Annual Results Presentation FOR THE 52 WEEKS ENDED DECEMBER 2018

Transcription

1 Annual Results Presentation FOR THE 52 WEEKS ENDED DECEMBER 2018

2 HANS VAN LIEROP Financial review

3 Sales R90.9bn h 2.9% 2017: R88.4 billion* Gross profit margin 19.45% 2017: 19.63%* Financial summary Trading profit before interest and tax (excl restructure costs) R2.1bn Headline earnings (excl restructure costs) R1.0bn 52-week basis i 16.8% 2017: R2.5 billion*^ i 22.9% 2017: R1.3 billion*^ 52-week like-on-like basis including material impact of IFRS 15 in both periods ^Restated

4 December 2018 Impact of reporting changes 53-week basis IFRS 9 & IFRS 15 (Shield) 53rd week 52-week like-on-like going forward Sales i3.0% i 4.7% COMPARABLE

5 Sales * by geography and category Softer November and December sales Total Group SA Sales 91.3% h 2.9% Group Food & Liquor sales h 3.3% Food & Liquor 56% h 3.2% Group Durables sales h 2.4% Durables 44% h 2.4% Ex-SA Sales 8.7% Constant h 3.7% Currency h 3.9% Food & Liquor 51% Food h 4.9% Durables 49% h 2.4% * 52-week like-on-like basis including material impact of IFRS 15 in both periods

6 Gross profit margin Dec % R17.3 billon Dec % R17.7 billon Margin pressure in Game Negative stock adjustments in Massfresh Offset by increased retail customer participation in Massbuild * 52-week like-on-like basis including material impact of IFRS 15 in both periods

7 Sustained cost discipline Total expenses grew at 5.0%, comparable expense growth limited to 2.3% Depreciation Employment costs Occupancy costs Other operating expenses h3.2% h2.7% h10.1% h5.8% i 1.1% COMPARABLE n 0.0% COMPARABLE h 6.3% COMPARABLE h 4.6% COMPARABLE Re-assessment of useful lives (IFRS) GK-POS implementation Lower capex spend 48,500 FTEs (1% growth) Improved in-store and DC staff scheduling Net 2.2% trading space increase Makro Riversands annualisation Pressure from increased rates and taxes Continued focus on cost containment Improved efficiencies and lower support services costs

8 Net finance costs RM DEC 2018 DEC 2017 MOVEMENT Composition of net finance costs Net cash interest Accounting interest Cash interest increase due to net working capital increase Accounting interest impacted by capitalised DC lease at the end of 2017 Like-on-like basis including material impact of IFRS 15 in both periods ^Restated

9 Working capital 61 Inventory days h5 days 81 Creditor days h3 days 10 Debtor days h1 day R11.0bn R12.2bn R17.4bn R18.7bn R2.2bn R2.6bn % net trading space increase Constrained December sales in Game & Builders Strategic stock buy-ins, specifically in Masscash Increase proportional with stock Year-end timing Growth in line with sales 31 December payment cut-off

10 IFRS 16 Leases Key areas of impact Implementation effective 1 January 2019 Material impact relates to the capitalising of leased stores and equipment onto the balance sheet with the corresponding lease liability Results in current operating lease costs being replaced by amortisation of the right-of-use asset and calculated lease finance costs on the interest line Impacts EBITDA margin, earnings per share and derived metrics

11 GUY HAYWARD Operational review

12 Disappointed, but resolute Our 2018 performance disappointed shareholders, the investment community and ourselves 1 st half of 2018: Game and Masscash restructure and relocation SA economic recession VAT increase Product deflation 2 nd half of 2018: Continued distraction at Game from restructure Negative comp sales in November & December 18 Massfresh margin We remain resolute to deliver Massmart's areas of long-term strategic focus

13 Progress since 2014 Focus areas Limit SA store growth Product assortment Replace legacy IT African store growth Omnichannel Joburg head office Since % CAGR SA space growth Food & Liquor participation was 17.9%, now 22.6% Implemented SAP POS in 18 and will do ERP in % CAGR African space growth Game online since late 17 with SAP Hybris From August 18 New stores Retail Food Omnichannel 4.2% CAGR SA space growth Retail Food participation was <40%, now 54% Click n Collect 33% of sales. SAP Hybris implemented. Sales participation 3.5% of Gen Merch and 19% total growth in FY18

