| Wed 20 Aug 2003, 8:56 | | REVIEWED CONSOLIDATED RESULTS FOR THE YEAR ENDED |
|
MASSMART -
29 JUNE 2003
Massmart Holdings Limited
Registration Number - 1940/014066/05
JSE Code - MSM, ISIN - ZAE000029534
Earnings increased 352% since listing on 4 July 2000
Dedicated to Value
Reviewed Consolidated Results for the year ended 29 June
2003
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.
22%
Sales increase to R20 370 million
39%
Trading profit increase to R748 million
33%
Headline earnings increase to R480 million
30%
Headline earnings before acquisitions increase to R464
million
32%
Headline EPS increase to 242,4 cents
15%
Cash flow from operations increase to R775 million
59%
Dividends increase to 97,0 cents
Overview
Massmart"s sixth consecutive year of sales and profit growth
was achieved successfully, despite a second half in which
the residual consequences of exchange rate volatility
presented unprecedented challenges to the management of
sales, margin, inventory and foreign earnings.
The highlights of the year were:
* Sales exceeded R20 billion for the first time, almost
doubling since listing three years ago.
* Comparable store and member sales grew 17,6%, 19,5% when
adjusted for the 53rd week in the previous year.
* Record sales and pre- and post-interest trading profits
from all divisions.
* Excellent expense control resulted in record Group pre-
interest operating profit as a percentage of sales of 3,67%
and post-interest operating profit as a percentage of sales
of 3,49%.
* Firm second half margins despite aggressive promotion,
markdowns and stock clearance activity.
* A substantial improvement in working capital management in
the second half.
*An improvement in return on equity from 27,6% to 31,2%.
* The integration of last year"s Furnex acquisition and the
current year acquisition of Builders Warehouse and Tile
Warehouse.
* The strengthening of the Board with the appointment of a
non-executive chairman and three non-executive directors.
Strategy and implementation
Since 1990, Massmart"s growth and profitability has been
reliant on the achievement of an appropriate balance between
two major imperatives. The first is strategically aligned,
organic and acquisitive growth through trading divisions
constituted on the basis of similar target markets and
business models. The second, collaboration between these
divisions, which results in profitability and returns
greater than could otherwise be achieved.
The success of this endeavour is attributable to the 16 763
people who choose to follow the leadership of a growing,
multi-disciplinary cadre of executives whose quest is to
learn and contribute to the art and science of retail and
wholesale distribution, in a manner that benefits all
stakeholders.
During the previous financial period we advised shareholders
of a "Vision for Growth", a three-year performance goal,
resulting from strategies and plans to sustain high quality
growth and returns at the forefront of the sector.
During the past year this Vision for Growth was carried
forward and extended through to June 2007. Detailed research
and analysis resulted in two important developments. The
first is a commitment to open or acquire at least 44 stores
in Southern Africa over that period (at least ten in the
current year). The second arises from a detailed
investigation, which commenced in December 2002, into the
viability of expansion beyond the African continent. The
conclusion of this study is that such expansion is not
necessary to secure the required growth and although all
intercontinental opportunities will be evaluated, Massmart
will not actively seek growth beyond Africa before 2007.
Environment
The lagging effects of the sharp deterioration of the Rand
against the currencies of South Africa"s trading partners in
late 2001, its equally dramatic recovery to date and the
consequent impact on inflation and interest rates, resulted
in distinctly different trading conditions in Massmart"s
first and second halves.
In the first half, sales growth was enhanced by rising
inflation, higher volumes resulting from improving consumer
confidence, and direct and indirect export opportunities
arising from a relatively weak Rand, which also enhanced
foreign sales reported in Rands.
As the four interest rate increases of 2002 took effect
around December, volume growth slowed, concurrent with a
firming Rand, which curtailed exports and rendered certain
imported stocks on hand uncompetitive. Inflation declined
sharply and retail consumers held back in anticipation of
promotional activity and lower imported prices. Wholesale
customers correctly deemed it prudent to reduce stock
holdings, on the assumption of declining prices.
The impact of these changing trends differed across
Massmart"s broad geographic and product portfolio. Certain
product categories, which produced peaks of 40% sales growth
around October 2002, were showing no or slightly negative
growth by May 2003. Highly competitive, directly imported
general merchandise and liquor with long lead-times became
overpriced as the year progressed, as did indirect imports
or products with a dollar-influenced cost. Within the food
category the cost prices of selected products were driven
higher by shortages arising from drought, exports and
feeding schemes in neighbouring states. Finally, the now
well-publicised, despicable speculation on maize futures
drove up the price of South Africa"s staple starch for
millions of poor consumers.
