Performance summary

R42.5 billion
2016: R42.3 billion
Operating expenses
R7,320.1 million
2016: R7,332.8 million
Operating profit before interest
R765.1 million
2016: R819.1 million
Headline earnings
R328.6 million
2016: R320.6 million
Total dividend per share
76.00 cents
2016: 74.10 cents

Financial performance

Massmart’s total sales for the six months to June 2017 increased by 0.5% over the prior year’s 26-week period. Comparable stores’ sales decreased by 1.6%. Product inflation is estimated at 3.2%. Inflation in General Merchandise and Food & Liquor decreased to -0.1% and 4.4% respectively while Home Improvement increased to 4.7%. Our ex-SA businesses represented 8.2% (2016: 9.3%) of total sales and decreased by 11.9% in Rands (a 2.6% increase in constant currencies*). These territories saw a decline in comparable sales of 14.1% in Rands.

Three stores were opened, resulting in a total of 415 stores at June 2017. Net trading space increased by 1.1% from December 2016 to 1,585,957m².

The Group’s gross margin of 18.8% is lower than the prior period’s 19.3%, mostly driven by product mix from higher sales in the relatively lower-margin Food categories and margin pressure from food deflation and higher promotional activity.

Operating expenses were tightly controlled, decreasing by 0.2% over the prior period, and comparable expenses declined by 1.0%. Expenses as a percentage of sales were 17.2% (2016: 17.3%). Store closures in 2016 that reduced space by 2.5% partly contributed to this positive expense performance. Employment costs, the Group’s biggest cost category, decreased by 2.5% from a combination of better staff-scheduling in stores and DCs, and a hiring freeze. Occupancy costs increased by 2.8%, mainly from favourable lease renewals. Depreciation and amortisation increased by 1.0%, while other operating costs increased by 1.5%. The non-capital costs of upgrading our IT infrastructure, expanding our on-line and digital presence, as well as pre-opening store expenses, are included in this expense category.

Included in operating profit are net realised and unrealised foreign exchange losses of R16.6 million (2016: loss of R125.2 million). This result was assisted by relative stability in the average rate of African currencies against the Rand this year compared to last year. In addition we have continued to actively manage the value and currency of our foreign-denominated balances, where practical, and have taken out foreign exchange contracts on selected exposures. All foreign-denominated inventory orders are automatically covered forward.

Excluding foreign exchange movements, earnings before interest, tax, depreciation and amortisation (EBITDA) of R1.3 billion decreased over the prior period by 13.6%.

Net finance costs have grown marginally to R282.1 million (2016: R279.2 million), despite higher interest rates. This was achieved through better working capital management during the current period. The Group’s effective tax rate of 30.2% is in line with expectation (2016: 30.1%).

Headline earnings and headline earnings per share increased by 2.5% and 2.4% respectively over the prior comparable period.


Financial position

During the past few years, investment spend has been focused on new IT infrastructure, store openings and the refurbishment of existing stores. The net book value of Property, plant and equipment increased by 5.1% over the prior period. Total capital expenditure of R749.0 million comprises: R353.3 million on replacement expenditure including, store refurbishments and our IT systems’ investments; and R395.7 million on expansionary expenditure, relating to the rebuild of Jumbo Crown Mines and upcoming new store openings in the second half of 2017.

Operating cash before working capital movements amounted to R1.5 billion, 7.1% lower than the prior period.

Improving inventory management saw our inventory balance decrease by 8.2% compared to June 2016, with inventory days reducing by six days to 56 days, despite store openings. Trade, other receivables and prepayments increased by 2.2% over the prior period and debtors’ days were flat at nine days. Creditors’ days decreased by 7.1% over the prior period to 52 days due partly to the lower inventory levels and from early-settling some foreign denominated creditor balances in ex-SA countries to limit potential currency volatility.

The annual rolling return on equity was 23.3% (2016: 20.4%) and excluding foreign exchange movements this figure was 23.7% (2016: 22.4%).