14 Progress since 2014 Group Focus areas New SA stores African store growth Omnichannel Fewer SA stores Replace legacy IT Joburg head office New SA stores Replace legacy IT VAS roll-out Supply Chain optimisation Private Label Since % CAGR SA space growth. Open new BW, BEX & BSS stores. Selectively close Trade Depot stores 22% CAGR African space growth SAP Hybris. Sales participation >1% and >100% sales growth in FY18-1.8% CAGR SA space growth Evaluating SAP From June % CAGR space growth SAP now in >50% of stores Gross revenue was R90m in 2016, now R250m Massmart Logistics now with Game & Makro DCs & Group capability Sales participation was 9.2%, now 9.0%

15 Constrained consumer environment Fuel h5.7% Unemployment remains high 27.1% December retail sales contracted i1.4% i TransUnion Consumer Credit Index (CCI) deteriorated sharply in Q4 New vehicle sales i7.4% in January Data from FNB s retail segment shows 56% of middle-income consumers in South Africa spend their entire monthly salary in 5 days or less after receiving it. Consumer inflation Electricity Tariffs 4.6% h5.2% i Absa PMI falls in January as business activity slips December wholesale trade sales y/y i4.6%

16 Sales performance Total sales h2.9% *. Comparable sales h1.2% * Massdiscounters R19.7bn 2017: R20.0.bn* Masswarehouse R28.8bn 2017: R27.3bn* Massbuild R13.8bn 2017: R13.0bn* Masscash R28.7bn 2017: R28.1bn* i1.2% SALES h5.4% SALES h5.9% SALES h2.1% SALES Product deflation of 2.9% Durables volume growth of 3.7% adjusting for deflation Good Black Friday sales, slowed in December Ex-SA sales grew 0.9% in Rands and 1.5% in constant currencies Product deflation of 0.2% Good sales growth in Liquor & Durables. Food sales impacted by deflation Good Black Friday sales, slowed in December Riversands at 90% of budget, despite poor national road access Product inflation of 2.7% Softening trend in contractor sales but higher retail sales participation in H2 Ex-SA growth 14.1% from new stores, and 12.1% in constant currencies Product inflation of 0.3% Retail sales growth 1.8% in very competitive environment Wholesale benefitted from some inflation. Sales growth 2.3% Ex-SA growth 6.3% and 4.2% in constant currencies THE GIANT OF AFRICA * Like-on-like basis, including material impact of IFRS 15

17 Key performances Good home improvement growth Durables demand soft, strong market share Excellent online sales growth Superb expense control h5.9% 39% h56% h2.3% Increased retail participation Market shares in Large Domestic Appliances* Sales growth Comparable expense increases below inflation * Source: GFK SA (December 2018)

18 Divisional performance Trading profit before interest and taxation i16.8% Massdiscounters R32.6m 2017: R373.5 million Masswarehouse R1,100.8m 2017: R1,256.7^ million Massbuild R749.1m 2017: R735.5 million Masscash R188.6m 2017: R127.1 million Sales holding or growing market shares. December sales unexpectedly soft 1% lower trading margin. Will recover Ex-SA profits lower (Nigeria) Great expense management but above sales growth Good sales & margin management given the environment Expense growth higher than sales growth 19% online sales growth Once-off inventory and cost of sales adjustments in Massfresh Sales gaining market share Margins well managed, and higher from retail participation Exceptional online sales growth Ex-SA profit slightly higher (new stores) Good expense management Wholesale benefitted from less deflation Good 2 nd half margin performance Retail performance in-line with market but with margin pressure Good expense management 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. ^Restated

19 Winning on Black Friday Group Sales R1.8bn (Fri Sun) h16% h 10% h 33% h 24% Group sales increased over three-day period Increase in Makro sales Builders sales increase. Appliances (aircons) did well Increase Game s sales of +R600m over three-day period R50 off Uber rides to and from Makro over Black Friday a first in South Africa Mobile POS in Makro busted over 7km of queues

20 Black Friday customer research 54% 44% Customers participate in Black Friday 39% 86% Of those customers purchase in-store 17% Game and Makro perceived to have the best Black Friday deals Of customers plan for Black Friday collection points Budget for this 1-2 months prior Budget for this 3-4 months prior Shoppers look for deals in these main categories 15% 15% 11% 8% Groceries Electronics & Hi-tech Appliances Mobile phones & computers Survey of 1,248 customers at Massmart stores in Durban, Johannesburg and Cape Town

