interim results presentation - massmart · interim results presentation for the 26 weeks ended june...
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Interim ResultsPresentation
FOR THE 26 WEEKS ENDED JUNE 2019
01FINANCIAL
REVIEW02
OPERATIONAL REVIEW
03ADDITIONAL
INFORMATION
01Financial
review
Income StatementJune 2019 like-on-like
• Depreciation increased due to right-of-use (ROU) assets
• Occupancy costs decreased
• Finance costs increased due to the recognition of the lease liability
• Taxation – temporary differences relate to IFRS 16
Condensed Consolidated Income Statement26 WEEKS JUNE 2019 IFRS 16
26 WEEKS JUNE 2019
26 WEEKS JUNE 2018 ADJUSTED
Rm (REVIEWED) ADJUSTMENT (ADJUSTED) (REVIEWED) % CHANGE
Revenue 43,909.4 - 43,909.4 41,688.4 5.3
Sales 43,832.4 - 43,832.4 41,558.4 5.5
Cost of sales (35,403.5) - (35,403.5) (33,416.3) (5.9)
Gross profit 8,428.9 - 8,428.9 8,142.1 3.5
Other income 76.6 - 76.6 127.9 (40.1)
Depreciation and amortisation (1,548.4) 890.5 (657.9) (546.7) (20.3)
Employment costs (3,967.4) - (3,967.4) (3,653.8) (8.6)
Occupancy costs (644.6) (1,210.8) (1,855.4) (1,706.6) (8.7)
Other operating costs (2,026.2) - (2,026.2) (1,698.5) (19.3)Trading profit before interest and taxation 318.9 (320.3) (1.4) 664.4 (100.2)
Restructuring costs - - - (110.3) 100.0
Impairment of assets (46.9) - (46.9) (8.5) (451.8)
Insurance proceeds on items in PP&E 0.4 - 0.4 2.1 (81.0)
Operating profit/(loss) before foreign exchange movements and interest 272.4 (320.3) (47.9) 547.7 (108.7)
Foreign exchange loss (157.1) 75.2 (81.9) 23.4 (450.0)
Operating profit/(loss) before interest 115.3 (245.1) (129.8) 571.1 (122.7)
- Finance costs (921.9) 556.5 (365.4) (310.5) (17.7)
- Finance income 12.3 - 12.3 10.8 13.9
Net finance costs (909.6) 556.5 (353.1) (299.7) (17.8)
(Loss)/Profit before taxation (794.3) 311.4 (482.9) 271.4 (278.0)
Taxation (38.1) (64.8) (102.9) (81.4) (26.4)
(Loss)/Profit for the period (832.4) 246.6 (585.8) 190.0 (408.3)
(Loss)/Profit attributable to:
- Owners of the parent (836.1) 246.6 (589.5) 195.7 (401.2)
- Non-controlling interests 3.7 - 3.7 (5.7) 164.9
(Loss)/Profit for the period (832.4) 246.6 (585.8) 190.0 (408.3)
26 WEEKS JUNE 2019
26 WEEKS JUNE 2018
(ADJUSTED) (REVIEWED)
43,909.4 41,688.4
43,832.4 41,558.4
(35,403.5) (33,416.3)
8,428.9 8,142.1
76.6 127.9
(657.9) (546.7)
(3,967.4) (3,653.8)
(1,855.4) (1,706.6)
(2,026.2) (1,698.5)
(1.4) 664.4
- (110.3)
(46.9) (8.5)
0.4 2.1
(47.9) 547.7
(81.9) 23.4
(129.8) 571.1
(365.4) (310.5)
12.3 10.8
(353.1) (299.7)
(482.9) 271.4
(102.9) (81.4)
(585.8) 190.0
(589.5) 195.7
3.7 (5.7)
(585.8) 190.0
• ROU assets recognised due to IFRS 16 adoption entry
• Lease liability raised on a present value basis of future lease commitments
• Other non-current liabilities and provisions decreased to remove the full operating lease smoothing liability which is allocated against the ROU asset
Balance Sheet impactCondensed Consolidated Statement of Financial Position
DECEMBER 2018 IFRS 16 2019 JUNE 2019
Rm (AUDITED)AT ADOPTIONADJUSTMENT
OPENING BALANCE (ADJUSTED) (REVIEWED)
ASSETS
Non-current assets 14,165.8 8,530.0 22,695.8 22,086.7
Property, plant and equipment 9,109.5 - 9,109.5 8,820.5
Right-of-use asset 537.7 8,530.0 9,067.7 8,571.6
Goodwill and other intangible assets 3,656.3 - 3,656.3 3,745.8
Investments and other financial assets 119.2 - 119.2 143.6
