MSM: MASSMART HOLDINGS LIMITED - Interim Results For The Period Ended 25 June 2017
MSM: MASSMART HOLDINGS LIMITED - Interim results for the period ended 25 June 2017 Interim results for the period ended 25 June 2017 Massmart Holdings Limited ("the Company" or "the Group") JSE code MSM ISIN ZAE000152617 Company registration number 1940/014066/06 Interim results for the period ended 25 June 2017 Massmart, Africa's second largest retail group, comprises four divisions operating 415 stores, across 13 sub-Saharan countries. Through our widely-recognised, differentiated retail and wholesale formats, we have leading shares in the General Merchandise, Liquor, Home Improvement and wholesale Food markets. Our key foundations of high-volume, low-cost and operational excellence enable our price leadership. Overview The six months to June 2017 rank amongst the most difficult trading conditions in recent memory, not just in South Africa but in most of the 12 other African countries where we have stores. Three broad trends were strongly evident during the period: as a result of very weak consumer confidence levels, Food & Liquor performed relatively better than most discretionary items within the General Merchandise and Home Improvement categories; as most major commodities moved into deflation in South Africa, the wholesale / informal channel de-stocked aggressively; and the impact of weaker African currencies caused reported Rand sales growth to be lower from those countries. Massmart's total sales for the six months to June 2017 were R42.5 billion, an increase of 0.5% over the prior period, while comparable stores' sales decreased by 1.6%, with product inflation of 3.2%. Total sales growth from our South African stores was 1.7% and comparable sales declined by 0.2%. Currency weakness and challenging trading environments saw total sales from our ex-SA stores decline by 11.9% (but with a 2.6% increase in constant currencies*). The difficult consumer environment demanded an intense focus on expense management which resulted in total expenses decreasing by 0.2% for the period, with comparable expenses being 1.0% lower. This achievement was however insufficient to neutralise the pressure from weaker sales and gross margin, and Group operating profit before interest declined by 6.6% to R765.1 million. Headline earnings increased by 2.5% to R328.6 million, benefiting partially from lower foreign exchange losses in 2017. We increased market share in categories including small appliances, large appliances and DIY, and saw continued good performances in online sales with Makro and DionWired recording growths of 48% and 24% respectively. Three stores were opened, including a new Game store in Ghana, representing new space growth of 1.2%. Our portfolio of 415 stores includes 40 outside South Africa producing 8.2% of the Group's sales. We will open a further 15 new stores in the second half of 2017, increasing trading space by 4.1%. South African environment At the time of the release of Massmart's December 2016 results, we expressed cautious optimism about the 2017 financial year which was predicated on signs of green shoots in the economy including: the drought ending resulting in declining Food inflation; a stronger Rand; potentially lower interest rates; and the improvement, at the time, in the SARB Leading Indicator. Our perspective contemplated a challenging first half, likely followed by an improving consumer environment which would be more supportive of a discretionary or non-Food retail cycle. The early signs that some of these positive influences were coming to bear were however affected by the negative economic impact of the political instability that also affected the country's credit-rating. The unfavourable impact on sales in discretionary product categories has been notable and is strongly linked to weak consumer confidence. The divergent sales performances across our major product categories reflects this, with total Food & Liquor sales growing at 3.8% for the period, while General Merchandise sales declined by 2.5% and Home Improvement sales increased by 1.7%. African environment Expressed in constant currencies*, total sales growth from our ex-SA stores was 2.6% whilst comparable sales growth was flat. Reflecting similar pressures on the consumer as seen in South Africa, the sales performance in Food was significantly better than in non-Food. Strong sales performances, in constant currencies*, were recorded in Nigeria and Kenya. The negative Rand sales growth from our ex-SA