21 h 32% Commercial sales contribution to Makro online sales h Builders online shopping frequency higher than offline 261 Unique customer collection points h 74% Online traffic growth h 26% in Makro GMV (which includes market place sales) growth Online sales growth Launched Game Loyalty App - GK-POS to provide coupons, vouchers, unique offers, and digital receipts h 56% Online sales now represents 1.1% sales participation Click & Collect and delivery available from all Builders stores in major metros

22 VAS growth A competitive range of Financial Services are now available across our business h 61% growth in gross income underpinned by RCS and bill payments h 64% h 30% h 13% > 200 RCS loans business Improvement in Lotto sales on back of 69 new terminals Increase in money transfers Money Centres trading

23 Private Label FOOD GEN MERCH HOME IMPROVEMENT Improving Group Private Label sourcing and brand to offer customers good quality products at low price points Launching of new products after buying trips Repositioned Trojan as the anchor brand in home fitness - sales grew 40.4% Lusso tap launch produced 230% sales growth - contributes 22% to the tap category 73 Brands in portfolio 5.6% Sales penetration 2017: 5.9% 27 Brands in portfolio 13.9% Sales penetration 2017: 13.8% 36 Brands in portfolio 19.7% Sales penetration 2017: 18.8%

24 Game Retail Proposition A Discounter Middle-income customers Offering an exciting assortment At market-leading prices Best performing store format globally African consumers extremely value-conscious Lowering our cost base and lean operations Aspirational younger family LSM 5-8 (make up 50% of spending) Over-index on mature families Increase frequency of customer visits Commoditise products Strong market shares in top-of-mind categories Compelling private label offering Price leadership Offering customers value Price-beat policy

25 New Game layout Successfully rolled out new format stores in 12 locations (6 in SA and 6 ex-sa) Store sales trading density up 17% on existing stores 8.5% improvement in shelf-space sales density Easy to navigate displays on product Pricing kit changes to highlight discounter look Better lines-of-sight Appealing to female shoppers Customer feedback on new format experience: Modern appearance Improved atmosphere Much easier to navigate the aisles in the store and find products

26 Grow Africa Ghana Nigeria Forecast Uganda Kenya Actual African retail space growth (ex SA) 7.8% CAGR Zambia Kenya 15,064m 2 14,002m 2 +4 stores +5 store Builders Game Masscash Namibia Botswana Lesotho Tanzania Zambia Malawi NEW 229,269 Mozambique 12 Countries 47 Stores R7.9bn Sales m 2 of retail space 14% of total space is ex-sa

27 Strategic Priorities Improve Game s profitability Structurally lower Group operating costs Group supply chain & logistics efficiency Up to 2021 opening 43 new stores. Space growth of 2.5% CAGR. 31% of this ex-sa Invest in omnichannel capabilities Widen & improve VAS offering Private label With our increased IT spend, likely muted SA economic growth, and the possibility of negative movements in key SA macro-economic variables, we will selectively curtail new store growth and focus on reducing working capital levels to reduce our cash & capital requirements

28 Outlook Sales for the seven weeks to 17 February 19 were R11.2bn, representing total sales growth of 5.2% and comparable sales growth of 3.9%. Estimated product inflation of 1.3% Despite this slightly improved sales performance, we remain cautious about the outlook for the South African consumer economy for the 1 st half of the 2019 financial year 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.

29 Additional information Condensed Consolidated Income Statement Tax Rate Reconciliation Cash Flow Statement Capital Expansion Capex Per Category Store Portfolio Forecast Stores: Jan 2019 Dec 2021 Restatement Like-on-like analysis Restructure Number of shares

30 Condensed Consolidated Income Statement Extract from Reviewed Consolidated Results for the year ended 30 December 2018 * Certain comparative figures shown do not correspond with the 2016 financial statements and reflect statements made. Refer to note 5.

31 Tax rate reconciliation RM DEC 2018 (REVIEWED) DEC 2017 (REVIEWED) Standard tax rate Non-taxable income and disallowable expenses (3.1) 0.8 Assessed loss not utilised Other - including foreign tax adjustments (0.3) (2.1) Group tax rate

32 Cash flow statement RM DEC 2018 (REVIEWED) RESTATED^ DEC 2017 (REVIEWED) Operating cash before working capital movements 3, ,969.1 Working capital movements (545.8) Cash generated in operations 2, ,674.9 Net interest and tax paid (805.8) (1,388.6) Net investment to maintain operations (772.4) (678.5) Free cash flow 1, ,607.8 Dividends paid (750.0) (689.9) Dividends received Investment to expand operations and other net investing activities (774.5) (1,128.2) Cash outflow/(inflow) before financing activities (204.9) ^ Certain comparative figures shown do no correspond with the 2016 financial statements and reflect statements made. Refer to note 5.

