Shirley Kemp And Arthur Buchner: Massmart


BROADCAST TRANSCRIPT: One set of results that came out after the JSE closed today, interims from Massmart. We’re going to go across to the Moneyweb News Centre where Shirley Kemp has had a good look at those numbers. Shirley, very briefly, tell us what those results look like.

SHIRLEY KEMP: Byron, the results are very good. Sales up 33%, operating margins improving and headline earnings per share growing 41% to about 102c a share. What’s quite interesting is that unlike so many of the other companies we’ve seen, Massmart says that September 11th and the slowing global economy haven’t really affected it. It’s nice to see that all its divisions did well with sales growth coming through across the board.

MONEYWEB: The group made some acquisitions in that six-month period. Just how have those done?

SHIRLEY KEMP: Yes, they bought Jumbo Cash & Carry and Brown and Weirs from Rebhold last year, and those were included in the results for the first time. They did very well, contributing about 15% to pre-tax profits, and then Massmart has also bought a company called Furnex which was effective 1st of January, but they are still waiting for approval from the Competition Commission for that one. That’s a voluntary buying organisation which will fit in with Shield.

MONEYWEB: One of the interesting things that they did announce in today’s results is that they will be reorganising themselves into nine chains … the nine chains into a new structure. How’s that going to work?

SHIRLEY KEMP: It’s got two existing divisions which will stay as they are. The first one will be the Mass Discounters, which is Game and Dions, and then the warehouse clubs, which is basically Makro. The new divisions – the third one will be called Masscash, that will be made up of the Cash & Carry chain, CCW, Brown & Weirs and Jumbo, and then the smallest division will be called Masstrade and that will house the buying group Shield and Furnex.

MONEYWEB: Looking ahead Shirley, what do they predict for the second half?

SHIRLEY KEMP: We have to remember that the weak rand will still push up prices and probably lead to lower sales volumes, but then at the same time consumers are going to have a little bit of extra cash in the hand thanks to Trevor Manuel on Wednesday, but the other thing to bear in mind is that the first half of the year is also usually better because of Christmas. So really the company has shown that it’s stable and capable of producing the results in tough times, so I would think that we would still see good growth in earnings for the year as a whole.

MONEYWEB: Thank’s very much to Shirley Kemp. We’ve still got Arthur Buchner from BoE Securities in the studio. Arthur, I’m sure you’ve had a look over those Massmart interims. Shirley said they were good. Do they match up in your book?

ARTHUR BUCHNER: I thought they were very good. You know, it takes me back about ten years ago when Makro used to be exclusive to the wholesalers and your café corner owner used to go there and quickly buy his stock that he was short of and he used to sell it, and he used to do that because he was getting them at such good discounts – now what’s actually happened is that your private man in the street … first of all he gets his card, he walks in there, he feels like he’s something special because you can only walk into your Makro store with your special card. He’s getting a reduced rate on his bulk purchases, and their margins actually increased this year. So the man in the street’s getting a better deal, they’re making more money and I think looking really, really good.

MONEYWEB: Also encouraging to see that the Makro in Woodmead, that burnt down, coming back on stream so quickly, and margins looking so good at the same time.

ARTHUR BUCHNER: 100%. I think there’s a billboard on the M1 that actually says the reason that Makro got up and running so good is because we settled before the ashes did – it’s actually a great billboard and really clever marketing, and it’s fantastic within 25 weeks to be up and running.

MONEYWEB: Having a look at what has come out of the Budget on Wednesday, taxpayers more money in their pockets certainly bodes well for a business like Massmart going into the next six months?

ARTHUR BUCHNER: With the 1% increase in interest rates, I’m busy using my tax rebate to pay off my bond, thanks very much! I’m not going to be spending it on anything, and I know that a lot of people did go out in December and spend and bulk up on goods, so I do think that on the lower end of the market it will help, but I think from their bulk-purchasing perspective, it’s not going to help that much.

Posted in Market commentary

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