Final Results Presentation for 52 weeks ended 28 December 2014
Operating Model Massmart is a high-volume, low-cost, omni-channel distributor of Food, Liquor, General Merchandise and Home Improvement in sub-saharan Africa + Africa s second largest retailer / distributor + Market leader in General Merchandise and Home Improvement + Market leader in Liquor and Wholesale Food + 3 rd largest in Liquor & Food (retail & wholesale) + Fastest growing Retail Food proposition Game in 2014 + Highest sales densities in SA retail at R190m/store + Lowest Operating Costs as % of sales in SA retail at 16.2% + Great retail and wholesale brands and formats Makro, Game, DionWired, Builders, Jumbo + Deep, wide penetration across LSM 3-10 and Retail, Wholesale & Commercial customers + Owned by Walmart Final Results Presentation February 2015 2
Retail Leadership team Team has combined total of 54 years experience in Massmart operations Robin Wright (59) BCom, CA (SA) 17 years with Massmart Neville Dunn (46) Bcom CA(SA) 13 years with Massmart Kevin Vyvyan-Day (50) BCom, BAcc, CA (SA) 10 years with Massmart Doug Jones (42) BCom, PGDA CA (SA) 8 years with Massmart Llewellyn Walters (51) BA (LLB) 6 years with Massmart Founder CCW Stores Chief Executive Masscash Group Food Executive Chief Executive Massdiscounters Financial Manager The Hub Financial Director Masscash Operations Director Masscash Chief Executive Masscash Wholesale Group Chief Executive Officer UPD Chief Executive Masswarehouse Chief Executive Cambridge Food Operations Financial Manager SAB Ltd Softdrinks Division Finance Director Makro Commercial Director Makro Chief Executive Masswarehouse Divisional Managing Director Super Group, African Operations Chief Executive Massbuild Final Results Presentation February 2015 3
% Growth year-on-year Consumer environment Tough but an improved second-half + Low economic growth, soft job creation, unsettled labour market, high utility costs, weak currency, and electricity disruptions. Low consumer confidence + Constrained discretionary spending with focus on exceptional value amongst low- & middle-income customers + Steady demand amongst higher-income customers in Builders and Makro + Wholesale affected by commodities deflation and dis-inflation across basket + Disruption in electricity supply impacts negatively on foot traffic in shopping centers, benefits our stand-alone stores? 12 10 Nominal Sales 8 6 4 Real Sales 2 0 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14-2 Final Results Presentation February 2015 4
Performance highlights Scale, Growth and Innovation + Game SA had a good H2, growing profit. Game Africa declined from weaker economies, new stores and currency devaluations (-R40m) + Game Retail Food growth continues, is now R3.2 billion. Positive impact on General Merchandise sales + Great performances from Makro, Builders Warehouse and Builders Express as they leverage skills, scale, SAP and supply chain. Profit acceleration in H2 + Margin recovery in Masscash Wholesale through focus on direct distribution and larger stores + Market research confirms high consumer brand affiliation with Cambridge Food. Great trading performance + Great performance by new Builders Warehouse, Maputo + Successful launch of Makro online in General Merchandise and Liquor Final Results Presentation February 2015 5
Performance highlights at a glance Great sales growth, good margin management and decent cost control in tough environment Rm 52 weeks December 2014 (Reviewed) % of sales 52 weeks December 2013 (Pro forma) % of sales 52 week % growth 52 week Comparable % sales growth Estimated % sales inflation Sales 78,173.2 70,790.7 10.4 7.5 4.8 Massdiscounters 17,955.2 16,294.2 10.2 4.8 3.1 Masswarehouse 21,554.8 19,271.7 11.8 10.7 5.5 Massbuild 10,822.8 9,441.3 14.6 9.1 5.9 Masscash 27,840.4 25,783.5 8.0 6.3 4.8 Trading profit before interest and tax 2,061.7 2.6 1,994.4 2.8 3.4 Massdiscounters 180.7 1.0 326.9 2.0 (44.7) Masswarehouse 1,044.3 4.8 939.5 4.9 11.2 Massbuild 537.6 5.0 467.6 5.0 15.0 Masscash 299.1 1.1 260.4 1.0 14.9 Final Results Presentation February 2015 6
