Presentation for 52 weeks ended 28 December 2014 Operating Model - - PowerPoint PPT Presentation

Final Results Presentation

for 52 weeks ended 28 December 2014

Operating Model

Massmart is a high-volume, low-cost, omni-channel distributor of Food, Liquor, General Merchandise and Home Improvement in sub-Saharan Africa

+ Africa’s second largest retailer / distributor + Market leader in General Merchandise and Home Improvement + Market leader in Liquor and Wholesale Food + 3rd largest in Liquor & Food (retail & wholesale) + Fastest growing Retail Food proposition Game in 2014 + Highest sales densities in SA retail at R190m/store + Lowest Operating Costs as % of sales in SA retail at 16.2% + Great retail and wholesale brands and formats Makro, Game, DionWired, Builders, Jumbo + Deep, wide penetration across LSM 3-10 and Retail, Wholesale & Commercial customers + Owned by Walmart

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Retail Leadership team

Team has combined total of 54 years’ experience in Massmart operations

Robin Wright (59)

BCom, CA (SA)

17 years with Massmart

Founder CCW Stores Chief Executive Masscash Group Food Executive Chief Executive Massdiscounters

Neville Dunn (46)

Bcom CA(SA)

13 years with Massmart

Financial Manager The Hub Financial Director Masscash Operations Director Masscash Chief Executive Masscash Wholesale

Kevin Vyvyan-Day (50)

BCom, BAcc, CA (SA)

10 years with Massmart

Group Chief Executive Officer UPD Chief Executive Masswarehouse Chief Executive Cambridge Food

Doug Jones (42)

BCom, PGDA CA (SA)

8 years with Massmart

Operations Financial Manager SAB Ltd Softdrinks Division Finance Director Makro Commercial Director Makro Chief Executive Masswarehouse

Llewellyn Walters (51)

BA (LLB)

6 years with Massmart

Divisional Managing Director Super Group, African Operations Chief Executive Massbuild

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Consumer environment

+ Low economic growth, soft job creation, unsettled labour market, high utility costs, weak currency, and electricity disruptions. Low consumer confidence + Constrained discretionary spending with focus on exceptional value amongst low- & middle-income customers + Steady demand amongst higher-income customers in Builders and Makro + Wholesale affected by commodities’ deflation and dis-inflation across basket + Disruption in electricity supply impacts negatively on foot traffic in shopping centers, benefits our stand-alone stores?

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Tough but an improved second-half

• 2

2 4 6 8 10 12

Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14

% Growth year-on-year

Nominal Sales Real Sales

Performance highlights

+ Game SA had a good H2, growing profit. Game Africa declined from weaker economies, new stores and currency devaluations (-R40m) + Game Retail Food growth continues, is now R3.2 billion. Positive impact on General Merchandise sales + Great performances from Makro, Builders Warehouse and Builders Express as they leverage skills, scale, SAP and supply chain. Profit acceleration in H2 + Margin recovery in Masscash Wholesale through focus on direct distribution and larger stores + Market research confirms high consumer brand affiliation with Cambridge Food. Great trading performance + Great performance by new Builders Warehouse, Maputo + Successful launch of Makro online in General Merchandise and Liquor

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Scale, Growth and Innovation

Performance highlights at a glance

Great sales growth, good margin management and decent cost control in tough environment

Final Results Presentation February 2015

6 Rm 52 weeks December 2014 (Reviewed) % of sales 52 weeks December 2013 (Pro forma) % of sales 52 week % growth 52 week Comparable % sales growth Estimated % sales inflation

Sales 78,173.2 70,790.7 10.4 7.5 4.8 Massdiscounters 17,955.2 16,294.2 10.2 4.8 3.1 Masswarehouse 21,554.8 19,271.7 11.8 10.7 5.5 Massbuild 10,822.8 9,441.3 14.6 9.1 5.9 Masscash 27,840.4 25,783.5 8.0 6.3 4.8 Trading profit before interest and tax 2,061.7 2.6 1,994.4 2.8 3.4 Massdiscounters 180.7 1.0 326.9 2.0 (44.7) Masswarehouse 1,044.3 4.8 939.5 4.9 11.2 Massbuild 537.6 5.0 467.6 5.0 15.0 Masscash 299.1 1.1 260.4 1.0 14.9

Did You Know?