stores was weakest in January 2017 but has since improved steadily and is almost showing positive monthly growth. Divisional operational review Massdiscounters Massdiscounters comprises the 142-store General Merchandise and Food discounter Game, which trades in South Africa and 11 other African countries; and the 24-store Hi-Tech retailer DionWired, in South Africa. Game and DionWired where total sales decreased by 1.4% and comparable sales were down 3.5% with product deflation of 0.3%, are particularly exposed to lower levels of discretionary income spending. Both businesses brought an intense focus on maintaining price-perception, being innovative and satisfying customers. In Game's South African stores total sales increased by 1.7%, while comparable sales were up 0.2%. Game Africa's total sales in local currencies increased by 12.4%, but declined by 10.2% in Rands due to currency weakness, particularly in Mozambique and Nigeria. Given the difficult consumer environment for Hi-Tech and Appliances, DionWired sales were below those of the prior period. The division aggressively managed expenses which, in total, were lower than the prior period and reduced its inventory value to below that in June 2016. Both of these initiatives position the business to benefit strongly from any positive sales momentum. Massdiscounters' trading profit before interest and tax decreased by 12.8%. The new GK-POS roll-out was completed successfully across all Game and DionWired stores in South Africa. The more significant SAP ERP systems' implementation remains on schedule for 2018. Our Fresh roll-out continues with 73 Game stores in South Africa and 17 in other African countries now offering this category. Food & Liquor sales participation is already 23.6% and is achieving comparable growth of 4.7%. One Game store was opened in Ghana, increasing trading space by 0.8% to 549,454m2 from December 2016. Masswarehouse Masswarehouse comprises the 20-store Makro warehouse-club trading in Food, General Merchandise and Liquor in South Africa; and Massfresh, which houses the Group's fresh produce, fresh meat and bakery operations, including The Fruitspot. Total sales increased by 4.0% and comparable sales grew by 1.5%, with product inflation of 3.9%. Total sales growth in Food & Liquor was 6.9%, an exceptional performance given the consumer environment and despite deflation in commodities, whilst General Merchandise sales growth was slightly negative. Effective cost management resulted in total expenses increasing by only 4.3%, while an intense focus resulted in inventory values lower than at the same time last year. Trading profit before interest and tax decreased by 6.9% to R473.2 million. Online sales grew by 48% compared to the prior period and we successfully launched the innovative Makro digital rewards programme, mCard. There were no new stores in the period and trading space was maintained at 217,907m2. Later this year we will open a new store in Riversands, to the north of Johannesburg. Massbuild Massbuild comprises 105 stores, trading in DIY, Home Improvement and Building Materials, under the Builders Warehouse, Builders Express, Builders Trade Depot and Builders Superstore brands in South Africa; and five Builders Warehouse stores in Botswana, Mozambique and Zambia. Massbuild's total sales growth was flat compared to the prior period, with comparable sales decreasing by 0.2% and product inflation of 4.7%. Sales growth in our South African stores was slightly positive from an emphasis on price-perception, customer-satisfaction and great merchandise execution, and we gained market share as a consequence. The total sales' decline in our ex-SA stores was 0.2% in constant currencies* but 18.2% in Rands. Our two stores in Mozambique were particularly affected by the economic challenges in that country. Good expense management saw expenses declining by 1.6% and Massbuild was able to reduce its inventory levels to below those in the same period last year. Trading profit before interest and tax of R247.0 million was 4.9% below those of the prior period. Validating its position of South Africa's leading DIY format, the Builders Warehouse online proposition launched earlier this year is exceptional with many products, rich product data and good search functionality. Customers have reacted positively and the length of time spent on the website is high. Whilst still small in value, growth of online sales is accelerating rapidly. One Builders Superstore was opened in South Africa. Net trading space