| Wed 22 Nov 2006, 9:21 | | Massmart - Deputy Chairman and Chief Executives st |
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MSM
MSM
Massmart - Deputy Chairman and Chief Executives statement
MASSMART HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 1940/014066/06)
Share Code: MSM ISIN: ZAE000029534
("Massmart" or "the company")
Deputy Chairman and Chief Executives statement at the 2006 Annual General
Meeting of the company
Environment
Although year on year retail sales growth at constant 2000 prices as reported by
Stats SA peaked in October 2004 at 12.2%, it has remained high ever since. In
2005 it averaged a robust 6.6% and accelerated to 9% in the subsequent ten
months to August 2006, substantially higher than the 6.4% recorded in the
previous comparable period.
While this acceleration occurred contrary to the expectations of most
commentators, it confirmed our long held view on the changing South African
retail market. For over four years we have referred to the "structural" factors
which are enhancing the amplitude and duration of the current cycle, which has
now endured for over five years. The transformation of our society, manifest
most visibly in increasing workplace equity, has irrevocably altered the profile
of the South African consumer economy. This, together with the adept fiscal and
monetary management which our Government continues to demonstrate, has created a
solid platform for competent retailers.
Progress
Against this background, I am pleased to report to shareholders on Massmart"s
considerable progress since our 2005 Annual General Meeting.
Much of our achievement over the past twelve months is captured in the Massmart
2006 Annual Report, which describes how strategic evolution, structural
development and operational control converged to produce a group-wide record
performance in the year to June 2006.
Besides raising our general level of disclosure and sustainability reporting to
new heights, the report comments extensively on a number of developments that
will influence the performance and value of Massmart for many years to come.
Most notable among these were:
the Massbuild definition of the strategy, structure, formats, footprint and
brands necessary to integrate the building assets acquired over the past three
years, as a national "Builders" chain under a unified management team
a succession process which culminated in the appointment of Grant Pattison as
CEO Designate from 1st June 2006 to succeed me as CEO on 1st July 2007
and
the R1billion staff empowerment transaction, which provides 14 500 staff members
with ownership of approximately 10% of Massmart, including rights to vote and
earn dividends.
These seminal developments were underpinned by two dominant strategic themes
which drove sales growth and profitability as reported on for the year to June
but continue to do so in the current year. The first, the pursuit of high
comparable sales growth as a foundation for aggressive new store development, is
manifest since June in gradually improving real comparable store growth and 10
new stores (including a new format Dion Wired store) that will be opened before
Christmas. The second, the elimination of cost and complexity through the
simplification of the structures and processes of the Group, continues apace
with investment in systems, the disposal or integration of smaller businesses
and the optimal deployment of talented management across four large, clearly
focussed divisions, each a leader in its chosen market segment.
After 21 weeks of trading in the current financial year, all Massmart divisions
are enjoying strong sales growth and considerably stronger profit growth.
Board Appointments
We are pleased to welcome Ms. Lulu Gwagwa and Mr. Kuseni Dlamini to the Massmart
board with effect from the 1st November 2006. The fifteen member Massmart board
now comprises four executive directors and eleven independent non-executive
directors who have a broad range of strategic, financial, retail, human capital
and socio-political expertise. The diversity of the Board is further enhanced
by the fact that three of these directors are Black women and two Black men.
Sale of shares
Since the last Annual General Meeting, in anticipation of my transition from
Chief Executive to Non-Executive Chairman in July 2007, I have disposed of a
portion of my Massmart shares, the most recent tranche last week. While my
preference would have been to retain my investment in Massmart, my view is that
in my future role as Non-Executive Chairman, my independence as well as my
interface and relationships with the Board and Executives will be enhanced by a
lesser shareholding.
Prospects
Although it can be expected that the tightening of monetary policy in response
to gradually rising inflation will slow the extraordinary rate of retail sales
growth, not all retailers will be affected equally. Massmart is uniquely
positioned in South African retail. Any susceptibility to economic cycles
resulting from its leadership in the general merchandise and home improvement
sectors (52% of Group sales), is mitigated both by its participation in
wholesale food and its cash profile (consumer credit constitutes only 1.2% of
Group sales). Massmart cannot be compared to the furniture or fashion credit
retailers who are more cyclical or the food retailers who are less so.
This time last year we predicted that the growth of retail sales (particularly
credit sales) would decline gradually as the South African Reserve Bank raised
interest rates. Recent reports from credit retailers confirm this but Massmart
has yet to see any decline in comparable store and total sales growth.
With weighted inflation across the Group of 3%, sales from continuing operations
for the 21 weeks to the 19th November 2006 grew 16.7% and comparable store sales
grew 12.6% both significantly higher than at this time last year. Sales before
new stores opened in the current year grew 16%.
There is every indication that this will be an exceptional Christmas for
Massmart. In each division the merchandise proposition is innovative and well
priced, the marketing appeal is focussed and pervasive, and control of supply
chain, expenses and working capital is at an all time high. Given the current
pace of consumer activity in our 236 stores and the operational efficiency of
our business, Massmart will enjoy a good first half with sales growth ahead of
the comparable period in 2005, and higher profit margins notwithstanding an 8.6
cents per share IFRS 2 charge arising from Thuthukani, our Black Economic
Empowerment transaction.
While it is difficult to predict the impact of rising interest rates on sales
growth in the second half, we remain confident that profits will grow at a much
higher rate than sales for the full year notwithstanding a 21.3 cents per share
charge arising from Thuthukani.
MARK J. LAMBERTI
Johannesburg
22 November 2006
Date: 22/11/2006 09:21:05 AM Produced by the JSE SENS Department
