Massmart earnings down 8.3%

HEPS were 6.2% lower at 567.2 cents from 605 cents a year ago.

Total sales increased by 10% to R47.451 billion, while gross profit was 10.2% higher at R8.572 billion.

Operating profit was up 0.1% to R2.031 billion before foreign exchange movements.

Without foreign exchange adjustments, operating profits declined by 4.3%.

Despite lower headline earnings, the total cash dividend was unchanged at 386 cents per share, representing a 1.7 times dividend cover.

Difficult year

Commenting on the results, Massmart CEO Grant Pattison said the environment had been extremely difficult for the past 24 months, "but we have a growing sense of confidence that the worst is behind us."

"While net margins have declined, we are satisfied that the Group has demonstrated a relative level of resilience despite our cyclical mix.

"Our decision to continue to invest through the economic cycle should bear fruit in the years ahead," he said.

Investments, growing space

Massmart's one billion rand investment in growth has seen store space increasing by 8.5%, of which 3.1% is in new stores and 5.4% from acquisitions, while excellent control of expenses, margin and stock protected the income statement, enabling the group to maintain operating profit.

The business once again strong cash flows with cash generated from operations up by 7.2%.

Positive WC impact

According to Pattison, the 2010 FIFA World Cup was an exciting once in a lifetime experience for the country which also had a positive impact on business.

"We could certainly see the increased spend in our stores over that four-week period. We estimate this to have been between R200 million and R300 million of additional turnover, not significant in the year but welcome nevertheless."

During the year the group grew net trading space by 8.5% to a total of 1.179m and total stores stand at 288 following the closure or sale of six stores, the opening of 18 stores and the acquisition of 20 stores.

Massmart's divisions, Massdiscounters, Masswarehouse, Massbuild and Masscash, delivered a robust trading performance in an environment dominated by the effects of the strengthening Rand.

African division drop

Massdiscounters was impacted by a marked drop in Game Africa's trading profit, although Game SA grew sales and profit while DionWired saw sales increase by a massive 52.8%.

Massbuild performed particularly well, with a 13.6% increase in sales and a 24.6% increase in trading profit, a remarkable achievement given the negative residential building market.

Labour strains

Pattison said Massdiscounters had experienced a strain in labour relations as management sought more labour flexibility from the unions in order to extract productivity improvements from the group's investment in the supply chain.

"Unfortunately we were unable to reach resolution and had to resort to retrenchments, which was devastating for those affected.

"We have been providing ongoing support to those employees," said Pattison.

As a result of those labour disputes there were isolated trade disruptions, including what appears to have been the deliberate destruction of the Game Lakeside Mall store by fire, a matter which is still under investigation by the police.

Gradual improvement expected

Commenting on the group's prospects, Pattison said: "In the short term we expect the food and African businesses to underperform due to food deflation and the strong Rand respectively, but expect gradual improvement in both of these throughout the coming financial year."

A strong trading performance in the general merchandise and home improvement categories saw total sales increase by 15% and comparable sales increased by 9.2% for the eight weeks to 22 August 2010, continuing the positive trends seen in the second half of the financial year.

"Acknowledging the concerns and uncertainty permeating the local economy, if current South African trading and economic trends continue Massmart should achieve profit growth, before any foreign exchange translation adjustments, ahead of sales growth for the full year," he said.