Dedicated to Value Massmart Reviewed Results for the six months to December 2012

Transcription

1 Dedicated to Value Massmart Reviewed Results for the six months to December 2012 Presentation to Investors, Analysts and Media February 2013

2 Agenda Highlights Operations Financials Environment Strategy Prospects ADDENDUM Additional Financial Data

3 Highlights

4 Performance Highlights Dec 12 Comparable sales growth strong +7.3% High comp. volumes growth of 3.6% Net new trading space (from Dec 2011) Total sales growth +14.7% +7.0% New & acquired stores. 8.7% including DCs Gross profit up by +18.4% Higher GP% in Massbuild & Makro. Higher contribution from Game Africa Comp. expenses increase +11.0% Higher occupancy costs, including services Operating Profit increase (excl Forex & Integration) Headline Earnings increase (excl Forex & Integration) Operating cashflow (before w/capital) Net new trading space (from June 2012) +6.1% Higher net operating margins in Massbuild & Masscash +5.8% Slightly higher tax rate +4.1% Approximates operating profit increase +4.7% 17 new & acquired stores

5 Contribution and Performance by Category

6 Divisional Performance

7 Massdiscounters > Game SA. Disappointing performance. Low comp sales (1%): - Middle-income consumer stretched. Credit card sales participation up from 15% to 24% - Dry groceries launched - Profit below prior year > Game Africa. Great performance (comps 9%, own currency comps 11%) - Positive economic environment. Malawi concerning - Very positive response to Foodco - Profit growth ahead of sales growth > Dion Wired. Great performance (total sales up 28%): - National footprint: 19 stores. With all top-end suppliers products - Profit growth well ahead of sales growth 2012 Total Comps Inflation Sales R8.4bn 7.7% 2.6% 0.8%

8 Massdiscounters continued 2012 Change Sales R8.4bn 7.7% PBT R450m -14.8% PBT margin 5.3% > Foodco: five converted / opened. Now 27 stores, five in Africa. Performing at or above expectations > Third & final RDC opened in Durban July 12: - National footprint. Focus on optimising the investment - New lease & depreciation charges affect short-term performance > Product inflation for first time in five years > Trading space up 5.8% (total space 6.6%). New African stores in 2013/14 in Zambia, Angola & Kenya > Jan Potgieter CEO resigned early Robin Wright acting CEO

9 Masswarehouse 2012 Total Comps Inflation Sales R9.6bn 23.5% 8.6% 3.4% > Exceptional trading performance: - Opened two new stores: Cape Gate and Bloemfontein - Very good comp sales growth in Food & Liquor > Five new stores since Sept 11. All performing well > Food Retail / Fresh offering now in 13 stores > Fruitspot sales up 19.2%. Will play wider Group role > Launched RCS consumer credit in May 12. Performing strongly

10 Masswarehouse continued 2012 Change Sales R9.6bn 23.5% PBT R535m 12.7% PBT margin 5.6% > Credit card sales participation up from 33% to 38% > Comparable stores profit growth equal to sales growth > Store opening costs R28m (LY 35m) > Trading space increased by 17% (total space 26%) > Opening two stores this year: Amanzimtoti, in Durban (relocation), and Alberton, in Johannesburg > Doug Jones appointed Masswarehouse MD in Sept 12

11 Massbuild 2012 Total Comps Inflation Sales R4.7bn 10.0% 9.7% 2.7% > Great performance: - Strong sales in Builders Warehouse & Express (comps > 10%) - Profit growth in Warehouse & Express well ahead of sales growth - Trade Depot sales growth low tough SA housing market > Builders Warehouse Botswana performing well in its 2 nd year > Private Label sales increased 38% and are 14% of total sales > Creating common SAP IT platform for Warehouse, Express & Trade Depot > Trading space increased by 0.5% (total space 0.5%)

12 Massbuild continued 2012 Change Sales R4.7bn 10.0% PBT R293m 23.6% PBT margin 6.3% > Very strong brand. Gaining market share > Single trade credit platform for contractors > RDC in Midrand, Johannesburg, to open April 2013 > Significant initial lease charge (R25m) > Four new Builders Warehouse stores to open in SA in 2013 > And five Builders Express stores > New Builders Warehouse stores in 2013/14 in Mozambique (two), Botswana (one) and Zambia (one)

13 Masscash 2012 Total Comps Inflation Sales R13.4bn 15.3% 8.6% 6.4% > Intense market competition as independents acquired Metro sites > We acquired three Metro sites. Trading well > Marked Q4 sales slowdown. Impact of labour unrest? > Wholesale comp sales growth 7% and Retail comp sales 17% > Profitability recovered strongly in Wholesale > Prior period investments in structures and capacity making positive impact in Masscash Retail improving profitability > Trading space increased 3.3% (total space 13%)

