| Mon 20 Aug 2001, 0:00 | | Massmart - Results |
|
Massmart Dedicated to Value Retailing
Audited Results for the year ended 30 June 2001
Massmart is a management group, invested in a portfolio of focused but
collaborative retail and wholesale distribution formulae, each reliant on
operational excellence as the foundation of price leadership, in the
distribution of mainly branded consumer goods.
Turnover: R11 261m Up 9% Trading Profit: R257m Up 27% Proforma Headline
Earnings: R212m Up 66% Proforma Headline EPS: 108c Up 32% Cash Flow from
Operations: R307m Up 375%
Overview
For the fifth consecutive year, we are pleased to report strongly improved
profits and returns, well ahead of expectations and the previous year.
This performance is the result of steady progress with the implementation of
strategies formulated in the mid nineties, one imperative of which is the
pursuit of quality sales, which render a higher operating margin and cash
flow.
The most noteworthy features of the year were:
Sales growth of 8.7%.
An improvement in pre- and post-interest operating profit to sales,
particularly in the second half.
Strong cash generation.
Record trading profits from all divisions and improved trading margins in
all divisions other than CCW, which opened three new stores late in the
year.
An impressive growth of profit and profitability by Makro.
The reinstatement of the trading disciplines of Massdiscounters and an
improved second half, following the replacement of the managing director in
October 2000.
An unsatisfactory performance by Shield. A new managing director was
appointed in March 2001.
The destruction by fire of the flagship Makro Woodmead store on 6 May 2001.
The strengthening of the structure, quality and depth of the executive
leadership of Massmart.
The acquisition of Jumbo Cash & Carry and 22 Browns and Weirs stores from
Rebhold for R490m, now subject only to approval by the Competition
Commission. These financial results do not include the results of this
acquisition.
Strategy and Portfolio
Massmart's 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 opposing forces is ensured by
structures, processes and wealth creation mechanisms which fuel
entrepreneurship at the expense of bureaucracy.
The success of this strategy will be demonstrated over time by subsidiaries
that achieve higher returns than their stand-alone competitors.
The portfolio comprises:
Makro - A chain of 14 large warehouse club outlets situated in South Africa
and Zimbabwe, trading in food, liquor and general merchandise at wholesale
prices.
Massdiscounters - A chain of 66 discount stores, offering a wide range of
general merchandise under the Dion and Game banners, to value seeking
consumers in South Africa, Namibia, Botswana and Zambia.
Shield - A voluntary buying association assisting 244 independent
wholesalers and 273 independent retailers to procure food more efficiently
in South Africa, Namibia, Botswana, Lesotho and Swaziland.
CCW - A peri-urban and rural chain of 22 cash and carry warehouses, located
in South Africa, Lesotho and Namibia, distributing basic food, groceries and
liquor to lower income consumers.
Environment
Consumer confidence, generally across all economic and demographic segments,
was negative throughout the financial year, with the exception of the first
quarter of 2001, when it was neutral. Estimated real retail sales, as
reported by the Central Statistical Services, grew 3.4% in the first half
and 2.9% in the second half. A more positive growth trend has emerged since
May 2001.
South African retailers' share of consumer spending has declined, consistent
with world trends, while ill-conceived retail property developments
exacerbate the surplus of retail space. Concurrently, the profile of
discretionary spending continues to evolve, demanding a considered but rapid
response by all participants in the supply chain for consumer goods. Many
who failed to identify the actual product and service needs of consumers,
have resorted to aggressive price competition, forsaking their strategic
positioning, and in some cases their viability, in favour of short-term,
unprofitable sales growth.
The laudable efforts of the South African Revenue Service to outlaw duty and
VAT evasion have yet to penetrate all sectors of retail and wholesale
distribution. We look forward to the time when the distribution of non-
durable, fast moving consumer goods is regularised in respect of source,
duties and tax. Besides the obvious loss of revenue to the fiscus, illegal
trading undermines the profitability of legitimate industry participants and
acts as a deterrent to fixed investment and job creation.
These factors contributed to a challenging trading environment over the past
year.
Operating Results
Massmart's sales growth, 2.6% of which was attributable to the 7 new stores
opened during the year, was depressed by the exclusion of Zimbabwe's sales,
the loss of Makro Woodmead, the decision by Shield to abandon high volume
unprofitable business and the closure of a Dion store. Despite this, group
sales growth was in line with that reported by national statistics.
The maintenance of market share was gratifying in the light of an internal
inflation rate of approximately 4%. Food grew 8%, liquor 6% and general
merchandise including apparel, 10%.
Return on average equity (excluding deferred tax) was 34%.
The performance of each subsidiary was enhanced by specific group
initiatives in the areas of procurement, cost reduction, market penetration
and executive development.
In keeping with the understanding reached on acquisition, Massmart increased
its share of CCW from 84% to 90% effective 1 January 2001.
