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Dedicated to Value Massmart Reviewed Consolidated Results for the 53 weeks ended 29 December 2013 Presentation to Investors, Analysts and Media February.

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Presentation on theme: "Dedicated to Value Massmart Reviewed Consolidated Results for the 53 weeks ended 29 December 2013 Presentation to Investors, Analysts and Media February."— Presentation transcript:

1 Dedicated to Value Massmart Reviewed Consolidated Results for the 53 weeks ended 29 December 2013 Presentation to Investors, Analysts and Media February 2014

2 Divisional Performance

3 Massdiscounters >Game SA. Comp sales still low (-2.1%): -Sales & margin pressure from trading environment, Electronics & clearance -Very positive customer response to Fresh & Dry Groceries (+20% comps) -Profit significantly below prior year (expense growth > sales growth) >Game Africa. Good performance (total sales +22%, own currency +15%) -Steady economic environment -Some US$-denominated expense pressure -Profit growth below sales growth >DionWired. Great performance (total sales +20%): -Product inflation now. Category slowing down from low product innovation -Profit growth below sales growth 53 weeks 52 weeks growth Comp growth Inflation Sales R16.7bn5.7%1.0%0.5%

4 Massdiscounters continued 53 weeks52 weeks 52 weeks growth Sales R16.7bnR16.3bn5.7% PBIT R367mR327m-46% PBIT margin2.2%2.0% >Food / Fresh conversions: 17 converted / opened in 2H. Now in 48 stores, with 13 planned for FY14 >New-look Game stores trading well (nine in FY13 and 30 in FY14) >Mark Huxtable joined as IT Director and Alan van der Bergh to join as Food Director >Trading space +7.7% in FY13 >Eight new African stores in FY14-FY15 in Angola, Nigeria, Namibia, Kenya, Mocambique, Ghana & Zambia

5 Massdiscounters Strategic Plans >Broadly, Game SA has three problem areas and our response is: -Sales: introduce Food, reduce Electronics participation, new categories (Baby & Clothing), customer value proposition, review store portfolio. Wait out the tough environment -Margin: greater Food participation, greater F&R reliance to reduce slow- moving stock & mark-downs, private label -Expenses: leverage RDC investment >Game Africa: >More stores. More Food. More property ownership >DionWired: >Online. Manage store size & portfolio

6 Masswarehouse >Very good trading performance in tough environment >Pleasing comp sales growth in all categories >New stores in Alberton, Jhb, in April and Amanzimtoti, Durban, in Sept (a relocation): >Alberton making significant profit contribution but affecting Germiston & Crown Mines stores >Amanzimtoti trading well but initially higher costs >Food Retail / Fresh offering now in 15 stores. Increases customer visits & spend per basket 53 weeks 52 weeks growth Comp growth Inflation Sales R19.7bn12.0%4.0%2.1%

7 Masswarehouse continued >Inventory levels slightly higher due to new stores – will stabilise >Fruitspot sales +38%. Now have combination of new & original key management. Playing growing intra-Group role in Gauteng >Store pre-opening costs R25m (LY R31m) >Trading space +9.3% in FY13, now 19 stores. Seven new stores (& two relocations) since Sept 11. No new stores in FY14 >Group cannibalisation? A new Makro stores sales in 2 nd year are approx. R800m, of which < R100m comes from Group stores 53 weeks52 weeks 52 weeks growth Sales R19.7bnR19.3bn12.0% PBIT R990mR940m7.6% PBIT margin5.0%4.9%

8 Masswarehouse Strategic Plans >Get new stores to trading maturity >Widen Baby category >Enhance Food Retail offering >Commercial customers >Online: B2B & B2C >Supply Chain & Inventory optimisation >Leverage CRM

9 Massbuild >Another great performance: >Good comp sales growth in Warehouse & Express >Profit growth well ahead of sales growth >Refocused Trade Depot: >FY13: closed four stores and converted five stores to Express >Converted to Divisions SAP IT platform >A core of 15 large stores, regionally dominant, focused on Building Materials including Roof Trusses. Represent approx. 70% of original sales >New store openings: six Builders, eight Express & two Superstores. Trading space +3.7% 53 weeks 52 weeks growth Comp growth Inflation Sales R9.6bn10.3%8.2%4.1%

