Dedicated to adding value - Home - Massmartmassmart.co.za/iar2014/wp-content/uploads/MassmartIAR... · strategic intent, such that Management believe omission of disclosure thereof

Dedicated to adding valueIntegrated Annual Report for the year ended December 2014

AssuranceMassmart applies a combined assurance model,

introduced by the King III Code, which seeks to optimise the assurance obtained from Management and internal and external assurance providers. The Risk Committee addresses all the significant risks facing the Group and with the help of Management, provides the Massmart Board of Directors with assurance that it has implemented and monitored the Group’s risk management plan, and that it is integrated into day-to-day activities. They are also responsible for monitoring and implementing the necessary internal controls.

The internal audit function, overseen by the Group’s Audit Committee, assesses the effectiveness of Massmart’s system of internal control the Group receives external assurance on certain aspects of the business. For example, the Group’s external auditors, Ernst & Young Inc. provide an opinion on the fair presentation of the Group and Company Annual Financial Statements. The Group Audit Committee ensures that the combined assurance model is applied throughout the Group to provide a co-ordinated approach to all assurance activities and the Committee also monitors the relationship between the external service providers and the Group.

For more information regarding the Group Audit Committee’s mandate, including the Committee’s assessment of the expertise of the Chief Financial Officer and finance function; the appropriateness of the Group and Company Annual Financial Statements, the accounting practices and the internal financial controls of the Group; and the Committee’s recommendation of this Integrated Annual Report for approval by the Massmart Board of Directors, refer to ‘The Audit Committee’, available on the web:

www.massmart.co.za/iar2014/auditcom

Approval of the Integrated Annual Report and summarised consolidated Annual Financial Statements

The Massmart Board of Directors confirm that they have collectively assessed the content of this Integrated Annual Report and have approved it for release to our shareholders.

This Massmart Integrated Annual Report for December 2014 contains audited summarised consolidated Annual Financial Statements which comprise a summary of the audited Group Annual Financial Statements prepared for the year ended December 2014.

The preparation of the audited Group Annual Financial Statements, from which these audited summarised consolidated Annual Financial Statements were derived, was supervised by the Chief Financial Officer, Johannes van Lierop.

The accounting policies and methods of computation used in the preparation of these audited summarised Group Annual Financial Statements are consistent in all material respects with those applied in the prior year, as none of the amendments coming into effect in the current financial year have had an impact on the financial reporting of the Group.

A full set of the audited Group Annual Financial Statements for the year-ended December 2014 can be found at:

www.massmart.co.za/iar2014/groupafsThe audited summarised consolidated Annual Financial

Statements for the year ended December 2014, as described above, were approved by the Board of Directors on 2 April 2015 and signed on its behalf by:

Guy Hayward Johannes van LieropChief Executive Officer Chief Financial Officer

Forward Looking StatementsThe Massmart Integrated Annual Report includes forward

looking statements which relate to the possible future financial position and results of the Group’s operations. These statements by their nature involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Group to be materially different from the future results, performance or achievements expressed or implied by such forward looking statements, as they relate to events and depend on circumstances that may or may not occur in the future.

Factors that could cause actual results to differ materially from those in forward looking statements include, but are not limited to, global and national economic and market conditions, competitive conditions, the cyclical nature of the retail sector, credit and the associated risks of lending, inventory levels and regulatory factors.

The Group is not under any obligation to update or alter any forward looking statements publicly, whether as a result of new information, future events or otherwise. Investors are cautioned not to place undue reliance on any forward looking statements contained herein, as they have not been reviewed or reported on by the Group’s external auditors.

Chairman’s overview

On behalf of the Massmart Board of Directors, I am proud to present Massmart’s 2014 Integrated Annual Report.

We have a diverse range of stakeholders including shareholders, customers, employees, suppliers and communities, with varied information needs. This Integrated Annual Report is our primary report to stakeholders and is aimed at addressing our stakeholders’ requirements.

Kuseni Dlamini Chairman

Scope of the Report The scope of the Massmart Integrated Annual Report

includes the Group’s four divisions and key functions. With respect to comparability, all significant items are reported in a consistent manner with the previous financial year, with no major restatements. It must be noted that the prior year was a 53-week period and for the sake of meaningful comparison, the pro-forma 52-week period is included. Where applicable, this report has been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), specifically IAS 34 Interim Financial Reporting, Interpretations issued by the International Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listing Requirements and the requirements of the Companies Act, No. 71 of South Africa (as amended), as well as the King Code of Governance Principles (King III).

