Massmart Results For the 52 weeks ended 29 December 2019 - Presentation to analysts 27 February 2020
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Massmart Results For the 52 weeks ended 29 December 2019 Presentation to analysts 27 February 2020
PRESENTING TODAY
Mitchell Slape Mohammed Abdool-Samad Llewellyn Walters
Chief Executive Officer Chief Financial Officer Retail Chief Executive Officer
2
AGENDA 01 CONTEXT AND SYNOPSIS 02 FINANCIALS 03 RECAP 04 GAME UPDATE 05 CONCLUSION AND OUTLOOK 06 ADDITIONAL INFORMATION
PART 1 Context and synopsis Mitch Slape, Massmart CEO
Context
Challenging Trading Customer
economy interruptions behaviour
! Challenging economy ! Including protest action ! Consumers prioritising
and constrained and load-shedding non-Durables over Durables
consumer environment ! Timing purchases around
promotions such as Black Friday
5
WHAT WENT RIGHT
While 2019 was a challenging year, many things we accomplished will set us up for improved performance
Stronger Leveraging Cost Savings: Clear
Group Walmart Every Rand Turnaround
collaboration capabilities Matters Plan
! Supplier negotiations, ! Walmart India Development ! Expense growth deceleration: ! From federated to customer-
marketing, sales and Black Centre for Tech support 8.6% in H2 vs. 11.8% in H1 focused integrated model
Friday ! Indirect Spend Management ! Saved R240m vs. forecast over ! Supply Chain optimisation and
! Approach in vendor the last 5 months of the year Cost reset well under-way
negotiations
6
WHERE WE WERE DISAPPOINTED
There are areas where we know we must improve
Black Friday Lagging
Sales cannibalising Massdiscounters Expense System
weakness festive period performance growth challenges
sales
! Wholesale – Weak sales ! Strong Black Friday sales ! Poor execution in Game ! 10.2% growth ! Hybris online
particularly in November performance did not ! Continued decline in ! Outpacing sales growth interruptions in Makro
and December continue into December DionWired performance ! SAP S/4 HANA ERP delay
! Retail – Flat sales in in Massdiscounters
Cambridge and
Massdiscounters
7
PART 2 Financials Mohammed Abdool-Samad, Group CFO
LIKE-ON-LIKE FINANCIAL SUMMARY
52-week basis
R93.7bn R0.4bn 18.9% (R0.7bn)
2018: R90.9 billion 2018: R2.1 billion 2018: 19.5% 2018: R0.9 billion
Sales Trading profit before Gross profit margin Headline (loss)/earnings
interest and tax
(excl. reorganisation and
restructure & impairment)
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SALES BY GEOGRAPHY AND CATEGORY
Continued tough trading environment
Total sales y-o-y growth: H1: 5.5% H2: 0.9%
Group SA Sales Rest of Africa Sales
R93.7bn !3.0%
Comp sales
Comp sales Comp sales
Constant currency
1.5%
growth 1.3% 2.9% 5.5%
91.0%
growth growth growth
Food & Liquor
9.0%
! 2.7% Food & Liquor ! 6.4% Food & Liquor
5.1%
growth
Durables
58% 52%
4.7% growth 9.5% growth
0.3%
growth
Durables Durables
Online sales
6.0%
decline
42% 48%
No growth 3.2% growth
10SALES PERFORMANCE
Total Group sales ! 3.0%. Comparable sales ! 1.5%
Masscash Masswarehouse Massdiscounters Massbuild
!5.6% !2.0% !0.3% !3.4%
R30.3bn R29.4bn R19.8bn R14.2bn
2018: R28.7bn 2018: R28.8bn 2018: R19.7bn 2018: R13.8bn
Comp sales 5.8% Comp sales -0.3% Comp sales -2.1% Comp sales 1.4%
! Good Wholesale sales growth 8.6% ! Food & Liquor sales grew 2.8% ! Game SA sales up 1.9% and foot ! Good Retail sales, slow trade sales
! Flat Retail sales growth – ! Flat Gen Merch sales traffic up 4.0% ! Maintained market leading
competitive market ! New Makro store in March 2019 ! Game rest of Africa sales down performance in DIY, Home
! Good rest of Africa growth 11.6% ! Product inflation 2.2% 0.8% (decreased 1.5% in constant Improvement & building supplies
(10.4% in constant currencies) currencies) ! Product inflation 4.0%
! Product inflation 3.6% ! DionWired sales decreased 19.8%
! Product deflation 0.2%
11GROSS MARGIN
Group Gross margin % down 54bps to 18.9%
Masscash Masswarehouse Massdiscounters Massbuild
12.7% 17.5% 25.0% 32.3%
R3.8bn R5.2bn R4.9bn R4.6bn
2018: R3.9bn 2018: R5.1bn 2018: R5.2bn 2018: R4.4bn
"90bps !10bps "130bps !10bps