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+ 98 private label brands generate sales of R7.2 billion across the Group + Our retail brands have the highest spontaneous awareness for household appliances, electronics, outdoor & patio, home improvement + Load-shedding products comprise 1.5% of Builders Warehouse sales and grew 36% (generators, solar, gas, emergency lighting) + Game sells 1/3rd of all TVs sold in South Africa + Makro online had one million active visitors in 30 days to mid-December + Makro Liquor sold 108m cans / bottles beer, 43m cans cider and 5m bottles whiskey

Financial Performance

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+

Three divisions had a strong performance with Game SA showing improved trading in the second half of the year + Total sales growth increased to 10.4% (Dec 2013: 7.5% 52 weeks) and comparable sales increased by 7.5% (Dec 2013: 3.8%) + Gross margin increased to 18.63% (Dec 2013: 18.44% 52 weeks) + Comparable expense growth of 7.1% is lower than comparable sales growth of 7.5% + Foreign exchange loss of R49.8m (Dec 2013: R67.8 m gain) + Operating profit before foreign exchange movements and interest increased by 4.3% (Dec 2013: -0.3% 52 weeks)

Sales

Real comparable volume growth

Final Results Presentation February 2015

9 Rm 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) 52 week % growth 52 week Comparable % sales growth Estimated % sales inflation

Total 78,173.2 70,790.7 10.4 7.5 4.8 Massdiscounters 17,955.2 16,294.2 10.2 4.8 3.1 Masswarehouse 21,554.8 19,271.7 11.8 10.7 5.5 Massbuild 10,822.8 9,441.3 14.6 9.1 5.9 Masscash 27,840.4 25,783.5 8.0 6.3 4.8

91.9% 8.1%

S.A. Sales Rest of Africa Sales

+ Rest of Africa businesses’ sales growth: Sales in ZAR grew by 16.2% + Higher inflation in General Merchandise and Home Improvement + Wholesale business is experiencing deflation in some Food commodities in 2015

+ Operating profit before forex of R1,933.7m + A strong trading performance in Makro, Massbuild and Masscash Retail; offset by: + Greater Food contribution across the Group + A softer margin performance in Massdiscounters attributable to the overstock position + Prior year included insurance proceeds + Total increase of 14.0% / Comparable increase of 8.5% + Increase in staff (Full-Time Equivalents) of 8.3% to +/- 41,000 FTE’s + Total increase of 5.3% / Comparable increase of 3.6% + 3.9% increase of net new trading space to a total of 1,539,295m² + Electricity, rates and taxes increased by approximately 15% + Property acquisitions resulting in a reduction of occupancy costs + Depreciation growth of 15.8% is greater than sales growth of 10.4% + The opening of new stores, DC’s and the acquisition of key properties is driving the increase + Rate of increase should reduce significantly from 2015 + Total increase of 12.6% / Comparable increase of 7.8% + Credit card commission increased by 15.5% - increased usage + Operating profit before forex of R2,015.9 million + Increase of 4.3%

Operating profit before forex and interest

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0.5 1.0 1.5 2.0 2.5 3.0 3.5

2013 Sales-related gross margin Price-and-mix-related gross margin Other income Employment costs Occupancy costs Depreciation, Amortisation and Impairment of Assets Other operating costs 2014

Rbn

EBITDA

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11 Rm 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) 52 week % growth

Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 Depreciation and amortisation 846.6 731.1 15.8 Impairment of assets 24.6 41.6 EBITDA before foreign exchange movements 2,887.1 2,706.4 6.7

Foreign Exchange Movements

Final Results Presentation February 2015

12 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma)

Massdiscounters (5.7) 82.4 Other (44.1) (14.6) Total (loss)/gain (49.8) 67.8

+ Rand weakened by 12.7% against the USD + Ghanaian New Cedi and the Nigerian Naira devalued against the Rand

