Massmart resuts

Massmart have reported full year numbers for the 52 weeks to end June 26 2011. Yes, we also ask that question, but for retailers, sales are measured in weeks. These results are always going to be skewed by transactional costs associated with the WalMart purchase of a 51 percent stake. So, I will do my best to report the costs and what happened operationally. So, dive in. Sales increased 11.6 percent to 52.9 billion ZAR, operating profits, excluding transactional costs grew 10.3 percent to 2.059 billion ZAR. This translated to headline earnings per share (again before costs) to 616 cents per share, the dividend paid for the second half was 134 cents, 386 cents in total for the full year. They are always more generous in the first half.

Quite quickly, who are Massmart, you might well ask? For those of you who have dropped in from the Amazon and have been there for 15 years studying the lost tribes, here goes from their results release: "Massmart is a managed portfolio of four divisions, each focused on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash, in 13 countries in sub-Saharan Africa comprising 313 stores. The Group is the second largest distributor of consumer goods in Africa, the leading retailer of general merchandise, liquor and home improvement equipment and supplies, and the leading wholesaler of basic foods." Check this out if you want a better explanation, check it out from Massmart's Corporate Profile


OK, let us quickly include the costs of the transaction (408 million ZAR) and see what the real impact is to shareholders, someone has to pay. "Including the costs associated with the Walmart Transaction, operating profit decreased by 13.7% and headline earnings decreased by 22.5%." There you go. So, how is it going with the integration of the people of WalMart into the people of Massmart you might ask? Out with a whole lot of board members, thanks for your time, in with a whole lot of new WalMart folks, three to be exact. Only CEO Pattison and CFO Hayward remain as executive directors. We have very high regard for these overpaid guys and their continued ability to innovate, along with their equally well paid lieutenants. On that WalMart integration, Massmart makes specific reference to a team of twelve folks and their families who have moved here to work for the group. No doubt trusty WalMart people from HQ.

OK, why would you want to own a retailer that is on what looks like quite a demanding multiple? They are innovative, the newest push is through the Cambridge brand, which positions itself as a low cost grocery retailer, positioning themselves in locations such as Taxi ranks. Opening times for stores are 6am and closing time 7pm. Wow, well that is what I read here ---> Masscash transforms quiet KZN hardware store into buzzing Cambridge Food outlet employing 100 local people. I did know this, someone had told me this before, but interesting to see this (not really new) piece. That is the innovation part that I was talking about. Being able to try things, but ultimately it is value for money. And with what you would think are amongst the best retail brains on the planet, the innovation can only improve.

I have been dying to tell you this story. I went with Howie (a friend of mine) to queue for football tickets, South Africa versus Burkina Faso at the Alex Shoprite, in the Alex mall, not too far from here. Gee, the queue was slow and everyone was surprisingly patient, I told Howie we should have gone to Sandton, he agreed. Anyhow, next to the Shoprite was an "electronics store" for want of a better word, the store also sold bicycles, solar panels and "other stuff", but mostly electronics. So I went in (after we got our tickets for the game) and started quizzing the manager. A Chinese national, he didn't care much for my questions, even when I told him I had no authority and I was just an interested person in where he sourced all of his goods. I asked him for a DVD player box, no source printed anywhere on the box. He kept saying to me: "You know where all this comes from". Eventually I got the answer I wanted, everything in his store is made in China. Well, almost everything. Bicycles included.

I said smugly to Howie, see, the consumer does not actually care about where the product comes from, but only value for money. Mainly cheap stuff. I am sure that three decades ago you would have heard the phrase cheap Taiwanese (insert word). And perhaps ten years before that Japenese. And perhaps two decades ago, South Korean. And tell me, what do you think about the electronics and goods that come from those place now?

OK, but we digress (not again!!), that point was inserted to throw back at those in government that are telling Massmart to source locally. Surely that should apply then for all retailers? Yes, that should. But it is restrictive. WalMart are not here to cut jobs, close stores and slow revenue growth, they answer to their shareholders too. This is part of their emerging market growth profile, they are, the way I see it, going to expand aggressively into an untapped retail market.

So, the short answer is yes, they look expensive (but expansive), the long answer is that in the long term, I suspect that the company will grow quickly. And relative to their emerging market counterparts. WalMart Mexico for as long as I can remember has traded close to 30 times earnings. Or, when I check from time to time. What is also not surprising is that the WalMart Mexico share price is up 107 percent over ten years relative to the WalMart giant north of the border, which is up 5 percent. HOWEVER, WalMart is much cheaper, and has a price to book ratio of almost half of that of WalMart Mexico. For the record, Massmart do not expect the full impact of the relationship to be positive in 2013. 15 months away, 2013. Yech, we are getting old.

As you might now, we are buyers of the stock. This financial year so far: "For the 8 weeks to 21 August 2011, total sales increased by 13.5% and comparable sales increased by 7.1%, indicating perhaps either another market share gain, or a healthier than expected consumer." Let us hope that it is a bit of both.