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Massmart Focuses Strong Underlying Businesses on Recovery

Massmart has reported a total sales of R93.7 billion for the 52-week period ending 29 December, representing total sales growth of 3.0%, comparable sales growth of 1.5% and year-to-date internal sales inflation of 2.5%. Sales from our South African stores increased by 2.7%, with comparable store sales increasing by 1.3%. Total sales from our rest of Africa stores increased by 6.4% in Rands, and on a comparable store basis increased by 2.9% in Rands. Sales performance over the Black Friday period was robust and through Group collaboration saved customers in excess of R300 million. This momentum however, did not extend into the crucial festive season trading period. A combination of increased promotions during the year and continued consumer prioritisation of lower margin categories (Food & Liquor) over higher margin categories (General Merchandise and Home Improvement) resulted in gross margins declining from 19.5% to 18.9%.

Disappointingly, the aforementioned factors, in combination with total expense growth of 10.2%, resulted in a like-on-like net loss for the period of R861 million, with a headline loss of R747 million. These results are partly indicative of a constrained retail environment that worsened in the second half of 2019. Economic growth contracted in the third quarter and offered minimal relief during the fourth quarter. Compounding these tough trading conditions were trading disruptions resulting from protest action and load shedding, especially during the key December period. As a historic indication of performance, these results are also indicative of an outmoded and inefficient approach to our markets. It is against this backdrop that we have launched a business turnaround process comprising a series of urgent and deliberate interventions that were shared with the market on 30 January 2020.
On 30 January we announced six turnaround interventions, these are:

1. Unlocking benefits of Group scale by implementing a Retail and Wholesale focused operating model, supported by centres of excellence;
2. Establishing a R50 billion consolidated, lowcost Wholesale route to market with high relevance to customers and suppliers;
3. Positioning the Group supply chain to improve stock availability, increase supplier income, and reduce operating costs and working capital;
4. Relentlessly pursuing a R1.5 billion cost reset opportunity covering expense lines including; rental, utilities, technology infrastructure and applications software;
5. Driving significantly better basic operational execution at Game to restore sales growth, recover margins and operate as a low cost discounter; and
6. Closure (subject to a Section 189 consultation process) of 34 persistently unprofitable DionWired and Masscash stores. Mitch Slape, who was appointed CEO of Massmart in September 2019, commented: “Our Road to Recovery acknowledges that the core underlying business is strong and comprised of entrenched brands with high customer appeal. However, the landscape has changed, and we have been slow to respond. We are now acting with urgency to reset and unlock the real potential of our business.”

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