INTERIM RESULTS PRESENTATION FOR THE 26 WEEKS ENDED 1 JULY 2018

Transcription

1 INTERIM RESULTS PRESENTATION FOR THE 26 WEEKS ENDED 1 JULY 2018

2 AGENDA FINANCIAL REVIEW OPERATIONAL REVIEW

3 Hans van Lierop FINANCIAL REVIEW

4 Financial summary SALES GROSS PROFIT MARGIN TRADING PROFIT BEFORE INTEREST & TAX (excl. restructure costs) HEADLINE EARNINGS (excl. restructure costs) R41.6bn h1.9% 2017: R40.8 billion* 19.6 % R664.2m 2017: 19.7%* i19.5% 2017: R825.2 million R290.3m 2 i20.4% 2017: R364.7 million *Like-on-like basis including material impact of IFRS 15

5 IFRS 15 impact Presentation prepared on like-on-like basis to reflect the material IFRS 15 impact Like-on-like* Like-on-like Reported Reported Rm June 2018 June 2017 growth June 2017 growth Sales 41, , % 42, % Gross profit % 19.6% 19.7% 18.9% Expenses as a % of sales -18.3% -17.9% -17.2% Trading profit before interest and tax 1.6% 2.0% 1.9% Working capital Inventory days Creditor days Debtor days * Restated to include IFRS 15 impact in prior year

6 Financial highlights SALES GROWTH* EXPENSE MANAGEMENT TRADING PROFIT BEFORE INTEREST & TAX (excl. restructure costs) HEADLINE EARNINGS (excl. restructure costs) June 2018 h1.9 % h3.9 % i19.5 % i20.4 % COMP h0.2% COMPARABLE h2.1% COMPARABLE * Like-on-like basis including material impact of IFRS 15 in both periods

7 Sales by geography and category TOTAL GROUP Group Food & Liquor sales h0.9% Group Durables sales h3.1% SA SALES 91.6% h2.0% Sales remained resilient EX-SA SALES 8.4% h1.0% Constant Currency h5.7% Good performance in constant currency FOOD & LIQUOR DURABLES FOOD & LIQUOR DURABLES 56% 44% 51% 49% Food & Liquor h0.6% h3.7% Food h4.4% i2.2% Like-on-like basis including material impact of IFRS 15

8 Gross profit margin Margins protected in spite weak sales environment GROSS PROFIT MARGIN COMMODITIES DEFLATION PROMOTIONS AND DURABLES DEFLATION GROSS PROFIT MARGIN Competitive pricing Promotional cherrypicking Good margin management June 2017 June % 19.6% Like-on-like basis including material impact of IFRS 15 in both periods

9 Sustained cost discipline Comparable expense growth limited to 2.1% DEPRECIATION h0.5 % i2.0% COMPARABLE IT equipment and software Re-assessment of useful lives (IFRS) EMPLOYMENT COSTS h5.8 % h4.6% COMPARABLE FTEs remained stable Improved staff scheduling Selective replacement OCCUPANCY COSTS h5.1 % h3.7% COMPARABLE Net 0.8% trading space increase Management of municipal and energy costs Favourable lease renewals OTHER OPERATING EXPENSES n0.0 % i3.1% COMPARABLE 22% of total expenses Continued focus on cost containment

10 Divisional performance Trading profit before interest and taxation i19.5% MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH R95,3m 2017: R79.8 million R484.5m 2017: R485.9 million R280.5m 2017: R250.4 million -R4.1m 2017: R13.1 million Sales impacted by deflation Gained market share in domestic large appliances and Hi-tech Continued emphasis on margin management Good expense management Restructure and reorganisation Good sales given consumer environment Great online sales growth Strong liquor performance Some margin pressure from product mix Strong sales performance Exceptional online sales growth Benefitted from Commercial customers participation Strong expense management Good sales growth in Retail Wholesale stores affected by ongoing commodities deflation Margins pressure from high commodity participation Good expense management Restructure and reorganisation THE GIANT OF AFRICA The 'trading profit before interest and tax' above is the amount per the condensed consolidated income statement less the BEE transaction IFRS 2 charge and excludes restructure costs.

