- These reviewed interim condensed consolidated 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 results are in terms of IFRS and are consistent in all material respects with those applied in the most recent Annual Financial Statements, except for the changes listed below in note 2.
- Adoption of IFRS 16 ‘Leases’
- The Group has adopted IFRS 16 ‘Leases’ using the modified retrospective approach, by recognising the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of equity at 31 December 2018. To provide a more meaningful comparison of the current period’s financial performance with prior periods, June 2019 has been presented on a like-on-like basis with prior periods, excluding the impact of IFRS 16. Therefore, with the exception of the Statement of Financial Position, the current period’s information was reported on a pro forma basis under IAS 17 ‘Leases’.
- IFRS 16 has had a significant impact for the Group, given the number of stores that are leased. IFRS 16 has had no impact on the accounting of existing finance leases. It has however impacted most leases that were previously recorded as operating leases under IAS 17, where only the occupancy charge was recorded in the Income Statement. IFRS 16 now requires leases to be recognised in the Statement of Financial Position in the form of a capitalised right-of-use asset and corresponding liability. Changes to the Income Statement result in occupancy costs being replaced by an amortisation of the right-of-use asset and lease finance costs on the liability.
- In applying IFRS 16 for the first time, the Group has used the following expedients permitted by the standard:
- Modified retrospective adoption – no comparatives required to be disclosed
- Combine lease and non-lease components
- Exemption of short-term leases
- Portfolio approach applied to classes of leases that have similar characteristics
- Interest rate based on remaining lease term for existing leases at transition date
- At 30 June 2019 Massmart had 441 stores, 88% of which were leased.
- The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on adoption date was 11.9%. Finance costs for the Group was an additional R0.6 billion for the period.
- The average remaining life of real estate leases is five years, with the exception of the Woodmead land lease which has 74 years remaining.
- Further information around the adoption can be found in the detailed presentation ‘IFRS 16 – Accounting for Leases’ on www.massmart.co.za/investor-center/financial-results/.
- The pro forma financial effects for the current financial period, for which the Directors of Massmart are responsible, are provided for illustrative purposes only to show the effect of IFRS 16, allowing for a like-on-like comparison of the 26-week periods in 2019 to reflect the accounting under IAS 17, had the standard still been in effect from 31 December 2018. These pro forma financial effects are not expected to have a continuing effect and have only been disclosed to assist in understanding the impact IFRS 16 in the first period of adoption.
- Due to its nature, the pro forma financial effects may not fairly present the Group’s financial position, changes in equity, results of operations or cash flows.
- The accounting policies adopted by the Group in the 2019 reviewed interim condensed consolidated results, which have been prepared in accordance with IFRS, have been used in preparing the unaudited pro forma 26-weeks Condensed Consolidated Income Statement and Cash flows Statement.
- The amounts in the ‘IFRS 16 adjustment’ column in the Condensed Consolidated Income Statement, that relate to interest and depreciation, was extracted from the accounting records.
- The occupancy cost in the ‘IFRS 16 adjustment’ column in the Condensed Consolidated Income Statement, represents the actual rental payments made during the period and was extracted from the accounting records.
- The amounts in the ‘IFRS 16 adjustment’ column in the Condensed Consolidated Cash Flow Statement, represents the rental payments split into interest and capital payments extracted from the accounting records.
- The pro forma financial effects columns as described above, in the opinion of the Directors, fairly reflects the results for the 26-week period to the 30 June 2019.
- The calculation of EPS and Headline EPS for the pro forma ’26 weeks June 2019 (adjusted)’ column in the Income Statement, is the adjusted reviewed results for the 26-week period ended 30 June 2019.
- The Group’s external auditor has issued a reporting accountants’ report on the pro forma 26-week information. A copy of their report is available at the Group’s registered office.
- The pro forma financial effects is presented in accordance with the JSE Listing Requirements. These require that pro forma financial information be compiled in terms of the JSE Listing Requirements, the SAICA Guide on Pro Forma Financial Information and any relevant guidance issued by IRBA.
- The majority of Massmart’s realised and unrealised foreign exchange loss before IFRS 16, was primarily a result of recent currency weakness in Zambia. The unrealised foreign exchange loss for IFRS 16 was primarily a result of the currency weakness in Nigeria.
- Massmart and its Divisions enter into certain transactions with related parties in the normal course of business. As a 52.8% shareholder, Main Street 830 Proprietary Limited, a subsidiary of Walmart, is entitled to a dividend based on their number of shares held. A net amount of R3.1 million remains payable by Walmart, which has been accounted for in ‘trade, other payables and provisions’ and ‘trade, other receivables and prepayments’ respectively.
- 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 Black Friday and Christmas holiday periods. This information is provided to allow for a better understanding of the results.
- The constant currency information included in these reviewed interim condensed consolidated results has been presented to illustrate the Group’s underlying ex-SA business performance 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 monthly exchange rate for the current period. The table below 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 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
Botswana Pula 13.8% 5.8% Ghanaian Cedi 28.1% 27.9% Mozambican Metical 21.4% 5.9% Total ex-SA 11.8% 6.4%
- Interest-bearing borrowings, including bank overdrafts, have increased by R9.9 billion since June 2018. This movement is largely due to the adoption of IFRS 16 of R10.1 billion. During the period, an error was identified which resulted in a reclassification of the June 2018 statement of cash flows. Term loans were replaced by an overnight facility that does not meet the definition of cash and cash equivalents under IAS 7 – Statement of Cash Flows. As a result, the June 2018 comparative current liabilities, the inflow from financing activities together with net and closing cash and cash equivalents has been restated by R5,713.9 million in the condensed consolidated statement of cash flows.
- The current period taxation charge has been calculated based on the actual tax at the interim reporting date rather than using the effective rate on the estimated year-end profit. This is due to the effective rate yielding an inappropriate rate for interim reporting, primarily as a result of the impairment of deferred tax assets previously raised, business seasonality further exacerbated by the low profit base expected at year-end.
- 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 results was supervised by the Chief Financial Officer, Mohammed Abdool-Samad CA (SA).