Deferred taxation 743.1 - 743.1 805.2
Current assets 20,605.2 (118.1) 20,487.1 17,353.9
Non-current assets classified as held for sale 11.6 - 11.6 166.7
Total assets 34,782.6 8,411.9 43,194.5 39,607.3
EQUITY AND LIABILITIES
Total equity 6,528.6 (227.1) 6,301.5 5,280.3
Non-current liabilities 3,694.5 8,784.3 12,478.8 11,502.5
Interest-bearing borrowings 1,606.0 - 1,606.0 2,267.6
Lease liability 648.1 10,060.6 10,708.7 9,056.6
Deferred taxation 76.7 - 76.7 86.5
Other non-current liabilities and provisions 1,363.7 (1,276.3) 87.4 91.8
Current liabilities 24,559.5 (145.3) 24,414.2 22,814.5
Total equity and liabilities 34,782.6 8,411.9 43,194.5 39,607.3
Like-on-like basis excluding IFRS 16 impact in both periods
Sales
R43.8bn2018: R41.6 billion
Gross profit margin
19.2%2018: 19.6%
Trading loss before interest and tax
(excl restructure costs)
-R1.4m2018: R664.4 million profit
Headline loss(excl restructure costs)
-R550.0m2018: R283.5 million earnings
Like-on-likeFinancial summary
26-week basis
Our poor performance in summary
Weaker sales growth:
• Continued consumer pressure:• GDP -3.2% Q1• Unemployment 29%
• Low food inflation• 2nd quarter slow-down, despite
Easter
Margin pressure (down 36bps*, approx. R160m)
• Greater participation of lower-margin Food & Liquor sales
• Increased customer-led promotional sales mix
• Slower than expected recovery in our margin-management in Game and Masscash
Expenses (up 110bps*, approx. R900m)
• People, property & depreciation within expectations (75% of total) apart from employee insourcing
• Some pressure from 3.1% new space• Other expenses higher than
expected: security, generators’ diesel and maintenance, bad debts, credit card usage, new store pre-opening costs, IT support costs
* As a percentage of sales
Like-on-like basis excluding IFRS 16 impact in both periods
26-week like-on-like basis excluding IFRS 16 impact in both periods
SA Sales
91.1%h 4.9%
Ex-SA Sales
8.9%h 11.8% h 6.4%
Food & Liquor
56%h 7.9%
Durables
44%h 1.3%
Group Durables sales h 2.7%Group Food &
Liquor sales h 8.2%Total Group: R43.8 bn
ConstantCurrency
Durables
48%h 8.8%
Food & Liquor
52%h 14.6%
Sales by geography and categoryContinued tough trading environment
• Lower sales participation of higher-margin Durable Goods products
• Increased lower-margin promotional sales participation
• Weak margin management in Game and Masscash
• Stock aging in Game
Gross profit margin
Jun 18
19.6%R8.1 billion
Jun 19
19.2%R8.4 billion
Depreciation
h20.3%h 15.4% COMPARABLE
• Re-assessment of useful lives (IFRS) in 2018. Excluding this increase is 9.3%
• Completion of SAP Hybris in Makro
• Net 16 stores opened since June ’18 with space growth of 3.1%
Employment costs
h8.6%h 7.2% COMPARABLE
• 46,500 FTEs (8% growth) due to in-sourced temporary contractors to permanent staff: increase to benefits costs
• Impact of new stores
Occupancy costs
h8.7%h 6.5% COMPARABLE
• Net 3.1% trading space increase since June ‘18
• Pressure from increased municipal & electricity tariffs including costs of generators (load-shedding)
Other operating expenses
h19.3%h 14.3% COMPARABLE
• Increased credit card expenses and security costs (weak economy) R50m
• IT system implementations in change management mode: costs expensed no longer capitalisedR50m