10 Massbuild continued >Format innovation: two new Builders Superstores focused on lower-income customers. Positive sales & profit performance. Four more in FY14 >Africa: Builders Warehouse performing well in Botswana (two) & Mocambique (two). Closed 10 Kangela satellite stores >Opened RDC in Midrand, Jhb, in April 13. Superb team execution. New net operating costs of R33m in FY13. Indent opportunity >R63m of store pre-opening costs & closure costs (LY R9m) >Lizelle Peterson joined as FD >Nine new stores in 2014, including in Mocambique (two) 53 weeks52 weeks 52 weeks growth Sales R9.6bnR9.4bn10.3% PBIT R508mR468m16.7% PBIT margin5.3%5.0%

11 Massbuild Strategic Plans >New stores roll-out, including Matola in Mocambique (with Game) >Trade Depot: inventory range, IT platform value extraction, contractors >Optimise Superstore offering & grow >Leverage RDC including W Cape >Focus on Trade Customers & B2B >Grow Southern Africa store footprint

12 Masscash >Tough trading environment: -Wholesale comp sales +4.1% and Retail +7.8% -Competition from independently-owned ex-Metro sites -Unexpectedly low product inflation, but now increasing >Disorderly market decline but now settling. Trading normalised >Opened new Wholesale store in Xai Xai, Mocambique >Opened one Wholesale & five Cambridge. Closed three Wholesale & two Cambridge stores. Trading space +0.6% 53 weeks 52 weeks growth Comp growth Inflation Sales R26.3bn4.5%3.8%4.2%

13 Masscash continued >Despite good cost control, sales & margin pressure caused profits to decline in Wholesale >Masscash Retail trading well. New stores trading above expectation. Strong Cambridge customer brand loyalty & price perception >New executives in Wholesale: Anton Smith (Shield & Saverite) and Marlon Reddy (IT) >FY14: seven new Cambridge stores 53 weeks52 weeks 52 weeks growth Sales R26.3bnR25.8bn4.5% PBIT R281mR260m-3.5% PBIT margin1.1%1.0%

14 Masscash Strategic Plans >Close smaller or less profitable stores. Closed three Cambridge stores in Q1 FY14 >New store roll-out >Improve Supply Chain & Logistics capability in Wholesale >Focus on Saverite >Grow Southern Africa store footprint

15 Store Portfolio >Massdiscounters: opened 11 and closed four Game stores; opened three DionWired stores; >Makro: opened Alberton and Amanzimtoti; closed Rossburgh >Massbuild: Opened six Warehouse; opened five and closed two Express; closed three and sold one Trade Depot; opened two Superstores. Five Trade Depot converted to Express >Masscash stores: Retail – opened five, closed two. Wholesale – one opened, three closed MassdiscountersMakroMassbuildMasscashTotal December 121331885121357 Opened14213635 Closed-4-5 -15 Sold--- December 131431992122376

16 SA Retail Environment Sources: company announcements for six months to Dec 13. Cashbuild comps estimated from Q1 & Q2 updates. PnP sales for six month to Aug 13

17 Category Competitors Sources: company announcements for six months to Dec 13. Hi-Fi & Incredible Connection show Total sales. PnP sales for six months to Aug 13

18 Core Profit Growth Rms20132012Change Operating Profit (52 wks) 2 0021 70817% Exclude Forex-68+232- Exclude Transaction cost in LY-+140- Adjusted Operating Profit1 9342 080-7% Exclude store open / close costs+117+70 Core Operating Profit2 0512 150-5%

19 December 2013 Financial Performance

20 Income Statement: Brief Overview of 53 weeks to December 2013 >Total 53 week sales growth of 9.8% >Total & comparable 52 week sales growth of 7.5% & 3.8% >Gross margin decreased to 18.5% (PY: 18.6%) >Comparable expenses of 7.2% > comparable sales growth >Good results – Makro & Massbuild >Poor result – Game SA >Operating profit before interest & forex increased by 7.5% >15 December net sales loss of approximately R200 million

