Results Presentation. for 26 weeks ended 28 June 2015

Transcription

1 Results Presentation for 26 weeks ended 28 June 2015

2 The Environment It s tough out there! South Africa: Consumer confidence at 14-year low CPI range-bound but Food inflation soon to increase Manufacturing sector in technical recession. Load-shedding. Job losses And entering a month interest up-cycle (+50bps?) Increasing legislative & regulatory demands Africa: Many countries affected by double-dip of lower Commodities prices and USD strength Weak & volatile currencies USD is de facto currency But long-term potential remains intact Interim results Presentation August

3 Retail Environment Divergent behaviour. Place your bets! Upper-income consumers stable but confidence falling. Lower asset prices now to compound this? Middle-income affected by job losses. Direction of the credit cycle unclear? Lower-income sustained by Commodities deflation, buffeted by job losses National sales data seems ok are majors holding share at expense of weaker businesses? Time for caution in South Africa too much space, too little volume growth? Intense competition in Retail Food Commodities in deflation, likely to reverse soon Weak demand and cost-inflation causing pressure along entire retail value chain Some retailers benefitting from weaker / failed formal competitors Retailers seeking new growth avenues: ex-sa, ex-africa, new formats, new categories Interim results Presentation August

4 Massmart Response Trust our model. Superb execution. Be patient and measured. Grow market share in our major categories Very deliberate about our South African new space growth (only 0.8% space growth in H1) Invest in skills & capability people, IT & Supply Chain for the longer-term Customer traffic & loyalty through omni-channel African growth Game, Builders Warehouse, and Cash & Carry measured and steady pace Reduce operating costs as % of sales (12-mth rolling Opex as % of sales is 16.3%) Maintain positive price-gap Acquire strategically significant prime real estate avoids future cost inflation & permanently secures retail site Supplier collaboration Private label Interim results Presentation August

5 Financial Performance Great sales growth, good margin management and decent cost control in tough environment. 26 weeks June 2015 (Reviewed) % of sales 26 weeks June 2014 (Reviewed) % of sales Period % growth Comparable % sales growth Estimated % sales inflation Sales 38, , Massdiscounters 8, , Masswarehouse 10, , Massbuild 5, , Masscash 13, , Trading profit before interest and tax Massdiscounters Masswarehouse Massbuild Masscash (34.5) Interim results Presentation August

6 Perspective on Game Short-term trading recovery. Longer-term business renewal. Short-term: Improving SA performance Food roll-out: 19 new / converted Fresh stores since June 14. Sales participation now 19% Weak African environment. Negative Rand comparable sales growth Merchandise renewal rationalise categories & merchandise ranges Improving in-stock service levels, and SA inventory below June 14 Positive price-gap in GM and Food Longer-term: Category renewal Gen Merch & Food younger, female, family Optimise supply chain utilisation SAP GK point-of-sales implementation in 2016, and SAP ERP likely for 2017 Interim results Presentation August

7 Perspective on Masscash Wholesale Fluid market consolidation opportunity. Transforming the business. Short-term: Commodities (25% participation) in deflation caused margin pressure. Vibrant market Gained market share, despite soft market ARCH Enterprise IT system enabling regional buying & pricing Africa tough trading Longer-term: We are a relationship business very close to our customers Largest participant in SA formal Wholesale, and wholesale market remains 20%-25% of total South African FMCG Drive lower operating costs from fewer & larger stores, Shield B2B, logistics & DCs Be suppliers preferred distribution partner an efficient & effective route to market Interim results Presentation August

8 Financial performance

9 Strong performance Positive gearing of 3.6% from Sales to Operating Profit. +3.6% +1.8% +1.8% 9,1% 10,9% 12,7% Growth in Sales Growth in Gross profit Growth in Operating profit before foreign exchange movements and interest Interim results Presentation August

10 Sales Real comparable volume growth of 3.2% (June 2014: 2.3%). Rm 26 weeks June 2015 (Reviewed) 26 weeks June 2014 (Reviewed) % growth Comparable % sales growth Estimated % sales inflation Real comparable volume growth Total 38, , Massdiscounters 8, , Masswarehouse 10, , Massbuild 5, , Masscash 13, , Rest of Africa businesses sales growth: Sales in ZAR grew by 14.6% and in constant local currencies grew by 16.9% 8,2% General Merchandise inflation remained steady at 3.6%, Food & Liquor and Home Improvement inflation decreased to 3.3% and 5.2% respectively 91.8% Rest of Africa sales SA sales Interim results Presentation August