Content of the ReportThe Massmart Integrated Annual Report is our primary

report to stakeholders and, as per the practice adopted last year, includes summarised financial information. The following content is available on our website:

www.massmart.co.za, under the ‘Investor Centre’ tab:• Register documenting the assessment of all

75 principles of King III;• Corporate Governance Report;• Approval of the Audited Annual Financial Statements

(including the Auditors’ Report);• Group Annual Financial Statements and notes; and• Company Annual Financial Statements and notes.

MaterialityManagement’s interpretation of materiality, being those

transactions, balances and information that are significant in terms of Rand value, the Group’s risk profile or the Group’s strategic intent, such that Management believe omission of disclosure thereof would influence the Group’s stakeholders’ decisions, has been applied in determining the financial and non-financial content and disclosure in this Report.

2 3Massmart Integrated Annual Report 2014

Energy efficiencies deliver results p108

Contents

Our business at a glanceOur performance highlights 6Mission, vision and investment proposition 8Our business model 10Our divisional reviews 12Our divisional strategies map 28Managing our risk 30

01 Leadership reviewMessage from our Chairman 34Our CEO’s letter to our stakeholders 36Our Board 40Our Executive Committee 42

02 Our performanceFinancial and Manufactured capital 46Human capital 78Intellectual capital 92Social capital 96Relationship capital 104Natural capital 108

03 Transparency and accountabilityCorporate Governance 114Our assessment of the principles of King III 115Our Board 116

04 Shareholder informationNotice of Annual General Meeting 122Form of proxy 129

Use this icon to refer to articles online

Use this icon to refer to articles in this report

This icon highlights definitions

What’s on our website

In addition to the content that appears in this book, the following can be found online:

Group Annual Financial Statements and notes www.massmart.co.za/iar2014/groupafs

Company Annual Financial Statements and noteswww.massmart.co.za/iar2014/companyafs

Five year reviewwww.massmart.co.za/iar2014/5yearreview

These articles are all included in the ‘Our performance’ section, under ‘Financial capital’

Full assessment of the application of King IIIwww.massmart.co.za/iar2014/kingiii

The Audit committeewww.massmart.co.za/iar2014/auditcom

The Risk committeewww.massmart.co.za/iar2014/riskcom

The Nomination committeewww.massmart.co.za/iar2014/nomcom

The Executive committeewww.massmart.co.za/iar2014/execcom

Compliance, transparency and accountabilitywww.massmart.co.za/iar2014/compliance

These articles are all included in the ‘Transparency and accountability’ section

Marketside is launched p95

CFO Review p46Directors’ report p71Auditor’s report p75

R41.5 million to support

socio-economic development

p98

Cambridge Food voted

most trusted Massmart

brand p105

Online offerings perform

p94

24 SMMEs in manufacturing on board p99

These icons refer to the capitals that we report to:

Finan

cial

Manufac

tured

Human

Intellectu

al

Social a

nd Relationsh

ip

Natural

Visit our annual report website at www.massmart.co.za/iar2014

4 5Massmart Integrated Annual Report 2014

Estimated annualised purchased energy consumption intensity (KWH/GLA)/m2)

206.1(209.0 in 2013)

Opportunity:Disruption in electricity supply impacts negatively on foot traffic in shopping centres, but could benefit our stand-alone stores

Dividend per share (cents):

421.0 (421.0 in 2013)

Number of stores

392(376 in 2013)

Private label as a percentage of total sales

9.2%(9.2% in 2013)

Our performance highlights

Makro online had

one million active visitors in 30 days to mid-December

Opportunity:Wide variety of customers ranging from LSM 2-10

BBBEE: Employment equity score

10.5(10.2 in 2013)Estimated water

consumption (kl/m2)

0.9 (1.7 in 2013)

Estimated annual per capita training investment (permanent employees)

R3,778.7(R 2,935.0 in 2013)

The 2013 financial year was a 53-week period but, for the sake of meaningful comparison, all 2013 financial information included here is shown for the pro-forma 52-week period unless indicated otherwise.