Within this environment, the management of prices,
promotions, margins, inventories and expenses assumed
unprecedented levels of complexity, mitigated only by
exceptional management information, thorough analysis, and a
rapid response.
Performance
Massmart"s high real sales growth decelerated gradually
through the year stabilising around April. Sales before
acquisitions grew 18,7% and comparable store growth was
17,6%. Enhanced slightly by the acquisition of Furnex in
January 2002 and Builders Warehouse and Tile Warehouse in
March 2003, general merchandise grew 24,6%. Food sales grew
19,2% and liquor sales grew 27,8%.
Massmart"s internal inflation for the full year was
estimated to be 10%. By virtue of product mix (i.e. no
produce or bread and very little meat) Massmart"s food
inflation was 11% while general merchandise inflation was 9%
and liquor inflation 8%. Inflation in the final quarter to
June slowed substantially. Internal inflation is currently
estimated to be 5%, comprising 8% in food, 2% in general
merchandise and 6% in liquor.
Industry statistics and the reported sales of competitors
indicate that Massmart continued to register market share
gains.
Trading profit before interest and before acquisitions grew
34,8% to R714 million. Headline earnings before acquisitions
were R464 million or 234,3 cents per share.
Massdiscounters - comprises general merchandise discounters
Game (55 stores) and Dion (11 stores). Aggressive
merchandising and marketing resulted in very strong
performance from Game in South Africa with pleasing volume
growth in foreign countries undermined by translation
losses. Despite this, the division achieved comparable store
sales growth of 17,3%, with operating efficiencies leading
to continued progress towards its medium-term targeted
profit before tax return on sales of 5%. The appreciation of
the Rand relative to Zambia and Mauritius, resulted in a
foreign exchange loss of R31 million compared to a profit of
R3 million in the previous year. As promised, the
overstocking which occurred in late 2002 has been rectified.
Masswarehouse - comprises the 12 store Makro warehouse club
trading in food, general merchandise and liquor, 6 Builders
Warehouse outlets trading in DIY and builders hardware and 5
Tile Warehouse outlets trading in tiles and sanitary ware.
Comparable store sales grew 13,9%.
An excellent performance from Makro"s first new store in six
years and exceptional multifaceted management in the second
half, resulted in a record profit before interest and tax
margin and a profit before tax margin very close to the
previous year despite the lower profitability from the new
outlet. The chain"s only freestanding Makroffice outlet was
closed in June 2003.
Builders Warehouse and Tile Warehouse, acquired effective 1
March for a consideration of R174 million, contributed sales
of R191 million and, following the application of Massmart"s
conservative accounting policies, operating profits of R15,6
million and profit before tax of R16,7 million.
The dedicated application of high volume, low price
operating principles and the decision to relocate selected
Makro outlets and to rapidly expand the Builders Warehouse
and Tile Warehouse chains, will ensure continued progress
from Masswarehouse"s record result towards the divisions
medium-term targeted profit before tax return on sales of
4%.
Masscash - comprises 46 CBW and 6 Jumbo wholesale cash and
carry outlets. Comparable store sales grew 19%.
CBW enjoyed an excellent year with exceptional customer,
expense and working capital management and two new stores,
resulting in profit growth more than double that of sales.
Jumbo maintained its high profitability but absolute profits
declined as gross margins were sacrificed to retain market
share at its flagship store, located in the Crown Mines
area, now a highly concentrated, competitive node of cash
and carry distribution, where VAT evasion oftentimes
constitutes an additional competitive threat. Since year-end
the Isipingo store has been closed and this, together with
at least one new store opening and one relocation planned
for the current year, will ensure Jumbo"s progress towards a
more balanced contribution from each store.
The division once more increased its profit before tax
margin, exceeding its recently increased medium -term target
of 4%.
Masstrade - comprises voluntary buying organisations Shield
(serving 494 independent food traders) and Furnex (serving
674 independent furniture and appliance traders). Comparable
member growth was 24,4%.
The decision to cease trading with a major customer,
together with numerous systems, process and organisation
changes pursuant to the transformation of Shield and the
creation of Masstrade, did not prevent Shield from producing
record real sales growth. Tight cost control and the
widening of the customer base resulted in pre- and post-
interest profits, substantially ahead of sales growth.
Furnex, now fully integrated into the new division, produced
an excellent result in its first full year.
Masstrade moved closer towards its medium-term profit before
tax return on sales target of 3%.
