Tag: losses

By Myles Illidge for MyBroadband

Walmart will continue to support Massmart through its losses while the company implements changes at subsidiaries like Game needed to turn the business around.

This is according to Massmart CEO Mitch Slape, who told the Sunday Times that this support is not unconditional, and that their patience with Game had limits.

Massmart has seen three consecutive years of losses. In 2021, Game was to blame for nearly 47% — R1.03 billion — of the company’s R2.2 billion net loss.

Slape explained that Walmart knew Massmart’s executive team was intervening at Game.

This included selling fourteen stores in East and West Africa and selling fifteen “non-core” stores in South Africa.

According to Slape, if they get to a point where they don’t believe Game can be turned around, they would “assess it and make the appropriate decision.”

In its financial results for 2021, Massmart reported that its performance was impacted by two waves of Covid-19 and resultant lockdowns, as well as civil unrest.

“Black November and Festive season trading were also impacted by stock availability, resulting from the destruction of two distribution centres during the July unrest,” the company stated.

Massmart lost its primary import processing centre during the violence and looting in July 2021 and faced supplier stock-outs in the electronic goods and home appliances supply chain.

Alcohol bans and restrictions implemented during lockdowns cost Massmart approximately R1.8 billion in lost sales. According to the report, this translated to an estimated R193 million loss in sales margin.

Liquor sales contributed 15% of total sales in 2021, up from 13% in 2020.

According to Slape, the Russia-Ukraine conflict could aggravate the situation or provide an opportunity.

“The fallout that we’re seeing from some of that may result in higher inflation [and] certainly we’re seeing it in commodity pricing and things like that,” he told Cape Talk.

“I also think it creates an opportunity for Massmart in the sense that we are laserbeam focused on cutting costs, maintaining costs, and making sure we are in a position to keep our prices as low as possible.”

He explained that if there were price increases needed, Massmart would aim to be the last to implement them.

Massmart’s brands include Builder’s Warehouse and Makro, in addition to a range of food-focused retailers. It is majority-owned by US retail giant Walmart.

Builder’s Warehouse showed growth in 2021, reporting a trading profit of R1.18 billion — up from R1.03 billion in 2020.

Last year, Massmart announced that it was selling some of its food-focused retailers to Shoprite Checkers for R1.36 billion.

The company’s financial proceeds would be earmarked to pay down drawn bank facilities, invest in e-commerce, and merchandise areas in which Massmart is the market leader, such as general merchandise, DIY, and wholesale food and liquor.


Game is Massmart’s biggest problem

Source: Knowledia

A trading update for the first half of the year from Massmart on Friday spooked investors who had been banking on a stronger recovery. The share closed over 9% lower at R54.95, having traded as much as down 11% on the day.

While the headline number seems “satisfactory” – sales are up 4.4% ­– it must be remembered that the group is comparing sales this year to a period last year during which the country was practically shut down for a month, with the level-5 hard lockdown from 27 March through the rest of April. In May, some restrictions were eased, and in June the economy was opened further. Compare the first half of this year to 2019 and sales have dropped 5.7% across the group.

Makro’s R13.7-billion in sales for the 26 weeks are 2.2% higher than the comparable period in 2019. At Builders, sales of R7.2-billion are 7.5% better. The real horror show is in the group’s cash and carry and Cambridge food businesses as well as Game.

Sales at Game were 7.6% lower than the same period last year, with comparable stores sales being 6.9% lower

Total sales in the cash and carry and Cambridge units is down by 9.8%, or R1.4-billion, when compared to the first half of 2019. This decline was led by Cambridge, which the group has been trying to sell for the last six months. Sales in this business, ranked eighth in food retail in the country, are 9.4% lower than last year.

A far bigger problem, however, looms at Game.

Massmart says sales at Game were “7.6% lower than the same period last year, with comparable stores sales being 6.9% lower” — this despite half the period being impacted by lockdown last year. (In South Africa, the decline was 4.6%.)

Compare sales at Game to the first half of 2019 (excluding the impact of lockdown), and although there is some impact of “lost” sales due to the closure of DionWired, these are down 19.1%! Game and Dion Wired were part of Massmart’s former Massdiscounters division.

The R6-billion question (the current value of its 51% stake) is how long Walmart will continue to waste management time – and money – trying to fix Massmart.

Massmart CEO Mitchell Slape has already done the easy work: shutting and selling underperforming stores, fixing retail basics in Game, stripping out large chunks of head office costs (by outsourcing central functions to Walmart suppliers) and securing a R4-billion (soft) loan from Walmart to bolster its balance sheet during a Covid-19 impacted year last year.

The rampant looting and destruction in July may have been the final straw.

