To provide a more meaningful comparison of the current year’s financial performance with the prior year, December 2019 has been presented on a like-on-like basis with prior periods, excluding the impact of IFRS 16 in 2019. Therefore, with the exception of the Statement of Financial Position, the current year’s information is reported on a like-on-like basis excluding the impact of IFRS 16 in 2019.

The adverse consumer environment of 2018 continued into 2019 and was further exacerbated in the second half of the year by the high unemployment rate (29.1%), negative GDP growth (-1.4%), increased municipal tariffs, electricity and petrol prices, and load-shedding. This resulted in financially constrained consumers continuing to prioritise their spending on non-Durable Goods and reducing their spending on Durable Goods. This was reflected in the Group’s total sales performance across our major categories with Food and Liquor sales increasing by 5.1%, Home Improvement sales increasing by 3.4% and General Merchandise sales decreasing by 1.3% over 2018.


Massmart’s total sales for the 52 weeks of R93.7 billion represent year-on-year sales growth of 3.0%, with comparable store sales growth of 1.5% and year-to-date internal sales inflation of 2.5%.

Sales from our South African stores increased by 2.7% over 2018, with comparable stores sales increasing by 1.3%. Total sales from our rest of Africa stores increased by 6.4% in Rands, and by 5.5% in constant currencies. On a comparable store basis, our rest of Africa store sales increased by 2.9% in Rands and by 2.1% in constant currencies.

Sales performance over the Black Friday period was robust and through Group collaborations our customers saved in excess of R300 million. However, this strong performance did not continue during the festive period.


A combination of increased promotional activity during the year and the shift of consumers to prioritising lower margin categories (Food and Liquor) over higher margin categories (General Merchandise and Home Improvement), resulted in gross margins declining from 19.5% in 2018 to 18.9%. Gross margins were further impacted by additional provisioning adjustments relating to the Masscash business.

Operating expenses

Operating expenses increased by 10.2%, which exceeded sales growth of 3.0% over 2018. During the second half of 2019, cost saving initiatives were implemented within the Group, which resulted in expenses increasing at a lower rate (8.6%) than in the first half of the year (11.8%).

Employment costs, the Group’s biggest cost category, increased by 8.0% (7.8% increase on a comparable store basis), mainly impacted by the legislative requirement of converting temporary contractors to permanent associates in late 2018, as well as the impact of new stores and annual labour cost inflation.

The seven net new stores, increased municipal and electricity tariffs, and costs associated with power generation during load-shedding, contributed to the 8.4% increase in occupancy costs (4.4% increase on a comparable store basis).

Depreciation and amortisation increased by 17.3%, owing to the net seven new stores and increased costs associated with the new SAP Hybris web and fulfilment platform in Makro. This increase was further impacted by an R80 million credit adjustment in 2018 relating to the reassessment of useful lives to certain Masscash assets. If this credit adjustment were to be excluded, depreciation and amortisation would have increased by 9.6%.

The current economic environment, resulting in increased credit card costs, security costs and bad debts, contributed to the 14.2% increase in other operating expenses.

Impairment expense

During 2019, the evaluation of loss-making stores conducted, and an assessment of non-current assets held for sales, resulted in the recognition of impairment costs of R169.5 million.

Foreign exchange loss

Currency weaknesses continued into 2019, resulting in a foreign exchange loss of R53.3 million. The impact of the Botswana Pula, Mozambican Metical and Zambian Kwacha was most noticeable.

Net finance costs

Net finance costs increased by 10.6% to R689.8 million as a result of increased borrowings during the period.


The Group’s effective tax rate of -67.4% (2018: 31.5%) is as a result of impairing certain deferred taxation assets previously raised, limiting the recognition of further deferred tax assets and the impact of the taxation charge on profit-making entities. In addition to this, the decrease in Massmart’s share price further impacted the deferred tax asset recognised on the Group share scheme.