21 >Real comparable volume growth 20122011 Total % Chg Comp % Inflation % 2013 Rm (53 weeks) 2012 Rm Total % Change Comp % (52 weeks) Inflation % Massdiscounters 16 74015 4088.61.00.5 Masswarehouse 19 675 17 20114.44.02.1 Massbuild 9 584 8 56111.98.24.1 Masscash26 26424 6696.53.84.2 Total72 26365 8399.83.82.7 Sales >African businesses sales growth: South African Rand grew by 16.6% African Local Currencies grew by 10.9%

22 Higher inflation will be driven by: >Weak Rand >Food inflation Low inflation in General Merchandise Sales Inflation

23 2013 (53 weeks) 2012 Gross Profit (Rm) 13 337 12 276 As % of Sales18.5%18.6% >Margins decreased due to a combination of: -Increased contribution from Game Africa -Improved margin performance in Massbuild Both of which were offset by -Difficult trading conditions in Wholesale Food -Greater overall Food contribution at a lower margin -General Merchandise margins in Game SA under pressure Gross Profit

24 2013 (53 weeks) 2012 Operating Costs (Rm) 11 501 10 407* As % of Sales15.9%15.8% >Operating costs (excl. forex) increased by 10.5% (52 week +9.2%) >Walmart integration costs - treated as normal operating cost >Employment costs increased 15.7% (52 week +14.3%) >Depreciation & occupancy costs up 10.6% & 11.3%, respectively >Pre-opening and closure costs of R117m (December 2012: R70m) >Comparable expenses increased by 7.2% Operating Costs (excluding forex) * Excludes the R140 million transaction costs

25 2013 (53 weeks) 2012 Employment Costs (Rm) 5 423 4 686 As % of Sales7.5%7.1% > Total increase of 15.7% (52 week +14.3%) > Comparable increase of 9.5% > Re-allocation of integration costs > Increase in staff (FTEs) of 4.2% Result of new stores, HO skills & one new RDC Employment Costs (47% of total costs)

26 2013 (53 weeks) 2012 Occupancy Costs (Rm) 2 555 2 296 As % of Sales3.5% > Total increase of 11.3% (52 week +10.8%) > Comparable increase of 8.7% > 4.8% net new trading space > 5.9% net new total space (trading and DC) > High inflation - rates, services & electricity > Costs should reduce as % of sales from 2014 Occupancy Costs (22% of total costs)

27 2013 (53 weeks) 2012 Depreciation (Rm) 731 661 As % of Sales1.0% > Increased by 10.6% (52 week +10.6%) Growth higher than sales growth but stabilising New stores & RDC opened in the period Owned Makro properties Depreciation (6% of total costs)

28 >Rand weakness compared to African currency basket >Prior year devaluation of the Malawian Kwacha Forex Gains & Losses 2013 Rm (53 weeks) 2012 Rm Massdiscounters82(241) Other(14)9 Total Forex Gain/ (Loss)68(232)

29 EBITDA 2013 Rm (53 weeks) 2012 Rm Change % Operating profit before forex2 0851 9407.5 Depreciation & amortisation 731661 Impairment of assets4121 EBITDA before forex2 8572 6229.0

30 > Lower tax rate due to: Decreased proportion of non-deductible expenditure No STC in current year > Effective tax rate to normalise just below 30% Tax Charge 2013 (53 weeks) 2012 Total tax (Rm) 555 549 Effective tax rate 29.3%34.8%

31 2013 (53 weeks) 2012 RmDaysRmDays Net Stock10 115639 69166 Trade Creditors13 7027512 60175 > Stock increased 4.4%. Stock days down slightly: Improvement in all Divisions other than Massdiscounters Game SA over-stocked - soft comparable sales > Trade Creditors days in line with prior year > Working capital funding continues to be a key focus area Stock & Creditors

