Dis-Chem has, for the first time, disclosed the impact of a controversial internal memo penned by then-CEO Ivan Saltzman in October 2022 that prohibited the appointment and promotion of white people at the group.
Buried in its financial results for the first half of FY2024, it notes that it saw “softer FY23 second half performance impacted by negative publicity, which was carried forward into the first quarter of FY24”.
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Profit before tax in the second half of FY2023 (September to February) was down 11% to R560 million (from R632 million).
This was masked by a once-off accounting gain of R72 million from the purchase of a number of properties from directors and related parties (it no longer had a lease liability for these assets), which was included in the overall profit figure for the year-end period.
Profits were up by 9.6% in the last financial year, but this was a far cry from the 30.4% increase in the previous year or the 31.9% jump in the first half of FY2023 (excluding that ‘accounting’ profit).
There are two ways to ‘normalise’ its profit figures.
First, straight-line growth from H1 (31.9%) for the full year, which would give you profit in the second half of R833 million.
The difference from the R560 million achieved? A cool R273 million.
The other is to assume that first-half profits equate to a weighting of 48% of the annual figure, which is consistent with its disclosure for the FY2021 and FY2022 years (before the letter). This gives a figure of around R850 million for H2, at a weight of 52% – an even bigger difference (around R290 million).
That’s the impact in the last financial year.
In the first six months of this year, profit before tax was down 10.6%, mirroring the decline in the second half of FY2023. Dis-Chem says the “negative publicity” impacted the first quarter (March to May).
It is not possible to discern exactly how much the elevated levels of load shedding in this period also dampened consumer demand, but a simplistic calculation assuming growth of 20% (slower than last year) would yield a profit before tax of R942 million. Its actual profit was R240 million lower.
Profits were approximately R500 million lower than they ‘ought’ to have been, certainly based on historical trading performance.
How much of this was due to the euphemistically named “negative publicity”? Let’s be generous and assume that the economic environment has had an impact, including those elevated levels of load shedding. Could this have been R200 million? More? Maybe? Still, that means it lost hundreds of millions of rands in profit in the last year due to the impact of the memo.
The board in October 2022 issued a lengthy statement saying it regretted “the wording and tone of an internal memorandum that has been erroneously widely shared”.
“We acknowledge that it did not reflect our values. Its release did not follow our correct internal vetting processes, and steps have been put in place to ensure that, going forward, relevant checks and balances are thoroughly duly performed.
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“More importantly, we sincerely regret the offence and distress it caused to so many people, including our staff and millions of loyal customers,” it added.
“We deeply value all our employees and appreciate their contribution to Dis-Chem. We stand by the unequivocal imperative to continue our transformation journey. Equality, diversity, and inclusivity are important throughout Dis-Chem, and we continue to make great strides in ensuring that we maintain progress in this area.
“We have always been cognisant of the imperative to comply with all legislation, including employment equity, on our journey to meet transformation targets, and with a priority of employment on merit, based on our view of giving employment preference to previously disadvantaged communities. We apologise for the erroneous communication which caused offence to any South African community.”
No word on the memo
Strangely, Dis-Chem group did not address the memorandum or its contents in its 2023 annual report at all. It didn’t even refer to the “negative publicity”. It simply stated that 88.5% of its South African employees are black and 66.4% are female.
It says “the group continues to focus on its transformation journey, with an improvement on its B-BBEE [broad-based black economic empowerment] Scorecard level expected for the financial year FY2023″.
“Enhanced and focused people development initiatives continue to support the group’s people capability, from entry-level programmes which support new entrants to the workplace, to more strategic leadership-focused development programmes. These initiatives support the sustainability of the group’s growth aspirations, but also support individual growth opportunities for a diverse profile of employees.
“… A workforce that is representative of the demographic profile of the country remain key focus areas for FY2024 and FY2025.”
Its B-BBEE score has improved from Level 8 in 2022 to Level 6 in 2023.
Its enterprise and supplier development score nearly doubled, while the skills development and ownership scores increased. Management control (with a weighting of 19) dropped from 7.03 points to 6.89 points.
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