Earnings before interest, tax, depreciation, amortisation and impairments (Rm)

2,887.1(2,706.4 in 2013)

Headline EPS before forex (cents):

526.2(545.2 in 2013)

Operating profit before foreign exchange movements and interest (Rm)

2,015.9(1,933.7 in 2013)

Active suppliers

8,372(8,000 in 2013)

Sales (Rm)

78,173.2(70,790.7 in 2013)

Number of employees

47,209 (43,876 in 2013)

Headline earnings before forex (Rm)

1,141.4(1,182.7 in 2013)

Pages 131-132 more detail on definitions and formulas

Our business at a glance6 7Massmart Integrated Annual Report 2014

8 9Massmart Integrated Annual Report 2014Our business at a glance

Our business at a glance

Our vision

Our customers… …will regard Massmart’s wholesale and retail formats as their first choice when buying those categories of merchandise offered by these formats;

Our community……including Government, will regard Massmart as a socially accountable corporation;

Our employees……will regard Massmart as the preferred employer in the retail industry;

Our investors……will regard Massmart as a portfolio rendering superior returns relative to the JSE Retail sector; and

Our suppliers… …will regard Massmart as a valued partner in accessing and understanding their end-consumers.

Our Board… …is responsible for directing the Group towards the achievement of the Massmart vision and mission and whilst doing so are also accountable to certain governance frameworks.

Our business… …is driven by a focus to meet the expectations of all of our stakeholders. In doing so we are aware that we must embrace the requirements of the relevant governance and regulatory frameworks, as well as corporate best practice.

Massmart is a managed portfolio of four Divisions, each focused on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash, through 392 stores in 12 countries in sub-Saharan Africa. We are a South African retailer and wholesale distributor, with 359 stores in South Africa and 33 stores in other countries in sub-Saharan Africa.

Our mission

Massmart is a South African-based, globally competitive, regionally managed Group, invested in a portfolio of differentiated, complementary, focused wholesale and retail formats, each reliant on high volumes and operational excellence as the foundation of price leadership, in the distribution of mainly branded consumer goods for cash.

The Group actively seeks the continual improvement of performance in the portfolio and its parts, through strategic and structural clarity, high market shares, excellent management, principle-driven ethical leadership, cost-effective technology and the sharing or agglomeration of capabilities, knowledge, resources, influence and information.

To this end, thought-leadership, individual and collective performance, and collaboration throughout the Group are appropriately rewarded, with executive management incentivised predominantly on Group performance.

Our unique investment proposition

Strategic and structural clarity• Is achieved through four focused Divisions, each a leader

in its target market and business model, where additional value is created through inter-Divisional collaboration and behaviour is aligned through short- and long-term incentives, while adhering strictly to organic and acquisitive growth criteria.

Management depth, quality and diversity• The 48 Group and Divisional Executives hold 76

qualifications, of which 57 are degrees; are an average age of 47; and 15% are African, Coloured or Indian.

Diversification• Merchandise – Massmart is the second largest distributor

of consumer goods in Africa, and is the leading retailer of general merchandise, liquor, home improvement and building supplies, and the leading food wholesaler;

• Formats – trading through a variety of formats;• Customers – serving all mass-market consumers; • Geography – operating in 12 sub-Saharan African countries.

Low risk• Earnings underpinned by high cash generation; sensible

financial leverage; and conservative through-the-cycle store opening plans.

Growth• Continuously improving the productivity of capital, space

and labour;• Strengthening Supply Chain activities;• Up-weighting Group private label efforts;• Complementing store growth through targeted acquisitions

and greenfield opportunities; and• Expansion into Food Retail through Cambridge Food,

Food in Game and Makro Fresh.

Good governance• Board composition – two Executive and seven non-

Executive directors, four of whom are independent; • Recognised record of good disclosure; • Compliant with King III and the JSE SRII; • Member of the Ethics Institute of Southern Africa; and• Founding member of the Institute of Directors.


implements collaborative agreements reached by the Channel Forums. The most important are Group supplier negotiations for all products sold across the Group.

Massmart’s strategy is to be considered a leader by all stakeholders in our chosen markets and become sub-Saharan Africa’s most trusted retailer. Massmart‘s business model empowers our Divisions to take trading decisions suited to their individual operating needs, within a strategic operating and financial framework set by the Group.

How we structure our business Dedicated to adding value

Operational excellenceWorking towards achieving everyday optimal performance. This is seen in logistics and business-to-business (B2B); stand-alone store formats; innovation and ecommerce; and our private label portfolio.