Redefine Properties income takes a knock

By Edward West for IOL

REDEFINE Properties’s distributable income fell 21.8 percent per share to 26.2 cents in the six months to February 28, compared with a pre-Covid reporting period, mainly because of the impact of Covid-19 on the property sector and economy.

However, the company was in a good position to benefit from an anticipated uptick in property fundamentals in line with the expected vaccine rollout in the latter half of the year, chief executive Andrew Konig said yesterday in a presentation.

No full-year distribution guidance was provided, and the dividend was deferred until the end of the financial year because of the uncertain environment.

Redefine shares dipped 4.36 percent to close at R4.17 on the JSE yesterday.

“We did not take this decision lightly. It is fundamental to our investment proposition to pay dividends, but, unfortunately, there is just too much uncertainty to factor in right now. We hope to have better news towards the end of the year,” Konig said.He said an improvement back to pre-Covid levels should take place once vaccines were broadly rolled out.

“We believe the bottom of the cycle has been reached. What we are expecting – and this is also what has happened in other countries who have made good strides on their vaccine programmes – is that the roll-out of vaccines will lead to more mobility in the system.

“This means more people going out to work, to shop and to play, and that quickly translates into confidence, which is the cheapest form of economic stimulus,” he said.

However, until this began, weaker property fundamentals and low economic growth had to be factored in for this year and beyond.

Redefine’s new chief financial officer, Ntobeko Nyawo, said Redefine’s loan-to-value ratio reduced to 44.3 percent at half-year from 47.5 percent, and the plan was to reduce this to below 40 percent next year.

Liquidity was “ample” at R4.8 billion, and 98 percent of gross billings were being achieved in collections.

Apart from the impact of Covid-19, the lower revenue was attributable to the deconsolidation of European Logistics Investment BV in the second half of last year, the sale of Leicester Street, and the disposal of non-core local properties.

According to News24, some of Redefine Properties’ offices are now empty. The property company, which owns a handful of shopping malls and offices in Sandton – including WeWork – is battling the highest office vacancy rate in its history.

Office vacancies rose to 14.6% from 13.8% at the end of the company’s 2020 financial year in August last year. When including vacant offices held for sale, this figure rises to 14.9%. Secondary grade offices that include older buildings and those not very well located had a vacancy rate of 24.2%.

By Londiwe Buthelezi for News24

Pick n Pay says it lost R2.8 billion in sales because of trading restrictions and store closures during the six months to 30 August.

The retailer, whose first half of the 20201 financial year began just four weeks before South Africa went into lockdown, said liquor and tobacco sales decreased 47.5% over the period, while clothing sales in South Africa only shrank by 4.2%.

Still, the retailer managed to grow its turnover by 2.6% year-on-year, or 1% on a like-for-like basis when new stores aren’t factored in. Turnover from its South African operations increased by 3.4%, or 1.7% on a like-for-like basis. But core retail sales – which include food, groceries and general merchandise but exclude liquor, clothing and tobacco – grew 9.9% in the country, or 7.6% on like-for-like basis.

Growth of online

Pick n Pay said its online store doubled its sales growth during this lockdown, recording a 200% increase in active customers. Pick n Pay expanded its “Click n Collect” services to meet increased demand and launched an online store for its clothing offerings in August.

The group also announced on Tuesday that it has agreed to buy on-demand online grocery service Bottles. The acquisition is expected to be completed by November this year.

“This will enable Pick n Pay to build on the success it has achieved in partnership with Bottles in recent months, and further strengthens what is already sub-Saharan Africa’s largest and most popular online grocery business,” it said in a media statement.

Bottles was launched in 2016 as South Africa’s first alcohol on-demand delivery app, and partnered with Pick n Pay in 2018.

Pick n Pay added that it will continue to grow its online footprint through “a comprehensive suite of delivery options, including a pre-scheduled and standing-order delivery service, an expanded Click n Collect offer”, over and above its an on-demand essential grocery and liquor offer

Growing the clothing business

The retailer opened 11 new clothing stores during the lockdown period, but also closed six underperforming stores. Even though clothing retailers have been confronted by drastic change in consumer preferences and fashion – with the lockdown accelerating the move towards athleisure wear – Pick n Pay said it is confident that it will be able to grow its clothing business.

It plans to make “targeted investments” in stand-alone clothing stores and put in additional space for clothing in hypermarkets and supermarkets too. This comes at a time when Massmart is also expanding its offering in “value clothing” after closing the fresh food section in Game stores to make space for basic clothing instead.

Job cuts loom at DStv

By Chris Forrester for Advanced Television

According to a report in South Africa’s Sunday Times newspaper, pay-TV operator DStv is laying off up to 200 staffers in a move to save cash amidst increased competition.

