| Wed 26 Feb 2003, 10:07 | | MASSMART Holdings Limited - Reviewed Consolidated |
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MASSMART Holdings Limited
JSE Code - MSM,
ISIN - ZAE000029534, 1AAA06FAF37B7489E72184B723FB5B3A
Company Registration Number - 1940/014066/05
Dedicated to Value
Reviewed Consolidated Results for the six months ended 29 December 2002
ThirtyPointThree*
Massmart is a unique, managed portfolio of nine wholesale or retail chains, each
focused on high-volume, low margin, low cost distribution of mainly branded
consumer goods for cash, in eight countries in Southern Africa. The Group is the
third largest distributor of consumer goods in Southern Africa, the leader in
general merchandise and liquor and the fourth largest in food.
* 32% increase in sales to R10 555 million
* 45% increase in trading profit to R430 million
* 42% increase in headline earnings to R287 million
* 39% increase in headline earnings before acquisitions to R281 million
* 42% increase in headline EPS to 145,4 cents
* 19% decrease in cash flow from operations to R556 million
* 92% increase in dividend to 48,0 cents
INCOME STATEMENT
6 months 6 months
ended ended Year to
Dec 2002 Dec 2001 June 2002
(Reviewed) (Unaudited) % (Audited)
Rm Rm Change Rm
Sales 10 555,0 8 020,2 31,6 16 709,2
Massdiscounters 3 346,1 2 615,5 27,9 5 285,2
Masswarehouse 2 855,4 2 143,3 33,2 4 459,8
Masscash 2 951,2 2 255,0 30,9 4 730,3
Masstrade 1 402,3 1 006,4 39,3 2 233,9
Trading profit before interest 429,9 297,3 44,6 538,8
As a % of sales 4,1 3,7 3,2
Massdiscounters 213,4 135,0 58,1 209,4
Masswarehouse 87,3 75,6 15,5 109,8
Masscash 91,2 62,2 46,6 167,2
Masstrade 38,0 24,5 55,1 52,4
Goodwill amortisation (22,2) (17,3) (39,7)
Exceptional items - 15,7 5,2
Net interest paid (11,9) (8,7) (14,1)
Profit before tax 395,8 287,0 37,9 490,2
Taxation (126,3) (87,4) 44,5 (164,4)
Profit after tax 269,5 199,6 35,0 325,8
Associate company - (2,0) (1,2)
Minorities (5,0) (2,4) (2,9)
Net profit for the period 264,5 195,2 35,5 321,7
Headline earnings adjustments
(after tax and minorities):
Exceptional items - (10,9) (1,3)
Shield bad debt on VAT settlement - - (11,1)
Goodwill amortisation 22,2 17,3 39,2
Restraint of trade payments - - 7,9
Loss on sale of fixed assets 0,5 0,3 5,2
Headline earnings 287,2 201,9 42,2 361,6
Headline EPS (cents) 145,4 102,5 41,9 183,2
Diluted headline EPS (cents) 141,8 101,9 39,2 181,9
Attributable EPS (cents) 133,9 99,1 35,1 163,0
Diluted attributable EPS (cents) 130,6 98,5 32,6 161,8
Dividend (cents):
- Interim 48,0* 25,0* 92,0 25,0
- Final - - 36,0*
Ordinary shares (000`s):
- In issue 196 822 197 206 197 824
- Weighted-average 197 547 197 079 197 339
- Diluted weighted-average 202 556 198 193 198 793
*Declared and paid after the
accounting period
CASH FLOW STATEMENT
6 months 6 months
ended ended Year to
Dec 2002 Dec 2001 June 2002
(Reviewed) (Unaudited) (Audited)
Rm Rm Rm
Cash inflow from trading 466,0 357,2 637,7
Working capital movement 89,6 329,8 38,9
Cash flow from operations 555,6 687,0 676,6
