Results Presentation. for year ended December 2015

Transcription

1 Results Presentation for year ended December 2015

2 The Environment 2016/17 likely to be much tougher South Africa: Overall consumer confidence weakest since 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 2

3 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, gravy, etc. before reducing carbohydrates Possible that rice & pasta remain relatively more affordable El Nino effect earlier & colder winter. May impact crops planted late Import programme will pose serious supply chain challenges & will be costly Any ZAR strength will assist (lower import costs). International corn (wheat) price at five-year low R Indian rice Indian rice Thai rice Thai rice Yellow $ ZAR $ ZAR maize ZAR Oct '15 Jan '16 Wheat ZAR 3

4 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 4

5 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 5

6 Financial Performance Great sales & volume growth. Some inevitable margin pressure, but Group margin higher from portfolio mix. Good cost control in tough environment Dec 2015 (Reviewed) % of sales Dec 2014 (Audited) % of sales % growth Comparable % sales growth Sales 84, , Massdiscounters 19, , Masswarehouse 23, , Massbuild 12, , Masscash 29, , Estimated % sales inflation Trading profit before interest and tax 2, , Massdiscounters Masswarehouse 1, , Massbuild Masscash (25.8) 6

7 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

8 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 8

9 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 9

10 Financial performance

11 Continued strong performance Positive gearing of 5.7% from Sales to Operating Profit. Full year % +3.9% +1.8% 14,1% 8,4% 10,2% Growth in Sales Growth in Gross profit Growth in Operating profit before foreign exchange movements and interest 11

12 Sales Real comparable volume growth of 3.7% (December 2014: 2.7%). Rm Dec 2015 (Reviewed) Dec 2014 (Audited) % growth Comparable % sales growth Estimated % sales inflation Real comparable volume growth Total 84, , Massdiscounters 19, , Masswarehouse 23, , Massbuild 12, , Masscash 29, , Rest of Africa sales SA sales 8,4% Rest of Africa businesses sales growth: Sales in ZAR grew by 12.6% / in constant local currencies grew by ,6% 12

13 Margin What is driving margin improvement? Improved margin management in Game Highest margin business grew the fastest Mix improvement between businesses and categories Lowest margin business slowing down 0,1% +0.3% 0,2% 18,6% 18,6% Dec 2014 Dec % 18.9% Game margin management Product and business mix 2014 total 13

14 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 14

15 Operating profit before forex and interest Rbn 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 Dec-14 December 2014: Operating profit before forex of R2,016m 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 Employment costs Occupancy costs Depreciation, Amortisation and Impairment of Assets Total increase of 11.1% / Comparable increase of 7.7% 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 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% Increase in line with past property purchases Other operating costs Total increase of 7.0% / Comparable increase of 3.4% Increased investment in IT infrastructure across the Group Dec-15 December 2015: Operating profit before forex of R2,300 million R284m improvement / increase of 14.1% 15

16 Good Operating profit growth impacted by forex and interest Profit for the year before forex growing by 11.1% improvement HEPS before forex grew by 7.8% Rm Dec 2015 (Reviewed) Dec 2014 (Audited) % change Operating profit 2, , Net finance costs (475.3) (345.3) Taxation (505.9) (483.4) Profit for the year before forex 1, , Foreign exchange loss* (149.8) (49.8) Profit for the year 1, , Headline EPS (cents) Headline EPS before foreign exchange (taxed) (cents) * majority is unrealised 16

17 Interest Rm Dec 2015 (Reviewed) Dec 2014 (Audited) Finance costs (507.7) (386.8) Finance income % change Net finance costs (475.3) (345.3) (37.6) H YTD 2015 Over the year finance costs were mainly incurred from funding for: property acquisitions; capex expansions; trading positions; and rate increases. 17

18 Working Capital Net funding gap increased to 4 days (2014: 1 day) Good inventory management. Growth of 6.3% is below sales growth Debtors days are calculated based on total Group sales Supply chain efficiency efforts starting to yield results Dec 2015 (Reviewed) Dec 2014 (Audited) Inventories (Rm) 11,935 11,229 Inventory Days Trade Debtors (Rm) 2,402 2,254 Debtors Days 9 9 Trade Creditors (Rm) 16,320 14,842 Creditors Days

19 Dividend policy Dividend cover amended to 2.00 x cover, in line with guidance provided in August 2015 The Group has spent in excess of R1.9 billion on strategic real estate purchases, both locally & in Africa We still see growth opportunities in Africa we anticipate increasing space growth by 8.6% in 2016 & but this often involves securing real estate With challenging economic conditions it is prudent to de-risk our capital structure in favour of potential for business growth at the right moment The dividend cover will be amended to 2.00 x cover for 2015 s total dividend This is at a level similar to Massmart s retail peers 19

20 In summary Market share gains Strong sales in challenging H2 Mix impacts improved gross margin Comp expenses as a % of sales going down Operating profit up 14.1% (before forex) Profit for the year up 11.1% (before forex) HEPS up by 7.8% (before forex) Interim results Presentation August

