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MSM: MASSMART HOLDINGS LIMITED - Sales And Business Update And Trading Statement For The 26 Week Period Ended 30 June 2019

Date: 2019/07/30

MSM: MASSMART HOLDINGS LIMITED - Sales and business update and trading statement for the 26 week period ended 30 June 2019
Sales and business update and trading statement for the 26 week period ended 30 June 2019

Massmart Holdings Limited
(Incorporated in the Republic of South Africa)
Company registration No. 1940/014066/06
JSE Code: MSM
ISIN: ZAE 000152617
("Massmart", "Company" or the "Group")

Sales and business update and trading statement for the 26 week period ended 30 June 2019

Sales update for the 26 week period ended 30 June 2019

For the 26-week period, Massmart´s sales of R43.8bn represent total growth of 5.5% and comparable
sales growth of 3.6%, with year-to-date product inflation of 2.7%. Total sales growth from our South
African (SA) stores was 4.9%, while the same figure from our ex- SA stores was 11.8% in Rands.

Sales growth slowed noticeably in the six-week period since our previous update issued at the May 2019
AGM, with total growth of 3.3% and comparable growth of only 1.9%. During this six-week period,
comparable sales growth slowed in Massdiscounters and Masswarehouse but increased slightly in
Massbuild and Masscash.

Reflecting the difficult consumer environment, margins were lower than anticipated across all divisions in
May and June which resulted in a disappointing Group financial performance for the six months to June
2019 as described in the Trading Statement below.

Business update

Detailed information will be provided as usual in the Massmart interim financial results and presentation
to investors on 29 August 2019, but some key points per division are noted below. It should be noted that
all performance references below are before the impact of IFRS 16.

For the six months to June 2019, Massdiscounters will report a trading loss of between R395m and R425m,
compared to the June 2018 trading loss of R95m. Profits in Game South Africa are below the prior period,
but much lower in Game Africa and DionWired. Compounding this are higher costs from the SAP IT project
and supply chain and logistics. There have been several changes to the Massdiscounters executive team
in the last few months:

    o   CEO Albert Voogd resigned with effect from July 2019 and has been replaced, in the interim, by
        Andrew Stein. Andrew has been with Massmart for 10 years and has worked in both Cambridge
        and Makro;
    o   Riaan Turton was appointed as finance director and Kathrine Madley was appointed marketing
        director; and
    o   Neville Hatfield has been appointed merchandise director with effect from July 2019. Neville has
        been the merchandise director at Builders Warehouse since 2006 and prior to that had been the
        merchandise director at Game.

Masswarehouse will report trading profit of between R320m and R370m which is 24% to 34% below the
prior period. Much of the lower profitability is caused by the soft sales, margin pressure from the lower
sales participation of general merchandise and expense growth caused partly by the new Makro store
opened in Durban North in March 2019.

Massbuild will report trading profit of between R238m and R266m which is 5% to 15% below the prior
period, as a result of lower sales and expense growth.

Masscash will report a trading loss of between R180m and R210m, below the June 2018 trading loss of
R4m. Despite improved sales in the wholesale business, this weak profit performance was caused by
margin pressure in that business, weak sales growth in the retail business and expense growth. Masscash
CEO Kevin Vyvyan-Day has announced his resignation with effect from the end of August 2019 and will be
replaced, in the interim, by Deepa Sita. Deepa has been the finance and commercial director at Makro
since 2016 and she has extensive experience in the South African FMCG market.

Trading Statement for the 26 week period ended 30 June 2019

Given the above performances, it is estimated with reasonable certainty that for the six months to June
2019 the Group will report an operating loss, before non-trading items, foreign exchange movements and
net interest, of between Rnil and R30m.

This disappointing performance was caused by softer than expected sales, margin weakness and expense
growth of approximately 12% (comparable 9%). New stores representing 3.1% additional trading space
have been opened since June 2018 and this impacted on employment, depreciation and occupancy costs
in addition to cost-inflation.

African currency weakness has resulted in foreign exchange losses anticipated to be R81m, in comparison
to a foreign exchange gain of R23m in the prior period. The losses are caused primarily by recent currency
weakness in Zambia and Nigeria.

Net interest costs will be approximately 18% higher than the prior period figure of R300m.

The tax charge has been adversely impacted by an inability to raise deferred tax assets in certain ex-South
African tax entities and impairing deferred tax assets in some South African and non-South African tax
entities.

Consequently, excluding the impact of IFRS 16, shareholders are advised that Massmart anticipate, with
reasonable certainty, the following for the six months to June 2019:

Excluding the impact of IFRS16                           Estimated                  Restated*                     Anticipated %
                                                         June 2019                  June 2018                            change

Headline (loss)/ earnings (Rm)                  (530.0) to (550.4)                        204.1           (359.7%) to (369.7%)
HEPS (cents)                                    (240.5) to (249.8)                         94.8           (353.7%) to (363.5%)
Net (loss)/ earnings (Rm)                       (582.4) to (602.0)                        195.7           (397.6%) to (407.6%)
Basic EPS (cents)                               (264.3) to (273.2)                         90.9           (390.7%) to (400.5%)

* 2018 results have been restated for the impact of an error in accounting relating to a long term lease, as set out in note 41 of our 2018 Annual
Financial Statements.
Shareholders are reminded that the figures and estimates shown above are before adjusting for IFRS 16
which the Group will be reporting for the first time in the June 2019 interim financial results (and which
were the subject of a separate investor presentation held on 14 May 2019). The most notable impact of
IFRS 16 is, as a result of capitalizing long term leases to the balance sheet and hence recognizing a right-
of-use (ROU) asset and related lease liability, that rental charges are removed from profit and loss whilst
being replaced by depreciation relating to the ROU asset and accounting interest relating to the liability.
Including the impact of IFRS 16, shareholders are advised that Massmart anticipate, with reasonable
certainty, the following:

Including the impact of IFRS16                            Estimated                Restated**                      Anticipated %
                                                          June 2019                 June 2018                             change

Headline (loss)/ earnings (Rm)#                 (774.1) to (794.5)                        204.1           (479.3%) to (489.3%)
HEPS (cents)                                    (351.3) to (360.5)                         94.8           (470.5%) to (480.3%)
Net (loss)/ earnings (Rm)#                      (826.5) to (846.1)                        195.7           (522.3%) to (532.3%)
Basic EPS (cents)                               (375.0) to (383.9)                         90.9           (512.6%) to (522.4%)
** 2018 results have been restated for the impact of an error in accounting relating to a long term lease, as set out in note 41 of our 2018 Annual
Financial Statements but are not adjusted for IFRS 16.
# Included in the impact of IFRS 16 are foreign exchange losses of approximately R76 million relating to the revaluation of US Dollar denominated
leases in Africa.


Massmart´s financial results for the six months to June 2019 will be released on 29 August 2019 where a
more meaningful proforma financial comparison will be provided in the accompanying results
presentation.

The above information has not been reviewed and reported on by the Company´s external auditors.
Johannesburg

30 July 2019

Sponsor: JP Morgan Equities South Africa (Pty) Ltd

Date: 30/07/2019 01:00:00
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