! Lower collection of rebates and ! Lower Gen Merch sales ! Higher promotional mix ! Higher retail contribution
margin support participation ! Gen Merch sales pressure driving higher margin
! Competitive retail market ! Massfresh margin pressure: with higher Food participation
increased competition, (lower margin)
impact in 2018
12COST PRESSURES
Total Group expenses grew at 10.2%, comparable expenses at 8.5%
Total expense y-o-y growth: H1: 11.8% H2: 8.6%
!17.3% !8.0% !8.4% !14.2%
! 14.0% comparable ! 7.8% comparable ! 4.4% comparable ! 12.2% comparable
Depreciation Employment costs Occupancy costs Other operating expenses
! Re-assessment of useful lives in ! 5.2% increase in FTEs: ! Trading space growth 1.6% ! Bad debts, credit card expenses and
2018. Excl. this increase is 9.6% conversion of in-sourced ! Increased municipal & electricity security costs (weak economy) ! 11.1%
! Completion of SAP Hybris temporary contractors to tariffs including costs of ! IT system implementations in change
in Makro permanent staff generators (load-shedding) management mode: costs expensed no
! Net 7 stores opened ! Impact of new stores longer capitalised ! 41.8%
! Pre-opening expenses ! 21.2% :9 new
stores opened, incl Makro & 2 BSS
"#$%&'(&)#$%*+,-#-*%./)01#(2*3456*78*#9:,/;*#(* 13DIVISIONAL PERFORMANCE EXCL. CORPORATE ALLOCATIONS
Group trading profit before interest and taxation "79.3%
Masscash Masswarehouse Massdiscounters Massbuild
(R426.8m) R1,004.3m (R560.6m) R746.3m
2018: R238.8m 2018: R1,147.1m 2018: R109.0m 2018: R800.3m
! Margin pressure "90bps with cost ! Margin improvement !10bps with cost ! Margin pressure "130bps with cost ! Margin improvement
growth of 13.6% (!12.1% comp) growth of 6.8% (!4.5% comp) growth of 8.7% (!6.9% comp) !10bps with cost growth
! Cost pressure relating to bad debts, ! 1 new store (6.5% space growth) ! 4 new Game stores (2 rest of Africa, of 5.7% (!4.3% comp)
equipment & credit card costs Pre-opening costs !R13.8m 2 peri-urban SA) ! 4 new stores (2.2% space
! One-off additional provisions - Balance ! Impact of security contractors and ! Costs impacted by in-sourcing temporary growth)
Sheet diligence process credit card costs staff, rates & utilities increases and self-
generated power costs
! SAP S/4 HANA ERP related costs
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@A%*B;C,1#(2*:C'D#;*+%D'C%*#(;%C%-;*,(1*;,.B*,+'E%*#-*;A%*,9'0(;*:%C*;A%*/'(1%(-%1*/'(-')#1,;%1*#(/'9%*-;,;%9%(;*)%--*;A%*FGG ;C,(-,/;#'(*3456*TAXATION
Rm Tax expense DEC 2019 DEC 2018
• Impairments of
Total taxation expense 347.0 399.4 deferred tax assets
previously raised
Current taxation 344.8 506.0
• limited recognition of
Deferred taxation 2.2 (106.6) further deferred tax
assets
DEC 2019 DEC 2018 • tax expense on profit
% Tax rate reconciliation (REVIEWED) (REVIEWED) making entities
Standard tax rate 28.0 28.0
Disallowed expenses (42.1) 4.7
Assessed loss (not) utilised (54.4) 6.9
Other 1.1 (8.1)
Group tax rate (67.4) 31.5
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57 74 8
Inventory days Creditor days Debtor days
" 4 days " 7 days " 2 days
R12.2bn
R17.8bn
R18.7bn
R11.9bn
R2.6bn
R2.3bn
2019 2018 2019 2018 2019 2018
Actively driving lower stock Mix change with higher Food Monitoring trade
levels despite 7 new stores purchases (with lower funding days) debtors carefully
16DEBT AND CASH MANAGEMENT
Rm DEC 2019 DEC 2018
• EBITDA down 45.0%
EBITDA 1,676.0 3,047.8 • Increase in net debt
Net debt 2,427 1,665 • Cash generated from
operations decreased by
Total equity 4,800.8 6,301.5 39.9%, despite 44.0%
Gearing ratio 0.44 0.38 drop in operating cash
Free cash flow 239.6 1,285.6
5%E#%H%1*+,-#-*#(/)01#(2*3456*78*#9:,/;*#(**,(1*,1':;#'(*%(;CI*#(*CAPITAL EXPANSION
2.5%
R1.8bn R1.8bn F0-#(%--%-*,/K0#C%1
R1.6bn R1.6bn LC':%C;I*,/K0#-#;#'(-
2.0% !7.9% !1.8%
"11.1%
R1.4bn 3(E%-;9%(;*;'*%.:,(1
"14.6%
Capex as a % of sales
':%C,;#'(-
Capital expenditure
1.5%
3(E%-;9%(;*;'*9,#(;,#(
':%C,;#'(-
@';,)*/,:%.*,-*,*M*'D
1.0% -,)%-
@';,)*/,:%.*,-*,*M*'D
-,)%-*%./)01#(2*+0-#(%--
,(1*:C':%C;I*,/K0#-#;#'(-
0.5%
0.0%
Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019
