Walmart’s Overseas Headaches Grow as Massmart Cuts Dividend

(Bloomberg) -- Massmart Holdings Ltd.’s lower dividend payout is yet another international headache for majority owner Walmart Inc.

The South African retailer, controlled by the Bentonville, Arkansas-based global chain, cut its full-year dividend 40 percent on Thursday, sending the shares as much as 6.7 percent lower.

Walmart, which bought a majority stake in Johannesburg-based Massmart in June 2011 for 16.5 billion rand ($1.2 billion) has reported growing hurdles overseas, including in China, India and the U.K. In South Africa, Massmart is contending with falling sales at some retail outlets amid a slowdown in the continent’s most-industrialized economy and stubbornly high unemployment.

Massmart is giving shareholders a choice of taking their dividend payout as cash or shares -- the first time in about 10 years Massmart has used this option. That’s part of the retailer’s effort to preserve cash after profitability in the year through December took a knock.

A company broker has indicated that as much as 60 percent of shareholders may opt for the dividend as shares, Chief Executive Officer Guy Hayward said by phone from Johannesburg. If half of the owners take the scrip, it will mean Massmart can shore up 200 million rand of cash, he added.

No Emergency

“We are not blowing the whistle and declaring an emergency, we’ve always been very careful about costs and capital expenditure,” Hayward said. “But learning from how difficult last year got economically, we believe we need to be doubly vigilant.”

The company is also cutting back on opening new stores as it spends more on technology, while expecting “muted South African economic growth in upcoming years,” as customers face higher fuel prices and increased value-added tax, it said.

This outlook is shared by several South African retailers. Shoprite Holdings Ltd., Africa’s biggest grocer, this week said it expects a drop in full-year earnings. Massmart’s shares have declined 15 percent this year, compared with an 9.3 percent fall in the FTSE/JSE Africa General Retailers Index.

They traded 5.8 percent lower at 87.71 rand as of 10:51 a.m. in Johannesburg.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Bowker, Vernon Wessels

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