Inventories and Creditors

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13 December 2014 (Reviewed) December 2013 (Audited)

Inventories (Rm) 11,228.8 10,115.5 Inventory Days 64 64 Trade Creditors (Rm) 14,841.5 13,702.4 Creditors’ Days 75 76

+ Good inventory management. Growth of 11.0% is marginally ahead of sales growth + New stores + Massdiscounters, while improving, remains overstocked + Trade Creditors increased by 8.3% + Creditors’ Days slightly tighter

+ Total Capex as a % of sales: 2.7% (Dec 2013: 3.3%) + Total Capex excl. business and property acq’s as a % of sales: 1.6% (Dec 2013: 1.8%)

Capital Expansion

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500 1 000 1 500 2 000 2 500 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 Rm

Capex as a % of sales

Investment to maintain operations Investment to expand operations Property acquisitions Businesses acquired Total capex as a % of sales Total capex as a % of sales excl business and property acq's

Capital Expansion

Sales split between owned and leased stores

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31% 27% 13%

Capital expansion

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Annualised benefit of property acquisitions over the last 2 years

Saving on lease payments: R210m

Less finance costs: R109m Less depreciation costs: R36m

Net savings: R65m

Cash Flow Statement

Final Results Presentation February 2015

17 Rm 52 weeks December 2014 (Reviewed) 53 weeks December 2013 (Audited)

Operating cash before working capital movements 2,983.4 2,984.0 Working capital movements (295.1) 752.6 Cash generated by operations 2,688.3 3,736.6 Net interest and tax paid (1,028.7) (987.9) Net investment to maintain operations (857.4) (780.2) Free cash flow 802.2 1,968.5 Dividends paid (914.0) (913.4) Investment to expand operations and

• ther net investing activities

(1,289.1) (1,446.9) Cash outflow before financing activities (1,400.9) (391.8)

+ The effect of week 53 in the prior and current year is approximately R500m in working capital

Forecast stores: Dec 2014 – Dec 2016

18 Dec 2014 Forecast new stores Jan 2015 – Dec 2016 Dec 2016

Number of stores 392 63 455 Massdiscounters 153 19 172 Masswarehouse 19 1 20 Massbuild 100 20 120 Masscash 120 23 143

+

Massdiscounters: Game SA – 8; DionWired – 4; and Game Africa - 7 (Kenya 1, Mozambique 1, Nigeria 3 and Zambia 2) + Masswarehouse: Makro - 1 + Massbuild: BWH SA - 4; BEX – 4; BTD – 1; BSS - 8; and BW Africa - 3 (Mozambique 1 and Zambia 2) + Masscash: Retail – 18; Wholesale SA – 2; and Wholesale Africa - 3 (Mozambique 2 and Zambia 1)

Forecast for 2015:

+ 33 new stores resulting in an additional 6.3% net new trading space

% increase

Trading space (m2) 1,539,295 192,893 1,732,188 12.5 Massdiscounters 506,188 60,340 566,528 11.9 Masswarehouse 195,794 12,000 207,794 6.1 Massbuild 436,538 57,500 494,038 13.2 Masscash 400,775 63,053 463,828 15.7

Final Results Presentation February 2015

Strategic Priorities

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+ Improve Profitability + Grow Builders and Retail Food in South Africa + Grow into Africa + Grow Online

Improve Profitability

To improve Group profitability from a focus on Sales, Operating Margin and Expenses

+ Increase comparable stores’ sales + New customer groups – commercial, online, exports + New formats, format renewal + Increase Private Label penetration: currently 9.8% of sales, and highest in Builders at 18.7% + Reduce costs in value-chain + Increase property ownership: estimated future annual benefit of R65m + Reduce capital cost of new stores + But always prepared to invest profit into price, to drive sales / productivity loop