• Pre-opening expenses R53.5m (2018: R18.6m): 7 new stores opened (June 2018: 5 new stores)
Cost pressuresTotal expenses grew at 11.8%, comparable expenses at 9.2%
Like-on-like basis excluding IFRS 16 impact in both periods
• Currency weaknesses in Zambia & Nigeria
• Increased average levels of borrowing
• Impairment of deferred tax assets and limited recognition of further deferred tax assets
Forex, interest and tax
Rm JUN 2019 JUN 2018 MOVEMENT
Foreign exchange loss/(gain) 81.9 (23.4) 105.3
Net finance costs 353.1 299.7 53.4
Tax expense 102.9 81.4 21.5
Like-on-like basis excluding IFRS 16 impact in both periods
• Product inflation of 0.8%• Good Food growth in Game (9%):
contributes 20% of total sales• Ex-SA sales grew 5.8% in Rands
and was relatively flat in constant currencies
• Game SA sales up 3.5% and customer count up 5.5%
• Product inflation of 2.9%• Good sales growth in Liquor
(11.9%)• Durable sales impacted by
deflation• New Makro store opened in
Cornubia in March ‘19
• Product inflation of 2.8%• Slow sales growth in SA stores:
negative construction growth in 3 consecutive quarters
• Good ex-SA growth of 25.5%,and 19.2% in constant currencies (new stores)
• Product inflation of 3.6%• Good Wholesale sales growth
13.3%, benefitted from inflation• Retail sales growth 2.9% in very
competitive environment• Good ex-SA growth 14.6% and
10.4% in constant currencies
R9.4bn2018: R9.1bn
R13.4bn2018: R12.9bn
R6.7bn2018: R6.4bn
R14.3bn2018: R13.1bn
Sales performanceTotal sales h5.5%. Comparable sales h3.6%
h3.0% SALES h3.7% SALES h5.0% SALES h9.1% SALES
Massdiscounters Masswarehouse Massbuild Masscash
• Increased inventory provisions• Gen Merch sales pressure with
higher Food participation
• Lower sales participation in Gen Merch
• Stabilising Massfresh trading taking longer than anticipated
• Higher retail contribution driving higher margin
• Lower collection of rebates and margin support
• Competitive Retail market
R2.2bn2018: R2.2bn
R2.4bn2018: R2.3bn
R2.1bn2018: R2.0bn
R1.7bn2018: R1.6bn
Gross marginGross margin % down 36bps
23.3% i20bps
Massdiscounters Masswarehouse Massbuild Masscash
17.5% i19bps 31.1% h23bps 12.0% i33bps
• Net new stores: 8 7 Game: 2 ex-SA, 5 peri-urban SA(1.3% space growth)
• Employment costs impacted by in-sourcing temporary staff
• Occupancy costs due to rates and utilities increases and self generated power costs
• SAP IT project costs, supply chain & logistics
• Net new stores: 1(6.5% space growth)
• Pre-opening costs R13.8m (June 2018: R0m)
• Security contractors• Credit card costs
• Net new stores: 7(1.8% space growth)
• Pre-opening costs R32.1m (June 2018: R17.3m)
• Re-assessment of useful lives (IFRS) in 2018
• Other costs relating to bad debts, equipment and credit card costs
• Employment costs impacted by in-sourcing temporary staff
R2.6bn2018: R2.3bn
R2.0bn2018: R1.8bn
R1.8bn2018: R1.7bn
R1.9bn2018: R1.7bn
SG&A expensesTotal SG&A expenses h11.8%. Comparable expenses h9.2%
h11.1% EXPENSES h9.0% EXPENSES h9.4% EXPENSES h14.4% EXPENSES
Massdiscounters Masswarehouse Massbuild Masscash
Like-on-like basis excluding IFRS 16 impact in both periods
-R396.1m2018: -R95.3 million
R336.4m2018: R484.7 million
R250.2m2018: R280.5 million
-R190.4m2018: -R4.1 million
Like-on-like basis, excluding IFRS 16 impact in both periodsThe '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.
