Results Presentation for year ended December 2015
The Environment 2016/17 likely to be much tougher South Africa: • Overall consumer confidence weakest since 1994. Upper-income confidence sliding, now at 1998 levels • CPI now above 6% and likely heading to 7% from drought-induced Food inflation Weak & jobless economic growth. If domestic recession avoided (likely), global economy • still a detractor • Now in interest up-cycle (+100bps in FY16?) • Consumer impact of renewed price pressure not to be underestimated Africa: Apart from oil-dependent countries, most have stabilised at new lower economic levels • • Severe currency weakness in some countries. Devaluations seem likely in others • US$ remains de facto currency • Long-term potential intact but requires measured long-term approach Yea ear en end d resul ults Presen entation December 2015 2
The Environment Impact of South African drought • Likely severe shortages of yellow maize & potatoes • Seeing changes in customers’ shopping behaviour – less travel, private label, smaller pack size • Consumers will typically cut back on meat, R 000 7 gravy, etc. before reducing carbohydrates 6 • Possible that rice & pasta remain relatively 5 more affordable 4 El Nino effect – earlier & colder winter. • 3 May impact crops planted late 2 • Import programme will pose serious supply chain challenges & will be costly 1 0 • Any ZAR strength will assist (lower import Indian rice Indian rice Thai rice Thai rice Yellow Wheat costs). International corn (wheat) price at $ ZAR $ ZAR ZAR maize ZAR five-year low Oct '15 Jan '16 Yea ear en end d resul ults Presen entation December 2015 3
The Environment Socio-economic pressure Consumer behaviour • Keen value focus • Movement to smaller pack sizes, less protein, etc. • Less frequent travel to shopping precincts Spending time bound to pay-day periods (4 days) • Our response Focussed effort on: • Right merchandise availability; and • Keen pricing to satisfy highly concentrated monthly shopper demand Yea ear en end d resul ults Presen entation December 2015 4
Massmart Positioning Trust our model. Superb execution. Be patient and measured. • Invest in growing market leadership in our major categories • Due to high market shares and two mature businesses, we are very deliberate about our South African new space growth. 16 new stores, 3.2% new space. Closed 10 stores, net space decline of -0.8% Measured African growth with Game and Builders Warehouse. Five new stores in four • countries in 2015, and most performing very well • Focus on reducing operating costs as % of sales. Still high at 16.4% • Maintain positive price-gap • Closer supplier collaboration / focus on supply chain inefficiencies Yea ear en end d resul ults Presen entation December 2015 5
Financial Performance Great sales & volume growth. Some inevitable margin pressure, but Group margin higher from portfolio mix. Good cost control in tough environment Estimated Dec 2015 Dec 2014 Comparable % % sales (Reviewed) % of sales (Audited) % of sales % growth sales growth inflation Sales 84,731.8 78,173.2 8.4 6.7 3.0 Massdiscounters 19,514.1 17,955.2 8.7 3.9 1.7 Masswarehouse 23,675.9 21,554.8 9.8 9.8 3.4 Massbuild 12,010.6 10,822.8 11.0 7.4 3.8 Masscash 29,531.2 27,840.4 6.1 5.8 2.9 2,349.8 2,061.7 14.0 Trading profit before interest and tax 2.8 2.6 235.4 180.7 30.3 Massdiscounters 1.2 1.0 1,198.7 1,044.3 14.8 Masswarehouse 5.1 4.8 693.6 537.6 29.0 Massbuild 5.8 5.0 222.0 299.1 (25.8) Masscash 0.8 1.1 Yea ear en end d resul ults Presen entation December 2015 6
Perspective on Game Pleased with Trading recovery. Longer-term business renewal Short-term: Improving SA performance. Better margin management. • • Food: 18 new / converted Fresh stores since December ’14, now 84 stores. Food & Liquor sales growth 19% • Non- SA countries’ economies have stabilised. Improved H2 (total Rand sales +16.6% ) • Merchandise renewal / assortment clarity – rationalise categories & merchandise ranges • Improving in-stock service levels. Game SA stock 5 days better than LY • Positive price-gap in General Merchandise & Food SAP GK PoS implementation in 2016 • Longer-term: • Category renewal – younger, female, family • Optimise supply chain utilisation • SAP ERP in 2017 Yea ear en end d resul ults Presen entation December 2015 7