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Growing Game

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Subsequent Challenges

+ Demand & fulfillment software (JDA) poorly configured & operated + Inadequate store segmentation impacted merchandise range: Rosebank to Ulundi + Initially difficult to attract suitable Food skills + Poor demand data history impacts Fresh wastage + Complexity of Fresh supply chain + Distracted the core General Merchandise team

Response:

+ Re-installed JDA in 2013/14 + Supply chain & RDC skills + Revised store segmentation and merchandise range + Hiring great skills. Suppliers’ support + Improving demand data history + Group Fresh supply chain + SAP point-of-sale

In 2009 began transforming Game from traditional GM discounter …

Growing Game

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Current Successes:

+ Now a less cyclical retail format offering wide range of GM & selected Food range + Since 2008 Game sales have grown 10% CAGR to R18bn + Game store footprint increased 7.3% CAGR to 130 stores + Food of R3.2bn is now almost 18% of total sales + Food now in 58 SA stores and in SA comparable stores sales +19% & GM sales in those stores outgrowing non- Food stores + Most GM market shares steady or improved

• 10%
• 5%

0% 5% 10% 15% 20% 3 month rolling year-on-year growth

Sales Growth: Game vs SA GM retailers

StatsSA Game Gen Merch*

Source: Massmart, StatsSA. StatsSA figures for retailers in Household furniture, Appliances & Equipment *Game Gen Merch = Total Game SA sales in General Merchandise, excl. cellular and hardware

Game SA had a good Q4. Key business inputs improving gradually. Another six months to rebalance inventory levels. Hopeful of a better SA performance in 2015

Grow Retail Food in SA

Current situation

Build a Retail Food proposition on the General Merchandise and Wholesale Food

• platforms. To reduce cyclicality, counter potential decline in Wholesale, complement
• ur existing offerings and enter the under-penetrated lower-income arena

+ Retail Food sales from Rnil to R14.7bn since 2008 + Trading through 132 stores in Makro, Game and Cambridge Food + Positive impact in Game and Makro, with increased traffic and new customers + Own private label in all three formats – Cambridge, Marketside, M-brand + Implemented full offering including dry groceries, bakery, butchery, fresh produce & prepared meals + Developing dedicated supply chain for Fresh, Meat & Bakery – either owned or 3rd party + Competitive pricing enabled through General Merchandise margins & lower operating expenses + Disrupted market equilibrium as suggested by competitor reaction, specifically aggressive enforcement

• f lease exclusivities and keen pricing / promotions

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Grow Retail Food in SA

Key priorities

+ Complete Game Food roll-out and grow national footprint of Cambridge Food brand + Improve product offering & store operating efficiencies + Develop and leverage specialist Group-

• wned assets (e.g. Fruitspot) to service

Fresh, Bakery and Butchery proposition + Grow Food private labels

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Inhibitors

+ Lease exclusivities, dedicated supply & logistics, cold chain infrastructure and specialist skills

Grow Builders’ formats in SA

Current Situation

+ Market leaders in SA with Builders Warehouse & Builders Express. Few direct format competitors + Pleased with early success of Superstore + Enabled by great skills & management, SAP and national DC + Under-penetrated is some key metropolitan & urban areas

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Inhibitors

+ Real estate, economic / housing cycle

Key priorities

+ Aggressively roll-out Warehouse & Express stores + Grow Builders Superstore (8 stores in next two

years)

Grow into Africa

Current situation

To replicate South African market leadership and operating strengths in under- serviced, high potential markets in sub-Saharan Africa, to increase geographic market exposure for growth

+ 33 stores in 11 sub-Saharan non-South African countries generating sales of R6.4bn representing 8.1% of total sales + Average store sales of R192m p.a., almost x2 higher than that achieved by grocery retail peers + Game – first wave city expansion into 10 non-SA countries has resulted in good General Merchandise market shares and an emerging Retail Food proposition + Builders Warehouse – second wave city expansion into two countries has resulted in excellent sales and margin growth + Masscash Wholesale – over 10 years have opened / acquired stores in four countries. Sales of R2.7bn + Continued learning from Valumart, Nigeria, launched in 2012. Have expanded the pilot to validate logistics and distribution requirements

