annual results presentation - massmart · presentation for the 52 weeks ended december 2018....
TRANSCRIPT
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Annual ResultsPresentation
FOR THE 52 WEEKS
ENDED DECEMBER 2018
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Financial review
HANS VAN LIEROP
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Financial summary
52-week basis
• 52-week like-on-like basis including material impact of IFRS 15 in both periods
• ^Restated
Sales
R90.9bnh 2.9%
2017: R88.4 billion*
Gross profit margin
19.45%
2017: 19.63%*
Trading profit before interest and tax
(excl restructure costs)
R2.1bni 16.8%
2017: R2.5 billion*^
Headline earnings(excl restructure costs)
R1.0bni 22.9%
2017: R1.3 billion*^
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Sales
i3.0%i 4.7% COMPARABLE
Impact of reporting
changes
December 2018 •IFRS 9 & IFRS 15 (Shield)
•53rd week
•52-week like-on-like going forward
53-week basis
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* 52-week like-on-like basis including material impact of IFRS 15 in both periods
SA Sales
91.3%h 2.9%
Ex-SA Sales
8.7%h 3.7% h 3.9%
Food & Liquor
56%h 3.2%
Durables
44%h 2.4%
Group Durables sales h 2.4%Group Food &
Liquor sales h 3.3%Total Group
ConstantCurrency
Durables
49%h 2.4%
Food & Liquor
51%Food h 4.9%
Sales* by geography and category
Softer November and December sales
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• Margin pressure in Game
• Negative stock
adjustments in Massfresh
• Offset by increased retail
customer participation in
Massbuild
Gross profit margin
* 52-week like-on-like basis including material
impact of IFRS 15 in both periods
Dec 17
19.63%R17.3 billon
Dec 18
19.45%R17.7 billon
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Depreciation
h3.2%i 1.1% COMPARABLE
• Re-assessment of useful
lives (IFRS)
• GK-POS implementation
• Lower capex spend
Employment costs
h2.7%n 0.0% COMPARABLE
• 48,500 FTEs (1% growth)
• Improved in-store and DC
staff scheduling
Occupancy costs
h10.1%h 6.3% COMPARABLE
• Net 2.2% trading space
increase
• Makro Riversands
annualisation
• Pressure from increased
rates and taxes
Other operating expenses
h5.8%h 4.6% COMPARABLE
• Continued focus on cost
containment
• Improved efficiencies and
lower support services
costs
Sustained cost discipline
Total expenses grew at 5.0%, comparable expense growth limited to 2.3%
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• 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
Net finance costs
RM DEC 2018 DEC 2017 MOVEMENT
Composition of net finance costs 623.7 566.8 56.9
Net cash interest 546.5 514.8 31.7
Accounting interest 77.2 52.0 25.2
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R12
.2b
n
R11
.0b
n
20182017
• 2.2% net trading space increase
• Constrained December sales in
Game & Builders
• Strategic stock buy-ins,
specifically in Masscash
R18
.7b
n
R17
.4b
n
20182017
• Increase proportional with stock
• Year-end timing
R2.
6bn
R2.
2bn
20182017
Inventory days
61Creditor days
81Debtor days
10
• Growth in line with sales
• 31 December payment cut-off
Working capital
h5 daysh3 days
h1 day
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• 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
IFRS 16 ‘Leases’ Key areas of impact
Implementation effective 1 January 2019
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Operational review
GUY HAYWARD
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Our 2018
performance
disappointed
shareholders,
the investment
community and
ourselves
Disappointed, but resolute…
1st half of 2018:
Game and Masscash
restructure and relocation
SA economic recession
VAT increase
Product deflation
We remain
resolute
to deliver
Massmart's areas
of long-term
strategic focus
2nd half of 2018:
Continued distraction at Game
from restructure
Negative comp sales in
November & December ’18
Massfresh margin
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Progress since 2014 …
Focus areas Since 2014 …
• Limit SA store growth
• Product assortment
• Replace legacy IT
• African store growth
• Omnichannel
• Joburg head office
• 0.9% CAGR SA space growth
• Food & Liquor participation was 17.9%, now 22.6%
• Implemented SAP POS in ’18 and will do ERP in ‘19
• 13.2% 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
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Progress since 2014 …
Focus areas Since 2014 …
• New SA stores
• African store growth
• Omnichannel
• 3.4% 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
• Fewer SA stores
• Replace legacy IT
• Joburg head office
• -1.8% CAGR SA space growth
• Evaluating SAP
• From June ’18
• New SA stores
• Replace legacy IT
• 7.1% CAGR space growth
• SAP now in >50% of stores
Group
• VAS roll-out
• Supply Chain
optimisation
• Private Label
• 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%
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i
Constrained consumer environment
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.