Sustainability We aim to champion social and environmental leadership through energy efficiency; supplier advocacy; education initiatives; school nutrition programmes; developing suppliers; and employee health and wellness.

Growing talentWe work towards nurturing talent and creating opportunities for our employees, customers, suppliers and business partners through learning and career development; our emerging talent programme; our nurturing talent campaign; and our Supplier Development Fund.

Good businessIs what we, as Massmart employees, have committed to do in everything we do, every day, to earn the trust of our colleagues, employees, customers, suppliers and business partners.

We are dedicated to adding value through:

For more information on operational excellence pages 12-27, ‘Our divisional reviews’For more information on good business page 114, ‘Transparency and accountability’

Grow sales, grow profitability and increase customer loyalty

Embrace the requirements of the relevant governance and regulatory frameworks

Advocate more sustainable practices and product choices in all the business decisions we make

Be the employer of choice

As a result we:The framework guarantees consistent compliance with the best governance standards and national legislative requirements. It commits each Division to implementing Massmart’s core strategy of being a high-volume, low-margin distributor of quality branded consumer goods for cash, and ensures expansion plans add net value to the Group.

Divisions are enabled to extract greater value from being part of a larger Group with greater access to goods and services or negotiating better terms and rebates with suppliers and service providers. The Divisions are differentiated as retail or wholesale formats that address different customer and market profiles.

Decentralised decision-making is given effect through a Group Executive Committee reporting to the Group Chief Executive Officer (CEO). The Committee’s members comprise the CEOs of Massmart’s four operating Divisions and a Group Executive from each of Massmart Holdings, Channel and Shared Services. Massmart Holdings’ Executive Directors are also represented on each of the four Divisional boards as non-Executive directors.

This has several advantages:

Customers advocate Massmart banners as ‘must-go-to’ shopping destinations

Investors and suppliers advocate Massmart as a ‘must have’ retail partner

Government, academia and civil society advocate Massmart as a ‘must-be-like” social and environmental leader

Our desired outcomes:

General Merchandise Discounter and Food Retailer

Warehouse Club

Home Improvement Retailer and Building Materials supplier

Food Wholesaler, Retailer and Buying Association

performs the Group management role and defines the strategic and broad operating principles that guide the Group’s activities.

consists of formal trading and functional forums where ideas on collaboration across Divisions are shared.

report directly to the Chief Executive Officer and comprise Massdiscounters, Masswarehouse, Massbuild and Masscash.

The business model operates through the following four units:

MassmartHoldings

Massmart Channeland Shared Services

Massmart Divisions


Game is a discount retailer of General Merchandise and non-perishable and dry groceries for

home, leisure and business use, operating throughout South Africa and in 14 cities in sub-Saharan Africa. Traditionally Game has been a discounter of General Merchandise, but our format renewal, with the introduction of fresh Food, has intentionally pushed the brand towards a multi-category format.Currently 66 Game stores provide a perishable food offering adding further everyday value to our customers. Over the next few years, we intend to roll out perishable food to most Game stores. Game Liquor was included with the format renewal to complete our offering and increase foot traffic. We now have 39 Game Liquor stores, which are performing in line with expectations.

Merchandise proposition:

General Merchandise discounter and Food retailer

153 stores(143 stores in 2013)

14,214full-time employees(12,870 in 2013)

5-10Game

8-10DionWired

Geographic presence: South Africa, Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda, Zambia

DionWired’s product displays create an easy,

exciting and interactive shopping experience, offering the latest in-home entertainment, computing, video and digital photographic equipment and appliances. DionWired sells complete technological solutions, often demonstrating the interconnectivity of the latest innovations and products in-store. The Tech experts manning our in-store Hi-tech Smart service centres are on hand to offer the best advice and onsite repairs and services.

DirectorateGuy Hayward Chairman, Robin Wright Chief Executive Officer, Nazim Cassim DionWired, Norman Drieselmann Financial, Richard Fuller Store Operations, Norman Gray Non-executive, John Hart Planning, Mark Huxtable IT, Andrew Jackson Merchandise, Rogany Ramiah Human Resources, Mike Spivey Non-executive, Mark Turner Marketing, Alan van der Bergh Food, Johannes van Lierop Non-executive

Highlights • Held or gained market shares in key categories

in Game• Fastest growing Formal Food Retailer in SA in 2014

Improvements • Significant growth in both sales and margin of our

Food and Liquor offering• Improvement in our South Africa business during Q4• Moved from our historical four day promotion period

to a longer 10-day period

Challenges • Tough South African economic environment

pressurising our core middle class customer• Slowing African economies from weaker global

prices for resources and strong US dollar• Planned roll-out of SAP Point-of-Sale system across

all stores in South Africa, commencing in early 2016.