Did You Know? + 98 private label brands generate sales of R7.2 billion across the Group + Our retail brands have the highest spontaneous awareness for household appliances, electronics, outdoor & patio, home improvement + Load-shedding products comprise 1.5% of Builders Warehouse sales and grew 36% (generators, solar, gas, emergency lighting) + Game sells 1/3rd of all TVs sold in South Africa + Makro online had one million active visitors in 30 days to mid-december + Makro Liquor sold 108m cans / bottles beer, 43m cans cider and 5m bottles whiskey Final Results Presentation February 2015 7
Financial Performance + Three divisions had a strong performance with Game SA showing improved trading in the second half of the year + Total sales growth increased to 10.4% (Dec 2013: 7.5% 52 weeks) and comparable sales increased by 7.5% (Dec 2013: 3.8%) + Gross margin increased to 18.63% (Dec 2013: 18.44% 52 weeks) + Comparable expense growth of 7.1% is lower than comparable sales growth of 7.5% + Foreign exchange loss of R49.8m (Dec 2013: R67.8 m gain) + Operating profit before foreign exchange movements and interest increased by 4.3% (Dec 2013: -0.3% 52 weeks) Final Results Presentation February 2015 8
Sales Real comparable volume growth Rm 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) 52 week % growth 52 week Comparable % sales growth Estimated % sales inflation Total 78,173.2 70,790.7 10.4 7.5 4.8 Massdiscounters 17,955.2 16,294.2 10.2 4.8 3.1 Masswarehouse 21,554.8 19,271.7 11.8 10.7 5.5 Massbuild 10,822.8 9,441.3 14.6 9.1 5.9 Masscash 27,840.4 25,783.5 8.0 6.3 4.8 + Rest of Africa businesses sales growth: Sales in ZAR grew by 16.2% 8.1% + Higher inflation in General Merchandise and Home Improvement + Wholesale business is experiencing deflation in some Food commodities in 2015 91.9% S.A. Sales Rest of Africa Sales Final Results Presentation February 2015 9
Operating profit before forex and interest Rbn 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2013 + Operating profit before forex of R1,933.7m Sales-related gross margin Price-and-mix-related gross margin + A strong trading performance in Makro, Massbuild and Masscash Retail; offset by: + Greater Food contribution across the Group + A softer margin performance in Massdiscounters attributable to the overstock position Other income + Prior year included insurance proceeds Employment costs + Total increase of 14.0% / Comparable increase of 8.5% + Increase in staff (Full-Time Equivalents) of 8.3% to +/- 41,000 FTE s Occupancy costs Depreciation, Amortisation and Impairment of Assets + Total increase of 5.3% / Comparable increase of 3.6% + 3.9% increase of net new trading space to a total of 1,539,295m² + Electricity, rates and taxes increased by approximately 15% + Property acquisitions resulting in a reduction of occupancy costs + Depreciation growth of 15.8% is greater than sales growth of 10.4% + The opening of new stores, DC s and the acquisition of key properties is driving the increase + Rate of increase should reduce significantly from 2015 Other operating costs + Total increase of 12.6% / Comparable increase of 7.8% + Credit card commission increased by 15.5% - increased usage 2014 + Operating profit before forex of R2,015.9 million + Increase of 4.3% Final Results Presentation February 2015 10
EBITDA Rm Operating profit before foreign exchange movements and interest 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) 52 week % growth 2,015.9 1,933.7 4.3 Depreciation and amortisation 846.6 731.1 15.8 Impairment of assets 24.6 41.6 EBITDA before foreign exchange movements 2,887.1 2,706.4 6.7 Final Results Presentation February 2015 11