14 Masscash continued 2012 Change Sales R13.4bn 15.3% PBT R221m 19.4% PBT margin 1.6% > Rhino Cash & Carry: now 18 stores and performing well > Donated 50 tons rice & maize-meal to flood victims in Mozambique > 11 new Cambridge stores in 2013 > New Wholesale store opening in Xai Xai, Mozambique > Kevin Vyvyan-Day appointed CEO of Masscash Retail in September 12

15 Store Portfolio Massdiscounters Makro Massbuild Masscash Total June Acquired Closed Openings December > Massdiscounters: opened seven Game stores and one Dion Wired > Makro: opened Bloemfontein and Cape Gate > Massbuild: Opened one Builders Express > Masscash stores: Retail two opened & one acquired, while one was closed. Wholesale three acquired & five closed

16 December 2012 Financial Performance

17 Brief Overview of FY12 Income Statement: Strong total & comparable sales growth in all Divisions - other than Massdiscounters Expense pressure due to investing in new stores & RDC s Comparable expenses +11.0% Transaction related costs R205 million Strong results Makro & Massbuild - Poor result Massdiscounters Underlying operating profit growth of 6.1%

18 Brief Overview of FY12 Balance Sheet: Inventory days well controlled Supplier funding levels down slightly due to mix and cut off Significant capital expenditure - increase in stores & RDC High space growth: 2 - new Makro stores, 8 - Massdiscounters stores, 1 - Massbuild store 6 - new Masscash stores & KZN Regional Distribution Centre

19 Sales (Rm s) Total% Total % Comp Inflation % Massdiscounters Chg 2.6 % 0.8 Masswarehouse Massbuild Masscash Total Real comparable sales growth - in all Divisions Africa local currency sales growth of 9.0% Rand growth 9.5% Non- SA Sales 7.3% SA Sales 92.7%

20 Sales Inflation YTD Sales Inflation to December 2012 General Merchandise 0.8% Home Improvement +2.7% Food & Liquor +6.8% Total +3.7% General Merchandise - Slight inflation High Food Prices - Some commodity deflation

21 Gross Profit Gross Profit R6 599m R5 575m As % of Sales 18.27% 17.70% Margins have improved: - Better margins - Massbuild & Makro - Higher Africa sales contribution

22 Operating Costs (excluding forex) Operating Costs R5 304m R4 304m As % of Sales 14.68% 13.67% Total costs increased by 23.2% Depreciation & occupancy costs up % & 23.9% respectively Comparable expenses increased by 11.0%

23 Employment Costs (47% of total costs) Employment Costs R2 488m R2 137m As % of Sales 6.89% 6.79% Total increase 16.4% Comparable increase of 8.1% Increase in staff (FTEs) of 7.2% - Result of new stores, HO skills & RDC

24 Occupancy Costs (23% of total costs) Occupancy Costs R1 226m R989m As % of Sales 3.39% 3.14% Total increase of 23.9%. Comparable increase of 16.7% 4.7% net new trading space (compared to June 12) 7.0% net new trading space (compared to December 11) Lease renewals lease smoothing Rates, services & electricity inflation remains high

25 Depreciation Depreciation R343m R276m As % of Sales 0.95% 0.88% Increased by 24.3%. Significantly higher than sales growth Expect high depreciation to continue ahead of sales growth - New stores, refurbishments & RDCs

26 Walmart Transaction & Integration Costs Integration costs R205m R42m Includes a R140m increase in the Supplier Development Fund - Required by the judgment of the Competition Appeal Court Includes all ex-pat costs, & direct charges, travel & accommodation Should normalise at R50m per year from 2013

27 Forex Gains & Losses Rm s Massdiscounters (71.4) 68.6 Other (5.3) 13.8 Total (76.7) % currency devaluation in Malawi since January 2012 Losses offset by Rand weakness compared to African currency basket

28 EBITDA & EBITDAR Rm s % Change Operating profit before forex & Walmart costs Depreciation & amortisation % (342.6) (275.6) -24.3% Impairment of assets (5.4) (0.3) EBITDA % Occupancy cost % EBITDAR %

29 Tax Charge Total tax R342m R411m Effective tax rate 32.15% 31.17% Effective tax rate of 32% Should decrease due to the proportion of non-deductible expenditure related to the transaction STC impact 0.1% (PY: 1.9%) Normalise at 30%

30 Stock & Creditors June 2012 June 2011 Rms Days Rms Days Net Stock (1) Trade Creditors (1) Stock increased 15.6% - Stock days up marginally - Massdiscounters over-stocked due to the lower comparable sales in Game South Africa - Makro carrying higher stock - New stores Trade Creditors days affected by mix and calendar cut off Stock remains fully funded by creditors Supplier funding remains a key focus area 1. Days calculated using historic cost of sales.