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Grow into Africa

Key priorities

+ Grow into selected cities & metros. Seven Game stores planned for 2015-16 + Grow Builders Warehouse presence in SADC

• region. Three planned for 2015-16

+ Initiate a third wave through Cash & Carry or Hybrid model, with Dry Groceries & limited GM. Focus on major cities & towns in SADC. Three planned for 2015-16 + Total African space growth 2015-2016 of approximately 45%

Final Results Presentation February 2015

Inhibitors

+ Securing land title, volatile currencies, unpredictable customs & duty environments

TANZANIA ZAMBIA SOUTH AFRICA LESOTHO SWAZILAND NAMIBIA MOZAMBIQUE MALAWI NIGERIA GHANA UGANDA

359 4 3 1 1 1 1 3 2 5 1 11

BOTSWANA

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Grow online

Current situation

To build a profitable omni-channel presence that is synergistic with Massmart category market leadership and needs of customer base

+ DionWired online launched in 2012. Essential offering for hi-tech customer. Good online retail learning experience for the Group. High basket size, now 2.3% of sales + Makro online launched April (General Merchandise) and October 2014 (Liquor). High basket size, high proportion of click-&-collect, predominantly retail. New and existing customers + Trialing Makro convenience locker access, for later roll-out to SASOL service station forecourts + Shield online system and call-centre integrated with, and accessible to, Cash & Carry B2B customer base + Access to skills & experience at ASDA online and walmart.com

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Grow online

Key priorities

+ Invest in appropriate technology – master data, digital catalogue, inventory accuracy, extended assortments, fulfillment + Expand Shield B2B online to broader Cash & Carry customer base + Develop & launch Builders Warehouse online + Mobile applications

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Inhibitors

+ Technology – cost & effectiveness + Back-office interface + Consumer confidence in online payment systems

Prospects

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+ For the 8 weeks to 22 February 2015, total sales increased by 10.0% + Comparable sales increased by 7.9% + Continuation of sales trends seen in Q4 of 2014 + South African consumer environment seems mildly positive, but

• fragile. Need to watch oil price, taxes and interest rates

+ Mixed African economic prospects in short-term

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

• btain a copy of the auditor’s report together with the accompanying financial information from the issuer’s registered office.

Dedicated to adding value

For further details, go to massmart.co.za/results2014

Additional Information

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+ Reviewed Consolidated Income Statement for 52 Weeks ended 28 December 2014 + Tax Rate Reconciliation + Headline Earnings Reconciliation + Store Portfolio + Store Portfolio (including location of stores) + Forecast Stores (including location of stores) + Capex per category + Number of shares

Reviewed Consolidated Income Statement for the 52 Weeks ended 28 December 2014

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Rm

52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) 52 week % growth

Revenue 78,319.0 71,035.3 10.3 Sales 78,173.2 70,790.7 10.4 Cost of sales (63,610.8) (57,733.8) (10.2) Gross Profit 14,562.4 13,056.9 11.5 Other income 145.8 244.6 (40.4) Depreciation and amortisation (846.6) (731.1) (15.8) Impairment of assets (24.6) (41.6) 40.9 Employment costs (6,109.0) (5,357.5) (14.0) Occupancy costs (2,678.8) (2,544.5) (5.3) Other operating costs (3,033.3) (2,693.1) (12.6) Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 Foreign exchange (loss) / gain (49.8) 67.8 Operating profit before interest 1,966.1 2,001.5 (1.8) Net finance costs (345.3) (249.8) (38.2) Profit before taxation 1,620.8 1,751.7 (7.5) Taxation (483.4) (512.6) 5.7 Profit for the year 1,137.4 1,239.1 (8.2)

Tax Rate Reconciliation

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%

52 weeks December 2014 (Reviewed) 52 weeks December2013 (Pro forma)