increased by 0.5% to 451,336m2 from December 2016. Masscash Masscash comprises 54 wholesale stores, now branded Jumbo, and 58 retail stores trading in South Africa; 12 wholesale stores in Botswana, Lesotho, Mozambique, Namibia and Swaziland; and Shield, a voluntary buying association in in Botswana South Africa and Swaziland. Total sales decreased by 1.0%, while comparable sales decreased by 3.3%. Between December 2016 and June 2017 product inflation fell from 9.3% to 4.0%, with commodities like maize, wheat, oil and rice moving steeply into deflation. The speed and extent of this deflation caused all participants in the wholesale sector to reduce their purchases and to lower stock levels to avoid being out-priced, which severely impacted our Wholesale business's sales in the period. The Retail stores performed well in this difficult consumer environment, growing total sales at 7.7%. Despite very effective cost control, the sales pressure was such that trading profit before interest and tax declined by 94.5%, while inventory levels were reduced by 18.0%. One retail store was opened, resulting in net trading space increasing by 3.0% to 367,260m2 from December 2016. Financial review 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%). Directorate Earlier this year we announced the resignations from the Board of Walmart-appointees JP Suarez and Andy Clarke and welcomed in their places Susan Muigai and Roger Burnley. In July we announced that with effect from 31 December 2017, our Deputy Chairman, Chris Seabrooke, will retire from the Board. Strategic priorities Notwithstanding our near-term focus on exceptional expense control and carefully evaluating capital expenditure, our strategic priorities remain unchanged: To drive the growth and profitability of the core South African business over the medium-term; To expand further into Food Retail and the Fresh categories through new stores and our existing formats in South Africa; Sub-Saharan African expansion through opening Builders Warehouse, Game and Masscash stores. In the next two years we anticipate opening 8 new stores representing ex-SA space growth of about 17.1%; and To expand, improve and refine our online / ecommerce offerings in DionWired, Makro, Massbuild and Game. Prospects For the 34 weeks to 20 August 2017, total sales amounted to R56.2 billion, representing an increase of 1.0% over the prior period. Comparable store sales decreased by 0.9%. Product inflation is estimated at 2.7%. Continued high levels of economic volatility and political uncertainty complicate any useful outlook, however it is likely that sales growth may improve slightly in the second half of 2017 compared to the first half. This improvement comes from a combination of lower inflation, a steady Rand, lower interest rates in South Africa, and higher reported Rand sales from our ex-SA stores following the recent annualisation of the extreme weakness of several African currencies. Shareholders are reminded that the financial year to December 2017 is a 53-week trading period. Dividend Massmart's current dividend policy is to declare and pay an interim and final cash dividend representing a 2.0 times dividend cover unless circumstances dictate otherwise. Notice is hereby given that a gross interim cash dividend of 76.00 cents per share, in respect of the period ended 25 June 2017 has been declared. The number of shares in issue at the date of this declaration is 217,145,489. The dividend has been declared out of income reserves and will be subject to a local dividend withholding tax ("DWT") rate of 20% which will result in a net dividend of 60.80 cents per share to those shareholders who are not exempt from paying dividend tax. Massmart's tax reference number is 9900/196/71/9. The salient dates relating to the payment of the dividend are as follows: Last day to trade cum dividend on the JSE: Tuesday, 12 September 2017 First trading day ex dividend on the JSE: Wednesday, 13 September 2017 Record date: Friday, 15 September 2017 Payment date: Monday, 18 September 2017 Share certificates may not be dematerialised or rematerialised between Wednesday, 13 September 2017 and Friday, 15 September 2017, both days inclusive. Massmart shareholders who hold Massmart ordinary shares in certificated form ("certificated shareholders") should note that dividends will be paid by cheque and by means of an electronic funds transfer ("EFT") method. Where the dividend payable to a particular certificated shareholder is less than R 100, the dividend will be paid by