Performance summary

R41.6 billion
2017: R40.8 billion*
Trading profit
before interest and tax
R664.2 million
2017: R825.2 million
Headline earnings before restructure costs (taxed)
R290.3 million
2017: R364.7 million
Interim dividend
per share
68.0 cents
2017:76.0 cents

Financial performance

The prescribed method of accounting for the adoption of IFRS 9 and IFRS 15 has the unfortunate consequence in this financial year of complicating the ability to make useful comparisons, between the results for the 26-week periods ended 25 June 2017 and 1 July 2018, from a statutory reporting perspective. To provide a more meaningful assessment of the current period’s performance, and unless otherwise stated, the commentary below has been provided on a like-on-like basis to reflect the material impact of IFRS 9 and IFRS 15 as though it was in effect for the period 26 December 2016 to 25 June 2017. The like-on-like financial information must be read in conjunction with note 3.

Rm   June 2018   June 2017   % change total   % change comparable
Sales per IFRS 15 (reviewed)   R41.6bn   R42.5bn   (2.2%)   (3.9%)
Like-on-like sales (unreviewed)   R41.6bn   R40.8bn   1.9%   0.2%


Sales performance per IFRS 15

For the 26 weeks to 1 July 2018, Massmart’s total sales decreased to R41.6 billion representing a decline of 2.2% and comparable store sales decline of 3.9% (compared to the prior period).


Like-on-like sales performance

Massmart’s total sales for the 26 weeks ended June 2018 increased by 1.9% and comparable store sales increased by 0.2%. Year-to-date product inflation reduced from 2.0% at December 2017 to deflation of 0.7% in June 2018. Inflation in Food & Liquor and Home Improvement reduced slightly to 0.4% and 0.3% respectively, while Durables went further into deflation of 1.4%. Our ex-SA businesses represent 8.4% (2017: 8.5%) of total sales and increased by 1.0% in Rands (5.7% increase in constant currencies).

The Group’s 26-week like-on-like gross margin of 19.6% is marginally lower than that of the prior period (2017: 19.7%), despite margin pressure from the deflation in Durable Goods and commodities. While customers timed their purchases around promotions and sought competitive pricing, the Group remained committed to protecting margin.

Expenses were tightly controlled, increasing by only 3.9% (excluding restructure costs), while comparable expense increases were limited to 2.1%. Employment costs, the Group’s biggest cost category, were limited to an increase of 5.8% (with a comparable increase of 4.6%), due to a combination of improved staff scheduling in stores and Distribution Centres (DCs), and a selective replacement of vacancies which resulted in full-time equivalent employees remaining stable at just over 43,000, against the prior period. Favourable lease renewals and improved management of municipal and energy costs resulted in occupancy cost increases being limited to 5.1%. Depreciation and amortisation increased by 0.5%. Other operating expenses remained flat. The non-capital costs of upgrading our IT infrastructure, as well as pre-opening store expenses of R18.6 million (2017: R10.7 million), are included in this expense category.

Trading profit before interest and taxation (excluding restructure costs) declined by 19.5% to R664.2 million.

Included in the 26-week period are the direct costs of R110.3 million pertaining to the formal organisational restructure under s189 of the LRA in both Massdiscounters and Masscash (see note 5).

Operating profit after restructure costs and before interest and taxation declined by 34.2% to R547.5 million. Included in operating profit are net realised and unrealised foreign exchange gains of R23.4 million (2017: loss of R16.6 million), the majority of which arose as a result of the strengthening of the average basket of ex-SA currencies.

Although net bank interest decreased by R13.5 million, net finance costs grew by R8.0 million (2.8%) to R290.1 million (2017: R282.1 million), largely due to the impact of a finance lease capitalised at the end of 2017. The Group’s effective tax rate of 29.9% is in line with expectations (2017: 30.0%).

Headline earnings before restructure costs decreased by 20.4% to R290.3 million, while Headline earnings including restructure costs decreased by 42.2% to R210.9 million.


Financial position

Unless otherwise stated, the commentary on our financial position has been provided taking into account the adoption of IFRS 9 and IFRS 15.

During the period, investment spend was focused on new IT infrastructure, store openings and the refurbishment of existing stores. As a result, the net book value of property, plant and equipment increased by 7.1% over the prior period. Total capital expenditure was R632.9 million. The expansionary expenditure of R358.9 million included investments in IT systems and new store openings. Replacement expenditure was R274.0 million and included store refurbishments.

Operating cash before working capital movements amounted to R1.3 billion, 18.7% lower than the corresponding prior period, caused by lower cash from operations. The cash outflow from working capital movements increased from R4.2 billion in 2017 to R5.1 billion in the current period, largely due to higher inventory levels.

The inventory balance increased by 9.2% to R11.0 billion, mainly due to month-end timing. On a like-on-like basis, inventory days increased by four days compared to June 2017. Trade receivables decreased by 3.2% which resulted in debtors’ days remaining flat. Creditors’ days increased by six days to 60 days.

The annual rolling return on equity was 23.7% (2017: 24.4%).