Divisional performanceTrading profit before interest and taxation i100%
Massdiscounters Masswarehouse Massbuild Masscash
R11.1
bn
2019
R11.0
bn
2018
R12.6
bn2019
R12.7
bn2018
R2.4b
n
2019
R2.4b
n
2018
• Actively driving lower stock levels despite 16 new stores
• Mix change with higher Food purchases (with lower funding days)
Inventory days57
Creditor days56
Debtor days10
• Monitoring trade debt carefully
Working capital
i3 days i4 days no change
• EBITDA down 22.7%
• Net debt below last year
• Improved cash utilised in operations despite lower profitability
Management discipline in a tough environment
Rm JUN 2019 JUN 2018
EBITDA 12-month rolling 2,648.9 3,429.6
Net debt 7,036.3 7,157.2
Total equity 5,280.3 6,021.8
Gearing ratio 0.61 0.58
Cash utilised in operations (3,711.0) (3,891.5)
Like-on-like basis excluding IFRS 16 impact in both periods
02Operational
review
Household consumptionConsumer spending on Durables decreasing as at March 2019 (year-on-year Q1)
Source: South African Reserve BankReal figures from Q1 2019
h1.0%NON-DURABLES
h0.8%SERVICES
i1.5%DURABLES
h1.8%SEMI-DURABLES
Consumer prioritising Food over Durables
Consumer delaying spend for promotions and prioritising value
Improve profitability of Massdiscounters & Masscash
Drive structurally lower operating costs
Implement a Group DC-services & -network function: reduce cost-to-serve by 1%
Invest in online sales and grow Africa
Drive VAS customer offerings
Responsible business
Strategic priorities
Fixing our controllables
Game• Weak margin management• SAP implementation delay
• New leadership, incl. Merchandise Director
• Rebuilding capacity & processes post-2018 restructure for better margin management & control
• SAP implementation delayed to Q2 2020 due to concerns at 3rd party System Integrator. Engaged constructively, with SAP support
Masscash• Weak margin management
• New leadership
• Improving capacity & processes post-2018 restructure for better margin management & control
• Strong supplier support
Massfresh• Slower than expected sales
& margin recovery
• New leadership
• SAP system redesigned with improved business rules
• Improved focus on trading disciplines
Leveraging Group scale for efficiency
Group–wide transport, logistics, planning & storage
Making good progress in establishing multi-tenanted group Distribution Centre Network, which will enable cost effective availability by leveraging group scale
Savings achieved particularly through focus on Final Mile deliveries to customers
Supplier onboarding through Massmart Distribution Network grew by 5%, with further growth planned for H2
Objective to reduce cost to serve by 1%
Builders Click & Collect delivery expanded into Africa (2 in Botswana) and all Builders stores in major metros (21,300 articles available)
Online sales represents 0.8% sales participation
Online sales down 14%
• SAP Hybris implementation issues in Makro causing system downtime
• Builders Warehouse:
• Decreased sales on water harvesting equipment post 2018 Western Cape drought
• Positive sales growth in every other category
316Unique customer collection points
h 36%Online traffic growth
h 20%Articles available