Foreign Exchange Movements 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) Massdiscounters (5.7) 82.4 Other (44.1) (14.6) Total (loss)/gain (49.8) 67.8 + Rand weakened by 12.7% against the USD + Ghanaian New Cedi and the Nigerian Naira devalued against the Rand Final Results Presentation February 2015 12
Inventories and Creditors December 2014 (Reviewed) December 2013 (Audited) Inventories (Rm) 11,228.8 10,115.5 Inventory Days 64 64 Trade Creditors (Rm) 14,841.5 13,702.4 Creditors Days 75 76 + Good inventory management. Growth of 11.0% is marginally ahead of sales growth + New stores + Massdiscounters, while improving, remains overstocked + Trade Creditors increased by 8.3% + Creditors Days slightly tighter Final Results Presentation February 2015 13
Capex as a % of sales Capital Expansion 4.0% 2,500 3.5% 3.0% 2.5% 2.0% 1.5% 2,000 1,500 1,000 500 Rm 1.0% Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014 0 Investment to maintain operations Property acquisitions Total capex as a % of sales Investment to expand operations Businesses acquired Total capex as a % of sales excl business and property acq's + Total Capex as a % of sales: 2.7% (Dec 2013: 3.3%) + Total Capex excl. business and property acq s as a % of sales: 1.6% (Dec 2013: 1.8%) Final Results Presentation February 2015 14
Capital Expansion Sales split between owned and leased stores 31% 27% 13% Final Results Presentation February 2015 15
Capital expansion Annualised benefit of property acquisitions over the last 2 years Saving on lease payments: R210m Less finance costs: R109m Less depreciation costs: R36m Net savings: R65m Final Results Presentation February 2015 16
Cash Flow Statement Rm 52 weeks December 2014 (Reviewed) 53 weeks December 2013 (Audited) Operating cash before working capital movements 2,983.4 2,984.0 Working capital movements (295.1) 752.6 Cash generated by operations 2,688.3 3,736.6 Net interest and tax paid (1,028.7) (987.9) Net investment to maintain operations (857.4) (780.2) Free cash flow 802.2 1,968.5 Dividends paid (914.0) (913.4) Investment to expand operations and other net investing activities (1,289.1) (1,446.9) Cash outflow before financing activities (1,400.9) (391.8) + The effect of week 53 in the prior and current year is approximately R500m in working capital Final Results Presentation February 2015 17
Forecast stores: Dec 2014 Dec 2016 Dec 2014 Forecast new stores Jan 2015 Dec 2016 Dec 2016 Number of stores 392 63 455 Massdiscounters 153 19 172 Masswarehouse 19 1 20 Massbuild 100 20 120 Masscash 120 23 143 Trading space (m 2 ) 1,539,295 192,893 1,732,188 12.5 Massdiscounters 506,188 60,340 566,528 11.9 Masswarehouse 195,794 12,000 207,794 6.1 Massbuild 436,538 57,500 494,038 13.2 Masscash 400,775 63,053 463,828 15.7 % increase + Massdiscounters: Game SA 8; DionWired 4; and Game Africa - 7 (Kenya 1, Mozambique 1, Nigeria 3 and Zambia 2) + Masswarehouse: Makro - 1 + Massbuild: BWH SA - 4; BEX 4; BTD 1; BSS - 8; and BW Africa - 3 (Mozambique 1 and Zambia 2) + Masscash: Retail 18; Wholesale SA 2; and Wholesale Africa - 3 (Mozambique 2 and Zambia 1) Forecast for 2015: + 33 new stores resulting in an additional 6.3% net new trading space Final Results Presentation February 2015 18
Strategic Priorities + Improve Profitability + Grow Builders and Retail Food in South Africa + Grow into Africa + Grow Online Final Results Presentation February 2015 19
Improve Profitability To improve Group profitability from a focus on Sales, Operating Margin and Expenses + Increase comparable stores sales + New customer groups commercial, online, exports + New formats, format renewal + Increase Private Label penetration: currently 9.8% of sales, and highest in Builders at 18.7% + Reduce costs in value-chain + Increase property ownership: estimated future annual benefit of R65m + Reduce capital cost of new stores + But always prepared to invest profit into price, to drive sales / productivity loop Final Results Presentation February 2015 20