33 Capital expansion 4.0% 3.5% DEC 2013 DEC ,500.0 Property expansion Capex as a % of sales 3.0% 2.5% 2.0% 1.5% 1.0% DEC 2015 DEC 2016 DEC 2017 DEC , , ,000.0 Businesses acquired Investment to expand operations Investment to maintain operations Total capex as a % of sales Total capex as a % of sales excluding business and property acquisitions %

34 Capex per category Total capex 1.8% of total sales (2017: 1.9%) RM DEC 2018 (REVIEWED) DEC 2017 (REVIEWED) Expansionary investment Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware % 23.0% Computer software Investment to expand operations , % Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware Computer software Investment to maintain operations % 35.0% 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 Up from 166 in Dec in Dec 2017 Up from 108 In Dec 2017 Up from 128 in Dec Net opened +4-1 Game +2 in Ghana +1 in Kenya +2 in South Africa -1 in South Africa DionWired +3 in South Africa -2 in South Africa Builders Superstore +4 in South Africa -1 in South Africa Builders Express +3 in South Africa +1 in Mozambique Builders Trade Depot -2 in South Africa +2 Retail +2 in South Africa +1 Builders Warehouse +1 Zambia

36 Forecast stores Jan 2019 Dec 2021 Total Massdiscounters Masswarehouse Massbuild Masscash Up from 436 to 479 Up from 171 to 185 Up from 21 to 22 Up from 114 to 125 Up from 130 to South Africa +13 Ex-SA +13 Game +6 in South Africa +1 in Botswana +3 in Kenya +1 in Namibia +1 in Swaziland +1 in Zambia +1 Makro +1in South Africa Builders Warehouse +1 in South Africa +1 in Kenya +1 in Zambia Builders Express +2 in South Africa Retail +13 in South Africa +1 in Lesotho Wholesale +3 in Zambia +1 DionWired +1 in South Africa +6 Builders Superstore +6 in South Africa +7.6% +7.0% +5.3% +8.0% +9.4% to 1,774,263m 2 to 600,225m 2 to 243,328m 2 to 505,466m 2 to 425,244m 2 Up from 1,648,718m 2 Up from 560,828m 2 Up from 231,021m 2 Up from 468,155m 2 Up from 388,714m 2 This 7.6% increase includes a 31% increase in our ex-sa trading space

37 Like-on-like analysis Presentation prepared on like-on-like basis to reflect the material IFRS 15 impact in both current and prior year i.e. excluding Shield s sales (R4.4bn) RESTATED 52 WEEKS LIKE-ON-LIKE* LIKE-ON-LIKE RESTATED 53 WEEKS REPORTED REPORTED Rm DECEMBER 2018 DECEMBER2017 GROWTH DECEMBER 2017 GROWTH Sales 90, , % 93, % Gross profit % 19.5% 19.6% 18.8% Expenses as a % of sales 17.4% 17.1% 16.2% Trading profit before interest and tax (excl. restructure costs) Working capital 2.3% 2.9% 2.9% Inventory days Creditor days Debtor days * Restated to include IFRS 15 impact in prior year

38 Restatement During the IFRS 16 implementation project, an error in accounting was identified relating to a long-term lease of land. This 99-year lease arrangement that was entered into in 1994 for the land on which Makro Woodmead store is situated was incorrectly accounted for as an operating lease and should have been accounted for as a finance lease together with an adjustment on the purchase price allocation of the 2013 acquisition of the Makro store on that land. As a consequence of this error, our lease commitment disclosure relating to the remaining non-cancellable lease payments has been updated in our results to include an additional R15.1 billion for both the 2018 and 2017 period, representing the lease commitments for the remaining 74 years on the lease. Between 2019 and 2033 R131.4 million is payable on these leases whereas the remaining 60 year post 2033 represents R15,015.6 million. The present value of the lease payments is R251.9 million. The error has been corrected by restating the comparative 2017 and 2016 figures as follows:

39 Restructure Key impact Restructure and relocation of some of the business functions within Massdiscounters and Masscash announced in February 2018 Approached under s189 of the Labour Relations Act (LRA) Both concluded without any adverse legal impacts to the business Once-off costs of R161.0 million Anticipate direct savings of R52.0 million

40 Number of shares At Dec ,145.5 Shares issued 33.6 At Dec ,179.1 Weighted-average at Dec ,390.6 Diluted weighted-average at Dec ,