11 Operating profit before forex and interest 0,2 0,4 0,6 0,8 1,0 1,2 1,4 Jun-14 June 2014: Operating profit before forex of R702.9m Sales-related gross margin Price-and-mixrelated gross margin Total Group sales for the period increased by 9.1% Gross profit for the period increased by 10.9% A strong trading performance in Makro and Massbuild Employment costs Occupancy costs Depreciation, Amortisation and Impairment of Assets Total increase of 12.2% / Comparable increase of 8.5% Increase in staff (Full-Time Equivalents) of 3.2% to +/- 44,000 FTE s Total increase of 8.0% / Comparable increase of 2.6% 3.4% increase of net new trading space since June 2014 to a total of 1,551,613m² Electricity, rates and taxes increased by approximately 9.5% Depreciation growth of 12.8% / Comparable increase of 8.2% Other operating costs Total increase of 7.2% / Comparable increase of 8.7% Jun-15 June 2015: Operating profit before forex of R791.9 million Increase of 12.7% Interim results Presentation August

12 Good Operating profit growth impacted by forex and interest Rm Operating profit before foreign exchange movements and interest June 2015 (Reviewed) June 2014 (Reviewed) % change Foreign exchange loss (106.7) (7.9) Net finance costs (234.8) (154.9) Taxation (143.7) (164.1) Profit for the period (18.4) Profit attributable to non-controlling interests (25.1) (26.0) Profit and loss on disposals (12.3) 14.1 Headline earnings (26.0) Interim results Presentation August

13 Foreign Exchange Movements % 6% 95 82% Group loans and other monetary balances Hedges Other Average African currency rate Majority of the forex loss is as a result of the weakening of the average basket of African currencies against the Rand The strength of the US Dollar against the Rand exacerbated this loss Interim results Presentation August

14 Interest Rm June 2015 (Reviewed) June 2014 (Reviewed) Finance costs (252.5) (176.6) Finance income % change Net finance costs (234.8) (154.9) (51.6) Increase in finance costs attributable to: 35% 46% 19% Property acquistions Increased cost of funds Expansions and working capital Interim results Presentation August

15 Working Capital June 2015 (Reviewed) June 2014 (Reviewed) Inventories (Rm) 10, ,774.7 Inventory Days Trade Debtors (Rm) 2, ,907.0 Debtors Days 10 9 Trade Creditors (Rm) 11, ,849.2 Creditors Days Good inventory management. Growth of 7.7% is below sales growth Supply chain efficiency efforts starting to yield Significant focus on and efforts to clear older stock in Massdiscounters continues Trade Creditors increased by 5.0% while Creditors days decreased Interim results Presentation August

16 Capex as a % of sales Capital Expansion 4,0% 3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 2 500, , , ,0 500,0 Rm 0,0% June 2011 June 2012 June 2013 June 2014 June ,0 Property acquisitions Investment to expand operations Total capex as a % of sales Businesses acquired Investment to maintain operations Total capex as a % of sales excl. business and property acqs Total Capex as a % of sales: 2.7% (June 2014: 2.3%) Total Capex excl. business & property acquisitions as a % of sales: 1.7% (June 2014: 1.5%) Interim results Presentation August

17 Capital Allocation Strong investment in past continues into the future. Heavy Capex spent in past and future Committed to Africa African Real Estate will be different (i.e. Acquisition based) Investment into SAP and Supply Chain High degree of economic uncertainty and volatility Move to more conservative balance sheet Interim results Presentation August

18 In summary For the first half of the year the Group managed to maintain or gain market share in all of the major categories in which it trades Total sales growth was 9.1% (Jun 2014: 10.2%) and comparable sales growth was 6.9% (Jun 2014: 7.1%) Gross profit increased by 10.9%, bringing our margin to 18.9% (June 2014: 18.6%) Comparable expenses were well-controlled Foreign exchange loss of R106.7m (Jun 2014: R7.9m loss) Interest increased in line with expectation Operating profit before foreign exchange movements and interest increased by 12.7% (Jun 2014: -3.8%) Interim results Presentation August

19 Strategic priorities Improve Profitability Grow Builders and Retail Food in South Africa Grow into Africa Grow Online

20 Strategic Priority 1 Improve profitability Fast fact Massmart has the highest annual sales densities in SA retail at R205m/store and the lowest operating costs as a % of sales at 16.3%

