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Results Presentationfor year ended December 2015
Year end results Presentation December 2015 2
2016/17 likely to be much tougher
The Environment
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
Year end results Presentation December 2015 3
Impact of South African drought
The Environment
• 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
$ ZAR $ ZAR
ZAR
ZAR
R 000
0
1
2
3
4
5
6
7
Indian rice Indian rice Thai rice Thai rice Yellowmaize
Wheat
Oct '15 Jan '16
Year end results Presentation December 2015 4
Socio-economic pressure
The Environment
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
Year end results Presentation December 2015 5
Trust our model. Superb execution. Be patient and measured.
Massmart Positioning
• 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
Year end results Presentation December 2015 6
Financial PerformanceGreat 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
Estimated
% sales
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
Trading profit before interest and tax 2,349.8 2.8 2,061.7 2.6 14.0
Massdiscounters 235.4 1.2 180.7 1.0 30.3
Masswarehouse 1,198.7 5.1 1,044.3 4.8 14.8
Massbuild 693.6 5.8 537.6 5.0 29.0
Masscash 222.0 0.8 299.1 1.1 (25.8)
Year end results Presentation December 2015 77
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
Pleased with Trading recovery. Longer-term business renewal
Perspective on Game
Year end results Presentation December 2015 88
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
Fluid market – consolidation opportunity. Transforming the business.
Perspective on Masscash Wholesale
Year end results Presentation December 2015 99
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
Perspective on MassbuildMassbuild’s sales linked to well-being of domestic bonded housing market
Financial performance
Year end results Presentation December 2015 11
Positive gearing of 5.7% from Sales to Operating Profit.
Continued strong performance
8,4%10,2%
14,1%
Growth in Sales Growth in Gross profit Growth in Operating profit
before foreign exchange
movements and interest
Full year - 2015
+5.7%+3.9%
+1.8%
Year end results Presentation December 2015 12
Real comparable volume growth of 3.7% (December 2014: 2.7%).
Sales
Rm
Dec 2015
(Reviewed)
Dec 2014
(Audited) % growth
Comparable
% sales
growth
Estimated
% sales
inflation
Real
comparable
volume
growth
Total 84,731.8 78,173.2 8.4 6.7 3.0 3.7
Massdiscounters 19,514.2 17,955.2 8.7 3.9 1.7 2.2
Masswarehouse 23,675.9 21,554.8 9.8 9.8 3.4 6.4
Massbuild 12,010.6 10,822.8 11.0 7.4 3.8 3.6
Masscash 29,531.2 27,840.4 6.1 5.8 2.9 2.9
8,4%
91,6%
Rest of
Africa sales
SA sales
• Rest of Africa businesses’ sales growth:
Sales in ZAR grew by 12.6% /
in constant local currencies grew by 13.8
Year end results Presentation December 2015 13
18,6% 18,6%
0,2%
0,1%
Dec 2014 Dec 2015
What is driving margin improvement?
Margin
• Improved margin
management in Game
• Highest margin
business grew the
fastest
• Mix improvement
between businesses
and categories
• Lowest margin
business slowing down
18.6% 18.9%
+0.3%
2014 total
Product and
business mix
Game margin
management
Year end results Presentation December 2015 14
Comparable expenses as a percentage of sales decreasing year-on-year
Operating expenses
16,2%
16,1%
16,4%
16,0%
2014 Total 2014 Comp 2015 Total 2015 Comp
Year end results Presentation December 2015 15
• December 2014: Operating profit before forex of R2,016m
• Total Group sales for the period increased by 8.4%
• Gross profit for the period increased by 10.2%
• 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
• Total increase of 7.0% / Comparable increase of 3.4%
• Increased investment in IT infrastructure across the Group
• December 2015: Operating profit before forex of R2,300 million
• R284m improvement / increase of 14.1%
Operating profit before forex and interest0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0
Dec-14
Sales-related gross margin
Price-and-mix-related gross margin
Employment costs
Occupancy costs
Depreciation, Amortisation and
Impairment of Assets
Other operating costs
Dec-15
Rbn
Year end results Presentation December 2015 16
Good Operating profit growth impacted by forex and interest
Rm
Dec 2015
(Reviewed)
Dec 2014
(Audited) % change
Operating profit 2,300.2 2,015.9 14.1
Net finance costs (475.3) (345.3)
Taxation (505.9) (483.4)
Profit for the year before forex 1,319.2 1,187.2 11.1
Foreign exchange loss* (149.8) (49.8)
Profit for the year 1,169.2 1,137.4 2.8
Headline EPS (cents) 516.3 509.7 1.3
Headline EPS before foreign exchange (taxed) (cents) 567.5 526.2 7.8
Profit for the year before forex growing by 11.1% improvementHEPS before forex grew by 7.8%
* majority is unrealised
Year end results Presentation December 2015 17
Interest
Rm
Dec 2015
(Reviewed)
Dec 2014
(Audited) % change
Finance costs (507.7) (386.8)
Finance income 32.4 41.5
Net finance costs (475.3) (345.3) (37.6)
0
50
100
150
200
250
300
350
400
450
500
H1 2015 YTD 2015
Over the year finance
costs were mainly incurred
from funding for:
• property acquisitions;
• capex expansions;
• trading positions; and
• rate increases.