32 > Trade debtors are well controlled throughout the Group > Bad debts of 0.04% of sales are closely monitored (2012: 0.09%) > No significant concentration of debtors Debtors 2013 (53 weeks) 2012 RmDaysRmDays Gross Trade Debtors1 919 8.61 7778.6

33 > Includes: The opening of Makro Alberton & Amanzimtoti The opening of the Builders Warehouse RDC Acquisition of Makro properties Net Capital Expenditure 2013 Rm 2012 Rm Net investment to maintain operations752629 Investment to expand operations and businesses acquired1 5541 035 Total Capital Expenditure2 3061 664

34 > Capex amounts to 3.2% of sales (December 2012: 2.6%) > Capex, excluding business and property acquisitions, amounts to 1.85% of sales Capex Rm

35 Sales Split between Owned and Leased Assets > Sales from owned assets represents 27.3% (December 2012: 12.6%)

36 Cash flow Statement 2013 Rm 2012 Rm Operating cash before working capital movements2 9842 681 Working capital movements752(775) Cash generated from operations3 7361 906 Net interest and tax paid(987)(728) Investment income790.1 Net investment to maintain operations(752)(629) Free cash flow2 076549 Dividends paid(913)(864) Investment to expand operations and businesses acquired(1 554)(1 035) Cash outflow before Financing(391)(1 350)

37 2013 (cents) 2012 (cents) Dividend per share421 > Dividend Policy cover = 1.55x > Final cash dividend declared of 275 cents per share Dividends

38 CEO Review

39 >Underlying profit performance -7% >Strong performances from Massbuild and Masswarehouse >Tough trading environment for Wholesale >With hindsight, MDD ended better than expected in a weak market >Balance sheet and cashflows strong >Investments in Food Retail and Supply Chain started to realise value >Successful store openings across SA and Africa >Significant market share gains in Food Retail >Outperformed everyone in Electronics Business Performance Summary year in review

40 Environment

41 Global Trends specific implications for retail businesses Expectation of convenience and ease of shop eCommerce/technology changing customer shopping behavior and experience Customer demand for greater quality and value Demand for total shopping solutions Customer seeking products they can trust Cost pressures Portfolio approach needed Competition responding aggressively Emerging middle class & continuous rise of womens purchasing influence Economic headwinds, income disparity & rising costs Govt Intervention, stakeholder influence and role of institutions Disparity of growth rates eCom/Technology and transparency Massmart Implications Growing consumer expectations for doing good business

42 Economic Conditions challenges facing the SA consumer Increasing Unemployment * Access to Credit Rand Depreciation ** GDP Growth Rate * Sources: * Stats SA ** INET BRIDGE

43 Durable Goods Semi-Durable Goods 10% Real Household Expenditure Growth * Consumer Confidence Index ** 20042013 1/21/14 Real household expenditure is under pressure and trending downward Consumer confidence index hit a 10-year low; seeing a correlation between confidence and GM sales Impact of the Economy changing the way consumers spend Sources: * SARB ** BER & FNB

44 Impact of the Economy changing where consumers spend their money Source: Stats SA

45 Massmart Shoppers different shopping patterns by income groups >Massmart has offerings across all income levels >The highest and lowest income consumers contribute equally to Group sales: -The top 1% of households by income (Category A) accounts for 17% of retail expenditure -Equivalent to that spent by the bottom 78% of households by income (Category E) >Higher-income consumers are less impacted by the economic conditions >Lower-income consumers are under extreme constraints; focused on basics and flipping sources of credit >Expenditure by middle-income consumers on public and controlled price goods is crowding out spending on discretionary goods

46 Economics Impacting Key Categories retail conditions Massmart has traditionally been strong in serving the wholesale food customers and is a market leader in general merchandise. Both of these categories are impacted: Changes in mix cause over -stocks and therefore margin pressure Demand for hi-tech and multi-media categories is decreasing General Merchandise Industry declining Independents changing the way of operating Suppliers changing distribution strategies Wholesale Food

47 General Merchandise in the Marketplace Massmart sales performance relative to the market Sources: Massmart Stats SA >Although the GM category is under pressure, Massmart sales are ahead of the market >Massmart GM outperforming more specialised GM retailers

