2019/08/29, 07:05:00
Johannesburg Stock Exchange - SENS NEWS DELAYED
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Interim Results and trading statement

   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")

   MSM: MASSMART HOLDINGS LIMITED - Interim Results and trading statement
   Date: 2019/08/29

   Massmart, with total sales of R43.8 billion, for the six months to June 2019, comprises four
   Divisions operating 441 stores, in 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.

   Performance summary

Rm                                      26 weeks                             26 weeks        26 weeks                                           52 weeks
                                                           IFRS 16                                           Period %      Adjusted*
                                       June 2019                            June 2019       June 2018                                          December
                                                       adjustment*                                            change       % change
                                      (Reviewed)                           (Adjusted)*     (Reviewed)                                      2018 (Audited)

Sales                                    43,832.4                   -         43,832.4         41,558.4             5.5             5.5          90,941.6

EBITDA (before non-trading
                                           1,867.3         (1,210.8)              656.5         1,211.1            54.2          (45.8)           3,047.8

Trading (loss)/profit before
                                             318.9           (320.3)               (1.4)          664.4          (52.0)        (100.2)            2,068.9
interest and taxation

(Loss)/profit for the period               (832.4)             246.6            (585.8)           190.0         (538.1)        (408.3)             868.7

Basic EPS (cents)                          (382.8)             112.9            (269.9)             90.0        (521.1)        (396.9)             410.6

Headline (loss)/earnings                   (796.6)             246.6            (550.0)           204.1         (490.4)        (369.5)             901.2

Headline EPS (cents)                       (364.7)             112.9            (251.8)             94.7        (485.1)        (365.9)             416.5

Dividend (cents)                                  -                 -                  -            68.0        (100.0)        (100.0)             208.0

   *To provide a more meaningful comparison of the current period’s performance, the performance summary has been prepared on a like-on-like
   basis which excludes the impact of IFRS 16 ‘Leases’ in the current and prior financial periods.

   Group performance, including IFRS 16 in 2019
   Massmart’s total sales for the 26-week period of R43.8 billion represents total growth of 5.5% and
   comparable growth of 3.6%. Margin pressure resulted in gross margin decreasing by 36 basis points, while
   expenses increased by 7.6% driven by the impact of new stores and other cost pressures. This resulted in
   trading profit of R318.9 million, a decrease of 52% from the previous year period. African currency
   weakness resulted in foreign exchange losses of R157.1 million (2018: gain of R23.4 million), and increased
   average borrowings, drove net interest expenses to R909.6 million. As a result of the above, Massmart
   incurred a net loss of R832.4 million, a decrease of 538.1% from the prior year profit of R190.0 million.
   Headline losses amounted to R796.6 million, a decrease from prior period headline earnings of R204.1

Group performance, excluding IFRS 16 in both years
The adoption of the IFRS 16 leasing standard from 1 January 2019 complicates performance comparisons
between the results of the current and prior periods. To provide a more meaningful assessment of the
current period’s performance, and unless otherwise stated, the commentary below has been provided on a
like-on-like basis, i.e. excluding the impact of IFRS 16 in both the current and prior periods.

Group overview
Massmart’s total sales for the 26-week period of R43.8 billion represents total growth of 5.5% and
comparable sales growth of 3.6%, with year-to-date product inflation of 2.7%. Total sales from our South
African stores for the period grew by 4.9% and comparable sales by 3.2%. Total sales from our ex-SA
stores for the period grew by 6.4% and comparable store sales by 2.4% (both in constant currencies). Total
ex-SA Rand sales increased by 11.8%. The Group’s sales increased by 6.4% in Food (with inflation of
2.9%), 13.6% in Liquor (inflation of 5.3%), 5.0% in Home Improvement (inflation of 2.9%) and by 0.6% in
Durable Goods (with marginal deflation). In the second quarter to June 2019 there was a marked decline
in sales growths in our non-Food categories whilst sales growth improved slightly in our Food and Liquor
categories. Rand sales growth from our ex-SA stores also slowed in this quarter.

Gross margins declined from 19.6% to 19.2%, which was caused by the increased sales participation from
the lower margin Food and Liquor categories. Cash-strapped consumers continue to spend proportionately
more on our sales promotion activities which causes further gross margin pressure.