In view of the difficulties in repatriating dividends and royalties,
Zimbabwe has been deconsolidated. The comparable year has been restated
accordingly.
Earnings were enhanced by a favourable tax rate in the current year, the
effect of which is estimated to be approximately 4 cents per share.
Divisional Highlights
(Audited) (Restated &
30 June Audited)
2001 30 June
2000
Rm Rm % Change
Trading Profit Before Tax 268,6 226,2 19
As a % of Turnover 2.4 2.2
Makro 98,4 74,2 33
Massdiscounters 84,4 76,6 10
Shield 46,3 42,4 9
CCW 39,5 33,0 20
Makro - Comparable store sales growth of 8.1% and excellent control of
margins, assets and costs resulted in a strong growth of profits and
improved pre- and post-interest returns on sales. Management attention in
the second half was diverted firstly by the implementation of SAP Retail,
intended to reinstate Makro's leadership in retail information management,
and secondly by the actions required to ensure the successful reopening of
Makro Woodmead in time for the 2001 Christmas season.
Massdiscounters - As forecast, a substantially improved second half
performance resulted from the numerous management changes initiated in
October 2000. Progress was made in reinstating procurement, merchandising
and promotional disciplines, concurrent with a focus on the reduction of
slow moving merchandise. The result was a stronger growth of sales, profits
and cash flow in the second half and a reduction of stock to June 2000
levels, notwithstanding the net opening of 1 new store. Comparable store
sales grew 3.6% for the year.
Shield - Second half sales declined, but profits improved as high volume,
non-profitable sales were abandoned and debtors control reached new levels
of excellence. In March Ingo Meyer was appointed managing director, with
the mandate to formulate and implement the strategy, structures and systems
necessary to reposition Shield as a more valuable business partner to its
independent members. This process will build on the considerable
experience, which has ensured Shield's success over twenty eight years, as
well as more recent developments such as the eShield electronic commerce
initative. Comparable members grew 6.2%.
CCW - Comparable store sales growth of 14.2% and the opening of new outlets
in Rustenburg, Vryburg and Bloemfontein produced a strong growth in sales.
Margins, expenses, shrinkage and working capital were well controlled
resulting in a pleasing growth of profits and improved pre-interest returns
on sales.
Acquisition
The acquisition of Jumbo Cash & Carry, Sip `n Save and 22 Browns and Weirs
Stores from Rebhold, was announced on the 31 May 2001 and details were
communicated in a circular to shareholders on 2 July 2001.
All suspensive conditions necessary for the conclusion of the transaction
have been satisfied, apart from approval by the Competition Commission whose
decision is expected within the next month. If the transaction is approved,
the restated accounts for the year to June 2001 will be published in
Massmart's annual report, due to be released towards the end of September.
In this event Massmart's group sales to June 2001 will be R11,57 billion,
with headline earnings of R216,0 million and headline EPS of 109,9 cents.
Prospects
Worldwide, economies are in decline, the manufacturing sectors of many major
industrial nations are in recession and commodity, equity and bond markets
are volatile. Over the coming year, Southern Africa will feel the effect of
these developments in addition to specific regional exigencies such as
unemployment and AIDS. The hesitant economic recovery will slow.
The portfolio, merchandise mix, strategies, structures, systems and
processes of Massmart have been configured to realise relatively superior
profitability and profit growth from high volume, low cost mass
merchandising in a slow growth environment. Although new store development
will slow in the coming year, merchandise and marketing innovation, improved
operational efficiencies and tighter working capital management will produce
earnings growth in excess of sales growth. The group is dedicated to the
production of cash earnings and high returns on equity.
We remain confident that Massmart will produce a growth in earnings per
share at the forefront of the retail sector, in line with our expectations
on listing. This will be significantly enhanced if the Competition
Commission approves the acquisition of Jumbo, Sip `n Save and the 22 Browns
and Weirs stores.
Sales for the eight weeks to 19 August 2001 are 14% ahead of the comparable
period last year.
Dividend
Notice is hereby given that a final dividend of 21,0 cents per share in
respect of the year ended 30 June 2001 has been declared payable to the
holders of ordinary shares registered in the books of the company on 14
September 2001. The last date to trade cum-dividend will therefore be 7
September 2001 and will trade ex-dividend from 10 September 2001. Payment of
the dividend will be made on 17 September 2001.
On behalf of the Board
Mark J Lamberti - Executive Chairman Steve Leggatt - Chief Financial
Officer
20 August 2001
Notes
1. Exceptional items comprise certain IT asset write-off's and the writing
down of a property and an investment.
2. The group's average tax rate has been reduced by certain non-taxable
income.
3. Proforma headline earnings show the earnings for the year to June 2000
assuming the convertible debentures had been converted from 1 July 1999,
i.e. with after-tax debenture interest added back. Proforma headline EPS
shows the impact of the higher number of issued shares assuming that the
convertible debentures had been converted on the same date.
