Massmart Reviewed Interim Results Presentation for the 26 weeks ended 28 June 2020 27 August 2020
Pr Presenting t today Mitchell Slape Mohammed Abdool-Samad Chief Executive Officer Chief Financial Officer 2
Agenda 01 Executive summary 01 02 Financials and Covid-19 impact 02 03 Turnaround plan update 03 04 Outlook 04 05 Additional information 05 3
Ex Executive s summary 1 2 3 4 5 Challeng enging ing s sales es Enh nhanc nced ed g gross Arres ested ed e exp xpens ense e Cash f flow/ Ac Accelerated en envir ironm nment ent margin mar growth gr deb ebt m mana nagem ement ent tur urna naround und p plan Lost R4.6bn to Covid-19 Up 90bps benefitted Limited expense Strengthened the Smart Spend: restrictions from mix; Everyday growth to 1.9% in the balance sheet in R1.9 billion in savings Low Price initiatives first half spite of challenging over next 3 years Positive sales growth in conditions Leveraged expenses Q1 and month of June Q1 and in June 4
Financials and Covid-19 impact Mohammed Abdool-Samad, Group CFO
Fi Financial su summary – rep reported ed Ma Margin and d expense momentum de despite lockdo down wn do dominated d half year Tr Trading (loss)/profit Sa Sales Gross profit Gr before interest be t and ta tax SG&A g SG growth Headl He dline loss mar margin (excl. reorganisation, restructure & impairment) i >1 >100. 00.0 % i 9.7 .7% h 1. 1.9 % i 36. 36.2 % h 90b 90bps R8.3bn R1.1bn R39.6bn 20.1% (R266.6m) 2019: R8.2 billion 2019: R0.8 billion* 2019: R43.8 billion 2019: R318.9 million 2019: 19.2% Includes IFRS 16 26-we 26 week basis – in includin ing C Covid id-19 19 impact *Restated 6
Strong fundamen Str enta tals over ersha hadowed ed by y Covid-19 19 A tal A ale of f two quar arters 23.2% 23.2% 21.9% 20.6% 20.6% 20.5% 20.5% 20.6% 20.6% 20.5% 20.5% 20.1% 1% • Q1: Economic 19.2% 18.8% 19.6% 17.8% 16.8% 21 20. challenges from 19 18 19 17 16 2019 continue 1.4% 1.4% 0.8% 0.8% 0.7% 0.7% 1.3% 0.2% 0.2% • Still leveraged 1. 1. 1. sales in Q1 -0.6% 0.6% -0.4% 0.4% • Poor economy exaggerated by -9.70% 9.70% 16.1% lockdown in Q2 20.5% -20.5% -16 • Significant progress in margin and expense management 47.9% throughout H2 -47 • Turnaround Q1 Q1 April Ap May Ma June Ju Q2 Q2 Total H1 H1 accelerated Lockdown L5 Lockdown L4 Lockdown L3 Excludes IFRS 16 Sales growth Margin 2020 Margin 2019 Underlying SG&A growth 7
He Head adwinds as as a r a result o t of C Covid-19 19 impacting on ma margin in and nd trading ing profit it Restrictions impacting ~56% of categories drove lost sales of R4.6 billion Re Rm Rm Impact of lockdown on sales • Additional costs incurred Estimated lost margin @19.6% 897 relating to operating Increased direct costs regulations R15,322m 62 Relief/benefits received • Rent relief of R97 million (230) SALES Indirect cost impact • Temporary employee April/May 14 2019 cost relief of R133 million Estimated impact on trading profit* R10,747m 74 743 SALES *Impact of trading profit estimated based on lost sales at the margin achieved in the same period in April/May 2019, net of costs incurred and benefits received. 2020 Estimated Es ed lost st sa sales R4.6bn Includes IFRS 16 8
Sa Sales es by y geo eogra raphy y and ca categ egory Trading restrictions resulted in estimated lost sales of R4.6 billion Tr Gr Group SA s SA sales Rest of Africa sales Re R3 R39.6bn bn Comp sales Comp sales i 9.7% 90.1% 9. 9.9% 9% 1.5% 10.5% i 0.1% i 10.6% decline decline Comp sales 9.7% Food & Liquor Food & Liquor decline 59% 52% a Food & Liquor 8.1% decline 0.6% growth 7.2% decline Durables Durables 41% 48% Durables Constant currency 3.8% 12.6% decline 13.9% decline 0.9% decline decline 9
Fo Focused expense management H1 H2 Employment • Attrition and • Rental: landlord negotiations Employment costs Costs recruitment freezes • Utilities Total G Group Si Sign gnificant Other operating expenses • TERS relief during • Marketing expenses g grew a w at 2.2% lockdown: associates Cost R Reset s savings • Employment costs: deferred 1.9% .9%, c , comparable decline paid on time and in full management salary increase to b be r realised expenses a at 1 1.2% .2% and continued recruitment freeze Occupancy • Landlord support: Costs rental relief received during lockdown 6.4% • Reduced utility costs: decline lockdown impact and improved monitoring and energy efficiencies Outlook: Out Validated Lockdown • Travel R1.9bn ‘variable • Conferences and training • Reduced marketing spend savings in SG&A savings, • Increased Covid-19 related and costs’ costs: deep cleaning and to be delivered sanitising costs over 3 years Includes IFRS 16 10