online
h 20%Basket size
Focus on omnichannel
Group online highlights
SA Retail’s first Whatsappchatbot/virtual assistant in Makro
242,678m2 of retail space
R3.9bnSales
48Stores
12Countries
17%of total space is ex-SA
Africa footprint
BotswanaNamibia
Zambia
Mozambique
Uganda
Nigeria
Tanzania
Malawi
Ghana
Lesotho
Kenya
Builders
Game
Masscash
NEW
VAS growth
A competitive range of Financial Services are now
available across all divisions
h 12%growth in sales
h 16%RCS loans business
h 322%Increase in
electricity sales
h293%Bill payments
(excl. SABC & RCS)
h 22%RCS credit business
h 50%Total money
collected
• New Builders branded products & increased brand exposure sales up 9% and margin up 22%
• Growth in sport continues: new range of Trojan health equipment sales up 27.1% and margin up 36.1%
GEN MERCHFOOD HOME IMPROVEMENT
Private LabelContinued focus on Group collaboration and sourcing of Private Label products to offer customers good quality products at low price points
Group collaboration focused on reducing product costs to save customers money
21Brands in portfolio
6.6%Sales penetration
2018: 6.1%
37Brands in portfolio
20.5%Sales penetration
2018: 19.7%
54Brands in portfolio
11.9%Sales penetration
2018: 11.8%
Good liquor growth
h13.6%Increased liquor
participation
Durables demand soft, strong market share
40%Market shares in Large Domestic Appliances*
Click-and-collect in Botswana
+2 storesFocus on
omnichannel
Cross collaboration
R100 dealsGame & Makro
Key performances
* Source: GFK SA (June 2019)
ENERGYSAVING
Responsible business
Achieved R1bn milestone from small manufacturers participating in our SDP
• Import substitution focus improves on shelf availability e.g. toilet seats, nails and chefware
Almost 8 million kWh of renewable energy generated
• Anticipated energy savings of R20 million as a result of renewable energy interventions over the next five years
Only retailer in South Africa to partner with the United Nations Development Programme(UNDP) to promote energy efficient appliances
• Major appliances sales growth of 72.1% at full margin during promotion
Exceptionally strong consumer awareness
Category
Black Friday deals 50%
TVs & electronics 72%
Large appliances 72%
Outdoor & camping 66%
Small appliances 64%
Health & fitness 58%
Patio & garden 54%
% of consumers who intend to shop at Massmart
Consumer 1st choice
Consumer 2nd choice
Consumer 2nd choice
Metropolitan consumer intent to shop poll
Outlook• Sales growth for the period subsequent to June 2019
on a like-on-like basis for the 33 weeks to 18 August 2019 were R55.8bn, representing total sales growth of 5.0% and comparable sales growth of 3.2%. Estimated product inflation of 2.6%.
• Assuming no further deterioration in the SA consumer economy for 2019, Massmart expects basic earnings per share for Dec 2019 to be at least 50% below last year’s of 410.6 cents excl. IFRS 16 and at least 100% below incl. IFRS 16
• On the same basis, Massmart expects headline earnings per share for Dec 2019 to be at least 50% below last year’s of 416.5 cents excl. IFRS 16 and at least 100% below incl. IFRS 16
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.
