Results Presentationfor 26 weeks ended 28 June 2015
Interim results Presentation August 2015 2
It’s tough out there!
The Environment
South Africa:
• Consumer confidence at 14-year low
• CPI range-bound but Food inflation soon to increase
• Manufacturing sector in technical recession. Load-shedding. Job losses
• And entering a 12–18 month interest up-cycle (+50bps?)
• Increasing legislative & regulatory demands
Africa:
• Many countries affected by double-dip of lower Commodities’ prices and USD strength
• Weak & volatile currencies
• USD is de facto currency
• But long-term potential remains intact
Interim results Presentation August 2015 3
Divergent behaviour. Place your bets!
Retail Environment
• Upper-income consumers stable but confidence falling.
Lower asset prices now to compound this?
• Middle-income affected by job losses. Direction of the credit cycle unclear?
• Lower-income sustained by Commodities’ deflation, buffeted by job losses
• National sales data seems ok – are majors holding share at expense of weaker businesses?
• Time for caution in South Africa – too much space, too little volume growth?
• Intense competition in Retail Food
• Commodities in deflation, likely to reverse soon
• Weak demand and cost-inflation causing pressure along entire retail value chain
• Some retailers benefitting from weaker / failed formal competitors
• Retailers seeking new growth avenues: ex-SA, ex-Africa, new formats, new categories
Interim results Presentation August 2015 4
Trust our model. Superb execution. Be patient and measured.
Massmart Response
• Grow market share in our major categories
• Very deliberate about our South African new space growth (only 0.8% space growth in H1)
• Invest in skills & capability – people, IT & Supply Chain – for the longer-term
• Customer traffic & loyalty through omni-channel
• African growth – Game, Builders Warehouse, and Cash & Carry –
measured and steady pace
• Reduce operating costs as % of sales (12-mth rolling Opex as % of sales is 16.3%)
• Maintain positive price-gap
• Acquire strategically significant prime real estate – avoids future cost inflation &
permanently secures retail site
• Supplier collaboration
• Private label
Interim results Presentation August 2015 5
Financial PerformanceGreat sales growth, good margin management and decent cost control in tough environment.
26 weeks
June 2015
(Reviewed)
% of
sales
26 weeks
June 2014
(Reviewed)
% of
sales
Period
% growth
Comparable %
sales growth
Estimated
% sales
inflation
Sales 38,917.4 35,659.8 9.1 6.9 3.7
Massdiscounters 8,973.6 8,225.8 9.1 4.1 2.1
Masswarehouse 10,759.2 9,659.4 11.4 11.4 4.3
Massbuild 5,637.1 4,847.9 16.3 10.6 5.1
Masscash 13,547.5 12,926.7 4.8 3.9 3.6
Trading profit before interest and tax 806.7 2.1 729.9 2.0 10.5
Massdiscounters 29.6 0.3 27.4 0.3 8.0
Masswarehouse 461.3 4.3 406.5 4.2 13.5
Massbuild 243.9 4.3 186.2 3.8 31.0
Masscash 71.9 0.5 109.8 0.8 (34.5)
Interim results Presentation August 2015 6
Short-term:
• Improving SA performance
• Food roll-out: 19 new / converted Fresh stores since June ‘14.
Sales participation now 19%
• Weak African environment. Negative Rand comparable sales growth
• Merchandise renewal – rationalise categories & merchandise ranges
• Improving in-stock service levels, and SA inventory below June ‘14
• Positive price-gap in GM and Food
Longer-term:
• Category renewal – Gen Merch & Food – younger, female, family
• Optimise supply chain utilisation
• SAP GK point-of-sales implementation in 2016, and SAP ERP likely
for 2017
Short-term trading recovery. Longer-term business renewal.
Perspective on Game
Interim results Presentation August 2015 7
Short-term:
• Commodities (25% participation) in deflation – caused margin pressure.
Vibrant market
• Gained market share, despite soft market
• ARCH Enterprise IT system enabling regional buying & pricing
• Africa tough trading
Longer-term:
• We are a relationship business – very close to our customers
• Largest participant in SA formal Wholesale, and wholesale market
remains 20%-25% of total South African FMCG
• Drive lower operating costs from fewer & larger stores, Shield B2B,
logistics & DCs
• Be suppliers’ preferred distribution partner – an efficient & effective
route to market
Fluid market – consolidation opportunity. Transforming the business.