48 Wholesale Food in the Marketplace Massmart performance relative to the market >Independents picked up the better ex-Metro stores; mostly inland >Distribution patterns have changed as a result >Suppliers have invested in new channels >Export markets have grown >Massmart has gained market share in Liquor and lost a bit in Dry Grocery >Massmart has held market shares overall

49 Strategic Priorities

50 Protect and Grow Our Core Businesses General Merchandise Wholesale Food Diversify Our Sales Mix Fresh / Retail Home Improvement Private Brands Clothing Expand Our Reach Africa eCommerce New Stores Built on a Foundation of Trust

51 Strategic Priorities protect and grow in core markets Wholesale Trading Store portfolio review Grow in Africa Supplier JBP process Drive Comp Sales Repositioning of General Merchandise Consolidating Ranges Shrinking Store Sizes Wider Ranges Online Widening Ranges Higher Quality Choices New Categories (Baby) Refocus Range on Middle-income OPP Ownership Re-allocate Space Store Location Optimisation Brand Consolidation New Low-Income Consumer Brand Complete Contractor Solutions Repositioning of General Merchandise Consolidating Ranges Shrinking Store Sizes Wider Ranges Online Widening Ranges Higher Quality Choices New Categories (Baby) Refocus Range on Middle-income OPP Ownership Re-allocate Space Store Location Optimisation Brand Consolidation New Low-Income Consumer Brand Complete Contractor Solutions Maximize Returns in Wholesale Food Reducing 3 rd Party Distribution Growing Commercial Business Exporting Opportunities B2B eCommerce Expansion Optimise Store Portfolio Deepening Customer Value Supplier Partnerships Maximize Returns in Wholesale Food Reducing 3 rd Party Distribution Growing Commercial Business Exporting Opportunities B2B eCommerce Expansion Optimise Store Portfolio Deepening Customer Value Supplier Partnerships

52 Strategic Priorities Protect and Grow Our Core Businesses General Merchandise Wholesale Food Diversify Our Sales Mix Fresh / Retail Home Improvement Private Brands Clothing Expand Our Reach Africa eCommerce New Stores Built on a Foundation of Trust

53 Strategic Priorities diversify our sales mix Wholesale Trading Store portfolio review Grow in Africa Supplier JBP process Drive Comp Sales Grow in Fresh Retail across all income levels: Makro Game Cambridge Food Grow in Fresh Retail across all income levels: Makro Game Cambridge Food Win in the Home Improvement Category with Builders: New Superstore EDLP model Win in the Home Improvement Category with Builders: New Superstore EDLP model Clothing: Trialing George in Makro and Game with Baby and Essentials to test future apparel categories Clothing: Trialing George in Makro and Game with Baby and Essentials to test future apparel categories Increase Private Label participation across the Group and Divisions to deliver trusted items at a great value Increase Private Label participation across the Group and Divisions to deliver trusted items at a great value

54 Strategic Priorities Protect and Grow Our Core Businesses General Merchandise Wholesale Food Diversify Our Sales Mix Fresh / Retail Home Improvement Private Brands Clothing Expand Our Reach Africa eCommerce New Stores Built on a Foundation of Trust

55 Strategic Priorities expand our reach Wholesale Trading Store portfolio review Grow in Africa Supplier JBP process Drive Comp Sales Grow Outside of SA Dedicated African team and Forum established City (Power Center) and Country Strategies in place Small format opened in Nigeria – ValuMart 7 stores scheduled to open in 2014 Servicing Customer 2.0 Global Leverage of Walmart.com Skills Acquisition New Makro site launch eCommerce Forum across Functions and Brands B2B eCommerce through Builders and Makro

56 Strategic Priorities expand our reach with new stores Wholesale Trading Store portfolio review Grow in Africa Supplier JBP process Drive Comp Sales Number of Stores New Area (square metres) Compound Annual Growth % Massdiscounters33124,7038.1% Masswarehouse117,5002.9% Masscash2783,8506.6% Massbuild2887,4966.7% Total Group89313,5496.6% Massmart Store Pipeline 2014 - 2016 Group Growth Figures201420152016 Area Growth 85,050 122,500 105,999 % Growth6.15%8.22%6.49% No of Stores263231