4. These financial statements have been prepared in accordance with South
African Statements of Generally Accepted Accounting Practice.
5. Due to Christmas trading, Massmart's earnings are weighted towards the
six months to December.
6. In light of the foreign currency crisis in Zimbabwe, the results of Makro
Zimbabwe are no longer consolidated. Earnings are now accounted for on a
cash received basis. Comparative figures have been restated.
7. Included in contingent liabilities are obligations under FEC's of R119,1m
(2000 : R44,7m).
Directorate: M.J Lamberti (Executive Chairman), D.G Barett* (Executive),
G.R.C Hayward (Executive), W. Kirsh, S. Leggatt* (Executive), J.D Newton,
M.J Rubin, F. Schukken**, C.S Seabrooke
*British, **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
INCOME STATEMENT
(Audited) (Restated &
30 June Audited)
2001 30 June
2000
Notes Rm Rm % Change
Turnover 11 260,6 10 357,7 9
Makro 3 903,0 3 645,7 7
Massdiscounters 4 183,9 3 844,7 9
Shield 1 696,9 1 724,0 (2)
CCW 1 476,8 1 143,3 29
Trading profit before interest 256,5 201,5 27
As a % of Turnover 2.3 1.9
Makro 70,7 40,1 76
Massdiscounters 114,3 100,1 14
Shield 37,1 33,6 10
CCW 34,4 27,7 24
Exceptional Items 1 (30,5) (9,8)
Net Financing Income / (Cost) 18,7 (56,6)
Profit before Tax 244,7 135,1 81
Taxation 2 (56,3) (33,4)
Profit after Tax 188,4 101,7 85
Associate Company (0,2) 1,0
Minorities (3,9) (3,1)
Attributable Income 184,3 99,6 85
Headline Earnings 212,3 106,2 100
Proforma Headline Earnings 3 212,3 127,8 66
Headline EPS (cents) 108,0 76,5 41
Proforma Headline EPS (cents) 3 108,0 82,0 32
Diluted Headline EPS (cents) 107,9 76,3 41
Attributable EPS (cents) 93,8 71,8 31
Dividend (cents): 60
Interim 15,0 - -
Final 21,0* 9.4* 123
Ordinary Shares (000's):
In Issue 197 077 157 077
Weighted-Average 196 529 138 769
Diluted Weighted-Average 196 730 139 116
* Declared and paid after the financial
year end
BALANCE SHEET
(Audited) (Restated &
30 June Audited)
2001 30 June
2000
Rm Rm % Change
Assets
Property, Plant and Equipment 369,6 332,4 11
Investments and Loans 186,0 152,9 22
Deferred Tax 266,1 284,9 (7)
Inventories 1 399,0 1 318,5 6
Accounts Receivable and Prepayments 788,9 809,3 (3)
Net Cash and Bank 457,4 - -
Total 3 467,0 2 898,0 20
Equity and Liabilities
Shareholders' Equity 1 209,2 576,7 110
Minority Interests 11,1 12,1 (8)
Long Term Liabilities and Provisions 65,8 90,3 (27)
Deferred Tax 5,6 5,6 -
Short Term Borrowings - 83,4 -
Accounts Payable and Accruals 2 175,3 2 129,9 2
Total 3 467,0 2 898,0 20
Net Asset Value per Share (cents) 613,6 367,1 67
CASH FLOW STATEMENT
Cash Inflow from Trading 318,2 252,5 26
Working Capital Movement (11,1) (187,8) 94
Cash Outflow from Other Operating (11,2) (83,6) 87
Activities
Dividends Paid (48,1) - -
Investment In and Replacement of Fixed (118,7) (134,8) (12)
Assets
Other Investing Activities (48,0) (20,8) 131
Net Financing Activities 459,7 (100,6) -
Opening Cash and Cash Equivalents (83,4) 191,7 -
Closing Cash and Cash Equivalents 457,4 (83,4) -
STATEMENT OF CHANGES IN EQUITY
(Audited) (Restated &
30 June Audited)
2001 30 June
2000
Notes Rm Rm
Opening Balance 576,7 43,6
Adjustment to Opening Reserves - 32,1
Exchange Differences 3,1 2,1
Intangibles Written-off - (14,1)
Net Retained Income 154,9 81,1
Shares Issued / Converted 474,5 431,9
Closing Balance 1 209,2 576,7
ADDITIONAL INFORMATION
Trading Profit Before
Items Below: 311,0 241,5
Dividends Received 28,1 23,8
Depreciation (82,6) (63,8)
Trading Profit Before Interest 256,5 201,5
Capital Expenditure:
Authorised and Committed 31,3 0,6
Authorised not Committed 97,9 108,3
Contingent Liabilities 7 225,6 151,0
Operating Lease Commitments (2002 - 3 978,3 4 090,9
2013)