Cash outflow from other operating
activities (53,6) (53,3) (103,9)
Dividends paid (71,3) (41,4) (90,7)
Replacement of fixed assets (55,7) (51,0) (37,0)
Investment in fixed assets (146,7) (11,6) (73,1)
Other investing activities (20,2) (12,9) (86,5)
Net financing activities 37,3 (254,6) (233,9)
Net share buyback (17,3) - -
Opening cash and cash equivalents 550,3 498,8 498,8
Closing cash and cash equivalents 778,4 761,0 550,3
STATEMENT OF CHANGES IN EQUITY
Opening balance 1 414,0 1 204,6 1 204,6
Prior year adjustment (note 2) (5,2) - -
Exchange differences (6,1) 16,7 7,9
Dividends paid (71,3) (41,4) (90,7)
Net profit for the year 264,5 195,2 321,7
Shares issued/converted 1,8 - 5,5
Reduction of deferred tax asset (5,5) - (38,3)
Net share buyback (17,3) - -
Other - 1,0 3,3
Closing balance 1 574,9 1 376,1 1 414,0
ADDITIONAL INFORMATION
Trading profit before items below: 480,5 346,0 645,0
- Dividends received 1,0 - -
- Depreciation (51,6) (48,7) (106,2)
Trading profit before interest 429,9 297,3 538,8
Capital expenditure:
- Authorised and committed 43,1 5,2 41,4
- Authorised not committed 25,3 15,9 46,1
Contingent liabilities (note 2) 4,6 162,8 153,0
Operating lease commitments (2003-2013) 4 224,4 3 905,9 4 693,3
BALANCE SHEET
December December June
2002 2001 2002
(Reviewed) Unaudited) (Audited)
Rm Rm Rm
Assets
Property, plant and equipment 522,3 375,2 380,7
Goodwill 369,7 323,9 383,7
Investments and loans 260,8 209,3 229,5
Deferred tax 166,9 299,1 236,2
Inventories 2 909,7 2 151,4 1 981,9
Accounts receivable and prepayments 1 468,7 1 265,6 1 109,4
Cash and bank balances 924,2 793,9 623,5
Total 6 622,3 5 418,4 4 944,9
Equity and liabilities
Shareholders` equity 1 574,9 1 376,1 1 414,0
Minority interests 17,5 14,0 12,7
Long-term liabilities -
interest bearing 273,6 310,4 236,6
Other long-term liabilities and
provisions 33,6 41,6 34,2
Deferred tax 8,3 5,5 11,1
Accounts payable and accruals 4 511,4 3 636,8 3 111,8
Bank overdraft and short-term
borrowings 203,0 34,0 124,5
Total 6 622,3 5 418,4 4 944,9
Net asset value per share (cents) 800,2 697,8 714,8
NOTES
1. Deducted from trading profit is R19,1 million in net realised and unrealised
foreign exchange translation losses.
2. The adoption of AC133 in the year resulted in a restatement of opening
retained earnings of R5,2 million and a loss in the current year of R5,4 million
(not included in note 1). FECs which are now accounted for in terms of AC133
were previously reported as contingent liabilities.
3. These financial statements have been prepared in accordance with South
African Statements of Generally Accepted Acounting Practice and on a basis
consistent with prior periods, except for the adoption of AC133.
4. Due to Christmas trading, Massmart`s earnings are weighted towards the six
months to December.
Overview
Significant shifts in the Rand/Dollar exchange rate, inflation and consumer
confidence, created a challenging platform for Massmart`s twelth consecutive
half year of real sales and headline earnings growth.