29 June 30 June
2003 2002
(Reviewed) (Audited)
Rm Rm % Change
Trading profit before 711,9 549,8 29,5
tax*
As a % of sales 3,5 3,3
Massdiscounters 227,0 178,0 27,5
Masswarehouse 173,1 130,0 33,2
Masscash 234,0 185,6 26,1
Masstrade 77,8 56,2 38,4
* Trading profit before tax is before corporate interest
paid of R14,6 million (2002: R25,1 million), goodwill
amortisation and exceptional items.
Prospects
There is widespread evidence of a reduction in the economic
volatility that distorted underlying performance and
presented serious challenges for South African retailers and
wholesalers of consumer goods over the past eighteen months.
A more stable Rand, albeit at a level which prejudices
exports and tourism, lower inflation and falling interest
rates, creates a platform for more confident forward
planning and the demonstration of retail and wholesale
acumen.
Massmart has budgeted very low sales growth in the first
quarter, increasing gradually as the anniversary of last
year"s sales growth decline is reached towards the end of
2003, with moderate real growth in 2004 as lower interest
rates take effect. All divisions will trade aggressively
within tight expense and working capital budgets with a view
to optimising market share and returns on equity. While
recognising the difficulty and arrogance of forecasting in
the new millennium, we remain confident that the strategies,
structures and people of Massmart will ensure performance at
the forefront of the sector.
In the seven weeks to the 17 August, Massmart"s profit
growth is in line with expectations, substantially ahead of
the sales growth of 12%. The next trading statement will be
on release of the annual report.
Dividend policy and declaration
Massmart"s 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 a final dividend of 49,0 cents
per share in respect of the year ended 29 June 2003 has been
declared payable to the holders of ordinary shares recorded
in the books of the company on 12 September 2003. The last
date to trade cum-dividend will therefore be 5 September
2003 and Massmart shares will trade ex-dividend from 8
September 2003. Payment of the dividend will be made on 15
September 2003. Share certificates may not be dematerialised
or rematerialised between 8 September 2003 and 12 September
2003, both days inclusive.
On behalf of the board
Mark J Lamberti Guy Hayward
Chief Executive Officer Chief Financial Officer
19 August 2003
Income statement
Year ended Year ended
June 2003 June 2002
(Reviewed) (Audited)
Rm Rm % Change
Sales 20 369,5 16 709,2 21,9
Massdiscounters 6 229,3 5 285,2 17,9
Masswarehouse 5 704,7 4 459,8 27,9
Masscash 5 740,1 4 730,3 21,4
Masstrade 2 695,4 2 233,9 20,7
Trading profit before 747,7 538,8 38,8
interest
As a % of sales 3,7 3,2
Massdiscounters 297,4 209,4 42,0
Masswarehouse 160,1 109,8 45,8
Masscash 208,8 167,2 24,9
Masstrade 81,4 52,4 55,3
Goodwill amortisation (49,5) (39,7)
Exceptional items (note 6,7 5,2
1)
Net interest paid (50,4) (14,1)
Profit before taxation 654,5 490,2 33,5
Taxation (215,2) (164,4) 30,9
Profit after taxation 439,3 325,8 34,8
Associate company - (1,2)
Minorities (10,0) (2,9)
Net profit for the year 429,3 321,7 33,5
RECONCILIATION OF NET
PROFIT FOR THE YEAR TO
HEADLINE EARNINGS
Net profit for the year 429,3 321,7
Exceptional items 2,3 (12,4)
Goodwill amortisation 48,9 39,2
Restraint of trade - 7,9
payments
(Profit)/loss on sale of (0,5) 5,2
fixed assets
Headline earnings 480,0 361,6 32,7
Headline EPS (cents) 242,4 183,2 32,3
Diluted headline EPS 235,6 181,9 29,5
(cents)
Attributable EPS (cents) 216,8 163,0 33,0
Diluted attributable EPS 210,7 161,8 30,2
(cents)
Dividend (cents):
- Interim 48,0 25,0 92,0
- Final (declared and 49,0 36,0 36,1
paid after the financial
year-end)
Ordinary shares (000"s):
- In issue 198 587 197 824
- Weighted-average 198 050 197 339
- Diluted weighted- 203 763 198 793
average
Balance sheet
June June
2003 2002
(Reviewed) (Audited)
Rm Rm % Change
Assets
Property, plant and 546,2 380,7
equipment
Goodwill 499,7 383,7
Investments and loans 277,8 229,5
Deferred tax 157,1 236,2
Inventories 2 236,7 1 981,9