Absa PMI falls
in January as
business
activity slips
Fuel
h5.7%
Unemployment
remains high
27.1%
Electricity Tariffs
h5.2%iTransUnion
Consumer Credit
Index (CCI)
deteriorated
sharply in Q4
Consumer inflation
4.6%
December wholesale
trade sales y/y
i4.6%
December retail
sales contracted
i1.4%
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• 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
Massdiscounters
R19.7bn2017: R20.0.bn*
Masswarehouse
R28.8bn2017: R27.3bn*
Massbuild
R13.8bn2017: R13.0bn*
Masscash
R28.7bn2017: R28.1bn*
* Like-on-like basis, including material impact of IFRS 15
Sales performance
Total sales h2.9%*. Comparable sales h1.2%*
i1.2% SALES h5.4% SALES h5.9% SALES h2.1% SALES
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Good home improvement growth
h5.9%Increased retail
participation
Durables demand soft, strong market share
39%Market shares in
Large Domestic
Appliances*
Excellent online sales growth
h56%Sales growth
Superb expense control
h2.3%Comparable
expense increases
below inflation
Key performances
* Source: GFK SA
(December 2018)
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• 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 2nd half margin
performance
• Retail performance in-line with
market but with margin pressure
• Good expense management
Massdiscounters
R32.6m2017: R373.5 million
Masswarehouse
R1,100.8m2017: R1,256.7^ million
Massbuild
R749.1m2017: R735.5 million
Masscash
R188.6m2017: R127.1 million
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
Divisional performance
Trading profit before interest and taxation i16.8%
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h16%Group sales increased over
three-day period
Winning on Black Friday
h 24%Increase Game’s sales of
+R600m over three-day period
h 10%Increase in Makro sales
h 33%Builders sales increase.
Appliances (aircons) did well
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
Group Sales R1.8bn(Fri – Sun)
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Black Friday customer research
Game and Makro
perceived to have the
best Black Friday deals
Survey of 1,248 customers at Massmart stores
in Durban, Johannesburg and Cape Town
Shoppers look for deals in these main categories
54%Of customers plan
for Black Friday
17%Budget for this
3-4 months prior
86%Of those customers
purchase in-store
39%Budget for this
1-2 months prior
44%Customers participate in
Black Friday
15%Groceries
15%Electronics
& Hi-tech
11%Appliances
8%Mobile phones
& computers
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Online sales growth
h 56%Online sales now
represents 1.1% sales
participation
261Unique customer
collection points
h 26%in Makro GMV (which
includes market place
sales) growth
h
Builders online shopping
frequency higher than offline
h 74%Online traffic
growth
Click & Collect and
delivery available from all
Builders stores in major
metros
h 32%Commercial sales contribution
to Makro online sales
Launched Game Loyalty
App - GK-POS to provide
coupons, vouchers,
unique offers, and digital
receipts
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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%RCS loans business
h 30%Improvement in
Lotto sales on back
of 69 new terminals
h 13%Increase in money
transfers
> 200Money Centres
trading
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• 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
GEN MERCHFOOD HOME IMPROVEMENTPrivate Label
Improving Group Private Label
sourcing and brand to offer
customers good quality products
at low price points
73Brands in portfolio
5.6%Sales penetration
2017: 5.9%
36Brands in portfolio
19.7%Sales penetration
2017: 18.8%
27Brands in portfolio
13.9%Sales penetration
2017: 13.8%
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Game Retail Proposition
Middle-income customers
Aspirational younger
family LSM 5-8
(make up 50% of spending)
Over-index on
mature families
Increase frequency
of customer visits
Offering an exciting assortment
Commoditise products
Strong market shares in
top-of-mind categories
Compelling private
label offering
At market-leading prices
Price leadership
Offering customers value
Price-beat policy
A Discounter
Best performing store
format globally
African consumers extremely
value-conscious
Lowering our cost base
and lean operations
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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”
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Builders
Game
Masscash
BotswanaNamibia
Zambia
Mozambique
Uganda
Nigeria
Tanzania
Malawi
Ghana
Lesotho
Kenya
NEW 229,269m2 of retail space
R7.9bnSales
47Stores
12Countries
14%of total space is ex-SA
Grow Africa
African retail space growth
(ex SA)
7.8% CAGR
Kenya+4 stores
15,064m2
Zambia+5 store
14,002m2
Forecast Actual
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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
Strategic Priorities
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
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• 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 1st 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.
Outlook
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Additionalinformation
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
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* Certain comparative figures shown do not
correspond with the 2016 financial statements and
reflect statements made. Refer to note 5.