The highlights of the half-year were:
* Record half-year sales and pre- and post-interest trading profits in all
divisions
* Improved half year pre- and post-interest trading margins in all divisions
other than Makro where margins were depressed mainly by the opening of a new
store in October
* Half-year pre-interest operating profit as a percentage of sales at 4,07%
exceeding 4% for the first time
* Comparable store and comparable member sales growth of 26,2%
* Strong operating leverage achieved in Massdiscounters and Masscash
* Non-South African sales of R735 million
* The acquisition of Builders Warehouse for R140 million now subject to
approval by the Competitions Commission
* The strengthening of the Board with the appointment of three independent non-
executive directors
* Massmart`s ranking in the Deloitte & Touche "Best Company To Work For"
improved from 19th in 2001 to 7th in 2002.
Strategy and Implementation
Massmart is dedicated to creating shareholder value through high quality,
strategically aligned, organic and acquisitive growth, which renders superior
operating margins, cash flow and returns on capital.
Massmart`s performance relies on the achievement of two major objectives. The
first - growth through aggressive development of a portfolio of focused chains;
the second - collaboration between those chains to create value in addition to
that which they could otherwise achieve.
The strategy emphasises the imperative for the management of each chain to be
dedicated to serving the needs of a well defined target market with a specific
business model, while concurrently participating in collaborative activities
which enhance value by leveraging the resources, influence and talent of the
Group. Pragmatism results in this collaboration ranging from almost total
integration of two chains under one management team to the simple sharing of
information and knowledge. Potential conflicts between Chain and Group
objectives are obviated by structures, processes and incentives, which fuel
entrepreneurship at the expense of corporate politics and bureaucracy.
We are ever mindful that the strategy would fail without the commitment of
the 14 822 people who apply their intellect, energy and passion to Massmart
every day. We thank them for choosing Massmart.
Environment
During the reporting period the retail environment was shaped by four major
factors, two of which significantly altered their trend in the latter part of
2002.
* Exchange rate - The volatility reflected in the 44,9% decrease and the
subsequent 28,7% increase in the Rand/$ exchange rate over the 18 months to
December 2002 had a significant impact on purchasing, inventory, margin and
pricing decisions on dollar based merchandise, particularly in those merchandise
categories with longer lead times or slower stock turns.
* Interest rates - The cumulative effect of four interest rate increases in 2002
slowed consumer expenditure in the last quarter.
* Inflation - Retail inflation rose steadily from 4,1% in May 2001, accelerating
in response to the sharp exchange rate deterioration in late 2001, peaking at
10.9% in November before declining in December. Average retail inflation for the
six months to December 2002 was 9,77% compared to 4,68% for the comparable
period in 2001. Imported inflation declined sharply from 15% in November to 10%
in December. Sales and gross profits moved in sympathy with these trends.
* Consumer confidence - In the second quarter of 2002, retailer and wholesaler
confidence rose to fourteen-year highs, and consumer confidence to seven-year
highs. The latter declined in the third quarter and more sharply in the fourth
quarter, dampening consumer expenditure towards the year-end.
The volatility of these exogenous factors demanded more accurate measurement
and analysis and a rapid response.
For some years we have noted and commented on the phenomenon of retail
convergence - a development typical of mature or overtraded markets - where
market participants struggling to achieve growth in their chosen category,
forsake their historic product/market positioning to enter into the product or
category domains of other retailers known for such products. This trend
accelerated over the reporting period with a number of organic and acquisitive
growth initiatives by participants who have now become competitors.
Both the macro economic and industry trends described above contributed to
sustained, if not heightened competitive activity in the Southern African retail
and wholesale markets.
Performance
Massmart`s high sales growth rate decelerated gradually through the six
months. Sales before acquisitions grew 27,7%. Enhanced slightly by the
acquisition of Furnex, sales of general merchandise grew 31,2%. Food sales grew
30,1% and liquor sales 34,3%.
Reference to industry statistics and the reported sales of competitors indicates
that Massmart continued to register market share gains.
Trading profit before interest and before acquisitions grew by 42% to
R421,4 million. Headline earnings before acquisitions was R281 million or
142,1 cents per share.