11 Net finance costs Net cash positions effectively managed across the Group NET FINANCE COSTS CASH INTEREST DECREASE ir13.5m ACCOUNTING INTEREST INCREASE hr21.4m NET FINANCE COSTS Cash interest reduced by R13.5m Accounting interest impacted by finance lease engaged at the end of 2017 June 2017 R282.1m June 2018 R290.0m

12 Working capital INVENTORY DAYS CREDITORS DAYS DEBTORS DAYS Jun 18 Jun 17 Stock days increase mainly due to month-end timing Creditors days increased proportionally with stock levels Debtors days stable 10 10

13 Guy Hayward OPERATIONAL REVIEW

14 The perfect storm Personal Tax h 1 st Qtr SA GDP declined CPI increase i2.2% h5.1% y/y Currency volatility VAT Unemployment high Electricity tarriff h10.6% R/$ exchange rate h1% 27.2% h5.2% Fuel h11.1% Consumer confidence 22points Retail sales growth slowed i0.7% y/y Sources: Investec CPI update (July 2018). Statistics SA: Gross Domestic Product (GDP), 1st Quarter Econometrix Rand & Commodity Price Snapshot (June 2018)

15 Key performances GOOD HOME IMPROVEMENT GROWTH DURABLES DEMAND SOFT, GAINED MARKET SHARE EXCELLENT ONLINE SALES GROWTH SUPERB EXPENSE CONTROL h7.6% 39% h69% Growing ahead of market Market shares in Large Domestic Appliances* sales growth h2.1% comparable expense increases below inflation * Source: GFK SA (June 2018)

16 Household consumption Consumer spending on Durables decreasing SERVICES h1.7% NON-DURABLES h1.6% SEMI-DURABLES i6.1% DURABLES i9.5% Consumer prioritising Food over Durables Consumer delaying spend for promotions and prioritising value Source: South African Reserve Bank

17 Food / FMCG Price of Food basket lower following the recovery from the drought INFLATION (CPI) FOR Q1 SEES A FIVE-YEAR LOW. FUTURE DIRECTION DEPENDS ON OIL PRICE AND RAND MOVEMENT 5% 4% Food Inflation 3% % 1% MARKET R380 MASSMART R371 MARKET R440 MASSMART R393 MARKET R442 MASSMART R416 MARKET R414 MASSMART R394 0% -1% -2% Jan '18 Feb Mar Apr May June '18 Massmart Food inflation South Africa Food inflation CLOVER UHT PRISM FULL, SUNFOIL SUNFLOWER OIL PBT 2L, FUSION CONC PEACH APRICOT 1-7L, COLGATE MCP GRF 100ML/150G, KOO BAKED BEANS TOMATO SCE 420G, KNORR ENV RICH OXTAIL 50G, CEREBOS IODATED SAL PBG 500G, BLACK CAT SMOOTH JAR 400G, BULL BRAND CORNED MEAT 300G, GOLDI IQF MIX PORTION 2KG, KNORROX CUBE BEEF BOX 24X10G, LUCKY STAR PILCHARDS TOMATO 400G, ACE SUPER MAIZE MEAL POLY 10KG, SUNLIGHT PURE BAR 500G, BLUE RIBBON CLASSIC BROWN 700G, SHIELD MEN ORIGINAL DRY ROLL ON 50ML, SNOWFLAKE CAKE FLOUR PPDB 2.5KG, CREMORA BOX, PROTEX DEEP CLEAN SOAP, SELATI BROWN SUGAR PBG 2KG Source: Nielsen RMS June 2018

18 Sales performance Total sales h1.9% *. Comparable sales h0.2% * MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH R9.1bn 2017: R9.5bn* R12.9bn 2017: R12.2bn* R6.4bn 2017: R6.0bn* R13.1bn 2017: R13.1bn* i4.0% SALES h5.4% SALES h7.6% SALES h0.3% SALES Product deflation of 4.6% Game SA sales i2.3%, shows volume growth 2 nd Quarter saw stronger sales growth in SA Ex-SA sales -5.7% in Rands and h1.0% in constant currencies Product deflation of 0.7% Good sales growth in Liquor & Durables. Food impacted by commodities deflation New store (Riversands, N Jhb) struggling from poor national road access Above-market sales performance Higher sales growth from Contractors ex-sa growth h8.1%, and h11.2% in constant currencies Product deflation of 0.3% Good Retail sales growth h4.3% Wholesale affected by commodities. Sales growth h4.5% excluding this category ex-sa growth h7.9% and h10.1% in constant currencies THE GIANT OF AFRICA * Like-on-like basis, including material impact of IFRS 15

19 VAS and online sales growth VALUE-ADDED SERVICES (VAS) ONLINE SALES h71% growth in gross income underpinned by RCS and bill payments h69% Online sales growth Successfully implemented suite of VAS: airtime, electricity, bill payments, lotto and gift cards Online sales now represent 1.6% sales participation h31% Instant money transfers h29% Improvement in Lotto sales h25% Improvement in extended warranties gross written premiums 195 Unique customer collection points h23% Average basket size h159% Online traffic growth h91% Online marketplace growth 37% Commercial sales contribution to Makro online sales Click & Collect and delivery available from all Builders stores in SA