57 Building Trust a framework to operate by After government, business is the least trusted institution globally Massmart has embarked on a conscious journey to become sub-Saharan Africas most trusted retailer We have adopted a trust framework that comprises 8 trust focus areas Products and Services Innovation Workplace Governance Citizenship Leadership Organisation Effectiveness Performance

58 Building Trust Our strategic plans are built to deliver a trust-worthy brand. Listed below are a few additional ways we build trust within our organisation: Leadership Massmart Corporate University 50 New Graduates CEOs Womens Council Citizenship An amount of R50m is committed for 2014 Lethabo Milling company - hopes to launch a private label maize meal Annual Report has been Delivered to the Commission Governance Compliance policies and monitoring in place across all businesses Organisational Effectives Leveraging the ASDA model of We Operate 4 Less to drive efficiencies

59 Prospects

60 >For the 8 weeks to 23 February 2014, total sales increased by 9.5% and comparable sales increased by 7.7% >A much stronger start to the financial year than we anticipated >Whilst too early to be confident about this new trend, the strong start suggests a better overall performance this year than last >Whilst we remain cautious about the economy, we are much more positive about the business as we reap the rewards from the operational focus of last year Massmarts 2014 Prospects

61 Conclusion

62 >Good 2013 performance given the economic conditions >Excited about the beginning of 2014 sales >Transaction, integration and supply chain investments are completed >Over the initial growing pains of entering the food retail business >Strong growth plan >Strong operational disciplines in place to deliver results >Cautious about the economy >Confident about the company Conclusion

63 Thank You & Questions

64 Additional Financial Data

65 Reviewed Results for 53 Weeks Ending December 2013 Dec 2013 Rm Dec 2012 Rm Revenue72 51366 051 Sales72 263 65 840 Cost of sales(58 926)(53 563) Gross profit13 337 12 277 Other income250 211 Depreciation and amortisation (731) (661) Impairment of assets (42) (22) Employment costs (5 424) (4 687) Occupancy costs (2 555) (2 297) Foreign exchange profit / (loss) 68 (232) Walmart transaction, integration and related costs -(349) Other operating costs(2 750) (2 533) Operating profit2 153 1 707 Net finance costs (255) (127) Profit before taxation 1 898 1 580 Taxation (555) (550) Profit for the period 1 343 1 030

66 Tax Rate Reconciliation Dec 2013 % Dec 2012 % Standard tax rate28.0 Non-taxable income and disallowed expenses(2.0)(2.1) Allowances on lease premiums and improvements(0.3)(0.5) Assessed loss not utilised1.41.5 Withholding tax0.1(0.7) STC-3.5 Other – including foreign tax adjustments and transaction related costs 2.15.1 Group tax rate29.334.8

67 Headline Earnings Reconciliation Dec 2013 Rm Dec 2012 Rm Attributable earnings1 283.0972.3 Impairment of assets41.621.6 Loss on disposal of fixed assets11.916.4 Loss on disposal of business1.816.5 Fair value adjustment on assets classified as held for sale -8.3 Tax effects on adjustments(3.8)(8.1) Headline earnings1 334.51 027.0

68 Capex Per Category Dec 2013 Rm Dec 2012 Rm Investment to expand operations and businesses acquired(1 307)(1 069) Land and buildings/leasehold improvements(807)(100) Vehicles(35)(40) Fixtures, fittings, plant and equipment(428)(492) Computer hardware(33)(20) Computer software(2)(24) Other(2)(9) Businesses acquired-(384) Net investment to maintain operations(752)(629) Land and buildings/leasehold improvements(35)(56) Vehicles(39)(29) Fixtures, fittings, plant and equipment(517)(321) Computer hardware(70)(90) Computer software(96)(136) Other53

69 Number of Shares 000 At December 2012216 910 Shares issued199 At December 2013217 109 Weighted-average at December 2013216 935 Diluted weighted average at December 2013219 268


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