Our divisional reviews

Massdiscounters operates through two retail formats: Game and DionWired.

Value propositionGame’s positioning is to offer customers the widest range of branded products, at the best price for a given set of product specifications and a quality guarantee for customers. We ensure that customers are assured of the best value at every logical price point. The Game trading model is promotionally- driven, with five million copies of our bi-weekly promotional leaflets distributed in South Africa. By working closely with our suppliers and benchmarking ourselves against competitors, we are able to offer our customers well-priced products representing great value.

DionWired’s main proposition is to offer the widest range of some of the world’s leading and discerning brands such as Apple, Smeg, Marantz, Bose and Onkyo to the South African higher-income consumer.

4 BBBEE score (Level 3 in 2013)Massdiscounters continues to retain its recognition level with an A rating. There has been an increase at the management level and a score of 14.42 out of 15 was achieved on Employment Equity. Maximum scores were achieved on both CSI and Enterprise Development.


8.8%

23.0%

Our divisional reviews continued

Financial performance Divisional strategyStrategic focus for 2015 is to deliver real value to our core customer by delivering on our brand promise of:• Consistently low prices• Focused ranges – which meet all

our customers’ household needs under one roof

• Guaranteed quality which is supported by:• Consistent stock availability • Well designed and merchandised

stores• Passionate and enthusiastic

customer service and enabled by:• Efficient supply chain, systems

and processes of omni-channel strategy

Future outlook At Game we will continue to roll-out fresh food and refurbish our stores, while slowing the number of new store openings in South Africa whilst increasing the Rest of Africa footprint.We will continue to consolidate the Hi-Tech and Multimedia categories expanding the space allocated to Food and selected Homeware categories. A further twenty Liquor stores are planned.At DionWired we intend to focus on reinvigorating the customer experience by focusing on our core purpose “to simplify life by obsessively sharing the joy of technology”.

8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash

23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash

R17,955.2m

R180.7m

Up from R16,294.2m in 2013

Down from R326.9m in 2013

Sales

Trading profit before interest and tax

R7,985.5m

R542.2m

6,5%

increased from R7,718.3million in 2013.

Up by 10.7%

Total assets

Net capital expenditure

Increase in trading space

increased from R489.7 million in 2013.

Trading area 506,188 m2

Trading area 475,331 m2 in 2013DC space 178,488 m2

DC space 178,488 m2 in 2013

Key sales drivers

• Product deflation/inflation• Price/value perception• Interest rates• Consumer confidence

and disposable income• New stores• African economic strength

Product inflation

0.5% in 20133.1%

Investing in our communityMassdiscounters is committed to playing a meaningful

role and to being a socially responsible corporate citizen. This commitment is rooted in our investment in the social development needs of the countries in which we operate. The focus of our corporate social investment is primarily in education, where we assist in basic literacy, school infrastructure and assistance to the poorest of the poor.

Key projects in 2014 which helped us change the lives of over 100,000 children are:• Game Amalunchbox • Game Tools 2 Teach• Game/Vodacom Wheelchairs• Game Fights Malaria with the Kingsley Holgate

Foundation• Lungisisa Indlela Village• DionWired Smartboard• The Ubuntu Community Chest

Investing in our human resourcesMassdiscounters received full accreditation as a training

provider by the Wholesale and Retail Seta. In 2014:• we recorded a spend of over R50 million in training black

staff with more than 50% of the spend allocated to the development of black female staff.

• we had a 35% representation of black females in senior management positions and 34% of all promotions were black females.

• we contributed more than a R250,000 in bursaries to the children of our team and created a staff purchase facility which benefits more than 1,800 of our team members.

The wellness of our team is vital to our staff engagement and customer engagement initiatives and the attendance of staff at our wellness days and use of the Employee Assistance Programme facilities was indeed noteworthy with many stores receiving gold stars.

+10stores

Investing in the environmentMassdiscounters has embarked on a number of energy

saving initiates to reduce our impact on the environment:• In all new DionWired stores we have moved from

inefficient metal halide high bay fittings to 100% LED lighting resulting in an approximate saving of 75% in energy consumption.