EFT only to such certificated shareholder. Certificated shareholders who do not have access to any EFT facilities are advised to contact the company's transfer secretaries, Computershare Investor Services at Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2196; on 011 370 5000; or on 086 11 00 9818 (fax), in order to make the necessary arrangements to take delivery of the proceeds of their dividend. Massmart shareholders who hold Massmart ordinary shares in dematerialised form will have their accounts held at their CSDP or broker credited electronically with the proceeds of their dividend. On behalf of the Board Guy Hayward Chief Executive Officer Johannes van Lierop Chief Financial Officer 22 August 2017 * The constant currency information included in these reviewed interim condensed consolidated financial results has been presented to illustrate the Group's underlying ex-SA business performance, in terms of sales growth, excluding the effect of foreign currency fluctuations. In determining the application of constant currency, sales for the prior comparable financial reporting period have been adjusted to take into account the average daily exchange rate for the current period. The table to the right depicts the percentage change in sales in both reported currency and constant currency for the given material currencies. The constant currency information incorporated in these reviewed interim condensed consolidated financial results has not been audited or reviewed or otherwise reported on by our external auditors. The constant currency information is the responsibility of the Directors of Massmart. It has been prepared for illustrative purposes only and due to its nature, may not fairly present Massmart's financial position, changes in equity, results of operations or cash flows. Sales growth in: Reported Currency Constant Currency Botswana Pula -7.8% -0.4% Mozambican -41.6% -9.7% New Metical Nigerian Naira -21.8% 42.7% Total ex-SA -11.9% 2.6% Performance summary: Sales R42.5 billion Up by 0.5% 2016: R42.3 billion Operating expenses R7,320.1 million Down by 0.2% 2016: R7,332.8 million Operating profit before interest R765.1 million Down by 6.6% 2016: R819.1 million Headline earnings R328.6 million Up by 2.5% 2016: R320.6 million Total dividend per share Up by 2.6% 76 cents 2016: 74.10 cents Divisional trading review 52 weeks 26 weeks 26 weeks Comparable Estimated December Rm June 2017 % of June 2016 % of Period % sales % sales 2016 % of (Reviewed) sales (Reviewed) sales % growth growth inflation (Audited) sales Sales 42,506.3 42,310.9 0.5 (1.6) 3.2 91,250.0 Massdiscounters 9,522.7 9,654.1 (1.4) (3.5) (0.3) 20,544.5 Masswarehouse 12,223.6 11,748.3 4.0 1.5 3.9 26,270.3 Massbuild 5,963.0 5,962.4 0.0 (0.2) 4.7 12,687.1 Masscash 14,797.0 14,946.1 (1.0) (3.3) 4.0 31,748.1 Trading profit* 779.1 1.8 911.3 2.2 (14.5) 2,612.9 2.9 Massdiscounters 54.4 0.6 62.4 0.6 (12.8) 364.3 1.8 Masswarehouse 473.2 3.9 508.1 4.3 (6.9) 1,251.3 4.8 Massbuild 247.0 4.1 259.6 4.4 (4.9) 712.6 5.6 Masscash 4.5 0.0 81.2 0.5 (94.5) 284.7 0.9 The 'trading profit before interest and taxation' above is the amount per the Condensed Consolidated Income Statement less the BEE transaction IFRS 2 charge. Condensed consolidated income statement 26 weeks 26 weeks 52 weeks June 2017 June 2016 Period December 2016 Rm (Reviewed) (Reviewed) % change (Audited) Revenue 42,627.4 42,466.3 0.4 91,564.9 Sales 42,506.3 42,310.9 0.5 91,250.0 Cost of sales (34,525.4) (34,138.3) (1.1) (73,948.9) Gross profit 7,980.9 8,172.6 (2.3) 17,301.1 Other income 114.3 63.0 81.4 216.8 Depreciation and amortisation (542.0) (536.6) (1.0) (1,036.5) Employment costs (3,453.6) (3,541.2) 2.5 (7,346.6) Occupancy costs (1,626.6) (1,582.3) (2.8) (3,133.2) Other operating costs (1,697.9) (1,672.7) (1.5) (3,397.8) Trading profit before interest and taxation 775.1 902.8 (14.1) 2,603.8 Impairment of assets (0.2) (50.9) 99.6 (76.7) Insurance proceeds on items in PP&E 6.8 92.4 (92.6) 98.1 Operating profit before foreign exchange movements and interest 781.7 944.3 (17.2) 2,625.2 Foreign exchange loss (note 3) (16.6) (125.2) 86.7 (141.8) Operating profit before interest 765.1 819.1 (6.6) 2,483.4 - Finance costs (294.6) (294.1) (0.2) (601.0) - Finance income 12.5 14.9 (16.1) 29.1 Net finance costs (282.1) (279.2) (1.0) (571.9) Profit before taxation 483.0 539.9 (10.5) 1,911.5 Taxation (145.9) (162.5) 10.2 (588.9) Profit for the period 337.1 377.4 (10.7) 1,322.6 Profit attributable to: - Owners of the parent 333.2 356.3 (6.5) 1,308.2 - Non-controlling