Massmart, the parent of brands such as Makro, Builders and Game, has reported full-year results stained in red ink thanks in part to the impairment an SAP ERP system.

The Group recognised an impairment expense of nearly R1.1-billion, most of which related to assets impacted by South Africa’s July 2021 riots of R230.7-million, and Game’s corporate assets of R507.2-million, “the most significant of which is the SAP S/4 Hana ERP system software asset”.

Game reported a trading loss (before interest and tax from continuing operations) of more than R1-billion, from a trading loss of half that a year ago. Brian Leroni, senior vice president for group corporate affairs at Massmart, told TechCentral that the Game SAP impairment was largely the result of implementation delays that resulted in additional costs. “The system is now stable and fully functional in Game.”

Weaknesses in African currencies, together with hedging costs associated with a dollar-denominated loan from parent Walmart, resulted in foreign exchange losses of R178.5-million, a 53.2% decrease from 2020. Net interest expenses increased by 2.3% to R1.8-billion.

Group sales for the 52 weeks to 26 December fell by 1.9% to R84.9-billion, while gross margin decreased by 191 basis points to 18.5%. Excluding inventory write-downs as a result of the riots, gross margin decreased by 45 basis point to 19.9%.

All of this resulted in a trading profit of R195.4-million, a decrease of 83.3% from the prior year. It reported a net loss of R2.2-billion, an increase of 25.7% from the prior-year loss. The headline loss was R1.5-billion, and increased by 65%.

The government ban on alcohol sales also hit Massmart hard: restrictions on liquor trading had a R1.8-billion impact on sales, or R193-million in lost sales margin.

Riots

On the July riots, Massmart said 43 of its stores and two of its distribution centres were impacted. Nine stores and both DCs still remain closed due to “significant damage”.

Damages incurred from the civil unrest from inventory written off and assets impaired amounted to almost R1.5-billion. Insurance proceeds recouped for damaged inventory and assets was R1-billion, of which R171.2-million relates to third-party liabilities.

Lost sales directly related to store closures is estimated at R2.7-billion, with lost sales margin estimated to be R473.1-million.