21 Strategic priorities Improve Profitability Grow Builders and Retail Food in South Africa Grow into Africa Grow Online Interim results Presentation August

22 Strategic Priority 1 Improve profitability Fast fact Massmart has the highest annual sales densities in SA retail at R201m/store and the lowest operating costs as a % of sales at 16.4%

23 Improving Profitability A focus on Sales, Operating Margin and Expenses. Drive comparable sales with a clear and well executed value proposition Existing & new stores measured store roll-out, selected ownership, lower cost of construction Continue driving private label investment Trojan, CampMaster, LOGIK, Fired Earth, ECONO, Builders Pride, Marketside, Great Value, Equate, M, etc. Sales penetration now 9.5% Leverage SAP and RDC investments Reduce non-trading space And focus on higher growth non-sa markets, Retail Food & Omni-channel 23

24 Sales per m² Improving Profitability A careful & scientific approach to new stores, with accretive sales from our new space Massmart Trading Space m² 24

25 Strategic Priority 2 Grow Builders and Retail Food in South Africa Fast fact 2015 gross SA space growth of 4.7% and 5.6% in Massbuild and Masscash Retail respectively

26 Grow Builders formats in SA Leverage our investment in this format. Drive customer loyalty with authorative range and best-in-market pricing on KVIs. Innovative Price Lock campaign Maintain relevance with our commercial & contractor customers through product range, price, convenience & credit Private label now 18% of the total sales offers exceptional innovation & value Supply Chain investments efficient and effective. Added a facility in Durban for import and regional distribution Home Living category launch in Rivonia store in November 15 saw positive customer response. To be introduced into our other big format stores Opened five new stores in South Africa (and our first in Zambia) / Closed four stores. Gross Massbuild SA space growth of 4.7% 26

27 Grow Retail Food in SA Build a Retail Food proposition on the General Merchandise and Wholesale platforms. Total Retail Food annualised sales now R15 billion across Group New Cambridge stores continue to perform well opening 24 stores in 2016/17 representing 15% space growth Retail Food in Makro is increasing customer visits and growing the basket Game Food & Liquor sales grew at 19%. Clearer range & assortment Fruitspot supplies Cambridge, Makro and Game stores in Gauteng. Good price & quality Our Marketside brand now across fresh produce, bakery and butchery in Game, Makro and Cambridge Food 27

28 Strategic Priority 3 Grow into Africa Fast fact Builders Rest of Africa store sales are fast approaching R1 billion out of 6 stores after just 3 years

29 Grow into Africa To leverage South African market leadership and operating strengths in sub-saharan Africa. Large prize but measured roll-out. Currently 38 stores in Africa, representing R7.2bn sales (8.4% participation), in 13 countries New Game stores in Matola (Mozambique) and Abuja (Nigeria) in H2. And new Builders Warehouse store in Lusaka (Zambia) in Q4. All performing well 20% of Masscash Wholesale sales are ex-sa, mainly Botswana. Continue to explore further C&C sites in Mozambique and Zambia Anticipate opening five new stores in next two years in Ghana, Mozambique, Nigeria & Zambia Currency devaluations and related consequences difficult to manage. Little affected by Nigerian central bank foreign currency constraints due to high proportion of local purchases Bespoke African Retail study confirms significant potential of our formats across key African countries and need for measured & longer-term approach 29

30 Recent Africa study We commissioned Canback & Company to do a bespoke review of sub-saharan Africa (SSA) main Retail categories growth to 2024 There is an inflection point relative to GDP per capita after which retail modernises and growth accelerates: Six countries in SSA at or above that inflection point Two countries will reach this within 10 years And estimate another seven countries will reach it in +10 years Some large cities reach this before their country Retail modernisation increases from 8% to 17% over the period 15 SSA countries represent 88% of total retail potential Massmart s merchandise categories represent 50% of potential African opportunity and are each forecast to grow at approximately 14% CAGR 30

31 Strategic Priority 4 Grow online Fast fact Traffic on the Makro site grew by more than 65% and had 11 million unique visitors during 2015

32 Grow online To build a profitable omni-channel presence synergistic with Massmart category & market leadership and customer needs. Total online sales are R183 million Visits to DionWired site are up 13%, average basket size is up 12% Makro online sales growing rapidly. Sales in Q4 double those for the same period LY Pick-up lockers extended to include sites in Cape & KZN. 30 lockers available by end April 2016 Commercial functionality (B2B) went live during November. Great response Masscash trialling store-based online ordering capability Initiated SAP online project in Builders Warehouse to improve our offering to trade customers. Go live in late

33 Sustainability Fast Facts 212 kwh/m 2 the lowest reported energy intensity in the South African Retail Sector 2.4 million kwh estimated electricity produced by grid tied solar energy plants to be installed at stores in ,315 tco 2 e-emissions avoided through the sale of energy efficient light bulbs in million number of meals prepared in Massmart funded mobile kitchens annually 50,000 litres volume of water donated to drought impacted communities in Kwa-Zulu Natal and the Free State 81 the number of Builders and Makro stores that have implemented rainwater and condensate harvesting initiatives 83% proportion of Massmart stores actively involved in separating and recycling secondary paper plastic and board 143 number of tons of e-waste collected and recycled through the Makro- Samsung e-waste take back program Interim results Presentation August

34 Prospects For the 8 weeks to 21 February 2016, total sales increased by 8.9% and comparable sales by 6.9% We are confident about delivering our strategic priorities, but the economic environment may be a constraining factor in FY16 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.