Year end results Presentation December 2015 18
Working Capital
Dec 2015
(Reviewed)
Dec 2014
(Audited)
Inventories (Rm) 11,935 11,229
Inventory Days 63 64
Trade Debtors (Rm) 2,402 2,254
Debtors’ Days 9 9
Trade Creditors (Rm) 16,320 14,842
Creditors’ Days 76 74
• 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
Net funding gap increased to 4 days (2014: 1 day)
Year end results Presentation December 2015 19
Dividend policy
• 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 & 2017 - 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
Dividend cover amended to 2.00 x cover, in line with guidance provided in August 2015
Interim results Presentation August 2015 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 2015 21
Strategic priorities
Grow Builders
and Retail Food
in South Africa
Improve
Profitability
Grow into Africa Grow Online
Improveprofitability
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%
Strategic Priority 1
Year end results Presentation December 2015 23
• 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
A focus on Sales, Operating Margin and Expenses.
Improving Profitability
Year end results Presentation December 2015 24
A careful & scientific approach to new stores, with accretive sales from our new space
Improving Profitability
-
10 000
20 000
30 000
40 000
50 000
60 000
- 200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000 1 800 000 2 000 000
Sa
les p
er
m²
Trading Space m²
Massmart
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
Strategic Priority 2
Year end results Presentation December 2015 26
• 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%
Leverage our investment in this format.
Grow Builders’ formats in SA
Year end results Presentation December 2015 27
• 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
Build a Retail Food proposition on the General Merchandise and Wholesale platforms.
Grow Retail Food in SA
Grow into Africa
Fast fact
Builders’ Rest of Africa
store sales are fast
approaching R1 billion
out of 6 stores after
just 3 years
Strategic Priority 3
Year end results Presentation December 2015 29
• 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
To leverage South African market leadership and operating strengths in sub-Saharan Africa. Large prize but measured roll-out.
Grow into Africa
Year end results Presentation December 2015 30
• 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
We commissioned Canback & Company to do a bespoke review of sub-Saharan Africa (SSA) main Retail categories‘ growth to 2024
Recent Africa study
Grow onlineFast fact
Traffic on the Makro site grew by
more than 65% and had 11 million
unique visitors during 2015
Strategic Priority 4
Year end results Presentation December 2015 32
To build a profitable omni-channel presence synergistic with Massmart category & market leadership and customer needs.
Grow online
• 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 2016
Interim results Presentation August 2015 33
Sustainability Fast Facts
the lowest reported energy intensity
in the South African Retail Sector
212 kWh/m2
estimated electricity produced by
grid tied solar energy plants to be
installed at stores in 2016
2.4 million kWh
e-emissions avoided through the sale
of energy efficient light bulbs in 2015
40,315 tCO2
number of meals prepared in Massmart
funded mobile kitchens annually
40 million
volume of water donated to drought
impacted communities in Kwa-Zulu
Natal and the Free State
50,000 litres
the number of Builders and Makro
stores that have implemented rainwater
and condensate harvesting initiatives
81
proportion of Massmart stores actively
involved in separating and recycling
secondary paper plastic and board
83%
number of tons of e-waste collected
and recycled through the Makro-
Samsung e-waste take back program
143
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.
