Mounting costs halt Massmart dividend payout

Published Aug 30, 2019

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JOHANNESBURG - Massmart has hit the brakes on paying dividends in the half-year to June as the group that owns local brands such as Game, Makro, and Builder’s Warehouse pushed into the red on spiralling costs and lower profits.

The group said yesterday that its total expenses jumped 11.8percent during the period, while comparable expenses increased 9.2percent.

It said it recorded a 52percent fall in trading profit to R318.9million, while African currency weakness resulted in foreign exchange losses of R157.1m, compared with a R23.4m gain last year.

Massmart withheld the dividend payout after paying shareholders 68cents a share last year.

“An additional net 16 stores opened since June 2018, increased municipal tariffs and electricity costs together with the severe load shedding experienced in February and March have resulted in an increase of 8.7percent of occupancy costs, and a comparable increase of 6.5percent,” the company said. Massmart operates 441 stores in 13 sub-Saharan countries.

The group said that it recorded a 538.1percent net loss to R832.4m from a R190m profit in the previous year. Headline losses rose to R796.6m, compared to headline earnings of R204.1m last year.

The sharp decline was the first half-year trading loss since the group first listed on the JSE in 2000.

Ron Kiplin, a portfolio manager at Johannesburg-based Cratos Wealth, said the cutting of the dividend came as the company looked to incoming chief executive Mitchell Slape for hope.

“It looks like Slape is going to change Massmart’s fortunes by major cost-cutting, possibly rebranding the company and a potential selling of non-core assets. He might even make the group more focused on the Walmart format, by doing things the Walmart way. He understands the emerging market environment, having been involved with Walmart operations in India,” Klipin said.

Slape is scheduled to take the helm next week. He is replacing Guy Hayward, who had indicated his intention to resign and step down from previously held leadership roles in Walmart’s US, Japan, Mexican and Indian markets in May.

Walmart bought Massmart in 2010. But the purchase has been a big disappointment as its value has halved since that time.

Massmart accounts for almost 40percent of the local market for household appliances.

The group said that its total sales for the 26-week period grew 5.5percent to R43.8billion, with the local operations contributing 4.9percent.

Kiplin said Massmart needed to urgently address cost escalations.

“It needs to reduce costs. Massmart finds itself in a situation where sales are growing less than costs,” he said.

The recently introduced IFRS 16 costs also impacted on the cost profile, with a major escalation in depreciation costs. However, these are non operating costs. Depreciation and amortisation increased by 20.3percent.

“In addition to the impact of new store openings, the implementation of the Hybris web and fulfilment platform in Makro has been completed and its related depreciation has commenced,” the company said.

Massmart shares rose 7.86percent on the JSE to close at R42.69 yesterday.

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