Growing Game In 2009 began transforming Game from traditional GM discounter Subsequent Challenges + Demand & fulfillment software (JDA) poorly configured & operated + Inadequate store segmentation impacted merchandise range: Rosebank to Ulundi + Initially difficult to attract suitable Food skills + Poor demand data history impacts Fresh wastage + Complexity of Fresh supply chain + Distracted the core General Merchandise team Response: + Re-installed JDA in 2013/14 + Supply chain & RDC skills + Revised store segmentation and merchandise range + Hiring great skills. Suppliers support + Improving demand data history + Group Fresh supply chain + SAP POS Final Results Presentation February 2015 21
3 month rolling year-on-year growth Growing Game Current Successes: + Now a less cyclical retail format offering wide range of GM & selected Food range + Since 2008 Game sales have grown 10% CAGR to R18bn + Game store footprint increased 7.3% CAGR to 130 stores + Food of R3.2bn is now almost 18% of total sales + Food now in 58 SA stores and in SA comparable stores sales +19% & GM sales in those stores outgrowing non- Food stores + Most GM market shares steady or improved Sales Growth: Game vs SA GM retailers 20% 15% 10% 5% 0% -5% -10% StatsSA Game Gen Merch* Source: Massmart, StatsSA. StatsSA figures for retailers in Household furniture, Appliances & Equipment *Game Gen Merch = Total Game SA sales in General Merchandise, excl. cellular and hardware Game SA had a good Q4. Key business inputs improving gradually. Another six months to rebalance inventory levels. Hopeful of a better SA performance in 2015 Final Results Presentation February 2015 22
Grow Retail Food in SA Build a Retail Food proposition on the General Merchandise and Wholesale Food platforms. To reduce cyclicality, counter potential decline in Wholesale, complement our existing offerings and enter the under-penetrated lower-income arena Current situation + Retail Food sales from Rnil to R14.7bn since 2008 + Trading through 132 stores in Makro, Game and Cambridge Food + Positive impact in Game and Makro, with increased traffic and new customers + Own private label in all three formats Cambridge, Marketside, M-brand + Implemented full offering including dry groceries, bakery, butchery, fresh produce & prepared meals + Developing dedicated supply chain for Fresh, Meat & Bakery either owned or 3 rd party + Competitive pricing enabled through General Merchandise margins & lower operating expenses + Disrupted market equilibrium as suggested by competitor reaction, specifically aggressive enforcement of lease exclusivities and keen pricing / promotions Final Results Presentation February 2015 23
Grow Retail Food in SA Key priorities + Complete Game Food roll-out and grow national footprint of Cambridge Food brand + Improve product offering & store operating efficiencies + Develop and leverage specialist Groupowned assets (e.g. Fruitspot) to service Fresh, Bakery and Butchery proposition + Grow Food private labels Inhibitors + Lease exclusivities, dedicated supply & logistics, cold chain infrastructure and specialist skills Final Results Presentation February 2015 24
Grow Builders formats in SA Current Situation + Market leaders in SA with Builders Warehouse & Builders Express. Few direct format competitors + Pleased with early success of Superstore + Enabled by great skills & management, SAP and national DC + Under-penetrated is some key metropolitan & urban areas Inhibitors + Real estate, economic / housing cycle Key priorities + Aggressively roll-out Warehouse & Express stores + Grow Builders Superstore (8 stores in next two years) Final Results Presentation February 2015 25