Accounts receivable and 1 507,0 1 109,4
prepayments
Cash and bank balances 612,1 623,5
Total 5 836,6 4 944,9
Equity and liabilities
Shareholders" equity 1 666,1 1 414,0
Minority interests 22,4 12,7
Long-term liabilities - 173,8 236,6
interest bearing
Other long-term 106,2 34,2
liabilities and provisions
Deferred tax 25,7 11,1
Accounts payable and 3 734,8 3 111,8
accruals
Bank overdraft and short- 107,6 124,5
term borrowings
Total 5 836,6 4 944,9
Net asset value per share 839,0 714,8 17,4
(cents)
Cash flow statement
Year ended Year ended
June 2003 June 2002
(Reviewed) (Audited)
Rm Rm % Change
Cash inflow from trading 838,5 637,7 31,5
Working capital movement (63,6) 38,9
Cash flow from 774,9 676,6 14,5
operations
Taxation paid (77,4) (90,9)
Net interest paid (50,4) (14,1)
Investment income 11,0 1,1
Dividends paid (166,6) (90,7) 83,7
Net replacement of fixed (59,6) (42,0)
assets
Investment in fixed (216,7) (73,1)
assets
Business acquired (173,6) (44,5)
Other investing (59,3) (37,0)
activities
Net financing activities 30,8 (233,9)
Opening cash and cash 550,3 498,8
equivalents
Closing cash and cash 563,4 550,3 2,4
equivalents
Statement of changes in equity
Year ended Year ended
June 2003 June 2002
(Reviewed) (Audited)
Rm Rm % Change
Opening balance 1 414,0 1 204,6 17,4
Prior year adjustment (6,1) -
(note 3)
Exchange differences (10,5) 7,9
Dividends paid (166,6) (90,7) 83,7
Net profit for the year 429,3 321,7 33,5
Shares issued 14,9 5,5
Reduction of deferred tax (5,5) (38,3)
asset
Share trust (loss)/income (3,4) 3,3
and other
Closing balance 1 666,1 1 414,0 17,8
Additional information
Trading profit before 855,5 645,0
items below:
- Depreciation (107,8) (106,2)
Trading profit before 747,7 538,8
interest
Capital expenditure:
- Authorised and committed 103,1 41,4
- Authorised not committed 47,5 46,1
Contingent liabilities 13,3 258,0
(note 3)
Operating lease 4 223,6 4 177,1
commitments (2004 - 2013)
Notes
1. Exceptional items comprise a bad debt recovery relating
to the prior year VAT fraud settlement (R9,0 million gain)
and an impairment on the investment in Affinity Logic (R2,3
million loss).
2. Deducted from trading profit is R27,3 million in net
realised and unrealised foreign exchange translation losses
(2002: R3,4 million gain).
3. The adoption of AC133 in the year resulted in a
restatement of opening retained earnings of R6,1 million and
a net loss in the current year of R0,7 million. FEC"s which
are now accounted for in terms of AC133 were previously
reported as contingent liabilities.
4. These financial statements have been prepared in
accordance with South African Statements of Generally
Accepted Accounting Practice and on a basis consistent with
prior periods, except for the adoption of AC133.
5. These results have been reviewed by Auditors, Deloitte
and Touche, and their unqualified review opinion is
available for inspection at the registered office.
6. Due to Christmas trading, Massmart"s earnings are
weighted towards the six months to December.
7. Share Buy Back - In terms of the authority granted by
shareholders, Massmart has acquired a total of 1 417 454
shares during the period under review, representing 0,7% of
the shares now in issue. The shares were acquired at an
average price of R16,92 for a total consideration of R24,0
million by a wholly owned subsidiary of Massmart and were
sold to the Massmart Share Trust during the year.
8. A comprehensive management presentation is available on
the Massmart website.
Directorate: CS Seabrooke (Chairman), MJ Lamberti (Chief
Executive and Deputy Chairman), DG Barrett*, MD Brand, ZL
Combi, GRC Hayward, W Kirsh, S Leggatt*, IN Matthews, P Maw,
DNM Mokhobo, M Msimang, MJ Rubin, F Schukken** (Alternate DC
Doijer**) *United Kingdom **Netherlands
Massmart Holdings Limited JSE Code - MSM, ISIN -
ZAE000029534, Company Registration Number - 1940/014066/05
Registered Office - Massmart House, 16 Peltier Drive,
Sunninghill Ext 6, 2157, Company secretary: A Cimring
Auditors - Deloitte and Touche
For more information: www.massmart.co.za
Date: 20/08/2003 07:02:23 AM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