Total expenses increased by 11.8%, while comparable expenses increased by 9.2%. Employment costs,
the Group’s biggest cost category, increased by 8.6% against the prior 26-week period (with a comparable
increase of 7.2%) with an 8% increase in full-time equivalents over the same period to just over 46,500
contributed to this increase. This conversion is in line with legislative requirements.

An additional net 16 stores opened since June 2018, increased municipal tariffs and electricity costs
together with the severe load shedding experienced in February and March have resulted in an increase of
8.7% of occupancy costs, and a comparable increase of 6.5%.

Depreciation and amortisation increased by 20.3%. In addition to the impact of new store openings, the
implementation of the Hybris web and fulfilment platform in Makro has been completed and its related
depreciation has commenced.

Other operating expenses increased by 19.3%. Contributing to this increase are the change management
and training costs associated with the Makro Hybris web and fulfilment platform, increased security costs,
increased credit card costs, slightly higher bad debts as well as pre-opening store expenses of R53.5 million
(2018: R18.6 million).

Due to the combined impact of the above factors, trading profit before interest and taxation declined by
100.2% to a loss of R1.4 million. Operating profit before foreign exchange movements and interest declined
by 108.7% to a loss of R47.9 million.

Included in operating profit before interest are net realised and unrealised foreign exchange losses of R81.9
million (2018: gain of R23.4 million), the majority of which arose as a result of the recent currency weakness
mainly in Zambia and Nigeria.

Cash interest paid to the bank was R313.5 million causing net finance costs to grow by 17.8% to R353.1
million (2018: R299.7 million), largely due to increased levels of borrowing.

The Group's effective tax rate is -21.3% (2018: 29.9%) which resulted in a tax charge of R102.9 million
despite recording a loss before tax of R482.9 million. This charge is mainly as a result of impairing certain
deferred tax assets previously recognised, in addition to a decision to limit the recognition of further deferred
tax assets on year-to-date losses specifically relating to certain African jurisdictions.

Consequently, the Group incurred a net loss for the period of R585.8 million, down from a profit for the
same period last year of R190.0 million. Headline losses amounted to R550.0 million, down from Headline
earnings in the previous year period of R204.1 million.
The interim condensed consolidated results from which the information above have been extracted, have
been reviewed by the Group’s Independent External Auditors, Ernst & Young Inc. and their unmodified
review report is available for inspection at the Company’s registered office.

Outlook and trading statement for the year ended December 2019

For the 33 weeks to 18 August 2019, total sales amounted to R55.8 billion, representing an increase of
5.0% over the prior period. Comparable stores’ sales increased by 3.2%. Product inflation is estimated at

It is difficult to envisage the South African consumer economy improving in the near-term and negative risks
seem heightened in the international geopolitical and economic situation. Massmart’s profitability has
always been heavily skewed towards the second half of the financial year and particularly the fourth quarter,
which includes Black Friday and the Festive season, which makes near-term financial guidance difficult.

Assuming no further deterioration in the South African consumer economy for the remainder of 2019,
Massmart expects that basic earnings per share for the year to December 2019 may be at least 50% below
last year’s basic earnings per share of 410.6 cents per share on a comparable basis (excluding the impact
of IFRS 16) and may be at least 100% below last year’s basic earnings per share of 410.6 cents per share
(including the impact of IFRS 16). On the same basis, Massmart expects that headline earnings per share
for the year to December 2019 may be at least 50% below last year’s headline earnings per share of 416.5
cents per share on a comparable basis (excluding the impact of IFRS 16) and may be at least 100% below
last year's headline earnings per share of 416.5 cents per share on a reported basis (including the impact
of IFRS 16). A further announcement will be released once there is a reasonable degree of certainty on
results in due course.

The financial information on which this trading statement is based has not been reviewed and reported on
by the Company’s external auditors.

About this announcement

This short-form announcement is the responsibility of the Company’s Board of Directors and is a summary of the
information in the full results announcement. The full announcement has been released on the JSE Stock Exchange
News Service at ( and is also available on the
Company’s website: Copies of the full announcement are available
for inspection and may be requested at the Company’s registered office, at no charge, during office hours. Any
investment decisions by investors and/or shareholders, in relation to the Company’s shares, should be based on a
consideration of the full announcement.

By order of the board

Guy Hayward                                                        Mohammed Abdool-Samad

Chief Executive Officer                                            Chief Financial Officer

28 August 2019

Sponsor: JP Morgan Equities South Africa (Pty) Ltd

Date: 29/08/2019 07:05:00
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