Condensed Consolidated
Income Statement
Extract from Reviewed
Consolidated Results for the
year ended 30 December 2018
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RM
DEC 2018
(REVIEWED)
DEC 2017
(REVIEWED)
Standard tax rate 28.0 28.0
Non-taxable income and disallowable expenses (3.1) 0.8
Assessed loss not utilised 6.9 3.2
Other - including foreign tax adjustments (0.3) (2.1)
Group tax rate 31.5 29.9
Tax rate reconciliation
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RM
DEC 2018
(REVIEWED)
RESTATED^
DEC 2017
(REVIEWED)
Operating cash before working capital movements 3,409.6 3,969.1
Working capital movements (545.8) 705.8
Cash generated in operations 2,863.8 4,674.9
Net interest and tax paid (805.8) (1,388.6)
Net investment to maintain operations (772.4) (678.5)
Free cash flow 1,285.6 2,607.8
Dividends paid (750.0) (689.9)
Dividends received 34.0 80.0
Investment to expand operations and other net investing activities (774.5) (1,128.2)
Cash outflow/(inflow) before financing activities (204.9) 869.7
^ Certain comparative figures shown do no correspond with the 2016 financial statements and reflect statements made. Refer to note 5.
Cash flow statement
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0,0
500,0
1 000,0
1 500,0
2 000,0
2 500,0
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
Property expansion
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
Ca
pe
x a
s a
% o
f sa
les
DEC 2013
DEC 2015
DEC 2014
DEC 2016
DEC 2017
DEC 2018
Capital expansion
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RM
DEC 2018
(REVIEWED)
DEC 2017
(REVIEWED)
Land and buildings/leasehold improvements 191.6 533.8
Vehicles 15.7 5.2
Fixtures, fittings, plant and equipment 291.9 270.5
Computer hardware 72.9 28.8
Computer software 261.5 300.0
Investment to expand operations 833.6 1,138.3
Land and buildings/leasehold improvements 103.7 156.0
Vehicles 64.8 35.4
Fixtures, fittings, plant and equipment 295.7 328.9
Computer hardware 138.9 98.4
Computer software 169.3 59.8
Investment to maintain operations 772.4 678.5
23,0%
1,9%
35,0%
8,7%
31,4%
Land & buildings/leasehold improvements
Vehicles
Fixtures, fittings, plant & equipment
Computer hardware
Computer software
Expansionary investment
Capex per category
Total capex 1.8% of total sales (2017: 1.9%)
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Store portfolio
Total Massdiscounters Masswarehouse Massbuild Masscash
436 171 21 114 130Up from 423
in Dec 2017
Up from 166
in Dec 2017
21 in Dec 2017 Up from 108
In Dec 2017
Up from 128
in Dec 2018
+13Net 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
+4
+4
-2
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
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Forecast stores
Total Massdiscounters Masswarehouse Massbuild Masscash
+43 +14 +1 +11 +17Up from 436 to 479 Up from 171 to 185 Up from 21 to 22 Up from 114 to 125 Up from 130 to 147
+30South Africa
+13Ex-SA
+13
+1
Game
+6 in South Africa
+1 in Botswana
+3 in Kenya
+1 in Namibia
+1 in Swaziland
+1 in Zambia
DionWired
+1 in South Africa
+1 Makro
+1in South Africa
+3
+2
+6
Builders Warehouse
+1 in South Africa
+1 in Kenya
+1 in Zambia
Builders Express
+2 in South Africa
Builders Superstore
+6 in South Africa
+14
+3
Retail
+13 in South Africa
+1 in Lesotho
Wholesale
+3 in Zambia
+7.6%Up from 1,648,718m2
to 1,774,263m2
+7.0%Up from 560,828m2
to 600,225m2
+5.3%Up from 231,021m2
to 243,328m2
+8.0%Up from 468,155m2
to 505,466m2
+9.4%Up from 388,714m2
to 425,244m2
Jan 2019 – Dec 2021
This 7.6% increase includes a 31% increase in our ex-SA trading space
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RESTATED
52 WEEKS
LIKE-ON-LIKE* LIKE-ON-LIKE
RESTATED
53 WEEKS
REPORTED REPORTED
Rm DECEMBER 2018 DECEMBER2017 GROWTH DECEMBER 2017 GROWTH
Sales 90,941.6 88,356.0 2.9% 93,735.2 -3.0%
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)2.3% 2.9% 2.9%
Working capital
Inventory days 61 56 5 54 7
Creditor days 81 78 3 74 7
Debtor days 10 9 1 9 1
* Restated to include IFRS 15 impact in prior year
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)
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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:
Restatement
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• 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
Restructure
Key impact
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‘000
At Dec 2017 217,145.5
Shares issued 33.6
At Dec 2018 217,179.1
Weighted-average at Dec 2018 216,390.6
Diluted weighted-average at Dec 2018 221,078.7
Number of shares