A DStv spokesperson said the move was in order to create a leaner and more agile business. Existing staff are being asked to reapply for their jobs, says the newspaper.

DStv’s parent, MultiChoice has lost some 41,000 Premium top-tier subscribers in the year to March 31st.

MultiChoice has made no secret of its annoyance that rivals such as Netflix and Amazon Prime are eating away at its core subscribers and yet operate without having to fulfil the licensing obligations faced by MultiChoice.

MultiChoice CEO Calvo Mawela has called for a change in regulations to cover the new OTT entrants.

Property-related and business interruption losses as a result of fire and weather catastrophes have increased dramatically in South Africa, with 2017 having the highest underwriting losses on record.

Insurers incurred material underwriting losses driven by major natural catastrophes including the Knysna bush fires, the Transnet Rossburgh warehouse fire (the single largest fire loss) in Durban, a large hexane plant fire, a tornado in Gauteng and multiple heavy rainfall, hail and flooding events in Gauteng and KZN.

Reinsurers no longer regard South Africa as a low catastrophe risk region due to the high frequency of large loss events, resulting in adjustments and price increases.

“Given that the principle of insurance is that the losses of the few are paid for by the many, and the losses of the few have been greater than the total premium collected, insurers have had to respond by increasing premiums for all clients – even those with no claims at all,” says Clive Boyd of Aon South Africa, insurance brokers and risk consultants.

Insurers are also reviewing the types of risks they are prepared to take on, paying particular attention to high-hazard industries such as paint, plastics, wood, packaging, refrigeration, recycling and warehousing.

“Insurers are far more stringent when taking on risks, and clients will need to demonstrate their commitment to risk mitigation and prevention. In terms of fire risks, insurers may make the installation of Automatic Sprinkler Inspection Bureau (ASIB) approved sprinkler systems mandatory, and require that, in the event of a fire, the insured must prove that valid electrical and occupancy certificates had been obtained and that the premises was SANS 10400 compliant. In the absence of any of these, a fire-related claim can be rejected in its entirety, so the importance of managing compliance with fire-risk management requirements cannot be emphasised enough,” explains Boyd.

Risk management is another focal point for insurers. In the absence of a demonstrable risk management process, a business could find that an insurer may opt not to renew cover if it believes the risks are uninsurable. In order for a risk to be underwritten, there must be a survey report on file, indicating that the risk meets minimum underwriting guidelines and that the insured has adopted and implemented the risk control recommendations made in the report.

“After a decade of declining rates and profitability for insurers, battered by consecutive years of major losses due to natural catastrophes, it took a particularly bad year in 2017 to trigger the inevitable hardening of rates that 2018 is continuing to experience,” says Boyd.

“In order to remain insurable, risk managers need to review their formal risk management and audit programmes, ensuring that they comply with all national building regulations, installing ASIB approved sprinkler installations where recommended and adhering to risk control requirements as set out in underwriting survey reports. Mitigating fire risks requires close collaboration between insurers, risk managers and brokers to ensure that the current risk management programmes are still compliant with a significantly more stringent underwriting process. Failure to comply with the statutory requirements and codes of practice for fire protection can leave businesses in severe financial crisis and with potential legal ramifications.

Ultimately, reviewing such programmes is a task best undertaken with a professional broker who will work with the client to ensure that the fire prevention strategy is linked to an insurance program that fully addresses the needs of the business. With the assistance of professional partners, Aon assists clients with practical knowledge of building codes, fire codes as promoted by various specialist bodies, as well as knowledge of construction materials, manufacturing processes and storage practices and the relevant hazards involved therein. By linking this to an aligned insurance program that covers virtually all the ‘what if’ scenarios of not only the physical damage but the knock-on implications for business continuity, clients get to experience the real value of a comprehensive fire risk analysis and the support of a professional and experienced broker at their side to guide them through the process.

Is Woolworths ‘in need of a shake-up’?

Analysts are divided on whether Woolworths CEO Ian Moir should fall on his sword after the retailer was forced to impair the value of its Australian department store chain, David Jones, by nearly R7bn.

Moir, an expert in fashion retail, has been at the helm since 2010. But David Jones has been weak and outperformed by the food division in SA and Australia. One thing all analysts agree on is that top management is in dire need of a shake-up.

Although Woolworths attributed the impairment to “the cyclical downturn and structural changes” affecting Australia’s retail sector, some analysts are adamant that overpaying for a struggling asset in a foreign territory was a bad move and top management should be held accountable.

They argue that at the core of the impairment, which equates to about a third of the R23.3bn paid in 2014, was poor foresight by management.