Despite double-digit inflation, profit-enhancing volumes have continued to
grow. It is difficult to accurately attribute such volume to either rising
consumer expenditure or market share gains. In addition, inflationary profits
and losses were realised on inventories during the period. While it is therefore
clear that profits were enhanced by inflation, it is difficult to quantify the
exact extent.
The introduction of AC133 - the new accounting standard applied to financial
instruments including forward contracts - reduced headline earnings by R3,8
million or 1,9 cents per share.
Massdiscounters - comprises retail general merchandise discounters Game (55
stores) and Dion (11 stores). Aggressive merchandising and advertising resulted
in comparable store sales growth of 27,1%, with operating efficiencies leading
to further progress towards the division`s medium-term, annual targeted profit
before tax return on sales of 5%. The appreciation of the Rand relative to the
dollar based economies of Zambia and Mauritius, resulted in a foreign exchange
translation loss of R16 million compared to a R10,6 million foreign exchange
profit in the comparable period last year. Inventory ratios increased relative
to last year following a softer than planned Christmas period, an up weighted
import programme and two major product categories exceeding their stock budgets.
Historic ratios will be restored by June.
Masswarehouse - comprises the 13 store Makro warehouse club, trading in food,
liquor and general merchandise. Comparable store sales grew 20,3%. Although
sales were enhanced by the successful October opening of Makro`s first new store
in 6 years, pre-opening costs of R7,9 million depressed returns. This, together
with general merchandise growth lower than food and liquor, resulted in a half-
year regression in the company`s progress towards its medium term, annual,
targeted profit before tax return on sales of 4%.
Masscash - comprises 45 CBW and 6 Jumbo wholesale cash and carry outlets.
Comparable store sales grew 29,8%. CBW performed well in every respect including
the successful opening of new stores in Nelspruit and Vereeniging during the
period. Jumbo entered into the advanced stages of its integration, trading well
from the refurbished Crown Mines store, successfully relocating the Bloemfontein
outlet and further improving the structure and calibre of management. The
Masscash division registered continued progress towards its medium-term, annual
targeted profit before tax return on sales of 3.5%.
Masstrade - comprises voluntary buying organisations Shield (serving 411
independent food traders) and Furnex (serving 392 independent furniture and
appliance traders). Shield`s sales growth was subdued by the loss of the member
who allegedly perpetrated the VAT fraud on the company during 2002, which
resulted in the dismissal of the financial director. Despite this and a number
of systems and integration challenges, pre- and post-interest margin
improvements were achieved. Furnex performed ahead of expectations, contributing
sales of R310 million and post-interest profits of R8,5 million in the six
months. Masstrade is committed to a medium-term profit before tax target of 3%.
6 months to 6 months to Year to
Dec 2002 Dec 2001 June 2002
(Reviewed) (Unaudited) % (Audited)
Rm Rm Change Rm
Trading profit
before tax 415,3 297,5 39,6 549,8
As a % of sales 3,9 3,7 3,3
Massdiscounters 180,8 117,4 54,0 178,0
Masswarehouse 94,0 84,5 11,2 130,0
Masscash 102,1 69,1 47,8 185,6
Masstrade 38,4 26,5 44,9 56,2
Acquisition
The due diligence on Builders Warehouse proceeded as planned but stock takes
were delayed until 2003 to prevent disruption of the Christmas trading period. A
final conclusion on the state of the business will therefore only be made
shortly. The Competitions Commission has recommended the transaction to the
Competition Tribunal without conditions. A ruling is expected on, or shortly
after, March 4 2003.
The business traded ahead of expectations during the period.
Board appointments
We are pleased to announce the appointment, with immediate effect, of Messrs
Zitulele Kombi, Peter Maw and Dods Brand as independent non-executive directors
of the Massmart board. These appointments strengthen the board`s functional
competence, objectivity and ability to implement the recommendations of the King
2 Code of corporate governance. In addition, the executive director of Strategy
and Finance, Mr Steven Leggatt, will relinquish his executive responsibilities
but will remain on the board as a non-executive director available to consult to
the company from time to time, specifically in respect of mergers and
acquisitions.
