigilant in the implementation of, or adherence to, the South African
Competition Tribunal`s four conditions.
The Walmart Integration process has gained momentum and we are developing
greater clarity on both the costs and benefits of integration. We continue to
forecast that for the year to June 2012, integration benefits will approximate
costs, but are becoming more confident that we may do better than this. Whilst
the costs will be incurred evenly through the 2012 financial year, the likely
benefits will be skewed heavily towards the second half of the same period.
This focus on integration has not distracted us from continuing to work closely
on our Corporate Accountability agenda. Over the next few months, we will
support our troops by distributing 3 000 Christmas food hampers to families of
SANDF members serving abroad under UN mandate; and will support our Police
Service by distributing 3 500 back-to-school stationery packs to children of
SAPS members killed in the line of duty.
Also on our agenda is: collaborating with the SABS to make quality standards
more accessible to small local manufacturers; funding and conducting a public
survey covering attitudes to climate change for the Department of Environmental
Affairs; leveraging Massmart`s print advertising to reinforce public awareness
of climate change; partnering with the National Youth Development agency to
establish unemployed youths in store-based convenience food franchises; and
installing container kitchens in first quintile primary schools.
Our participation in social dialogue from the early stages of the Walmart
transaction, which included approximately 15 meetings with government officials
and organised labour, has increased our awareness of some of the challenges in
improving the competitiveness of local South African manufacturers and
producers, and we intend to respond through our R100m Supplier Development
programme. One of our first investments, for example, will be to give
preferential listings to Black-owned wine brands in Makro, supported by funded
product development and marketing. We should see the first of these wines
available early in the New Year.
One specific aspect of the Walmart transaction that has been very satisfying is
the financial benefit experienced by the more than 9 000 participants in the
Thuthukani and Black Scarce Skills employee share schemes approved by Massmart
shareholders in 2006. In June 2011, as part of the main Walmart transaction,
these participants received total pre-tax proceeds of R498 million and, as a
result of the early vesting authorised by shareholders, have elected to receive
total pre-tax proceeds of a further R237 million.
Looking forward, we expect the Group`s sales performance to continue to be
strong, supported by our present investments in price, growth, capacity and
integration. These investments are however, expected to put downward pressure
on operating profit, before foreign exchange translation, in the short-term,
particularly for the half-year to December 2011.
Massmart`s next sales update will be issued in the first weeks of January 2012
and our interim financial results will be released on 22 February 2012.
Johannesburg
23 November 2011
Sponsor
Deutsche Securities (SA) (Proprietary) Limited
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