JSE-listed Massmart – the owner of Game, Makro and Builders Warehouse – revealed in a full-year results statement on Monday that it plans to sell its poor-performing and lower-profile Cambridge Food, Rhino and Massfresh businesses.
The group – which posted a wider net loss of R1.75 billion for its full-year to December 27, 2020 (R1.29 billion in 2019) but managed to reduce its headline loss to R0.9 billion (2019: headline loss of R1.2 billion) – seems to be updating its turnaround strategy to also include further disposals of “non-core” assets.
“We are also now moving beyond our turnaround imperative to align the group portfolio to our strategic objective to prioritise investment in core and high returning trading assets,” the group says in its latest results Sens statement.
“To this end we have appointed Barclays to facilitate the disposal of our Cambridge Food, Rhino and Massfresh [comprising The Fruitspot and a meat processing facility] assets,” it adds.
Massmart did not give more specific details in the Sens statement, saying further update announcements would be made in due course.
Its executives, however, did reiterate during a 2020 full-year results presentation to analysts later on Monday, that the divestment plan for Cambridge Food and Rhino is due to these chains being seen as non-core businesses.
Both businesses are still loss-making, posting a wider loss of R363.5 million in total last year, compared to a loss of just over R310 million in 2019. Part of the reason behind the wider loss is the impact of Covid-19 restrictions to trade, which hit sales during lockdowns.
“In January 2020, we announced a portfolio optimisation initiative as one of six work streams in the group’s Turnaround Plan. To date this has informed the closure of our DionWired stores and the decision to divest a number of underperforming Masscash stores,” it notes in the Sens.
“This portfolio optimisation process continues as an ongoing part of the turnaround of our South African store portfolio and will be extended, during the second quarter of 2021, to include a review of our stores outside SADC [the Southern African Development Community],” Massmart says.
Mitch Slape, Massmart’s CEO who came from parent group Walmart just over a year ago, told analysts and media on Monday that the plan to divest from the 64-store Cambridge Food and Rhino chains is a strategic decision.
“There is nothing wrong with these businesses… We just want to focus on the businesses [Makro, Builders Warehouse and Game] in the group that have clear market-leadership positions,” he says.
He points out that the Cambridge chain, which targets the lower end of the market and is “commuter retail focused, is “at number 8” in terms of food retail brands in South Africa.
“It will take a lot of time and energy to get it [Cambridge Food] to a market leadership position… There will be more value in focusing on wholesale [Makro], Builders Warehouse, the Game revitalisation and growing Massmart’s online business,” Slape says.
The group’s share price surged on news of the planned disposals of Cambridge Food, Rhino and Massfresh, which have struggled to gain market share in the face of larger fresh food retail competitors like Shoprite, Pick n Pay and Spar.
Massmart was up more than 20% on Monday, closing at R54.10 a share. The stock was likely also buoyed by progress on the group’s turnaround plan, which has seen a 5.5% increase (to R1. 17 billion) in trading profit before interest and tax for its 2020 financial year.