Perspective on Masscash Wholesale
Financial performance
Interim results Presentation August 2015 9
Positive gearing of 3.6% from Sales to Operating Profit.
Strong performance
9,1%
10,9%
12,7%
Growth in Sales Growth in Gross profit Growth in Operating profit before
foreign exchange movements
and interest
+3.6%
+1.8%
+1.8%
Interim results Presentation August 2015 10
Real comparable volume growth of 3.2% (June 2014: 2.3%).
Sales
Rm
26 weeks
June 2015
(Reviewed)
26 weeks
June 2014
(Reviewed)
%
growth
Comparable
% sales growth
Estimated
% sales inflation
Real comparable
volume growth
Total 38,917.4 35,659.8 9.1 6.9 3.7 3.2
Massdiscounters 8,973.6 8,225.8 9.1 4.1 2.1 2.0
Masswarehouse 10,759.2 9,659.4 11.4 11.4 4.3 7.1
Massbuild 5,637.1 4,847.9 16.3 10.6 5.1 5.5
Masscash 13,547.5 12,926.7 4.8 3.9 3.6 0.3
8,2%
91.8%
Rest of Africa sales SA sales
• Rest of Africa businesses’ sales growth:
Sales in ZAR grew by 14.6% and in constant local
currencies grew by 16.9%
• General Merchandise inflation remained steady at 3.6%,
Food & Liquor and Home Improvement inflation decreased
to 3.3% and 5.2% respectively
Interim results Presentation August 2015 11
0,2 0,4 0,6 0,8 1,0 1,2 1,4
Jun-14
Sales-related gross
margin
Price-and-mix-
related gross
margin
Employment costs
Occupancy costs
Depreciation,
Amortisation and
Impairment of
Assets
Other operating
costs
Jun-15
Operating profit before forex and interest
• June 2014: Operating profit before forex of R702.9m
• Total Group sales for the period increased by 9.1%
• Gross profit for the period increased by 10.9%
• A strong trading performance in Makro and Massbuild
• Total increase of 12.2% / Comparable increase of 8.5%
• Increase in staff (Full-Time Equivalents) of 3.2% to +/- 44,000 FTE’s
• Total increase of 8.0% / Comparable increase of 2.6%
• 3.4% increase of net new trading space since June 2014 to a total of
1,551,613m²
• Electricity, rates and taxes increased by approximately 9.5%
• Depreciation growth of 12.8% / Comparable increase of 8.2%
• Total increase of 7.2% / Comparable increase of 8.7%
• June 2015: Operating profit before forex of R791.9 million
• Increase of 12.7%
Interim results Presentation August 2015 12
Good Operating profit growth impacted by forex and interest
Rm
June 2015
(Reviewed)
June 2014
(Reviewed) % change
Operating profit before foreign exchange movements
and interest791.9 702.9 12.7
Foreign exchange loss (106.7) (7.9)
Net finance costs (234.8) (154.9)
Taxation (143.7) (164.1)
Profit for the period 306.7 376.0 (18.4)
Profit attributable to non-controlling interests (25.1) (26.0)
Profit and loss on disposals (12.3) 14.1
Headline earnings 269.3 364.1 (26.0)
Interim results Presentation August 2015 13
Foreign Exchange Movements
80
85
90
95
100
105
110
Average African currency rate
• Majority of the forex loss is as a result of the weakening of the average basket of African
currencies against the Rand
• The strength of the US Dollar against the Rand exacerbated this loss
82%
12%
6%
Group loans and other monetary balances
Hedges
Other
Interim results Presentation August 2015 14
Interest
Rm
June 2015
(Reviewed)
June 2014
(Reviewed) % change
Finance costs (252.5) (176.6)
Finance income 17.7 21.7
Net finance costs (234.8) (154.9) (51.6)
46%
19%
35%
Increase in finance costs attributable to:
Property acquistions Increased cost of funds Expansions and working capital
Interim results Presentation August 2015 15
Working Capital
June 2015
(Reviewed)
June 2014
(Reviewed)
Inventories (Rm) 10,530.8 9,774.7
Inventory Days 61 61
Trade Debtors (Rm) 2,295.7 1,907.0
Debtors’ Days 10 9
Trade Creditors (Rm) 11,388.5 10,849.2
Creditors’ Days 58 60
• Good inventory management. Growth of 7.7% is below sales growth
• Supply chain efficiency efforts starting to yield
• Significant focus on and efforts to clear older stock in Massdiscounters continues
• Trade Creditors increased by 5.0% while Creditors’ days decreased
Interim results Presentation August 2015 16
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%
June 2011 June 2012 June 2013 June 2014 June 2015
Property acquisitions Businesses acquired
Investment to expand operations Investment to maintain operations
Total capex as a % of sales Total capex as a % of sales excl. business and property acqs
Ca
pex
as a
% o
f sa
les
• Total Capex as a % of sales: 2.7% (June 2014: 2.3%)
• Total Capex excl. business & property acquisitions as a % of sales:
1.7% (June 2014: 1.5%)
Rm
Interim results Presentation August 2015 17
Strong investment in past continues into the future.
