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2018/05/24, 09:25:00
Johannesburg Stock Exchange - SENS NEWS DELAYED
CEO’s AGM Statement and Trading Statement for the six months period ended 30 June 2018

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”)

CEO’S AGM STATEMENT AND TRADING STATEMENT FOR THE SIX MONTHS PERIOD
ENDED 30 JUNE 2018


CEO’s AGM STATEMENT

Herewith a brief sales and business update for the Group.

Earlier this year, following the release of Massmart’s 2017 annual results, we reported that the
Group was experiencing soft sales in the period from Christmas 2017. We were hopeful however
that sales momentum would improve during the 2018 financial year buoyed by the political and
economic optimism prevalent in South Africa at that time. Whilst the positive impact of South
Africa’s political renewal has been good for business confidence, there is little sign currently of
any economic recovery amongst our lower and middle income consumers.

With the impact of Easter having been annualised, the current sales trends for 2018 are now
clearer.

For the first 19 weeks of the 2018 financial year, Massmart’s sales of R31.4bn represented total
growth of 0.8% and comparable sales growth -0.5%, with year-to-date product deflation of 0.8%.
Total sales growth from our South African (SA) stores was 0.8%, while the same figure from our
ex-SA stores was -0.1%. We remind the investment community that with the adoption of IFRS
15 Massmart will no longer be including Shield’s sales with the Group figures. This will not impact
profits. The figures disclosed in this announcement however, do not reflect this change, i.e.
Shield’s figures are included here.

For the 19-week period, Group sales growth in Food was -2.3%, Liquor 6.9%, Durable Goods
0.2% and Home Improvement was 6.1%. The Group’s Food sales growths, especially in our
wholesale channels, continue to be adversely impacted by deflation in commodities, now
including sugar given the recent price decreases announced by that industry. Similarly, we are
seeing deflation in Durable Goods which however is not attracting more customer spending
because of the adverse socio-economic pressures experienced by lower- and middle-income
consumers who prioritise their spending on food, clothing and transport. There has been a slight
weakening of sales since early April which we attribute mainly to the 8.8% petrol price increases
since March ‘18 and partially to the VAT increase.

Massdiscounters’ total sales growth was -6.2% and comparable sales growth -5.5%, with product
deflation of 5.0%. The sales weakness is broad but our market-shares in core categories are
unchanged. Rand sales growth from our ex-SA stores is slightly negative. On a constant currency
basis this sales growth is slightly positive, despite sales weakness in Nigeria and Mozambique.

Masswarehouse’s total and comparable sales growths were 5.6% and 3.7% respectively, with
product deflation of 0.8%. Due to deflation in commodities, Food sales growth is lower than that
for Liquor and Durables.

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Massbuild’s total sales growth was 6.1% and comparable sales growth 4.4%, with product
inflation of 2.1%. In our South African stores the growth of contractors’ sales is higher than 6.1%
whilst growth in sales to our retail customers is lower, suggesting that some economic pressure
is still being felt by upper-income customers. Online sales growth is up significantly. Total Rand
sales growth in our ex-SA stores is 6.1%.

In Masscash, total sales growth was -0.8% and comparable sales growth -2.9%, with inflation of
0.5%. Our Wholesale stores were affected by the ongoing deflation (averaging 7%) in
commodities which represent almost 20% of sales. In our Retail stores, total sales growth was
3.7%. Although it is difficult to be precise, we estimate that the listeria crisis may have adversely
affected our Retail sales by about 1%.

The Group’s year-to-date online sales are up 66% compared to the prior period.

In late February ’18 we announced internally the decision to relocate major sections of the Game
head office from Durban to Johannesburg later this year and to embark upon a formal
organisational restructure under s189 of the Labour Relations Act (LRA). The direct costs of
these two initiatives are estimated at R116m of which R81m will be accrued in the first-half of this
financial year. In terms of the LRA the s189 process required a 60-day consultation process
which ended recently but in the meantime caused significant distraction for management and
staff. Despite continued effective cost-management by Massdiscounters, the current sales
weakness will likely cause this Division to report an estimated EBIT loss of R150m to R170m for
the six months to June ’18 before taking the restructure costs into account. This restructure will
produce estimated annual savings of R30m in a full financial year.

In Masscash we announced a similar office relocation and organisational restructure under s189.
The direct costs of these two are estimated at R50m of which R31m will be accrued in the first-
half of this financial year. As with Massdiscounters, this development caused distraction for
management and staff, and so this Division is likely to report a small financial loss at the EBIT-
level for the six months to June ’18 before taking the restructure costs into account. This
restructure will produce estimated annual savings of R22m in a full financial year.

It is estimated with reasonable certainty that for the six-month period to June ’18 the Group’s
EBIT, before taking the restructure costs into account, will be approximately 25% to 35% below
the equivalent figure to June ’17 (being R825m which has been restated due to Massmart
changing the basis of accounting for rebates in the prior year).

Looking further ahead, it is difficult to predict usefully the sales performance for the remainder of
the financial year but assuming it improves slightly then it is estimated that the Group’s EBIT for
the year to December ’18 will be at a similar level as the prior year (on a 52-week basis) before
accounting for the restructure costs. We anticipate that the remaining 2018 sales environment
may improve as commodities’ deflation abates and the impact of recent real wages increases
filters into the South African economy.

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




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TRADING STATEMENT FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018

In accordance with paragraph 3.4(b) of the Listings Requirements of the JSE Limited, a company
is required to publish a trading statement as soon as it is satisfied that a reasonable degree of
certainty exists that the financial results for the next period to be reported on are likely to vary by
at least 20% from the previous corresponding period.

As referred to in the CEO’s AGM statement above, as a result of the actual and forecast sales for
the six-month period and the R112m of one-off restructure costs to be incurred in the same period,
shareholders are advised that Massmart expects, with reasonable certainty, the following financial
results:

Excluding the restructure costs:
                                       Forecast      Actual Restated*           Expected
                                     June 2018         June 2017                % change
Headline earnings (Rm)             196.9 – 233.4            364.7         -36.0% to -46.0%
HEPS (cents)                        91.0 – 107.8            168.5         -36.0% to -46.0%
Earnings (Rm)                      195.7 – 232.7            369.3         -37.0% to -47.0%
Basic EPS (cents)                   90.4 – 107.5            170.6         -37.0% to -47.0%
Including the restructure costs:
                                       Forecast      Actual Restated*           Expected
                                     June 2018          June 2017               % change
Headline earnings (Rm)             116.7 – 153.2             364.7        -58.0% to -68.0%
HEPS (cents)                         53.9 – 70.8             168.5        -58.0% to -68.0%
Earnings (Rm)                      114.5 – 151.4             369.3        -59.0% to -69.0%
Basic EPS (cents)                    52.9 – 69.9             170.6        -59.0% to -69.0%

*Restated due to Massmart changing the basis of accounting for rebates for the prior year.

Massmart’s financial results for the six months to June 2018 will be released on the Stock
Exchange News Service of the JSE Limited on 23 August 2018.

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



Johannesburg
24 May 2018

Sponsor
Deutsche Securities (SA) Proprietary Limited




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