Massmart to spend $313 million on expansion

by The City Wire staff ([email protected]) 226 views 

Wal-Mart-owned Massmart Holdings Ltd., South Africa’s biggest food and goods wholesaler, will spend about 2.6 billion rand ($313 million) in the second half of this year and 2013 as it expands and plans to open as many as 40 new stores.

Massmart expects net trading margins to start climbing from 2014 once the company “overcomes the hurdles” of increasing its number of distribution centers and upgrading its technology systems, CEO Grant Pattison said on a conference call today.

Massmart shares have climbed 21% since South Africa’s Competition Tribunal in May last year approved Bentonville-based Wal-Mart Stores Inc.’s acquisition of a controlling stake in the company.

Massmart, with close to 340 stores in 12 African countries south of the Sahara, spent a record 1.7 billion rand in replacement and expansion costs in the fiscal year ended June 25. The company, which increased its cash from operations by 63% to 2.7 billion rand, isn’t planning to raise money to fund growth as internal cash flows are adequate, Pattison said.

Net income rose 40% from a year earlier to 1.17 billion rand in the year, the Johannesburg-based company said in a statement today (Aug. 22). Sales increased 16% to 61.2 billion rand. Trading profit, or earnings before interest, taxes and some financial items, rose 3.8% to 2.3 billion rand.

The company plans to open 30 to 40 stores in the next 18 months, with five of these in Africa outside its home market, Pattison said. Africa expansion is being slowed by the company’s difficulties in securing property, he said.

Wal-Mart’s purchase of 51% of Massmart was approved last year, subject to conditions including the setup of a 100 million-rand fund to assist local suppliers and promises not to fire employees.

While the transaction is “legally complete” Massmart is still waiting for the final court ruling on the makeup of the fund and the company has not been notified of the date, Pattison said.