Like-on-like Divisional operational review

Divisional operational review

Massdiscounters grew sales by 0.3% to R19.8 billion over 2018. This slow sales growth is testament to the constrained consumer reducing spending on Durable Goods. Comparable stores sales contracted by 2.1% and product deflation was 0.2%. Encouragingly, Game South Africa saw foot traffic increase by 4% year-on-year, resulting in sales increasing by 1.9%. In the rest of Africa, Game’s sales decreased by 0.8% in Rands and by 1.5% in constant currencies owing to currency weaknesses during the period. Sales continued to decrease in DionWired and were 19.8% lower than 2018.

Margins were negatively impacted by the lower contribution of General Merchandise sales to total sales and the impact of a higher promotional mix, specifically in Game. Expenses increased by 8.7%, with comparable expenses increasing by 6.9%. Included in this were the costs associated with store openings and IT costs expensed. The SAP S/4 HANA ERP system implementation continues and is expected to be completed during 2020.

Masswarehouse recorded total sales of R29.4 billion, which was 2.0% up on last year, with comparable stores sales contracting by 0.3%. While General Merchandise sales remained flat on last year, Liquor sales grew by 3.5%, Food sales grew by 2.5% and product inflation was 2.2%.

Expenses of R4.1 billion represent an increase of 6.8% over 2018, with a 4.5% increase in comparable expenses. Included in this are pre-opening expenses of approximately R14 million for the opening of the Makro Cornubia store during the period.

Massbuild grew sales by 3.4% over 2018 to R14.2 billion and continues to maintain its market leading performance in DIY, home maintenance and building supplies. Comparable store sales increased by 1.4%, while product inflation was 4.0%. Sales from the rest of Africa stores increased by 15.9% and similarly in constant currencies.

The significant slowdown in the construction sector negatively impacted Massbuild, with commercial and yard sales decreasing by 0.5% compared to last year. This was, however, more than offset by Retail sales growing by 5.3%, as consumers’ focus shifted to prioritising smaller home improvement and DIY type projects, as opposed to major renovations and builds.

New stores opened during the period and significant increases in utility and energy costs contributed to the 5.7% increase in expenses during the period (comparable increase of 4.3%).

Masscash grew sales by 5.6% over 2018 to R30.3 billion, especially supported by strong Wholesale sales growth of 8.6%. Comparable store sales have shown a similar increase. Product inflation was 3.6%. Retail sales are flat on last year, testament to a very competitive market environment. Sales from the rest of Africa stores increased by 11.6% and by 10.4% in constant currencies.


Financial position

Property, plant and equipment

Commentary on our financial position has been provided taking into account the adoption of IFRS 16. While our capital expenditure was cautious during the period under review, we invested in store openings, refurbishment of selected existing stores and IT infrastructure. This, together with impairments mentioned above, resulted in property, plant and equipment decreasing by 5.7% over 2018. Total capital expenditure was well managed during the year and decreased by 14.6% to R1,371.8 million. Expansionary expenditure was R791.5 million and included nine new store openings during the year. Replacement expenditure was R580.3 million, of which R341.7 million relates to investment in IT.

Working capital management

Our concerted and focused effort on working capital improvement continued into the second half of 2019. Continued focus on inventory management led to a 2.4% decrease in inventory levels compared to 2018, despite the impact of new stores. Inventory days decreased by four days to 57 days compared to 2018. Trade receivables decreased by 10.7% with debtors days decreasing by two days. Trade creditors also decreased by 5.0% resulting in creditor days decreasing by seven days due to the change in the mix of goods purchased.

Cash flow management

Operating cash before working capital movements, excluding IFRS 16, was R1,911.5 million, 44.0% lower than 2018 aligned with lower operating performance. An increased focus on working capital resulted in improved working capital cash flows relative to 2018. Free cash flow of R239.6 million declined by R1,046.0 million compared to the prior year, due mainly to cash generated from operations being R1,142.8 million lower than the prior year.


Our 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. Due to the headline loss reported, no final dividend has been declared.


I am sincerely appreciative of the hard work and dedication of our finance teams within the Group during the year. Their commitment and support has enabled us to deliver quality financial results. I am honoured to have the opportunity to work with our excellent team.

Mohammed Abdool-Samad
Chief Financial Officer
2 April 2020