21 Improve Profitability A focus on Sales, Operating Margin and Expenses. Drive comparable sales with a clear and well executed value proposition Private labels Trojan, CampMaster, LOGIK, Fired Earth, ECONO, Builders Pride, Marketside, Great Value, Equate, M, etc. total sales penetration now 9.5% Existing & new stores measured SA roll-out, selected ownership, lower cost of construction Leverage SAP and RDC investments Reduce non-trading space And focus on higher growth non-sa markets, Retail Food & Omni-channel Interim results Presentation August

22 Strategic Priority 2 Grow Builders and Retail Food in South Africa Fast fact Recent Game research indicates that 20% of customers shop the store as a food destination

23 Grow Builders formats in SA Leverage our investment in management, structure & SAP. Great total sales growth of 16.3% shows strength of this format Upweighting focus on our commercial & contractor customers Launched 2nd Pricelock campaign in March 15 Private label 17.9% of the total sales great innovation & value Gauteng RDC (opened in 2013) performing superbly. Replenishment 84% of total orders and critical part of inventory optimisation Flexible Builders Warehouse store layout And Builders Express stores effective as a market filler Good learnings & success from new Superstore format. Approved another 10 stores Interim results Presentation August

24 Grow Retail Food in SA Build a Retail Food proposition on the General Merchandise and Wholesale platforms. Retail Food annualised sales now R15bn New Cambridge stores performing well. Disruptive format bringing Intense competition in that market segment Continued positive customer response to Makro offering. Sales growth of 9.2% Game Food grew at 20%. Approx 40% of customers on Food mission bought other non-food items. Clearer range & assortment Better leverage of Fruitspot across Cambridge, Makro and Game stores in Gauteng. Great price & quality Our Marketside brand now across fresh produce, bakery and butchery in Game, Makro and Cambridge Food Interim results Presentation August

25 Game Food Case Study Interim results Presentation August

26 Strategic Priority 3 Grow into Africa Fast fact Average sales in each Massmart store ex-sa is typically 3.5 times greater than that of SA retail peers

27 Grow into Africa To leverage South African market leadership and operating strengths in sub-saharan Africa. Large prize but measured roll-out. Currently 35 stores in Africa, representing R6.5bn sales, in 13 countries Currency devaluations and related consequences difficult to manage New Game stores in Kitwe, Zambia, & Nairobi, Kenya, in H1 Yesterday opened first multi-format (Builders & Game) development in Matola, Mozambique Builders Warehouse performing very well in Botswana & Mozambique. Will open first store in Lusaka, Zambia, in Q4 20% of Masscash Wholesale sales are ex-sa, mainly Botswana. Exploring further C&C sites in Mozambique and Zambia Anticipate opening 8 new stores in next two years. Nigeria, Ghana & Zambia Bespoke African Retail Potential study confirms significant potential of our formats across key African countries Interim results Presentation August

28 Strategic Priority 4 Grow online Fast fact Makro online has had 8.4 million unique visitors since launching in April 2014

29 Grow online To build a profitable omni-channel presence synergistic with Massmart category market leadership and customer needs. Total online sales (including Masscash B2B) are 5.1% of Group sales Visits to DionWired site are up 17%, average basket size is up 7% Makro GM online launch annualised, and Q2 visits were up 61%, with sales up 148% Field-testing Makro pick-up lockers at selected Sasol and McDonalds' sites Makro s commercial online platform to launch in October 15 Masscash trialling store-based online ordering capability Initiating SAP online project in Builders Warehouse targeting trade customers. Launch in mid-2016 Together with major telco, are developing innovative FMCG digital solution for Wholesale customers Interim results Presentation August

30 H1 Sustainability Highlights MWh of electricity saved, increasing total saved since January 2014 to MWh environmentally responsible products added, achieving sales of R260m Estimated tons of paper, plastic and board recycled, representing 53% of primary waste produced during the period 20 million meals prepared in 280 Massmart sponsored mobile kitchens, serving in excess of primary school learners Great achievements in Supplier Development Fund (see booklet) Interim results Presentation August

31 Prospects For the 33 weeks to 16 August 2015, total sales increased by 8.7% and comparable sales by 6.8% We are confident about delivering our strategic priorities, but the economic environment may be a constraining factor in FY15 & FY16 Any reference to future financial performance included in this document has not been reviewed or reported on by the Group s external auditors. The auditor s report does not necessarily report on all of the information contained in this announcement/financial results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor s engagement they should obtain a copy of the auditor s report together with the accompanying financial information from the issuer s registered office.