interests 3.9 21.1 (81.5) 14.4 Profit for the period 337.1 377.4 (10.7) 1,322.6 Basic EPS (cents) 154.0 164.7 (6.5) 604.7 Diluted basic EPS (cents) 151.3 162.0 (6.6) 594.4 Dividend (cents): - Interim 76.0 74.1 2.6 74.1 - Final - - - 224.8 - Total 76.0 74.1 2.6 298.9 Headline earnings 26 weeks 26 weeks 52 weeks June 2017 June 2016 Period December 2016 Rm (Reviewed) (Reviewed) % change (Audited) Reconciliation of profit for the period to headline earnings Profit for the period attributable to owners of the parent 333.2 356.3 (6.5) 1,308.2 Impairment of assets 0.2 50.9 (99.6) 76.7 Loss on disposal of tangible and intangible assets 2.7 4.8 (43.8) 6.7 Profit on sale of non-current assets classified as held for sale (2.3) - - - Insurance proceeds for fixed assets impaired (6.8) (92.4) 92.6 (98.1) Total tax effects of adjustments 1.6 1.0 60.0 (0.2) Headline earnings 328.6 320.6 2.5 1,293.3 Foreign exchange loss after taxation 13.6 85.4 (84.0) 95.3 Headline earnings before foreign exchange (taxed) 342.2 406.0 (15.7) 1,388.6 Headline EPS (cents) 151.8 148.2 2.4 597.8 Headline EPS before foreign exchange (taxed) (cents) 158.1 187.7 (15.8) 641.8 Diluted headline EPS (cents) 149.3 145.8 2.3 587.6 Diluted headline EPS before foreign exchange (taxed) (cents) 155.5 184.6 (15.8) 630.9 Condensed consolidated statement of comprehensive income 26 weeks 26 weeks 52 weeks June 2017 June 2016 Period December 2016 Rm (Reviewed) (Reviewed) % change (Audited) Profit for the period 337.1 377.4 (10.7) 1,322.6 Items that will not subsequently be re-classified to the Income Statement: - - - 3.6 Post retirement medical aid actuarial loss - - - 3.6 Items that will subsequently be re-classified to the Income Statement: (46.3) (263.4) 82.4 (368.2) Foreign currency translation reserve (note 3) (25.8) (270.5) 90.5 (376.9) Cash flow hedges - effective portion of changes in fair value (2.9) (29.4) 90.1 (23.2) Fair value movement on available-for-sale financial assets - (1.4) 100 - Income tax relating to components of other comprehensive income (17.6) 37.9 (146.4) 31.9 Total other comprehensive loss for the period, net of tax (46.3) (263.4) 82.4 (364.6) Total comprehensive income for the period 290.8 114.0 155.1 958.0 Total comprehensive income attributable to: -Owners of the parent 286.9 92.9 208.8 943.6 -Non-controlling interests 3.9 21.1 (81.5) 14.4 Total comprehensive income for the period 290.8 114.0 155.1 958.0 Condensed consolidated statement of financial position June 2017 June 2016 % December 2016 Rm (Reviewed) (Reviewed) change (Audited) ASSETS Non-current assets 12,669.9 12,168.1 4.1 12,517.6 Property, plant and equipment 8,655.0 8,237.8 5.1 8,470.2 Goodwill and other intangible assets 3,183.8 2,981.5 6.8 3,159.0 Investments and other financial assets 164.4 179.8 (8.6) 164.2 Deferred taxation 666.7 769.0 (13.3) 724.2 Current assets 16,247.8 17,369.2 (6.5) 19,348.3 Inventories 10,636.1 11,590.9 (8.2) 11,803.0 Trade, other receivables and prepayments 4,142.4 4,052.7 2.2 4,684.7 Taxation 222.6 276.2 (19.4) 58.3 Cash on hand and bank balances 1,246.7 1,449.4 (14.0) 2,802.3 Non-current assets classified as held for sale 19.9 10.6 87.7 17.7 Total assets 28,937.6 29,547.9 (2.1) 31,883.6 EQUITY AND LIABILITIES Total equity 5,813.1 5,503.7 5.6 6,183.7 Equity attributable to owners of the parent 5,777.3 5,404.0 6.9 6,108.1 Non-controlling interests 35.8 99.7 (64.1) 75.6 Non-current liabilities 3,938.1 4,906.1 (19.7) 4,722.4 Interest-bearing borrowings (note 4) 2,467.2 3,562.7 (30.7) 3,301.9 Deferred taxation 78.3 95.2 (17.8) 73.9 Other non-current liabilities and provisions 1,392.6 1,248.2 11.6 1,346.6 Current liabilities 19,186.4 19,138.1 0.3 20,977.5 Trade, other payables and provisions 13,984.5 15,115.1 (7.5) 19,634.0 Taxation 85.1 233.4 (63.5) 138.4 Bank overdrafts 3,600.2 2,618.0 37.5 180.6 Interest-bearing borrowings 1,516.6 1,171.6 29.4 1,024.5 Total equity and liabilities 28,937.6 29,547.9 (2.1) 31,883.6 Condensed consolidated statement of cash flows June 2017 June 2016 December 2016 Rm (Reviewed) (Reviewed) (Audited) Operating cash before working capital movements 1,530.1 1,666.4 3,984.9 Working capital movements (4,136.2) (4,095.2) (263.0) Cash (utilised by)/generated from operations (2,606.1) (2,428.8) 3,721.9 Taxation paid (321.4) (266.4) (573.9) Net interest paid (183.7) (194.7) (489.3) Investment income 30.0 - 50.0 Dividends paid (504.1) (266.2) (453.2) Cash (outflow)/inflow from operating activities (3,585.3) (3,156.1) 2,255.5 Investment to maintain operations (353.3) (346.7) (826.7) Investment