Grow into Africa To replicate South African market leadership and operating strengths in underserviced, high potential markets in sub-saharan Africa, to increase geographic market exposure for growth Current situation + 33 stores in 11 sub-saharan non-south African countries generating sales of R6.4bn representing 8.1% of total sales + Average store sales of R192m p.a., almost x2 higher than that achieved by grocery retail peers + Game first wave city expansion into 10 non-sa countries has resulted in good General Merchandise market shares and an emerging Retail Food proposition + Builders Warehouse second wave city expansion into two countries has resulted in excellent sales and margin growth + Masscash Wholesale over 10 years have opened / acquired stores in four countries. Sales of R2.7bn + Continued learning from Valumart, Nigeria, launched in 2012. Have expanded the pilot to validate logistics and distribution requirements Final Results Presentation February 2015 26
Grow into Africa Key priorities + Grow into selected cities & metros. Seven Game stores planned for 2015-16 + Grow Builders Warehouse presence in SADC region. Three planned for 2015-16 + Initiate a third wave through Cash & Carry or Hybrid model, with Dry Groceries & limited GM. Focus on major cities & towns in SADC. Three planned for 2015-16 + Total African space growth 2015-2016 of approximately 45% Inhibitors + Securing land title, volatile currencies, unpredictable customs & duty environments 1 GHANA 3 NIGERIA 1 UGANDA 1 ZAMBIA BOTSWANA 2 TANZANIA MALAWI 5 1 4 NAMIBIA 11 1 MOZAMBIQUE LESOTHO SWAZILAND Final Results Presentation February 2015 359 SOUTH AFRICA 3 27
Grow online To build a profitable omni-channel presence that is synergistic with Massmart category market leadership and needs of customer base Current situation + DionWired online launched in 2012. Essential offering for hi-tech customer. Good online retail learning experience for the Group. High basket size, now 2.3% of sales + Makro online launched April (General Merchandise) and October 2014 (Liquor). High basket size, high proportion of click-&-collect, predominantly retail. New and existing customers + Trialing Makro convenience locker access, for later roll-out to SASOL service station forecourts + Shield online system and call-centre integrated with, and accessible to, Cash & Carry B2B customer base + Access to skills & experience at ASDA online and walmart.com Final Results Presentation February 2015 28
Grow online Key priorities + Invest in appropriate technology master data, digital catalogue, inventory accuracy, extended assortments, fulfillment + Expand Shield B2B online to broader Cash & Carry customer base + Develop & launch Builders Warehouse online + Mobile applications Inhibitors + Technology cost & effectiveness + Back-office interface + Consumer confidence in online payment systems Final Results Presentation February 2015 29
Prospects + For the 8 weeks to 22 February 2015, total sales increased by 10.0% + Comparable sales increased by 7.9% + Continuation of sales trends seen in Q4 of 2014 + South African consumer environment seems mildly positive, but fragile. Need to watch oil price, taxes and interest rates + African economic challenges Final Results Presentation February 2015 30
Dedicated to adding value For further details, go to massmart.co.za/results2014
Additional Information + Reviewed Consolidated Income Statement for 52 Weeks ended 28 December 2014 + Tax Rate Reconciliation + Headline Earnings Reconciliation + Store Portfolio + Store Portfolio (including location of stores) + Forecast Stores (including location of stores) + Capex per category + Number of shares Final Results Presentation February 2015 32
Reviewed Consolidated Income Statement for the 52 Weeks ended 28 December 2014 Rm 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) Revenue 78,319.0 71,035.3 10.3 Sales 78,173.2 70,790.7 10.4 Cost of sales (63,610.8) (57,733.8) (10.2) Gross Profit 14,562.4 13,056.9 11.5 Other income 145.8 244.6 (40.4) Depreciation and amortisation (846.6) (731.1) (15.8) Impairment of assets (24.6) (41.6) 40.9 Employment costs (6,109.0) (5,357.5) (14.0) Occupancy costs (2,678.8) (2,544.5) (5.3) Other operating costs (3,033.3) (2,693.1) (12.6) Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 Foreign exchange (loss) / gain (49.8) 67.8 Operating profit before interest 1,966.1 2,001.5 (1.8) Net finance costs (345.3) (249.8) (38.2) Profit before taxation 1,620.8 1,751.7 (7.5) Taxation (483.4) (512.6) 5.7 Profit for the year 1,137.4 1,239.1 (8.2) 52 week % growth Final Results Presentation February 2015 33