• We have redesigned the DionWired stores and introduced ceilings to reduce the cubic volume of the store area. This has resulted in a reduction of the cooling volume of 30% and a reduction of cooling capacity of between 10% and 15%.

• A retro-fit program is in place in Game stores where inefficient light fixtures are replaced with energy efficient T5 fixtures resulting in an average saving of 280,000 kW/h per store per year.

• Building Management Systems are included in all new Game stores. Where possible skylights are also included which allows for daylight harvesting where the BMS system automatically switches lighting off to maintain the appropriate lux levels. This results in a calculated saving of 180,000 kW/h per store per year.

• In new stores, occupancy sensors are included in office areas to automatically switch off lights when offices are unoccupied.

• Working with industry experts to design the most efficient refrigeration systems, making use of variable speed drives, multiplex systems and electronic expansion valves to drive down energy consumption by between 10 and 15%.

• In smaller format Game stores, refrigeration is installed with glass doors to improve the efficiency of the jumbo cabinets.

We continue to look for new opportunities to improve our design and equipment to create the most energy efficient stores possible.

Total liabilities

R7,820.9mincreased from R7,522.2 million in 2013.



DirectorateGuy Hayward Chairman, Doug Jones Chief Executive Officer, Dean Bauer Supply Chain, Norman Gray Non-executive, Garry Hendry Merchandise: Food, Derick Kalan Merchandise: General Merchandise, Jonathan Koff Merchandise: Liquor, Gert Lourens Operations, Melanie van Rooy Marketing, Pieter Schoeman IT and Projects, Mike Spivey Non-executive, Julie Wilford Financial, Donovan Wright Human Resources, Johannes van Lierop Non-executive

Highlights• Strong profit growth – now generates more than

R1 billion profit before interest and tax.• Makro.co.za General Merchandise and Liquor online

offering launched• Continued share gains as we improve our Food

retail offering• Achievement of Payment Card Industry DSS

compliance certification, to ensure on-going secure credit card processing

• Introduction of the Baby category

Improvements• Fresh fruit and vegetable offering across most stores

(16 stores)• Working capital and aged inventory levels improved

across all 3 merchandise divisions• Mature stores’ profitability• Employment Equity profile of executive and senior

management teams• Use of customer and market data to better optimise

promotional and pricing activity

Challenges• Continued aggressive trading practices from

independent wholesale competitors• Availability of real estate for new stores


Warehouse club trading in Food, General Merchandise and Liquor



6-10Makro primary customers

2-8Makro secondary customers (via trade)

Geographic presence: South Africa

Value propositionMakro’s offerings are tailor-made to fit a variety of customer needs across all our merchandising categories.

Makro’s Food offering caters to a wide range of wholesale shoppers and to retail customers looking for value across the basket. Wholesalers account for the bulk of Makro’s Food sales and most shop during the week for the convenience of our wide range of good-value, quality consumables. Retail Food and grocery shoppers can achieve substantial savings on their monthly household basket too.

Makro’s Liquor outlets, immediately adjacent to the main outlets, continue to increase their range of premium brands especially in wine and whiskey. These products are sold at a low margin to maintain and grow market share. At the same time we have maintained a strong presence of beer and budget brands is maintained for customers looking for good value. Makro’s General Merchandise offering offers high-quality well-priced merchandise from all major durable brands and they are often market leaders with innovative offerings and aggressive promotions.

The Fruitspot provides customers with quality products at best price and very high service levels. The Fruitspot is committed to freshness at the point of purchase and prides itself on its relationships with its customers, many of which have lasted more than 20 years.

5 BBBEE score (Level 5 in 2013)

The Fruitspot is an established wholesaler and distributor of fresh and cut fruit and

vegetables, and was bought by Makro in 2012.

The Makro model is unusual in that it sells General Merchandise primarily to retail

customers while much of its Food and Liquor is sold to wholesale customers, although increasingly retail customers are taking advantage of the low food prices afforded by the model. This blend gives it a robustness enabling it to trade comfortably through most economic cycles. The big-box warehouse club format, with our no-frills approach, keeps costs down and provides the platform for our high-volume, low-margin sales offering of quality branded merchandise. Our customer database of Makro store cards used at the point of purchase helps us to keep track of the spending patterns of our 2.4 million active members and we communicate regularly with them through targeted promotional material.


50.6%

27.6%

Total assets

R7,689mincreased from R7,166.8 million in 2013.