www.massmart.co.za/interimresults2019
03Additional
information
Condensed Consolidated Income StatementTax rate reconciliationCash flow statementCapex per categoryCapital expansion
Store portfolioForecast stores: Jul 2019 – Dec 2022
Number of shares
Condensed Consolidated
Income Statement
Extract from Reviewed Consolidated Results for the period ended 30 June 2019
RMJUN 2019
(REVIEWED)JUN 2018
(REVIEWED)
Standard tax rate 28.0 28.0Non-taxable income and disallowable expenses (0.3) (0.5)Assessed losses not utilised (28.7) 1.9Other - including foreign tax adjustments (3.8) 0.5Group tax rate (4.8) 29.9
Tax rate reconciliation
Like-on-like basis excluding IFRS 16 impact in both periods
RMJUN 2019
(ADJUSTED)JUN 2018
(REVIEWED)
Operating cash before working capital movements 659.1 1,256.2Working capital movements (4,370.1) (5,147.7)Cash generated in operations (3,711.0) (3,891.5)Net interest and tax paid (684.2) (532.8)Net investment to maintain operations (318.8) (274.0)Free cash flow (4,714.0) (4,698.3)Dividends paid (129.7) (603.0)Dividends received - 14.0Investment to expand operations and other net investing activities (354.5) (347.2)Cash outflow before financing activities (5,198.2) (5,634.5)
Cash flow statement
Like-on-like basis excluding IFRS 16 impact in both periods
RMJUN 2019
(REVIEWED)JUN 2018
(REVIEWED)
Land and buildings/leasehold improvements 68.4 92.7
Vehicles 0.4 39.9
Fixtures, fittings, plant and equipment 72.3 97.1
Computer hardware 71.8 8.6
Computer software 164.0 120.6
Investment to expand operations 376.9 358.9
Land and buildings/leasehold improvements 56.2 54.1
Vehicles 33.9 16.9Fixtures, fittings, plant and equipment 157.0 94.8
Computer hardware 44.2 46.9
Computer software 27.5 61.3Investment to maintain operations 318.8 274.0
18.1%
0.1%
19.2%
19.1%
43.5%
Land & buildings/leasehold improvementsVehiclesFixtures, fittings, plant & equipmentComputer hardwareComputer software
Expansionary investment
Capex per categoryTotal capex 1.6% of total sales (2018: 1.5%)
Capital expansion
R 0
R 100
R 200
R 300
R 400
R 500
R 600
R 700
R 800
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
Businesses acquired
Property acquisitions
Investment to expand operations
Investment to maintain operations
Total capex as a % of sales
Total capex as a % of sales excludingbusiness and property acquisitions
Cape
x as
a %
of s
ales
JUNE 2014
JUNE 2015
JUNE 2016
JUNE 2017
JUNE 2018
JUNE 2019
Store portfolio
Total Massdiscounters Masswarehouse Massbuild Masscash
441 172 22 117 130Up from 436 in Dec 2018
Up from 171 in Dec 2018
Up from 21 in Dec 2018
Up from 114 In Dec 2018
130 in Dec 2018
+5Net opened
+3
-2
Game+2 in South Africa+1 in Namibia
DionWired-2 in South Africa
+1 Makro+1 in South Africa
+2
+1
Builders Superstore+2 in South Africa
Builders Express+1 in South Africa
Forecast stores
Total Massdiscounters Massbuild Masscash
+27 +6 +8 +13Up from 441 to 468 Up from 174 to 182 Up from 117 to 125 Up from 130 to 143
+20South Africa
+7Ex-SA
+6 Game+1 in South Africa+1 in Kenya+2 in Botswana+1 in Namibia+1 in Zambia
+2
+2
+3
Builders Warehouse+1 in South Africa+1 in Kenya
Builders Express+2 in South Africa
Builders Superstore+3 in South Africa
+12
+1
Retail+12 in South Africa
Wholesale+1 in Kenya
+5.6%Up from 1,679,524m2
to 1,773,886m2
+3.2%Up from 567,103m2
to 585,103m2
+1 Builders Trade Depot+1 in South Africa
+8.1%Up from 476,582m2
to 514,961m2
+9.8%Up from 388,714m2
to 426,698m2
Jul 2019 – Dec 2022
This 5.6% increase includes a 10.1% increase in our ex-SA trading space
‘000
At Dec 2018 217,179.1
Shares issued 1,959.7
At Jun 2019 219,138.8
Weighted-average at Jun 2019 218,400.1
Diluted weighted-average at Jun 2019 221,006.5
Number of shares