32 For further details, go to massmart.co.za/interimresults2015

33 Additional information Condensed Consolidated Income Statement Tax rate reconciliation Cash Flow Statement Store portfolio Store portfolio including location of stores Forecast stores: July 2015 June 2017 Capex per category Number of shares

34 Condensed Consolidated Income Statement for the 26 Weeks ended 28 June 2015 Rm 26 weeks June 2015 (Reviewed) 26 weeks June 2014 (Reviewed) Revenue 38, , Sales 38, , Cost of sales (31,545.8) (29,010.2) (8.7) Gross Profit 7, , Other income (34.5) Depreciation and amortisation (461.7) (409.2) (12.8) Impairment of assets (3.4) (14.9) 77.2 Employment costs (3,236.8) (2,885.1) (12.2) Occupancy costs (1,415.7) (1,311.0) (8.0) Other operating costs (1,525.4) (1,423.2) (7.2) Operating profit before foreign exchange movements and interest Foreign exchange (loss) / gain (106.7) (7.9) Operating profit before interest (1.4) Net finance costs (234.8) (154.9) (51.6) Profit before taxation (16.6) Taxation (143.7) (164.1) 12.4 Profit for the year (18.4) % growth Interim results Presentation August

35 Tax Rate Reconciliation % 26 weeks June 2015 (Reviewed) 26 weeks June 2014 (Reviewed) Standard tax rate Non-taxable income and disallowable expenses Allowances on lease premiums and improvements (0.1) (0.1) Assessed loss not utilised Other - including foreign tax adjustments (5.5) (3.9) Group tax rate Interim results Presentation August

36 Cash Flow Statement Rm June 2015 (Reviewed) June 2014 (Reviewed) Operating cash before working capital movements 1, ,137.5 Working capital movements (2,925.3) (2,519.9) Cash utilised by operations (1,617.3) (1,381.8) Net interest and tax paid (523.1) (616.0) Net investment to maintain operations (365.5) (326.1) Free cash flow (2,505.9) (2,323.9) Dividends paid (622.8) (597.0) Investment to expand operations and other net investing activities (290.0) (256.1) Cash outflow before financing activities (3,418.7) (3,177.0) Interim results Presentation August

37 Store Portfolio December 2014 Opened Closed June 2015 Number of stores Massdiscounters Masswarehouse Massbuild Masscash Massdiscounters: Opened 4 Game stores (one in Kenya and one in Zambia) and one DionWired store Massbuild: Opened one Builders Warehouse store and one Builders Express store Closed one Builders Express store and two Builders Trade Depot stores Masscash: Opened three and closed one Retail stores Interim results Presentation August

38 Store Portfolio including location of stores Massdiscounters Masswarehouse Massbuild Masscash Total December Opened: Game: 2 Africa stores Game: 2 SA stores DionWired: 1 SA store BWH: 1 SA store BEX: 1 SA store Retail: 3 SA stores Closed BEX: 1 SA store BTD: 1 SA store Retail: 1 SA store June Interim results Presentation August

39 Forecast stores: July 2015 June 2017 June 2015 Forecast new stores Jul 2015 Jun 2017 June 2017 Number of stores Massdiscounters Masswarehouse Massbuild Masscash Trading space (m 2 ) 1,551, ,282 1,706, % increase Massdiscounters 521,892 43, , Masswarehouse 195,794 24, , Massbuild 434,534 46, , Masscash 499,393 41, , Massdiscounters: Game SA 6; DionWired 4; and Game Africa - 4 (Mozambique 1, Nigeria 2 and Zambia 1) Masswarehouse: Makro 2 Massbuild: BWH SA - 3; BEX 3; BSS - 9; BW Africa - 1 (Zambia 1); and BSS Africa 2 (Mozambique 1 and Zambia 1) Masscash: Retail 15; Wholesale SA 1; and Wholesale Africa - 1 (Mozambique 1) The 10.0% increase in trading space above includes a 21.9% increase in our Rest of Africa trading space Interim results Presentation August

40 Capex per category Rm 26 weeks June 2015 (Reviewed) 26 weeks June 2014 (Reviewed) Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware Computer software Other 6.8 Investment to expand operations Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware Computer software Investment to maintain operations Interim results Presentation August

41 Number of shares At December ,118 Shares issued 18 At December ,136 Weighted-average at June ,764 Diluted weighted-average at June , Interim results Presentation August