Total liabilities

R7,312.1mincreased from R6,587.8 million in 2013.


Financial performance Divisional Strategy:The 2015 strategic focus is to

bring new and young stores to optimal maturity, while ensuring stores leverage scale, and drive down costs. We will do this by:• Improving fulfilment capabilities,

to better serve online and commercial customers

• Investing in the instore and online customer experience, whilst balancing the need to achieve scale and operate at lowest possible cost per transaction

• Continuing to improve the Food offering to retail customers, and deepen the Fresh and Butchery offering

• Growing market share in Food and Liquor

• Optimising working capital through replenishment and supply chain investments

• Driving value through data-led insights into customer behaviours and needs

• Investing in technology to better serve customers, manage our supply chain and coordinate commercial sales and fulfilment

Future Outlook:Makro remains focused on

bringing all customer types - retail, wholesale and commercial - the products and brands which they know and trust, at prices that save them money so that they can live better and trade more profitably.

At Fruitspot we will grow the business by ensuring it becomes a supplier of choice to the retail and hospitality industry in Gauteng and in the Group.

Masswarehouse’s omni-channel strategy is underway and growing. Our mobile solution for commercial customers has been well received. The Makro locker pilot programme is in the market and will be assessed for future extension opportunities.

R21,554.8m

R1,044.3m

Up from R19,271.7m in 2013

Up from R939.5m in 2013

Sales


R70.3m

no change

Down by 79.6%


No change in trading space

decreased from R344.8 million in 2013.

Trading area 195,794 m2 Trading area 195,794 m2 in 2013DC space 51,300 m2

DC space 51,300 m2 in 2013

Product inflation

2.1% in 2013.

5.5%

Investing in our communityMakro support the Wildlands Conservation Trust’s

Food for Life programme which has assisted more than 250 previously unemployed community members in rural KZN to gain skills in a range of environmental restoration activities, recycling and food gardening.

We are committed to the upliftment and care of those in need in South Africa. We focus our corporate social investment (CSI) activities primarily on education enabling initiatives, school nutrition and infrastructure maintenance projects and recently, youth sports development. Through our Makro CSI partnerships we are committed to making an impact on the lives of the underprivileged within the communities in which we operate. We are committed to delivering on our promise of contributing at least 1% of profit after tax to deserving causes.

Commitment 1: Education• Hope Worldwide SUCCEED programme• The Tomorrow Trust• Kommunity Desk

Commitment 2: School Nutrition• The Izzi Trust• African Children’s Feeding Scheme

Commitment 3: Youth Sports Development• Moving Matters

Investing in our environmentMasswarehouse remains an industry leader in improving

energy efficiency in the retail environment. Makro was recently named a Global EIA Green Cooling Leader by the Environmental Investigation Agency, an independent UK charity founded to address environmental issues, for their commitment to MFC-free refrigeration.

Key sales drivers• Product deflation/inflation• Price/value perception• Interest rates• Consumer confidence

and disposable income• New stores maturing



Energy saving initiatives in our new stores have made them 25-30% more energy efficient which has enabled us to save as much as 36,000 kWh’s of electricity a month in our latest stores. Initiatives include:• Installing CO2 refrigeration systems that do not make use

of ozone depleting refrigerant gases.• Capturing and reusing condensate from our air-

conditioning and refrigeration systems to irrigate our car parks and gardens.

• Using reclaimed heat from our refrigeration and air conditioning plants to help heat the domestic water used in our stores.

• Installing daylight harvesting systems that use natural light, in tandem with LED high bay lights and sophisticated lighting controllers to improve our customers shopping experience while reducing the energy needed to light the store

• Implementing secondary paper, board and plastic recycling initiatives across 100% of our stores, through which we estimate approximately 70% of our operational waste is diverted from landfill

• Supporting a post-consumer e-waste take back initiative in partnership with Samsung, that facilitated the collection, recycling and where necessary safe disposal of 139 tonnes of e-waste in 2014.

Investing in our human resourcesOur internal training and development initiatives aim

to enhance productivity, customer service and operational efficiencies.• An internal skills audit on lifting machine operators was

completed and specialised training given to ensure highest occupational health and safety standards.

• Regular performance meetings on the Consumer Protection Act were held to assess progress.

• More than 85% of our staff members are black and more than 38% are black women.

• A total of 11.84% permanent employees undertook various training courses last year.