Tax Rate Reconciliation % 52 weeks December 2014 (Reviewed) 52 weeks December2013 (Pro forma) Standard tax rate 28.0 28.0 Non-taxable income and disallowed expenses 2.8 (2.0) Allowances on lease premiums and improvements (0.4) (0.3) Assessed loss not utilised 2.0 1.4 Other including foreign tax adjustments (2.6) 2.2 Group tax rate 29.8 29.3 Final Results Presentation February 2015 34
Headline Earnings Reconciliation Rm 52 weeks December 2014 (Reviewed) 52 weeks December 2013 (Pro forma) Attributable earnings 1,079.8 1,180.0 Impairment of assets 24.6 41.6 Loss on disposal of tangible and intangible assets 1.4 11.9 Loss on disposal of business - 1.8 Tax effects on adjustments (0.3) (3.8) Headline earnings 1,105.5 1,231.5 (10.2) Foreign exchange loss/(gain) (taxed) 35.9 (48.8) Headline earnings before foreign exchange (taxed) 1,141.4 1,182.7 (3.5) 52 week % growth Final Results Presentation February 2015 35
Store Portfolio December 2013 Opened Closed December 2014 Number of stores 376 28-12 392 Massdiscounters 143 13-3 153 Masswarehouse 19 - - 19 Massbuild 92 12-4 100 Masscash 122 3-5 120 Massdiscounters: + Opened 11 Game stores (one in Nigeria and one in Namibia) and two DionWired stores + Closed two Game stores and one DionWired store Massbuild: + Opened three Builders Warehouse stores, four Builders Express stores, one Builders Trade Depot store and four Superstores + Closed two Builders Warehouse stores and two Builders Express stores Masscash: + Opened three and closed three Retail stores + Closed two Wholesale stores Final Results Presentation February 2015 36
Store Portfolio including location of stores Massdiscounters Masswarehouse Massbuild Masscash Total December 2013 143 19 92 122 376 13-12 3 28 Opened: Game: 2 Africa stores Game: 9 SA stores DionWired: 2 SA stores BWH: 1 Africa store BWH: 2 SA stores BEX: 4 SA stores BTD: 1 SA store BSS: 4 SA stores Retail: 3 SA stores Closed Game: 2 SA stores DionWired: 1 SA store -3 - -4-5 -12 BWH: 2 SA stores BEX: 2 SA stores Retail: 3 SA stores Wholesale: 2 SA stores December 2014 153 19 100 120 392 Final Results Presentation February 2015 37
Forecast stores including location of stores Massdiscounters Masswarehouse Massbuild Masscash Total December 2014 153 19 100 120 392 6-9 12 27 Forecast SA openings 2015: Game: 4 DionWired: 2 BWH: 3 BEX: 2 BTD: 1 BSS: 3 Retail: 10 Wholesale: 2 4-1 1 6 Forecast Africa openings 2015: Game: Kenya 1; Mozambique 1; Nigeria 1; and Zambia 1 BWH: Zambia 1 Wholesale: Mozambique 1 December 2015 163 19 110 133 425 6 1 8 8 23 Forecast SA openings 2016: Game: 4 DionWired: 2 Makro: 1 BWH: 1 BEX: 2 BSS: 5 Retail: 8 Forecast Africa openings 2016: Game: Nigeria 2; and Zambia 1 3-2 2 7 BWH: Zambia 1; Mozambique 1 Wholesale: Zambia 1; Mozambique 1 December 2016 172 20 120 143 455 Final Results Presentation February 2015 38
Capex per category Rm 52 weeks December 2014 (Reviewed) 52 weeks December2013 (Pro forma) Land and buildings/leasehold improvements 948.9 807.2 Vehicles 11.0 34.7 Fixtures, fittings, plant and equipment 341.7 427.7 Computer hardware 12.6 33.8 Computer software 7.9 1.5 Other - 1.9 Investment to expand operations 1,322.1 1,306.8 Land and buildings/leasehold improvements 104.8 47.7 Vehicles 92.1 43.4 Fixtures, fittings, plant and equipment 427.2 521.7 Computer hardware 108.1 70.9 Computer software 123.6 96.5 Other 1.6 - Investment to maintain operations 857.4 780.2 Final Results Presentation February 2015 39
Number of shares 000 At December 2013 217,109 Shares issued 9 At December 2014 217,118 Weighted-average at December 2014 216,908 Diluted weighted-average at December 2014 219,055 Final Results Presentation February 2015 40