Perspective on Masscash Wholesale Fluid market – consolidation opportunity. Transforming the business. Short-term: • Commodities (25% participation) recently moved into inflation Margin pressure across entire wholesale market • • ARCH Enterprise IT system enabling regional buying & pricing • Gained market share Longer-term: • Drive lower operating costs from fewer & larger stores, Shield B2B, logistics & DCs • Largest participant in SA formal Wholesale, and wholesale remains 20%- 25% of total SA FMCG • A relationship business: • need to be close to our customers be suppliers’ preferred distribution partner – an efficient & effective • route to market • Great business model for growth into under-penetrated non-SA countries Yea ear en end d resul ults Presen entation December 2015 8
Perspective on Massbuild Massbuild’s sales linked to well -being of domestic bonded housing market Builders Warehouse sales slowed in H2: • Whilst some slowdown in Retail sales, 2% of the lower sales growth is from Trade sales which slowed as contractors’ business from provincial & local government declined Put one large provincial Govt account on hold due to delayed payment (now fully • settled). Adverse impact: 3% sales growth • Insignificant generator sales reduce sales growth by 1% • Monthly growth in Residential building plans passed remains positive, suggesting order books for early 2016 may still be robust Looking ahead: • Aggressive focus on offering / demonstrating great price & value • Possibly some sales pressure from constrained SA housing market • Will government capital spending pick-up soon? • Builders Express sales remain steady Builders’ non -SA annualised sales fast-approaching R1bn • Yea ear en end d resul ults Presen entation December 2015 9
Financial performance
Continued strong performance Positive gearing of 5.7% from Sales to Operating Profit. Full year - 2015 +5.7% +3.9% +1.8% 14,1% 10,2% 8,4% Growth in Sales Growth in Gross profit Growth in Operating profit before foreign exchange movements and interest Yea ear en end d resul ults Presen entation December 2015 11 11
Sales Real comparable volume growth of 3.7% (December 2014: 2.7%). Real Comparable Estimated comparable Dec 2015 Dec 2014 % sales % sales volume Rm (Reviewed) (Audited) % growth growth inflation growth 3.7 Total 84,731.8 78,173.2 8.4 6.7 3.0 2.2 Massdiscounters 19,514.2 17,955.2 8.7 3.9 1.7 6.4 Masswarehouse 23,675.9 21,554.8 9.8 9.8 3.4 3.6 Massbuild 12,010.6 10,822.8 11.0 7.4 3.8 2.9 Masscash 29,531.2 27,840.4 6.1 5.8 2.9 8,4% • Rest of Africa businesses’ sales growth: Rest of Sales in ZAR grew by 12.6% / Africa sales SA sales in constant local currencies grew by 13.8 91,6% Yea ear en end d resul ults Presen entation December 2015 12 12
Margin What is driving margin improvement? Game margin • Improved margin 0,1% management management in Game • Highest margin Product and +0.3% 0,2% business grew the business mix fastest • Mix improvement between businesses 18,6% 18,6% 2014 total and categories • Lowest margin business slowing down Dec 2014 Dec 2015 18.6% 18.9% Yea ear en end d resul ults Presen entation December 2015 13 13
Operating expenses Comparable expenses as a percentage of sales decreasing year-on-year 16,4% 16,2% 16,1% 16,0% 2014 Total 2014 Comp 2015 Total 2015 Comp Yea ear en end d resul ults Presen entation December 2015 14 14
Operating profit before forex and interest 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 Rbn • December 2014: Operating profit before forex of R2,016m Dec-14 Sales-related gross margin • Total Group sales for the period increased by 8.4% • Gross profit for the period increased by 10.2% Price-and-mix-related gross margin • Total increase of 11.1% / Comparable increase of 7.7% Employment costs • Increase in staff (Full-Time Equivalents) of 1.7% to +/- 48,000 FTE’s IFRS2 charge represents 1.6% of the increase • • Total increase of 7.0% / Comparable increase of 4.4% • Property purchases in the last 24 months have contributed to this improvement Occupancy costs • 0.7% increase of net new trading space since Dec 2014 to a total of 1,550,719m² • Electricity, rates and taxes increased by approximately 13.8% • Depreciation growth of 11.8% / Comparable increase of 8.0% Depreciation, Amortisation and Impairment of Assets • Increase in line with past property purchases • Total increase of 7.0% / Comparable increase of 3.4% Other operating costs • Increased investment in IT infrastructure across the Group December 2015: Operating profit before forex of R2,300 million • Dec-15 R284m improvement / increase of 14.1% • Yea ear en end d resul ults Presen entation December 2015 15 15
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