31 Debtors Dec-12 Dec-11 Rms Days Rms Days Gross Trade Debtors Commercial credit remains closely monitored Bad debt experience steady

32 Net Capital Expenditure Rm s Dec-12 Dec-11 Replacement Capex Investment Capex Total Capex Other investing activities Total Capital Expenditure Includes: - New Makro stores - R156.5m - Massdiscounters new stores & conversions - R94.1m - Other investing activities includes Metro sites acquired by Masscash

33 1800 Accelerating Capex 3.0% 1600 Acquisition Expansion Maintenance % of sales (RHS) Six month periods 2.5% 2.0% % % % Dec-11 Dec % Capex to December 2012 amounted > 2.1% of sales Capex to December 2013 higher due to acquisition of Makro properties & opening a Massbuild RDC

34 Property Acquisition Acquired control of 7 Makro Properties Effective 25 January 2013 Cash consideration for control - R575m income statement neutral 2014 income statement positive with significant cash flow benefits Sales from Group owned properties approximately 20%of Group sales

35 Cashflow Statement Rm s Operating cashflows Working capital movements Cash from Operations Interest & Tax paid Replacement capex Free cashflow Dividends paid Net investment capex, disposals & acquisitions Cash inflow before Financing

36 Dividends Dividend per share (cents) Previous dividend policy x1.7 cover on HEPS - Adjusted for new Dividend Tax Legislation. - New cover x1.55 Despite lower headline earnings, - Held the dividend per share consistent Final cash dividend cents per share

37 Change in Financial Year-end Massmart aligned with Walmart, - December year-end from December 2012 Consequences: - Reporting a six-month audited period to December AGM in May Annual Report for six-months to December First Interim Results release to June in June Disclosed Financial Years to December 2011 and 2012

38 Environment

39 Environment Socio Economic Challenging socio-political and economic environment: More jobs shed in agriculture and mining; manufacturing showing signs of improvement Consumer income available for retail spend under pressure Lower income consumers affected more than higher income consumers Costs of unsecured credit are increasing Energy, water and other basic costs continue to rise faster than CPI Effects of labour unrest filtering through the economy GDP growth is positive

40 Environment Competitive Retail The trading environment in 2012 remained tough With rising inflation, the general consumer is still under pressure Retailers are relying on market share gains for growth New battleground is for servicing the lower income consumer - there have been winners and losers Slow economic growth is also forcing the consumer to consider how they spend their money

41 Environment Competitive Retail - Massmart Increasing food inflation helped the food business Moved from deflation to inflation stabilizing general merchandise Investment in homes assisting Massbuild Wholesale food landscape changing has affected Masscash New food retail business growing fast; but at lower profitability Africa becoming more competitive

42 Strategy

43 Strategy Our Group Strategy has been to: Focus on Core Trading Complete Acquisition and Integration Continue Supply Chain Investment Grow Food Retail Expand Into Africa Invest in Leadership, Transformation and Sustainability

44 Performance Against Transaction Commitments Total of 237 retrenched employees have accepted reinstatement; 73 took voluntary packages, 6 have retired or passed away and 187 did not present themselves for reinstatement. Investment in new stores and infrastructure has led to the creation of Full Time Equivalent (FTE) positions since the transaction; in line with the estimated creation of new direct and indirect positions within a fiveyear period. Food, Liquor and FMCG procurement has grown by R7bn against an estimated increase of cumulative R60bn also within five years, indicating we are on plan. The Supplier Development Fund (SDF) has set up its advisory committee and fund management; draft governance documents were presented for feedback, and clearance for Massmart to proceed with the appointment of the External Auditor for the Fund was provided.

