The Retailer

26 February 2009
Financial Results for 26 weeks ending 28 December 2008

Ability to generate cash continues to be a core strength

Massmart, Africa’s third largest distributor of consumer goods, today announced good overall results for the period ending December 2008, underpinned by powerful cash generation.

Significantly, cash generated by operations increased by 41,1% to R2,528 billion, thanks to tighter working capital management.

The group’s latest results directly reflect consumer responses to the current uncertain environment, with a clear focus on more immediate needs, an increased emphasis on value and a preference for cash over credit.

This consumer behaviour is evident in the differing performance across the Group’s four high-volume, low-cost, low-margin distribution divisions, with Masscash and Masswarehouse producing strong profit growth.  Massdiscounters performed well, supported by a strong performance in Africa, while Massbuild, which is exposed to bonded residential property, felt the impact of a tighter interest rate cycle.

With food inflation close to 20% during the period, efforts were focused on securing the lowest possible prices and passing them onto consumers.


Highlights


Financial Review


 *   For the 26 weeks to 28 December 2008 total sales increased by 13,1%

 *   Comparable-store sales increased by 11,9%. Sales inflation was 9,9%

 *   Gross profit of 18,1%, slightly lower  than the prior year’s 18,4%

 *   Headline earnings; Headline EPS grew by 13,1% (growth before net forex gains: 6,6%)

 *   Return on equity of 49,5% at December 2008

 *   Final cash dividend of 252 cents per share, representing a 1,7 times dividend cover

 *   A Thuthukani dividend of 189 cents per share, equivalent to 75% of the ordinary dividend

 *   Total expenses increased by only 11,8% and improved as a percentage of sales over the prior period.


 
Strategic and Operational Review


 *   Net trading space increased by 3,9% to a total of 1 052 555 m² and total stores stand at 254 following one store closure, six store openings and seven store acquisitions

 *   A 51% shareholding in the six-store Cambridge Foods business was acquired for cash in December 2008

 *   Strong food and liquor sales growth of 18,6%; Steady general merchandise sales growth at 11,8%; slow home improvement sales growth of 1,4%, slowing through the period

 *   Group inventory levels back to acceptable levels, as evidenced by cash generated from operations

 *    Switch to new Massdiscounters supply chain model well underway: Game Regional Distribution Centre (RDC) in Cape Town, opened in August 2008, operating effectively; additional RDC planned for in Gauteng

 *   Conclusion of several purchase agreements for new Retail Cash and Carry stores, subject to regulatory approvals

 *   Buyers’ and marketers’ skills in managing private label brands upgraded and internal targets for performance established

 *   Independent verification of improved BEE scoring from level 6 to level 5 contributor


 
Commenting on the results, Massmart CEO Grant Pattison said: “We are satisfied with the performance of the Group but still see many opportunities for improved performance. Management is endeavouring to balance a disciplined operating focus that is responding to the most recent trends, with investments in long-term competitiveness and growth, whilst being cognisant of cash preservation.”

Pattison said excellent progress had been made on all dimensions of the group’s strategic plans, notwithstanding the fact that management focus had been somewhat diverted by the need to respond to sales pressure.

For the 34 weeks to 22 February 2009, total sales increased by 12,7% and comparable sales by 11,3%.

All economists and participants in the consumer goods industry agree that 2009 will be more difficult than 2008, despite expected interest rate cuts.  Save for any further economic shocks, the group anticipates an improvement in the environment in the second half of the calendar year.
 
“The group is in a healthy position to weather the economic storm and we should emerge stronger and in an advantageous position to participate in the next economic upswing,” said Pattison.