20 Private Label New product development and innovation driving sales growth and category leadership FOOD BRANDS IN PORTFOLIO % SALES PENETRATION 2017: 6.8% GEN MERCH BRANDS IN PORTFOLIO 53 SALES PENETRATION 14.7% 2017: 14.4% Focusing on KVI lines Collaborative seasonal deals to secure reduced cost prices and increased volumes Seeing good margin improvement across all GM brands Lusso tap range launched in February - contributes 63% to total tap sales in Massbuild

21 Leveraging Group scale for efficiency Group wide transport, logistics, planning & storage Making good progress in providing reliable and cost effective availability of any product in any format or channel, by leveraging group scale Savings achieved reduced operating costs, improve margin & working capital Objective to reduce cost to serve by 1% Supplier onboarding through Massmart Distribution Network continues to grow, with further growth planned for H2

22 New Game layout 5 stores to change over next 8 weeks and a further 15 by end of November 2018 Layout changes to accommodate bulk and pricing kits to highlight discounts Driven by stock up customer journeys Narrow assortment of KVI s bulk displayed on dry goods Narrow Fresh assortment mostly hards i.e. potatoes, onions etc. Better lines-of-sight Value bundles and multibuy will be key drivers of consumer behaviour

23 Africa update Plans remain on track Additional 2% space growth since December Ghana Nigeria Uganda Kenya 12 COUNTRIES 32.9% AFRICAN RETAIL SPACE GROWTH (EX SA) Ghana +2 stores 7,200m 2 Kenya +5 stores 23,001m 2 Nigeria +1 store 3,600m 2 Zambia +4 stores 11,224m 2 Builders Game Jumbo NEW Namibia Botswana Lesotho Tanzania Zambia Malawi Mozambique 43 STORES R3.5bn SALES 220,915 M 2 OF RETAIL SPACE 14% OF TOTAL SPACE IS EX-SA

24 Update GAME REORGANISATION Reorganised the Merchandise & Buying teams and moved these and some other business functions (including head office) to Johannesburg. SAP MODULES SAP Hybris into Makro SAP GK POS into Builders GAME SAP ERP Primary focus on user- & systemstesting phase. Go-live scheduled for Q LISTERIA Outbreak caused a dramatic decline in processed meat sales. Now seeing gradual recovery in sales with focus from affected suppliers. MASSCASH REORGANISATION Merged Jumbo & Cambridge executive teams. Combine key skills, reduce opex and leverage scale.

25 Sustainable business Highest BBBEE score in the retail sector with a score of Rated by FTSE in the top five companies globally for ESG performance in the Broadline Retail Sub-Sector Overall winner of the ABSA and Business Day Supplier Development Awards 4,4 million kwh renewable energy generating capacity best in SA retail 21 million litres of water conserved through onsite water harvesting 44 million Department of Basic Education-supplied meals prepared in Massmart mobile kitchens

26 In summary Tough trading environment Focusing on growth Leveraging costs and Group scale Low demand for Durables High commodity deflation i i g Driving online h69% Testing new Game layout Driving valueadded services h71% + Driving structurally lower operating costs Implementing Group DC service & network Drive down cost-to-serve i1%

27 Outlook Higher sales growth subsequent to end June 18: the 33-week like-on-like sales growth is 2.3% for total and 0.4% for comparable. Total sales decrease of 2.5% and 4.3% comparable decrease per IFRS 15 Near-term outlook clouded by current SA economic weakness and uncertain global political & economic situation (impacting oil price, the ZAR & trade-flows) Group s profitability skewed towards 2 nd half of financial year and particularly the 4 th quarter Assuming no further deterioration in SA consumer economy, Massmart remains cautiously optimistic 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.

28 FOR FURTHER DETAILS INTERIMRESULTS2018

29 ADDITIONAL INFORMATION Condensed consolidated income statement Tax rate reconciliation Cash flow statement Capital expenditure Capex per category Store portfolio Forecast stores: Jul 2018 Jun 2020 Number of shares