Standard tax rate 28.0 28.0 Non-taxable income and disallowed expenses 2.8 (2.0) Allowances on lease premiums and improvements (0.4) (0.3) Assessed loss not utilised 2.0 1.4 Other – including foreign tax adjustments (2.6) 2.2 Group tax rate 29.8 29.3

Headline Earnings Reconciliation

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Rm

52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) 52 week % growth

Attributable earnings 1,079.8 1,180.0 Impairment of assets 24.6 41.6 Loss on disposal of tangible and intangible assets 1.4 11.9 Loss on disposal of business

• 1.8

Tax effects on adjustments (0.3) (3.8) Headline earnings 1,105.5 1,231.5 (10.2) Foreign exchange loss/(gain) (taxed) 35.9 (48.8) Headline earnings before foreign exchange (taxed) 1,141.4 1,182.7 (3.5)

Store Portfolio

36 December 2013 Opened Closed December 2014

Number of stores 376 28

• 12

392 Massdiscounters 143 13

• 3

153 Masswarehouse 19

• 19

Massbuild 92 12

• 4

100 Masscash 122 3

• 5

120

Massdiscounters: + Opened 11 Game stores (one in Nigeria and one in Namibia) and two DionWired stores + Closed two Game stores and one DionWired store Massbuild: + Opened three Builders Warehouse stores, four Builders Express stores, one Builders Trade Depot store and four Superstores + Closed two Builders Warehouse stores and two Builders Express stores Masscash: + Opened three and closed three Retail stores + Closed two Wholesale stores

Final Results Presentation February 2015

Store Portfolio including location of stores

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Massdiscounters Masswarehouse Massbuild Masscash Total

December 2013 143 19 92 122 376 Opened: 13

• 12

3 28

Game: 2 Africa stores Game: 9 SA stores DionWired: 2 SA stores BWH: 1 Africa store BWH: 2 SA stores BEX: 4 SA stores BTD: 1 SA store BSS: 4 SA stores Retail: 3 SA stores

Closed

• 3
• 4
• 5
• 12

Game: 2 SA stores DionWired: 1 SA store BWH: 2 SA stores BEX: 2 SA stores Retail: 3 SA stores Wholesale: 2 SA stores

December 2014 153 19 100 120 392

Forecast stores including location of stores

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Massdiscounters Masswarehouse Massbuild Masscash Total

December 2014 153 19 100 120 392 Forecast SA openings 2015: 6

• 9

12 27

Game: 4 DionWired: 2 BWH: 3 BEX: 2 BTD: 1 BSS: 3 Retail: 10 Wholesale: 2

Forecast Africa openings 2015: 4

• 1

1 6

Game: Kenya 1; Mozambique 1; Nigeria 1; and Zambia 1 BWH: Zambia 1 Wholesale: Mozambique 1

December 2015 163 19 110 133 425 Forecast SA openings 2016: 6 1 8 8 23

Game: 4 DionWired: 2 Makro: 1 BWH: 1 BEX: 2 BSS: 5 Retail: 8

Forecast Africa openings 2016: 3

• 2

2 7

Game: Nigeria 2; and Zambia 1 BWH: Zambia 1; Mozambique 1 Wholesale: Zambia 1; Mozambique 1

December 2016 172 20 120 143 455

Capex per category

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Rm

52 weeks December 2014 (Reviewed) 52 weeks December2013 (Pro forma)

Land and buildings/leasehold improvements 948.9 807.2 Vehicles 11.0 34.7 Fixtures, fittings, plant and equipment 341.7 427.7 Computer hardware 12.6 33.8 Computer software 7.9 1.5 Other

• 1.9

Investment to expand operations 1,322.1 1,306.8 Land and buildings/leasehold improvements 104.8 47.7 Vehicles 92.1 43.4 Fixtures, fittings, plant and equipment 427.2 521.7 Computer hardware 108.1 70.9 Computer software 123.6 96.5 Other 1.6

• Investment to maintain operations

857.4 780.2

Number of shares

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‘000 At December 2013 217,109 Shares issued 9 At December 2014 217,118 Weighted-average at December 2014 216,908 Diluted weighted-average at December 2014 219,055