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 Retail Chief Executive Officer Chief Executive Officer Chief Financial Officer 2
AG AGENDA 01 01 CONTEXT AND SYNOPSIS 02 02 FINANCIALS 03 03 RECAP 04 04 GAME UPDATE 05 05 CONCLUSION AND OUTLOOK 06 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 Expense System cannibalising Massdiscounters weakness growth challenges festive period performance 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) 9 "#$%&'(&)#$%*+,-#-*%./)01#(2*3456*78*#9:,/;*#(*<=7>
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% 1.3% 2.9% 5.5% growth 91.0% growth growth growth 9.0% Food & Liquor ! 2.7% ! 6.4% Food & Liquor Food & Liquor 5.1% growth 58% 52% Durables 4.7% growth 9.5% growth 0.3% growth Durables Durables Online sales 42% 48% 6.0% decline No growth 3.2% growth 10
SALES 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: R13.8bn 2018: R19.7bn Comp sales 5.8% Comp sales -0.3% Comp sales 1.4% Comp sales -2.1% ! 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% 11
GROSS 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: R4.4bn 2018: R5.2bn " 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 12
COST 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 security costs (weak economy) ! 11.1% 2018. Excl. this increase is 9.6% conversion of in-sourced ! Increased municipal & electricity ! 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 13 "#$%&'(&)#$%*+,-#-*%./)01#(2*3456*78*#9:,/;*#(*<=7>
DIVISIONAL 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 "#$%&'(&)#$%*+,-#-?*%./)01#(2*3456*78*#9:,/;*#(*<=7> @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*<* 14 /A,C2%*,(1*%./)01%-*C%-;C0/;0C%*/'-;- !
TAXATION Rm Tax expense DEC 2019 DEC 2018 • Impairments of 347.0 399.4 Total taxation expense deferred tax assets previously raised 344.8 506.0 Current taxation • limited recognition of 2.2 (106.6) Deferred taxation further deferred tax assets • tax expense on profit DEC 2019 DEC 2018 % Tax rate reconciliation (REVIEWED) (REVIEWED) making entities 28.0 28.0 Standard tax rate (42.1) 4.7 Disallowed expenses (54.4) 6.9 Assessed loss (not) utilised 1.1 (8.1) Other (67.4) 31.5 Group tax rate 15 "#$%&'(&)#$%*+,-#-*%./)01#(2*3456*78*#9:,/;*#(*<=7>
WORKING CAPITAL 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 2018 2019 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 16
DEBT 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 drop in operating cash 0.44 0.38 Free cash flow 239.6 1,285.6 5%E#%H%1*+,-#-*#(/)01#(2*3456*78*#9:,/;*#(*<=7>*,(1*,1':;#'(*%(;CI*#(*<=7J RM DEC 2019 DEC 2018 MOVEMENT • Currency weaknesses 53.3 2.7 50.6 Foreign exchange loss • Increased average levels of borrowing 689.8 623.7 66.1 Net finance costs "#$%&'(&)#$%*+,-#-*%./)01#(2*3456*78*#9:,/;*#(*<=7> 17
CAPITAL EXPANSION 2.5% R1.8bn R1.8bn F0-#(%--%-*,/K0#C%1 R1.6bn R1.6bn LC':%C;I*,/K0#-#;#'(- ! 7.9% ! 1.8% 2.0% " 11.1% R1.4bn 3(E%-;9%(;*;'*%.:,(1 " 14.6% Capex as a % of sales Capital expenditure ':%C,;#'(- 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 "#$%& 18
PART 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 20
PART 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 Clothing
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