to expand operations (395.7) (400.8) (953.7) Investment in subsidiaries (2.5) - (17.7) Proceeds on disposal of property, plant and equipment 9.5 11.6 27.3 Proceeds on disposal of assets classified as held for sale 9.4 - - Other net investing activities 0.8 0.3 (4.1) Cash outflow from investing activities (731.8) (735.6) (1,774.9) Decrease)/increase in non-current liabilities (843.3) 1,680.2 1,463.4 Increase/(decrease) in current liabilities 472.5 (62.5) (223.0) Non-controlling interests acquired (110.0) (156.4) (177.7) Net acquisition of treasury shares (151.5) (26.2) (103.2) Cash (outflow)/inflow from financing activities (632.3) 1,435.1 959.5 Net (decrease)/increase in cash and cash equivalents (4,949.4) (2,456.6) 1,440.1 Foreign exchange movements (25.8) (270.5) (376.9) Opening cash and cash equivalents 2,621.7 1,558.5 1,558.5 Closing cash and cash equivalents (2,353.5) (1,168.6) 2,621.7 Condensed consolidated statement of changes in equity Equity attributable Non- Share Share Other Retained to owners controlling Rm capital premium reserves profit of the parent interests Total Balance as at December 2015 (Audited) 2.2 675.1 735.3 4,223.4 5,636.0 155.1 5,791.1 Dividends declared - - - (404.4) (404.4) (48.5) (452.9) Total comprehensive income - - (364.6) 1,308.2 943.6 14.4 958.0 Changes in non-controlling interests - - (132.3) - (132.3) (45.4) (177.7) IFRS 2 charge and Share Trust transactions - - 198.5 (28.1) 170.4 - 170.4 Treasury shares acquired - (106.1) 0.9 - (105.2) - (105.2) Balance as at December 2016 (Audited) 2.2 569.0 437.8 5,099.1 6,108.1 75.6 6,183.7 Dividends declared - - - (488.1) (488.1) (34.2) (522.3) Total comprehensive income - - (46.3) 333.2 286.9 3.9 290.8 Changes in non-controlling interests - - (100.5) - (100.5) (9.5) (110.0) IFRS 2 charge and Share Trust transactions - (151.5) 102.0 (32.0) (81.5) - (81.5) Treasury shares acquired - 53.6 (0.2) (1.0) 52.4 - 52.4 Period ended June 2017 (Reviewed) 2.2 471.1 392.8 4,911.2 5,777.3 35.8 5,813.1 Balance as at December 2015 (Audited) 2.2 675.1 735.3 4,223.4 5,636.0 155.1 5,791.1 Dividends declared - - - (243.6) (243.6) (31.2) (274.8) Total comprehensive income - - (263.4) 356.2 92.8 21.1 113.9 Changes in non-controlling interests (note 4) - - (132.8) - (132.8) (45.3) (178.1) IFRS 2 charge and Share Trust transactions - - 105.1 (26.2) 78.9 - 78.9 Treasury shares acquired - (27.8) 0.5 - (27.3) - (27.3) Period ended June 2016 (Reviewed) 2.2 647.3 444.7 4,309.8 5,404.0 99.7 5,503.7 Fair value hierarchy For financial instruments traded in an active market (level 1), fair value is determined using stock exchange quoted prices. For other financial instruments (level 2), appropriate valuation techniques, including recent market transactions and other valuation models, have been applied and significant inputs include market yield curves and exchange rates. For non-current assets classified as held for sale (level 3) fair value less costs to sell, in terms of IFRS 5, has been determined based on the sale agreements. The table below reflects 'Financial instruments' and 'Non-current assets classified as held for sale' carried at fair value, and those 'Financial instruments' and 'Non-current assets classified as held for sale' that have carrying amounts that differ from their fair values, in the Statement of Financial Position. June June December 2017 Level Level Level 2016 Level Level Level 2016 Level Level Level Rm (Reviewed) 1 2 3 (Reviewed) 1 2 3 (Audited) 1 2 3 Financial assets at fair value through profit or loss 146.7 - 146.7 - 157.2 - 157.2 - 142.9 - 142.9 - - Investment in cell captives and other 145.5 - 145.5 - 155.6 - 155.6 - 140.9 - 140.9 - - FEC asset (non-designated hedge) 1.2 - 1.2 - 1.6 - 1.6 - 2.0 - 2.0 - Financial asset designated as a cash flow hedging instrument 0.6 - 0.6 - 2.2 - 2.2 - 3.1 - 3.1 - - FEC asset 0.6 - 0.6 - 2.2 - 2.2 - 3.1 - 3.1 - Loans and receivables 12.7 - 12.7 - 14.2 - 14.2 - 13.1 - 13.1 - - Employee share trust loans 12.7 - 12.7 - 14.2 - 14.2 - 13.1 - 13.1 - Available-for-sale financial assets 0.8 0.8 - - 3.6 3.6 - - 2.4 2.4 - - - Listed investments 0.8 0.8 - - 3.6 3.6 - - 2.4 2.4 - - Non-current assets classified as held for sale 19.9 - - 19.9 10.6 - - 10.6 20.8 - - 20.8 180.7 0.8 160.0 19.9 187.8 3.6 173.6 10.6 182.3 2.4 159.1 20.8 Financial liabilities at amortised cost 3,521.8 - 3,521.8 - 3,671.9 - 3,671.9 - 3,214.1 - 3,214.1 - - Medium-term loan and bank loans 3,521.8 - 3,521.8 - 3,671.9 - 3,671.9 - 3,214.1 - 3,214.1 - Financial liabilities at fair value through