Capital Allocation
• Heavy Capex spent in past and future
• Committed to Africa
• African Real Estate will be different (i.e. Acquisition based)
• Investment into SAP and Supply Chain
• High degree of economic uncertainty and volatility
• Move to more conservative balance sheet
Interim results Presentation August 2015 18
In summary
• For the first half of the year the Group managed to maintain or
gain market share in all of the major categories in which it trades
• Total sales growth was 9.1% (Jun 2014: 10.2%) and comparable sales growth was
6.9% (Jun 2014: 7.1%)
• Gross profit increased by 10.9%, bringing our margin to 18.9% (June 2014: 18.6%)
• Comparable expenses were well-controlled
• Foreign exchange loss of R106.7m (Jun 2014: R7.9m loss)
• Interest increased in line with expectation
• Operating profit before foreign exchange movements and interest increased by
12.7% (Jun 2014: -3.8%)
Strategic priorities
Improve
Profitability
Grow Builders
and Retail Food
in South Africa
Grow into Africa Grow Online
Improve profitabilityStrategic Priority 1
Fast fact
Massmart has the highest annual sales
densities in SA retail at R205m/store
and the lowest operating costs as a %
of sales at 16.3%
Interim results Presentation August 2015 21
• Drive comparable sales with a clear and well executed value proposition
• Private labels – Trojan, CampMaster, LOGIK, Fired Earth, ECONO, Builders Pride, Marketside, Great Value, Equate, M, etc. – total sales penetration now 9.5%
• Existing & new stores – measured SA roll-out, selected ownership, lower cost of construction
• 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.
Improve Profitability
Grow Builders and
Retail Food in South Africa
Strategic Priority 2
Fast fact
Recent Game research indicates
that 20% of customers shop the
store as a food destination
Interim results Presentation August 2015 23
• Great total sales growth of 16.3% shows strength of this format
• Upweighting focus on our commercial & contractor customers
• Launched 2nd Pricelock campaign in March ‘15
• Private label 17.9% of the total sales – great innovation & value
• Gauteng RDC (opened in 2013) performing superbly. Replenishment 84% of total orders and
critical part of inventory optimisation
• Flexible Builders Warehouse store layout
• And Builders Express stores effective as a market “filler”
• Good learnings & success from new Superstore format. Approved another 10 stores
Leverage our investment in management, structure & SAP.
Grow Builders’ formats in SA
Interim results Presentation August 2015 24
• Retail Food annualised sales now R15bn
• New Cambridge stores performing well. Disruptive format bringing Intense
competition in that market segment
• Continued positive customer response to Makro offering. Sales growth of 9.2%
• Game Food grew at 20%. Approx 40% of customers on Food mission bought
other non-Food items. Clearer range & assortment
• Better leverage of Fruitspot across Cambridge, Makro and Game stores in
Gauteng. Great 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
Interim results Presentation August 2015 25
Game Food Case Study
Grow into AfricaStrategic Priority 3
Fast fact
Average sales in each Massmart
store ex-SA is typically 3.5 times
greater than that of SA retail peers
Interim results Presentation August 2015 27
• Currently 35 stores in Africa, representing R6.5bn sales, in 13 countries
• Currency devaluations and related consequences difficult to manage
• New Game stores in Kitwe, Zambia, & Nairobi, Kenya, in H1
• Yesterday opened first multi-format (Builders & Game) development in Matola, Mozambique
• Builders Warehouse performing very well in Botswana & Mozambique.