30 Condensed consolidated income statement Extract from Reviewed Interim Condensed Consolidated Results for the period ended 1 July weeks June 2018 IFRS 15 & 9 adjustment* 26 weeks June weeks June 2017 Period Adjusted 53 weeks December 2017 Rm (Reviewed) (Adjusted) (Reviewed) % change % change (Audited) Revenue 41, , , ,627.4 (2.2) ,029.1 Sales 41, , , ,506.3 (2.2) ,735.2 Cost of sales (33,416.3) (1,776.8) (35,193.1) (34,475.3) 3.1 (2.1) (76,084.6) Gross profit 8,142.1 (7.9) 8, , ,650.6 Other income (0.5) Depreciation and amortisation (544.6) - (544.6) (542.0) (0.5) (0.5) (1,095.4) Employment costs (3,653.8) - (3,653.8) (3,453.6) (5.8) (5.8) (7,402.9) Occupancy costs (1,708.9) - (1,708.9) (1,626.6) (5.1) (5.1) (3,187.0) Other operating costs (1,698.5) 2.8 (1,695.7) (1,697.9) (0.0) 0.1 (3,463.3) Trading profit before interest and taxation (5.6) (19.5) (20.2) 2,737.1 Restructuring cost (note 5) (110.3) - (110.3) Impairment of assets (8.5) - (8.5) (0.2) - - (18.9) Insurance proceeds on items in PP&E (69.1) (69.1) 58.8 Operating profit before foreign exchange movements and interest (5.6) (34.2) (34.9) 2,777.0 Foreign exchange gain/(loss) (note 6) (16.6) (47.2) Operating profit before interest (5.6) (30.0) (30.7) 2, Finance costs (300.9) - (300.9) (294.6) (2.1) (2.1) (585.4) - Finance income (13.6) (13.6) 26.4 Net finance costs (290.1) - (290.1) (282.1) (2.8) (2.8) (559.0) Profit before taxation (5.6) (47.3) (48.4) 2,170.8 Taxation (84.0) 1.7 (82.3) (159.9) (649.1) Profit for the period (3.9) (47.3) (48.3) 1,521.7 * To provide a more meaningful assessment of the current period performance, the financial tables have been prepared on a like-on-like basis which includes the material impact of IFRS 15 in the first half of the current and prior financial year. Refer to note 3 for detail on the impact of the new accounting standards using the modified retrospective approach.

31 Tax rate reconciliation % Jun 2018 (Reviewed) Jun 2017 (Reviewed)) Standard tax rate Non-taxable income and disallowable expenses (0.5) 0.2 Assessed loss not utilised Other - including foreign tax adjustments 0.5 (1,0) Group tax rate

32 Cash flow statement Rm Jun 2018 (Reviewed) Jun 2017 (Reviewed) Operating cash before working capital movements 1, ,542.8 Working capital movements (5,147.7) (4,205.3) Cash utilised from operations (3,893.8) (2,662.5) Net interest and tax paid (532.8) (505.1) Net investment to maintain operations (274.0) (353.3) Free cash flow (4,700.6) (3,520.9) Dividends paid (603.0) (504.1) Investment income Investment to expand operations and other net investing activities (347.2) (378.5) Cash outflow before financing activities (5,636.8) (4,373.5)

33 Capital expansion 4.0% 3.5% JUN , ,200.0 Property expansion Capex as a % of sales 3.0% 2.5% 2.0% 1.5% JUN 2014 JUN 2015 JUN 2016 JUN 2017 JUN , Capital expansion (Rm) Businesses acquired Investment to expand operations Investment to maintain operations Total capex as a % of sales 1.0% Total capex as a % of sales excluding business and property acquisitions 0.5% % 0.0

34 Capital expenditure Rm Jun 2018 (Reviewed) Jun 2017 (Reviewed) Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware Computer software Investment to expand operations % Total Capex as a % of sales (Jun 2017: 1.7%) 23.2% 28.7% Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware Computer software Investment to maintain operations % 30.3% 9.0% Land & buildings/leasehold improvements Vehicles Fixtures, fittings, plant & equipment Computer hardware Computer software

35 Store portfolio Total Massdiscounters Masswarehouse Massbuild Masscash Up from 423 in Dec 2017 Down from 166 in Dec in Dec 2017 Up from 108 In Dec 2017 Up from 128 in Dec Opened Closed -2 DionWired -2 in South Africa +3 Builders Express +2 in South Africa +1 in Mozambique +2 Retail +2 in South Africa -1 Builders Trade Depot -1 South Africa

36 Forecast stores: Jul 2018 Dec 2020 Total Massdiscounters Masswarehouse Massbuild Masscash Up from 425 to 474 Up from 164 to 179 Up from 21 to 22 Up from 110 to 123 Up from 130 to South Africa Ex-SA Game +3 in South Africa +2 in Ghana +4 in Kenya +1 in Namibia +1 in Nigeria +2 in Zambia DionWired +2 in South Africa +1 Makro +1 in South Africa Builders Warehouse +1 in South Africa +1 in Kenya +1 in Zambia Builders Express +2 in South Africa Builders Superstore +8 in South Africa +19 Retail +19 in South Africa +1 Wholesale +1 in Zambia +10.7% +9.6% +8.0% +9.9% +14.9% Up from 1,626,261m 2 Up from 545,460m 2 Up from 231,021m 2 Up from 461,710m 2 Up from 388,070m 2 to 1,800,847m 2 to 598,042m 2 to 249,521m 2 to 507,482m 2 to 445,802m 2 This 10.7% increase includes an 32.9% increase in our ex-sa trading space

37 Number of shares At Dec ,145.5 Shares issued 33.6 At Jun ,179.1 Weighted-average at Jun ,380.6 Diluted weighted-average at Jun ,