Share buy back
In terms of the authority granted by shareholders at the annual general
meeting on 28 November 2001, Massmart has acquired a total of 1 107 732 shares,
representing 0,56% of shares now in issue, during the period under review. The
shares were acquired at an average price of R16,89 and for a total consideration
of R18,7 million by a wholly-owned subsidiary of Massmart and were held as
treasury stock at 29 December 2002.
Prospects
Since mid 2002 we have been advising investors that a number of factors -
most obviously first time contributions from acquisitions - resulted in
disproportionately high second half sales and earnings in the six months to June
2002.
Furthermore, during the current financial year, we have advised shareholders
on four occasions of the gradual decline in the growth of total sales, sales
before acquisitions and comparable store sales. This downward trend -
attributable mainly to a softening of consumer demand but latterly exacerbated
by a decline in inflation - is further manifest in the sales growth for the 34
weeks to 23 February 2003 in which total sales grew 29%, sales before
acquisitions grew 26% and comparable store sales grew 24%.
Although we anticipate a national Budget that will benefit consumers through
tax cuts, and a reduction of interest rates towards mid-year, both of which will
usher in a sustained period of confident consumer expenditure, there are a
number of factors that cause us to anticipate a challenging retail environment
in the current half-year:
* Consumer confidence and spending will be depressed by inflation, interest
rates, continued high unemployment and to a lesser extent, global financial and
geopolitical uncertainties.
* A sustained strong Rand may force retailers to clear overpriced imported
merchandise bought during 2002 at a much weaker exchange rate, resulting in
heightened competitive activity and pressure on gross margins
* Declining inflation will result in the same merchandise item producing lower
sales and gross profits
* The strong Rand will erode earnings from foreign subsidiaries.
In response to these factors Massmart will trade aggressively, redoubling our
attention to cost and asset management and the achievement of superior returns.
In the absence of any dramatic environmental developments, Massmart will produce
a second half result at the forefront of the sector, but with sales and profit
growth lower than the six-month period to December 2002.
Changed Dividend Policy and Dividend Declaration
Massmart`s new dividend policy is to declare and pay an interim dividend
representing a three times dividend cover but a total annual dividend of two and
a half times cover, unless circumstances dictate otherwise.
Notice is hereby given that an interim dividend of 48,0 cents per share in
respect of the six months ended 29 December 2002 has been declared payable to
the holders of ordinary shares recorded in the books of the company on 20 March
2003. The last date to trade cum-dividend will therefore be 13 March 2003 and
Massmart shares will trade ex-dividend from 14 March 2003. Payment of the
dividend will be made on 24 March 2003. Share certificates may not be
dematerialised or rematerialised between 14 March 2003 and 20 March 2003, both
days inclusive.
On behalf of the board
Mark J Lamberti Guy Hayward
Executive Chairman Chief Financial Officer
26 February 2003
Directorate: M J Lamberti (Executive Chairman), C S Seabrooke
Deputy Chairman), D G Barrett* (Deputy Chief Executive),
G R C Hayward, W Kirsh, S Leggatt*, I N Matthews, D N M Mokhobo,
Msimang, M J Rubin, F Schukken** (Alternate D C Doijer**)
*United Kingdom **Netherlands
Massmart Holdings Limited
JSE Code - MSM,
ISIN - ZAE000029534, 1AAA06FAF37B7489E72184B723FB5B3A
Company Registration Number - 1940/014066/05,
Registered Office - Massmart House,
16 Peltier Drive,
Sunninghill Ext 6,
2157,
Company secretary: R A McKee,
These results have been reviewed by Auditors, Deloitte and Touche, and their
report is available for inspection at the registered office.
For more information www.massmart.co.za
Date: 26/02/2003 08:00:00 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