For further details, go to
www.massmart.co.za/results2015
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`
Year end results Presentation December 2015 37
Rm
Dec 2015
(Reviewed)
Dec 2014
(Audited) % growth
Revenue 84,857.4 78,319.0 8.3
Sales 84,731.8 78,173.2 8.4
Cost of sales (68,689.6) (63,610.8) (8.0)
Gross Profit 16,042,2 14,562.4 10.2
Other income 125.6 145.8 (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 2,300.2 2,015.9 14.1
Foreign exchange loss (149.8) (49.8)
Operating profit before interest 2,150.4 1,966.1 9.4
Net finance costs (475.3) (345.3) (37.6)
Profit before taxation 1,675.1 1,620.8 3.4
Taxation (505.9) (483.4) (4.7)
Profit for the year 1,169.2 1,137.4 2.8
Condensed Consolidated Income Statementfor the year ended December 2015
Year end results Presentation December 2015 38
%
Dec 2015
(Reviewed)
Dec 2014
(Audited)
Standard tax rate 28.0 28.0
Non-taxable income and disallowable expenses 0.3 2.8
Allowances on lease premiums and improvements (0.2) (0.4)
Assessed loss not utilised 2.6 2.0
Other - including foreign tax adjustments (0.5) (2.6)
Group tax rate 30.2 29.8
Tax Rate Reconciliation
Year end results Presentation December 2015 39
Cash Flow Statement
Rm
December 2015
(Reviewed)
December 2014
(Audited)
Operating cash before working capital
movements 3,384.4 2,983.4
Working capital movements 372.0 (295.1)
Cash generated by operations 3,756.4 2,688.3
Net interest and tax paid (1,027.7) (1,028.7)
Net investment to maintain operations (983.7) (857.4)
Free cash flow 1,745.0 802.2
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 124.8 (1,400.9)
Year end results Presentation December 2015 40
Capital Expansion
0,0
500,0
1 000,0
1 500,0
2 000,0
2 500,0
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
3,0%
3,5%
4,0%
Dec 2011 Dec 2012 Dec 2013 Dec 2014 Dec 2015
Investment to maintain
operations
Investment to expand
operations
Businesses acquired
Property acquisitions
Total capex as a % of sales
Total capex as a % of sales
excluding business and
property acquisitions
Ca
pe
x a
s a
% o
f sa
les
Rm
Year end results Presentation December 2015 41
Capex Per Category
Rm
December
2015
(Reviewed)
December
2014
(Audited)
Land and buildings/leasehold
improvements 281.8 948.9
Vehicles 14.2 11.0
Fixtures, fittings, plant and equipment 353.6 341.7
Computer hardware 31.3 12.6
Computer software 29.7 7.9
Investment to expand operations 710.7 1,322.1
Land and buildings/leasehold
improvements 134.6 104.8
Vehicles 64.7 92.1
Fixtures, fittings, plant and equipment 586.3 427.2
Computer hardware 105.0 108.1
Computer software 92.8 123.6
Other 0.2 1.6
Investment to maintain operations 983.7 857.4
24,6%
4,7%
55,5%
8,1%
7,2%
Land & buildings/leasehold improvements
Vehicles
Fixtures, fittings, plant & equipment
Computer hardware
Computer software
Total Capex as a % of sales
(December 2014: 2.7%)
1.9%
Year end results Presentation December 2015 42
Store Portfolio
Massdiscounters Masswarehouse Massbuild Masscash
161Up from 153 in 2014
19Unchanged
+10 +8 Game
+4 in South Africa
+1 in Kenya
+1 in Mozambique
+1 in Nigeria
+1 in Zambia
+2 DionWired
+2 in South Africa
–2 –1 Game
–1 DionWired
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
–4 Builders Express
–2 in South Africa
Builders Trade Depot
–2 in South Africa
+5 Retail
–4 –3 Wholesale
–1 Retail
102Up from 100 in 2014
121Up from 120 in 2014
Total
+21 Opened
–10 Closed
403Up from 392 in 2014
Year end results Presentation December 2015 43
Forecast Stores: Jan 2016 – Dec 2017
Massdiscounters Masswarehouse Massbuild Masscash
+9Up from 161 to 170
+2Up from 19 to 21
+6 Game
+3 in South Africa
+1 in Ghana
+1 in Nigeria
+1 in Zambia
+3 DionWired
+3 in South Africa
+3 Builders Warehouse
+1 in South Africa
+1 in Mozambique
+1 in Zambia
+3 Builders Express
+3 in South Africa
+7 Builders Superstore
+7 in South Africa
+13Up from 102 to 115
+25Up from 121 to 146
Total
+44 South Africa
+5 Africa
+49Up from 403 to 452
+2 Makro
+2 in South Africa+24 Retail
+1 Wholesale
+8.6%Up from 1,550,719m2
to 1,684,465m2
This 8.6% increase includes a 9.1% increase in our Rest of Africa trading space
+5.0%Up from 533,078m2
to 559,574m2
+12.3%Up from 195,794m2
to 219,794m2
+6.1%Up from 449,133m2
to 476,633m2
+15.0%Up from 372,714m2
to 428,464m2
Year end results Presentation December 2015 44
Number of shares
‘000
At December 2014 217,118
Shares issued 18
At December 2015 217,136
Weighted-average at December 2015 216,689
Diluted weighted-average at December 2015 219,893