Portfolio manager at Gryphon Asset managers Casparus Treurnicht said that it was about time that top-level management was reorganised so individuals could be held more accountable. He reminisced about how in 2014 Woolworths assured shareholders that “initiatives are expected to deliver incremental ebit [earnings before interest and tax] of at least R1.4bn per annum within five years”.

However, the acquisition remained a noose around Woolworths’s neck, pointing to a poor performance by management.

“Wow! Management really did well for themselves!

“Not only did they overpay for DJ [David Jones], they simply got the cycle wrong and never delivered on promises.

“They must be held accountable,” said Treurnicht,

Peter Takaendesa, portfolio manager at Mergence Investment Managers, said that Moir had come out to take some responsibility for the poor execution at David Jones.

“Ian is an experienced retail executive and has executed very well in the past.”

He said other retail companies such as Mr Price had also experienced patches of weaker execution recently but had
managed to resolve those issues. “We therefore believe investors are likely to give him a chance to resolve those execution issues but failure to demonstrate progress over the next 12 months could cost him his job,” Takaendesa said.

Vele Asset Managers equity analyst Matthew Zunckel welcomed the impairment, saying it was overdue as it had been clear for a while that the assumptions used in calculating the goodwill attributable to David Jones were overly optimistic.

He said that while the write-off would distort a number of metrics, it would allow David Jones to strategically start on a “clean” slate with a more reasonable valuation of David Jones on Woolworths’s books and better prospects of earning an adequate return on capital.

But he maintained that management should take accountability for the “disastrous move”, as the acquisition resulted in a huge amount of value destruction for shareholders.

Woolworths warned that its headline earnings per share for the 26 weeks to December 24 were expected to drop between 12.5% and 17.5%.

On Thursday morning, the share price dropped 11.7% but recovered to close 2.33% lower on the day at R64.14. Those who invested in Woolies at the start of the year have lost 1.79%.

The underlying issue in Australia is that turnaround plans are not bearing fruit in the department store industry.

Zunckel said that department store managements were having to fight an established structural story of consumer preference for shopping online or at speciality retail stores, and so far that structural story had remained entrenched. Meanwhile, there is some wariness about close competitor TFG’s interest in expanding even further into the impregnable Australian market, after it bought RAG for R3bn in 2017.

“When will people realise that 70%-90% of acquisitions fail?” Treurnicht said, adding
that value could only be created organically. “That’s how Shoprite and Clicks’s share prices outperformed,” he said.

But Takaendesa argued that TFG’s international expansion appeared to be going well so far, which might mean that it was selecting better assets to acquire or executing better or both.

“They are currently an outlier in that regard as most South African retailers are struggling when it comes to expanding into highly competitive developed markets,” he said.

“We will be closely monitoring cash generation and the sustainability of their better performance to avoid Steinhoff kind of problems.”

Source: Supermarket & Retailer 

SABC posts massive R977-million loss

The South African Broadcasting Corporation posted a R977m loss after tax for the 2016/17 financial year, its annual report tabled in Parliament on Tuesday revealed.

The public broadcaster’s net loss for the year ending March 2017 more than doubled from R412m in 2016, following a year of upheaval that included the dissolution of the permanent board in late 2016.

Revenue declined from R8.1bn in 2016 to R7.6bn, representing a 6% year-on-year decrease.

Advertising also dropped 5% to R5.6bn, in a year that saw former chief operating officer Hlaudi Motosoeneng implement the 90:10 local content policy in May.

Sponsorship revenue declined by 18% to R384m, while TV license revenue decreased 7% to R915m.

Operational expenses remained the same at R8.6bn.

The report also said that the SABC had a cash balance of R82m, representing a net outflow of R800m since the previous year.

“The fact that operational cash was used to fund capital expenditure projects, the cost of delivering on broadcaster’s public service mandate and the rising cost of Sports Rights contribute to the pressure being placed on the organisation’s cash reserves,” the report reads.


An interim board was appointed by President Jacob Zuma on March 26, 2017, following a lengthy inquiry process into the broadcaster and Parliament’s approval of 5 names to serve in the interim.

The new board, led by interim chairperson Khanyisile Kweyama, made inroads into turning the beleaguered broadcaster around, and has been praised by both the portfolio committee on communications and standing committee on public accounts.

The interim board’s mandate expires this week. The National Assembly approved a list of 12 names for non-executive board positions on September 5, which only await President Zuma’s approval.

They include all five interim board members.

The 12 are: Michael Markovitz, Khanyisile Kweyama, Mathatha Tsedu, Nomvuyiso Batyi, Rachel Kalidass, Victor Rambau, John Matisonn, Jack Phalane, Krish Naidoo, Febe Potgieter-Gqubule, Dinkanyane Mohuba and Bonbumusa Makhathini.

Source: MyBroadband

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