Pe Performance – Ma Massmart Retail Strengthened c St col ollabor oration ion a acros oss t the b banners R8.3bn R5.8bn R3.9bn • Lost sales ~R0.9bn • Lost sales ~R1.0bn • Lost sales ~R0.4bn Covid-19 impact Covid-19 impact Covid-19 impact Sales Sa es Sales Sa es Sales Sa es • Margin improvement: • Strong margin: increased • Reduced trading: i 11.8% i 13.3% i 15.6% promotional contribution retail performance, categories traded, reduced. Focus on EDLP construction sector still hours & store 25.5% 33.3% 17.3% • SAP S/4 HANA ERP under pressure closures. Liquor implemented: 1 June • Strong vendor participation ~10% GP GP GP GP GP GP after 4-year journey partnership: vendors • Margin improvement: h 220bps h 220bps h 110bps • Grew Game online sales paid on time and in full category mix and by 100% Builders deliveries trading discipline (R416.3m) R214.3m (R314.5m) • Negative H1 expense prioritised by suppliers • Negative H1 expense PBIT * PBI PBIT * PBI PBI PBIT * growth (-1.0%) • Grew online sales by growth (-2.9%) i 55.5% i 32.7% i >100% • Successful rental 160% re-negotiations: benefits • Negative H1 expense 2019: (R267.8m) 2019: R318.4m 2019: (R91.9m) in H2 and beyond growth (-3.1%) Includes IFRS 16 * Includes HO allocations 11
Pe Performance – Ma Massmart Wh Whol olesale Wholesale collaborations increasing Wh g market share R12.0bn R9.5bn • Combined Wholesale lost sales ~R2.3bn Covid-19 impact Sales Sa es Sa Sales es • Enhanced margin and improved price gap i 10.4% i 2.1% • Single Wholesale synergies: serving customers, reduced transport costs and 18.2% 10.9% better deals with vendors • Makro grew online sales by 84%, GP GP GP GP partnership with OneCart h 70bps h 80bps • Reopening Liquor (June): disciplined and professional planning and execution R237.0m R12.9m • Minimal H1 expense growth (2.0%) PBIT * PBI PBI PBIT * i 43.4% h >100% 2019: R418.4m 2019: (R56.7m) Includes IFRS 16 * Includes HO allocations 12
Ac Accelerating omnichannel Ad Adapted well to Covid-19 19 induced demand Click-and-collect Online traffic 35.3% 85.7% increase increase • Internally owned last mile Online s On sales delivery • Strategic partnership: h 95% optimisation and Group collaboration 2.1% sales participation (2019: 0.8%) 13
Wo Working capital 63 63 • Increased stock levels due to lockdown, particularly R10.9bn 2020 Inventory Level 5 in April h 6 days days • Reduced Game aged stock R11.1bn 2019 by 10% • Strong vendor relationships resulted in high in-stocks 58 58 • Suppliers paid on time and R11.5bn in full during lockdown: 2020 Creditor enhanced relationships h 2 days days • Renegotiated extended R12.6bn 2019 payment terms with suppliers on the back of partnership approach 8 • Hospitality and R2.0bn 2020 construction industry Debtor i 2 days debtors under pressure: days increased provisions R2.4bn 2019 • Focus on collections yielding results 14
Ca Cash flo flow w and nd de debt ma mana nage geme ment nt h flow despite i EBI Stron St ong g cash EBITDA Cash f flow i w initiatives Rm Rm JUN 2020 JUN 2019 MOVEMENT 1,253.5 1,867.3 (613.8) EBITDA, before non-trading items • Focused expense management and disciplined capex deferrals 7,177 6,960 217 Net debt* • Paid suppliers on time and in full: 3,635.2 5,280.3 (1,645.1) Total equity Enhanced relationships ensuring no disruption in supply 0.70 0.61 0.09 Gearing ratio* • Continued to pay salaries and benefits on (3,745.4) (3,978.8) 233.4 Free cash flow – (outflow) time and in full during lockdown period • Rental relief (April) & TERS benefit 112.3 157.1 (44.8) Foreign exchange loss • Renegotiation of vendor payment terms to 916.6 909.6 7.0 Net finance costs preserve cash while taking care of most 347 350 (3) vulnerable smaller suppliers Cash interest to financiers* • Deferral of management salary increases * Excludes lease liabilities 15
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