"#$%&
18PART 3 Recap Mitch Slape, Massmart CEO
DRIVING SALES THROUGH THE TURNAROUND PLAN
2019 2020 OUR FOCUS
A year of Implementation of Operational
underperformance Turnaround Plan excellence
! Group operating model
! Portfolio optimisation
! Supply Chain optimisation
! Cost reset
20PART 4 Game update Llewellyn Walters, Massmart Retail CEO
BACK TO BASICS
Addressing poor operational execution
and assortment issues
Remove Fresh
Fix inconsistent Fix stock
and Frozen
pricing replenishment
Reinstate ClothingBACK TO BASICS
Addressing poor operational execution
on
and assortment issues
Remove Fresh
and Frozen
Reinstate ClothingBACK TO BASICS
Addressing poor operational execution
and assortment issues
Fix inconsistent
pricingBACK TO BASICS
Addressing poor operational execution
and assortment issues
Fix stock
replenishmentPART 5 Conclusion and outlook Mitch Slape, Massmart CEO
BEYOND THE TURNAROUND
Immediate priority to grow online sales
Massmart is well poised:
• Fastest growing categories for e-commerce
are electronics & appliances, toys and
How do we games, with the slowest adoption in Food
win online? • Latest online sales growth is encouraging
• Leverage stores with omnichannel offer
• Improve fulfilment service
The opportunity
• eCommerce market in 2018: ~R16bn
• Growing to: ~R32bn in 2023
• Capturing 10% creates a R3.2bn opportunity
Update to follow in
the interim results
presentation
27OUTLOOK
! Sales for the 7 weeks to 16 February
2020 were R11.4bn, representing
total sales growth of 2.2% and
comparable sales growth of 1.0%
! The subdued economic environment
experienced in the latter part of
2019 continues
! We expect margin pressure to
persist in 2020
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 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.Q&A
PART 5 Additional information Condensed Consolidated Income Statement Cash flow statement Capex per category Store portfolio Number of shares
CONDENSED
CONSOLIDATED
INCOME
STATEMENT
Extract from Reviewed
Consolidated Results
for the year ended
29 December 2019
31CASH FLOW
STATEMENT
DEC 2019 DEC 2018
RM (ADJUSTED) (REVIEWED)
Operating cash before working capital movements 1,911.5 3,411.3
Working capital movements (188.8) (545.8)
Cash generated in operations 1,722.7 2,865.5
Net interest and tax paid (902.8) (807.5)
Net investment to maintain operations (580.3) (772.4)
Free cash flow 239.6 1,285.6
Dividends paid (162.4) (750.0)
Dividends received 20.0 34.0
Investment to expand operations and other net investing activities (731.0) (774.5)
Cash outflow before financing activities (633.8) (204.9)
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32CAPEX PER CATEGORY
Total capex 1.5% of total sales (2018: 1.8%)
Expansionary
investment
DEC 2019 DEC 2018 Percentage
RM (REVIEWED) (REVIEWED) Change
Land and buildings/leasehold improvements 177.2 191.6 (7.5)
Vehicles 0.7 15.7 (95.6) 22.4%
Fixtures, fittings, plant and equipment 266.8 291.9 (8.6)
IT investment 346.8 334.4 3.7 0.1%
Investment to expand operations 791.5 833.6 (5.1)
43.8%
Land and buildings/leasehold improvements 39.3 103.7 (62.1)
33.7%
Vehicles 45.4 64.8 (29.9)
Fixtures, fittings, plant and equipment 153.9 295.7 (48.0)
IT investment 341.7 308.2 10.9 Land & buildings/leasehold improvements
Investment to maintain operations 580.3 772.4 (24.9) Vehicles
Total 1,371.8 1,606.0 (14.6) Fixtures, fittings, plant & equipment
IT investment
33STORE PORTFOLIO
Total Massdiscounters Masswarehouse Massbuild Masscash
443 173 22 118 130
Up from 436 Up from 171 Up from 21 Up from 114 130 in Dec 2018
in Dec 2018 in Dec 2018 in Dec 2018 In Dec 2018
+4 Game +1 Makro +2 Builders Superstore
+7 +2 in South Africa +1 in South Africa +2 in South Africa
Net opened +1 in Namibia
+1 in Kenya +2 Builders Express
+2 in South Africa
-2 DionWired
-2 in South Africa
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34NUMBER OF
SHARES
‘000
At Dec 2018 217,179.1
Shares issued 1,959.7
At Dec 2019 219,138.8
Weighted-average at Dec 2019 217,686.4
Diluted weighted average at Dec 2019 219,793.1
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