35 For further details, go to

36 Additional information Condensed Consolidated Income Statement Tax Rate Reconciliation Cash Flow Statement Capital Expansion Capex Per Category Store Portfolio Forecast Stores: Jan 2016 Dec 2017 Number of shares`

37 Condensed Consolidated Income Statement for the year ended December 2015 Rm Dec 2015 (Reviewed) Dec 2014 (Audited) Revenue 84, , Sales 84, , Cost of sales (68,689.6) (63,610.8) (8.0) Gross Profit 16,042,2 14, Other income (13.9) Depreciation and amortisation (946.2) (846.6) (11.8) Impairment of assets (25.7) (24.6) (4.5) Employment costs (6,784.3) (6,109.0) (11.1) Occupancy costs (2,865.6) (2,678.8) (7.0) Other operating costs (3,245,8) (3,033.3) (7.0) Operating profit before foreign exchange movements and interest 2, , Foreign exchange loss (149.8) (49.8) Operating profit before interest 2, , Net finance costs (475.3) (345.3) (37.6) Profit before taxation 1, , Taxation (505.9) (483.4) (4.7) Profit for the year 1, , % growth 37

38 Tax Rate Reconciliation % Dec 2015 (Reviewed) Dec 2014 (Audited) Standard tax rate Non-taxable income and disallowable expenses Allowances on lease premiums and improvements (0.2) (0.4) Assessed loss not utilised Other - including foreign tax adjustments (0.5) (2.6) Group tax rate

39 Cash Flow Statement Rm December 2015 (Reviewed) December 2014 (Audited) Operating cash before working capital movements 3, ,983.4 Working capital movements (295.1) Cash generated by operations 3, ,688.3 Net interest and tax paid (1,027.7) (1,028.7) Net investment to maintain operations (983.7) (857.4) Free cash flow 1, Dividends paid (958.3) (914.0) Investment to expand operations and other net investing activities (661.9) (1,289.1) Cash inflow/(outflow) before financing activities (1,400.9) 39

40 Capex as a % of sales Capital Expansion 4,0% 2 500,0 3,5% 3,0% 2,5% 2 000, ,0 Investment to maintain operations Investment to expand operations 2,0% Businesses acquired 1,5% 1 000,0 Rm Property acquisitions 1,0% 0,5% 500,0 Total capex as a % of sales Total capex as a % of sales excluding business and property acquisitions 0,0% Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec ,0 40

41 Capex Per Category Rm December 2015 (Reviewed) December 2014 (Audited) Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware Computer software Investment to expand operations ,322.1 Land and buildings/leasehold improvements Vehicles Fixtures, fittings, plant and equipment Computer hardware Computer software Other Investment to maintain operations % Total Capex as a % of sales (December 2014: 2.7%) 8,1% 55,5% 7,2% 24,6% 4,7% Land & buildings/leasehold improvements Vehicles Fixtures, fittings, plant & equipment Computer hardware Computer software 41

42 Store Portfolio Total 403 Up from 392 in 2014 Massdiscounters Masswarehouse Massbuild Masscash 161 Up from 153 in Unchanged 102 Up from 100 in Up from 120 in Opened 10 Closed Game +4 in South Africa +1 in Kenya +1 in Mozambique +1 in Nigeria +1 in Zambia There were no changes in the Masswarehouse store portfolio +6 Builders Warehouse +3 in South Africa +1 in Zambia Builders Express +2 in South Africa +5 Retail 4 3 Wholesale 1 Retail +2 DionWired +2 in South Africa 4 Builders Express 2 in South Africa 2 1 Game 1 DionWired Builders Trade Depot 2 in South Africa 42

43 Forecast Stores: Jan 2016 Dec 2017 Total +49 Up from 403 to 452 Massdiscounters Masswarehouse Massbuild Masscash +9 Up from 161 to Up from 19 to Up from 102 to Up from 121 to South Africa +5 Africa +6 Game +3 in South Africa +1 in Ghana +1 in Nigeria +1 in Zambia +3 DionWired +3 in South Africa Builders Warehouse +2 Makro in South Africa +1 in South Africa +24 Retail +1 in Mozambique +1 in Zambia +1 Wholesale Builders Express +3 in South Africa Builders Superstore +7 in South Africa +8.6% Up from 1,550,719m 2 to 1,684,465m % +12.3% +6.1% +15.0% to 559,574m 2 to 219,794m 2 to 476,633m 2 to 428,464m 2 Up from 533,078m 2 Up from 195,794m 2 Up from 449,133m 2 Up from 372,714m 2 This 8.6% increase includes a 9.1% increase in our Rest of Africa trading space 43

44 Number of shares At December ,118 Shares issued 18 At December ,136 Weighted-average at December ,689 Diluted weighted-average at December ,