profit or loss 7.8 - 7.8 - 9.4 - 9.4 - 7.5 - 7.5 - - FEC liability (non-designated hedge) 7.8 - 7.8 - 9.4 - 9.4 - 7.5 - 7.5 - Financial liability designated as a cash flow hedging instrument 5.8 - 5.8 - 12.1 - 12.1 - 3.5 - 3.5 - - FEC liability 5.8 - 5.8 - 12.1 - 12.1 - 3.5 - 3.5 - 3,535.4 - 3,535.4 - 3,693.4 - 3,693.4 - 3,225.1 - 3,225.1 - There were no transfers of financial instruments between Level 1, Level 2 and Level 3 fair value measurements during the period ended June 2017. The financial assets and financial liabilities have been presented based on an analysis of their respective natures, characteristics and risks. Additional information June 2017 June 2016 December 2016 (Reviewed) (Reviewed) (Audited) Net asset value per share (cents) 2,660.6 2,488.8 2,813.0 Ordinary shares (000's): -In issue 217,145.5 217,136.3 217,136.3 -Weighted average (net of treasury shares) 216,428.1 216,359.4 216,352.8 -Diluted weighted average 220,154.9 219,885.3 220,091.9 Preference shares (000's): -Black Scarce Skills Trust 'B' shares in issue 2,831.3 2,840.5 2,840.5 Capital expenditure (Rm): -Authorised and committed 924.8 489.1 612.0 -Authorised not committed 937.0 1,312.9 1,147.8 Gross operating lease commitments*** 14,779.8 16,059.1 15,336.5 2017 - 2030) (Rm) US dollar exchange rates: - period end (R/$) 12.97 15.06 14.11 average (R/$) 13.30 15.4 1 14.74 *** The June and December 2016 gross lease commitments have been restated from R17,549.9m and R19,084.1m respectively to correct conversion of non-rand denominated leases. Share Data 26 Dec 2016 - 25 Jun 2017 Closing price, 23 Jun 2017 R 107.00 Share price (26 week high) R 152.85 Share price (26 week low) R 107.00 Market cap (billions) R23.24 Shares in issue (millions) 2 17.1 Shares traded (millions) 52.4 Percentage of shares traded 24.1% Reuters MSMJ.J Bloomberg MSM SJ Source: I-Net Notes 1. These reviewed interim condensed consolidated financial results have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), its interpretations issued by the IFRS Interpretations Committee, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, presentation and disclosure as required by International Accounting Standard (IAS) 34 Interim Financial Reporting, the JSE Limited Listings Requirements and the requirements of the Companies Act 71 of 2008 of South Africa. The accounting policies and methods of computation used in the preparation of the reviewed interim condensed consolidated financial results are in terms of IFRS and are consistent in all material respects with those applied in the most recent Annual Financial Statements, as none of the amendments coming into effect in the current financial year have had an impact on the financial reporting of the Group. 2. The detailed assessments for IFRS 15: Revenue from Contracts with Customers, IFRS 9: Financial Instruments and IFRS 16: Leases have identified the following which will impact the financial results: - IFRS 9: There will be reclassification of financial assets and the measurement of provisions against receivables will be revised on the expected credit loss method. Effective from 1 January 2018. - IFRS 15: Certain revenue streams will be recognised on a net basis; as a result of performance obligations, certain revenue streams will be estimated upfront and certain revenue streams will be deferred based on the allocation of the transaction price; gift card breakage will be estimated upfront to the extent that the reversal is remote and there will be reclassification between revenue, other income and cost of sales. Effective from 1 January 2018. - IFRS 16: Massmart has numerous leases that will be brought onto the Statement of Financial Position. The quantitative impact of the above standards is under review. Effective from 1 January 2019. The Group will adopt the modified retrospective model for IFRS 9 and IFRS 15. 3. The majority of Massmart's foreign exchange loss of R 16.6 million (June 2016: R125.2 million) arose as a result of the settlement of its Rand-denominated foreign creditors as well as intercompany trade balances. Despite Massmart's increased investment into the rest of Africa, the volatility of the average basket of other African currencies against the Rand and the volatility of the Rand against the US Dollar, Massmart managed to reduce its foreign exchange exposure. 