Will open first store in Lusaka, Zambia, in Q4
• 20% of Masscash Wholesale sales are ex-SA, mainly Botswana. Exploring further C&C sites
in Mozambique and Zambia
• Anticipate opening 8 new stores in next two years. Nigeria, Ghana & Zambia
• Bespoke African Retail Potential study confirms significant potential of our formats across
key African countries
To leverage South African market leadership and operating strengths in sub-Saharan Africa. Large prize but measured roll-out.
Grow into Africa
Grow onlineStrategic Priority 4
Fast fact
Makro online has had
8.4 million unique visitors since
launching in April 2014
Interim results Presentation August 2015 29
To build a profitable omni-channel presence synergistic with Massmart category market leadership and customer needs.
Grow online
• Total online sales (including Masscash B2B) are 5.1% of Group sales
• Visits to DionWired site are up 17%, average basket size is up 7%
• Makro GM online launch annualised, and Q2 visits were up 61%, with sales up 148%
• Field-testing Makro pick-up lockers at selected Sasol and McDonalds' sites
• Makro’s commercial online platform to launch in October ‘15
• Masscash trialling store-based online ordering capability
• Initiating SAP online project in Builders Warehouse targeting trade customers.
Launch in mid-2016
• Together with major telco, are developing innovative FMCG digital solution for
Wholesale customers
Interim results Presentation August 2015 30
H1 Sustainability Highlights
• 14 000 MWh of electricity saved, increasing total
saved since January 2014 to 83 000 MWh
• 1 325 environmentally responsible products added,
achieving sales of R260m
• Estimated 9 415 tons of paper, plastic and board
recycled, representing 53% of primary waste
produced during the period
• 20 million meals prepared in 280 Massmart
sponsored mobile kitchens, serving in excess of
200 000 primary school learners
• Great achievements in Supplier Development Fund
(see booklet)
Prospects
• For the 33 weeks to 16 August 2015, total sales increased by
8.7% and comparable sales by 6.8%
• We are confident about delivering our strategic priorities, but
the economic environment may be a constraining factor in
FY15 & 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
massmart.co.za/interimresults2015
Additional information
• Condensed Consolidated Income Statement
• Tax rate reconciliation
• Cash Flow Statement
• Store portfolio
• Store portfolio including location of stores
• Forecast stores: July 2015 – June 2017
• Capex per category
• Number of shares
Interim results Presentation August 2015 34
Condensed Consolidated Income Statement for the 26 Weeks ended 28 June 2015
Rm
26 weeks
June 2015
(Reviewed)
26 weeks
June 2014
(Reviewed) % growth
Revenue 38,980.7 35,756.5 9.0
Sales 38,917.4 35,659.8 9.1
Cost of sales (31,545.8) (29,010.2) (8.7)
Gross Profit 7,371.6 6,649.6 10.9
Other income 63.3 96.7 (34.5)
Depreciation and amortisation (461.7) (409.2) (12.8)
Impairment of assets (3.4) (14.9) 77.2
Employment costs (3,236.8) (2,885.1) (12.2)
Occupancy costs (1,415.7) (1,311.0) (8.0)
Other operating costs (1,525.4) (1,423.2) (7.2)
Operating profit before foreign exchange movements and interest 791.9 702.9 12.7
Foreign exchange (loss) / gain (106.7) (7.9)
Operating profit before interest 685.2 695.0 (1.4)
Net finance costs (234.8) (154.9) (51.6)
Profit before taxation 450.4 540.1 (16.6)
Taxation (143.7) (164.1) 12.4
Profit for the year 306.76 376.0 (18.4)
Interim results Presentation August 2015 35
Tax Rate Reconciliation
%
26 weeks
