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Massmart still bullish about Africa - CEO

Aug 24 2017 15:11
Lameez Omarjee
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Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg – Despite a tough trading environment in Africa, Massmart [JSE:MSM] chief executive Guy Hayward is still positive about operational growth prospects on the continent.

The retail group, which owns Game, Builders, DionWired, Makro and Jumbo among others, released its interim results for the period ended June 25 2017 on Thursday. Speaking at the results presentation in Johannesburg, Hayward outlined the group’s strategy, which involves finding new growth outside South Africa.

“Despite the headwinds in Africa, we expect it will grow faster than South Africa. We must be there,” he said. The group expects growth in the Africa space to increase by 17.1% in the next two years.

Chief financial officer Hans van Lierop explained that the group’s performance over the past period had been impacted by a number of external factors. These include the recessionary conditions locally, which put sales under pressure. Lower confidence levels in consumers also saw them shying away from buying discretionary items.

Rapidly reducing inflation on commodities also impacted how customers in wholesale were buying, he said. However retail sales in the Builders unit were favourable; given residential building plans, this unit reported a meaningful margin of improvement among all the other business units.

READ: Woolies and other SA retailers under increasing pressure

Overall, the group experienced weak sales growth of 0.5% to R42.5bn. Van Lierop said stretched consumers opted to buy on promotions. Given low sales margins, the group focused on efforts to manage expenses, which saw total expenses drop by 0.2% for the period. Headline earnings were up 2.5% to R328.6m, and a dividend of 76c was declared.

The group’s operating profit fell by 14.1% to R775.1m compared to the same period last year, and the bottom line was down 10.7% to R337.1m.

The effects of currency volatility in 2016 also impacted operations in the first half of 2017, explained Van Lierop. “Africa sales had a tough time because of currency volatility.” Consequently, sales were down 11.9%. Africa sales contributed 8.2% of total sales, compared to the 9.3% reported in the previous year.

On a constant currency basis, Africa sales grew 2.6%. “The underlying business in Africa is doing well,” he commented. As currency volatility subsides, improved performance is expected going forward.

ALSO READ: Walmart-owned Massmart wins court battle against Pick n Pay

Locally sales were up 1.7%, and South Africa contributed the majority (91.8%) to total group sales. Food retail contributed 58% to total South African sales and increased growth by 8.3% in the period, keeping pace with the market, said Van Lierop. However, in terms of product mix food margins were much lower than those of general merchandise.

Hayward said it is difficult to make forecasts for the remaining part of the year with “great confidence” and “conviction” in the light of volatility and political uncertainty. Lower inflation and a stable rand would see consumers having more money in wallets. This, coupled with possible rate cuts, could possibly boost consumer confidence.

“The next six months may be slightly better than the past six months. But time will tell,” he said. 

Massmart shares were 3.3% up on the JSE at R128.99 shortly before 15:00.

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