4. Massmart and its divisions enter into certain transactions with related parties in the normal course of business. At June 2017, the Supplier Development Fund had a closing balance of R60.9 million (June 2016: R105.3 million). A net amount of R2.3 million remains unpaid to Walmart (June 2016: R26.6 million), which has been accounted for in trade, other payables and provisions' and trade, other receivables and prepayments'. The Group has a medium-term loan with Walmart that is repayable in April 2018, on which interest of 7.46% is paid quarterly. The loan of R600.0 million was reclassified from non-current to current interest-bearing. As a 52.4% shareholder, Main Street 830 Proprietary Limited, a subsidiary of Walmart, will also be receiving a dividend based on their number of shares held. 5. Massmart, offers a diverse range of retail offerings to the market consisting of Food & Liquor, General Merchandise and Home Improvement. Due to the cyclical nature of this industry, higher revenues and operating profits are usually expected in the second half of the year rather than in the first six months. Higher sales during the period October to December are mainly attributed to the increased demand for our non-Food categories, where we see an increase in discretionary spend leading up to the Christmas holiday period. This information is provided to allow for a better understanding of the results. 6. These reviewed interim condensed consolidated results have been reviewed by independent external auditors, Ernst & Young Inc. and their unmodified review report is available for inspection at the Company's registered office. The review was performed in accordance with ISRE 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. Any reference to future financial performance included in this announcement has not been reviewed or reported on by the Group's external auditors. The auditor's report does not necessarily report on all of the information contained in this announcement/financial results. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement they should obtain a copy of the auditor's report together with the accompanying financial information from the Group's registered office. The preparation of the Group's reviewed interim condensed consolidated financial statements was supervised by the Chief Financial Officer, Johannes van Lierop, Bachelor of Business Economics, RA (Amsterdam). JSE code MSM ISIN ZAE000152617 Company registration number 1940/014066/06 Registered office Massmart House, 16 Peltier Drive, Sunninghill Ext 6, 2 191 Company secretary NJ Ralebepa Sponsor Deutsche Securities (SA) Proprietary Limited 3 Exchange Square, 87 Maude Street, Sandton, Johannesburg, 2 196, South Africa Transfer secretaries Computershare Investor Services Pty Ltd, Rosebank Towers, 15 Biermann Avenue, Rosebank, Johannesburg, 2 196, South Africa Registered auditors Ernst & Young Inc. 102 Rivonia Road, Sandton, Johannesburg, 2 196, South Africa Directorate K Dlamini (Chairman), CS Seabrooke (Deputy Chairman), GRC Hayward* (Chief Executive Officer), R Burnley**, NN Gwagwa, R Kgosana, P Langeni, S Muigai ***, E Ostale****, JJM van Lierop* (Chief Financial Officer)***** *Executive **UK ***Canada ****Chile *****Netherlands MASSDISCOUNTERS General merchandise discounter and food discounter Sales R9,522.7 million DOWN BY 1.4% 2016: R9,654.1 million Trading profit** R54.4 million DOWN BY 12.8% 2016: R62.4 million Game 142 STORES South Africa, Botswana, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda, Zambia DionWired 24 STORES South Africa MASSWAREHOUSE Warehouse club Sales R12,223.6 million UP BY 4.0% 2016: R 11,748.3 million Trading profit** R473.2 million DOWN BY 6.9% 2016: R508.1 million Makro Fruitspot 20 STORES South Africa MASSBUILD Home Improvement retailer and building materials supplier Sales R5,963.0 million 0.0% 2016: R5,962.4 million Trading profit R247.0 million DOWN BY 4.9%** 2016: R259.6 million Builders Warehouse 38 STORES South Africa, Botswana, Mozambique, Zambia Builders Express 43 STORES South Africa Builders Trade Depot 13 STORES South Africa Builders Superstore 11 STORES South Africa MASSCASH Food wholesaler, retailer and buying association Sales R14,797.0 million DOWN BY 1.0% 2016: R 14,946.1 million Trading profit** R4.5 million DOWN BY 94.5% 2016: R81.2 million Jumbo 66 WHOLESALE STORES South Africa, Botswana, Lesotho, Mozambique, Namibia, Swaziland Cambridge Food Rhino Cash & Carry 58 RETAIL STORES South Africa Shield Liquorland Saverite BUYING ASSOCIATIONS AND FRANCHISES South Africa, Botswana, Swaziland ** Trading profit before interest and taxation Date: 24/08/2017 07:05:00 Produced by the JSE SENS Department. 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