June 2015
(Reviewed)
26 weeks
June 2014
(Reviewed)
Standard tax rate 28.0 28.0
Non-taxable income and disallowable expenses 4.7 3.3
Allowances on lease premiums and improvements (0.1) (0.1)
Assessed loss not utilised 4.8 3.1
Other - including foreign tax adjustments (5.5) (3.9)
Group tax rate 31.9 30.4
Interim results Presentation August 2015 36
Cash Flow Statement
Rm
June 2015
(Reviewed)
June 2014
(Reviewed)
Operating cash before working capital movements 1,308.0 1,137.5
Working capital movements (2,925.3) (2,519.9)
Cash utilised by operations (1,617.3) (1,381.8)
Net interest and tax paid (523.1) (616.0)
Net investment to maintain operations (365.5) (326.1)
Free cash flow (2,505.9) (2,323.9)
Dividends paid (622.8) (597.0)
Investment to expand operations and other net investing
activities(290.0) (256.1)
Cash outflow before financing activities (3,418.7) (3,177.0)
Interim results Presentation August 2015 37
Store Portfolio
December 2014 Opened Closed June 2015
Number of stores 392 10 -4 398
Massdiscounters 153 5 - 158
Masswarehouse 19 - - 19
Massbuild 100 2 -3 99
Masscash 120 3 -1 122
Massdiscounters:
• Opened 4 Game stores (one in Kenya and one in Zambia) and one DionWired store
Massbuild:
• Opened one Builders Warehouse store and one Builders Express store
• Closed one Builders Express store and two Builders Trade Depot stores
Masscash:
• Opened three and closed one Retail stores
Interim results Presentation August 2015 38
Massdiscounters Masswarehouse Massbuild Masscash Total
December 2014 153 19 100 120 392
Opened:
5 – 2 3 10
Game: 2 Africa
stores
Game: 2 SA
stores
DionWired: 1 SA
store
BWH: 1 SA
store
BEX: 1 SA store
Retail: 3 SA
stores
Closed
– – –3 –1 –4
BEX: 1 SA store
BTD: 1 SA store
Retail: 1 SA
store
June 2015 158 19 99 122 398
Store Portfolio including location of stores
Interim results Presentation August 2015 39
June 2015
Forecast new stores
Jul 2015 – Jun 2017 June 2017
Number of stores 392 51 449
Massdiscounters 158 14 172
Masswarehouse 19 2 21
Massbuild 99 18 117
Masscash 122 17 139
% increase
Trading space (m2) 1,551,613 155,282 1,706,895 10.0
Massdiscounters 521,892 43,032 564,924 8.2
Masswarehouse 195,794 24,000 219,794 12.3
Massbuild 434,534 46,500 481,034 10.7
Masscash 499,393 41,750 441,143 10.5
• Massdiscounters: Game SA – 6; DionWired – 4; and Game Africa - 4 (Mozambique 1, Nigeria 2 and Zambia 1)
• Masswarehouse: Makro – 2
• Massbuild: BWH SA - 3; BEX – 3; BSS - 9; BW Africa - 1 (Zambia 1); and BSS Africa – 2 (Mozambique 1 and Zambia 1)
• Masscash: Retail – 15; Wholesale SA – 1; and Wholesale Africa - 1 (Mozambique 1)
• The 10.0% increase in trading space above includes a 21.9% increase in our Rest of Africa trading space
Forecast stores: July 2015 – June 2017
Interim results Presentation August 2015 40
Capex per category
Rm
26 weeks
June 2015
(Reviewed)
26 weeks
June 2014
(Reviewed)
Land and buildings/leasehold improvements 155.0 85.6
Vehicles 6.3 7.5
Fixtures, fittings, plant and equipment 110.9 147.7
Computer hardware 8.1 6.0
Computer software 8.9 9.4
Other – 6.8
Investment to expand operations 289.2 263.0
Land and buildings/leasehold improvements 56.6 31.3
Vehicles 26.6 40.1
Fixtures, fittings, plant and equipment 214.3 196.8
Computer hardware 47.6 47.8
Computer software 20.4 16.3
Investment to maintain operations 365.5 332.3
Interim results Presentation August 2015 41
Number of shares
‘000
At December 2014 217,118
Shares issued 18
At December 2015 217,136
Weighted-average at June 2015 216,764
Diluted weighted-average at June 2015 220,020