45 Strategic Progress. Supply Chain Investment R3-4bn investments in systems and DCs Currently: 3 MDD RDCs 3 Makro Regional Warehouses 1 Cambridge DC 1 Massbuild National DC Several meat, fruit, and vegetable supply facilities Focus on attracting returns and improving efficiencies Food Retail Completed an initial investment in food retail (estimated R10bn business ) Currently, a 4 format approach: Cambridge/Rhino (44) Foodco (27) Makro Retail (13) Saverite (112) Massfresh is focused on improving our offerings in meat, fruit, vegetables, deli and bakery

46 Strategic Progress. Africa Expansion 3 Component Strategy: City Strategy Game/Builders Warehouse Country Strategy South, West and East Africa SADC Strategy (South African Development Community) new stores in Mozambique, Botswana and Zambia Long term potential in Africa Leadership and Transformation Level 4 BBBEE 54 New Graduates Continued Investment in Executive Development Established CEO Women s Advisory Council Access to Walmart Global Training Programmes

47 Sustainability Supplier Development Fund Fund size up to R240 million to be spent over 5- years The first harvest from our direct farming programme has yielded 512 tons of fresh produce or R3.2m worth of sales R1 million in wages paid over an 8 month period Average 100 people employed per month as a result of programme or average of 2.6 jobs per hectare Project set to scale to 73 farmers in 2013 with 173ha under production Our star producer is a retired nurse named Jamela Mogodi, who planted 7Ha, she managed the highest output per Ha - to be rewarded with an expanded growing programme for the new season

48 Business Highlights Finding new ways to help people save money so they can live better... Massmart Private Label We are finding more suppliers to get involved in the private label chain; within the divisions, group and Walmart Driven by quality, relevance and innovation; to earn customer trust 9% Sales Contribution 10-15% less expensive than the National Brand Camp Master and Trojan are the #1 brands in their categories in SA Ol Roy (Walmart dog food) manufactured in SA (April launch) Mastercraft handtools offers a lifetime guarantee Walmart Great Value items new products coming! Running national campaigns to seek feedback on our brands and continuously improve

49 Business Highlights Finding new ways to help people save money so they can live better.. E-Commerce Developing a comprehensive e- commerce strategy Looking at how and when to take our brands online How to leverage walmart.com Led by DionWired online Our Digital Journey Multi-channel retail recognised as a key opportunity for DionWired Online shopping launched in November 2011; went National in June of 2012 Trend towards use of mobile devices and shopping with EFT payments Great learnings for the Group Sales currently less than a single store

50 The DionWired iphone App First app offering; 2 nd in the country All DionWired products available to purchase via the app Strong focus on usability, making it easier than ever to shop from your phone 3D secure authentication included on all credit card payments for extra security Free nationwide courier delivery on all orders Downloadable in the USA, UK and SA App and itunes stores Currently on IOS; plans to add Android and Blackberry

51 Risk & Prospects

52 Massmart s 2013 Prospects For 8 weeks to 17 February 2013, comparable stores sales growth of 5.7% and total sales growth 11.4% For 12 months to Dec13 anticipate a difficult South African consumer environment Sales growth may be under pressure for the remainder of the fiscal year Growth in trading profit (excluding forex and transaction costs) may equal sales growth

53 Risks Middle and lower income consumers under pressure Labour unrest - Further job losses Further African currency devaluations

54 Conclusion

55 Conclusion Underlying profit growth of 6.1%; albeit less than sales Foreign Exchange Translation loss in Malawi Transaction completed Integration completed Initial food retail investment completed Supply Chain investment all but completed Cautious progress in Africa Business focused on operational disciplines and extracting returns from food retail and supply chain

56 Thank You & Questions

57 Additional Financial Data

58 Reviewed results for 52 weeks Rm Revenue Sales Cost of sales ( ) ( ) Gross profit Other income Depreciation and amortisation (661.2) (530.4) Impairment of assets (note 3) (21.6) (10.3) Employment costs ( ) ( ) Occupancy costs ( ) ( ) Foreign exchange profit / (loss) (231.6) 89.6 Other operating costs ( ) ( ) Operating profit before Walmart costs Walmart transaction and related costs (348.9) (450.5) Loss on disposal of Makro Zimbabwe - (38.6) Operating profit Net finance costs (127.4) (114.6) Profit before taxation Taxation (549.6) (633.7) Profit for the year

59 Headline Tax Rate Reconciliation % December 2012 December 2011 Standard tax rate Disallowed expenses Allowances on lease premiums and improvements (0.6) (0.1) Assessed loss not utilised 2.1 (0.5) Prior year 0.9 (4.3) Withholding tax (1.1) (0.4) Non taxable income (0.7) (1.3) STC Other 0.3 (0.9) Group tax rate

60 Headline Earnings Reconciliation Rm December 2012 December 2011 Attributable earnings Impairment of assets Loss on fixed asset disposals Fair value adjustment on assets classified as held for sale Loss on disposal of business Tax effects on adjustments (2.7) (0.5) Headline earnings

61 Number of Shares (000 s) At June Shares issued 786 At December Weighted-average for period Fully-diluted weighted average