+0stores



DirectorateGuy Hayward Chairman, Llewellyn Walters Chief Executive Officer, Norman Gray Non-executive, Neville Hatfield Merchandise, Diane Hoffman Supply Chain, Chris Lourens Operations, Zandile Manana Marketing, Lizelle Petersen Financial, Alex Rymaszewski Store Development, Mike Spivey Non-executive, Andre Steyn Builders Express and Builders Trade Depot, Chris Tugman IT, Johannes van Lierop Non-executive

Builders Trade Depot caters mostly for medium to large sized contractors and tradesmen engaged

in building, maintenance and renovation projects. The chain mainly focuses on servicing the needs of construction entrepreneurs who require trade credit, telephonic ordering and building materials in bulk, delivered from low-cost outlets.

Builders Warehouse follows the big box or warehouse retail format. Builders Warehouse offers

an extensive range of competitively priced products with a large garden centre display and Builders’ supply yard.

Builders Superstores focus on underserved markets around the country. The stores are

situated in dense residential, township, rural and developing areas, and conveniently located near commuter nodes.

Builders Express, which caters to the home owner and DIY enthusiast, focuses on a convenient location, a

customer friendly store layout with pleasing displays, and personalised service and advice, making it a “one-stop” shopping experience.

Highlights• Twelve new stores opened in 2014, of which

four were relocations, including the flagship Builders Warehouse Rivonia store and Builders Warehouse Matola, the first full-size Builders Warehouse store in Mozambique, both of which have achieved exceptional results.

• 553 new jobs created in 2014• Continued growth in operating profit in

Builders Warehouse and Builders Express

Improvements • Improvements in productivity and transport

contributed to savings in the Gauteng Distribution Centre

• Conversion of the Western Cape facility into a regional distribution centre resulted in a significantly higher throughput

Challenges • The economic environment and slowing

government expenditure on infrastructure • Availability of real estate for new stores


Home Improvement retailer and Building Materials supplier



5-10Builders Warehouse

5-10Builders Express

4-8Builders Trade Depot

2-6Builders Superstore

Geographic presence: South Africa, Botswana, Mozambique

Value propositionBuilders Warehouse and

Builders Express are both pioneers in introducing retail principles to the South African Home Improvement sector and attaching garden centres to hardware stores. The clean, friendly and uncluttered look and feel of our stores offers customers a shopping experience not traditionally associated with the sector. Our stores aim to introduce “retail theatre” where lighting, colour and ambience enhance the shopping experience, signage is clean and bold and product displays are enticing.

Several of our private brands have become household names with our customers assured of stringent quality control and best supplier practices.

Builders Trade Depot’s value proposition to customers in both the residential and commercial property markets, is our unique ability to consistently deliver an appropriate, professional range at highly competitive prices underpinned by trade credit and combined with exceptional contractor support services in a relationship-driven environment.

Builders Superstore focuses on the lower-income population. Their range of products and location of stores make it a favourable destination.

5 BBBEE score (Level 5 in 2013)Massbuild’s BBBEE score for 2014 is estimated to be 57.96

Massmart, with its strategy of investing in acquisitive and organic growth, previously made several acquisitions in the Home Improvement sector, establishing the Group as the largest participant and, in many respects, the leader in this growing consumer sector, and in Building Materials with complete project solutions. Massbuild has four store formats that cater to different markets with their own personalised feel and service offerings. The Massbuild formats consist of:


26.1%

13.8%

Financial performance Divisional strategy:• New store roll-out; grow South

Africa and Africa store footprint.• Optimise Builders Trade Depot

by focussing on inventory range and leveraging IT platform.

• Optimise Superstore offering and grow the brand.

• Extend and optimise the supply chain network.

• Builders’ single brand alignment rollout – rebranding effort in Builders Trade Depot and Builders Express.

• Focus on Trade Customer and Business-to-Business

• Private label expansion: continue with roll out of key programmes.

• Omni-channel.

Future outlook:Massbuild has now entered an

accelerated growth phase with the aim of increasing its footprint by opening new stores in South Africa and southern Africa. Furthermore the division is intent on increasing its market penetration through its fourth format, Builders Superstore.

Massbuild’s objective remains to be South Africa’s market leader in Home Improvement, DIY and Building Materials.

R10,822.8m

R537.6m

Up from R9,441.3m in 2013


Sales


R296.8m

6,3%

Up by 7.9%




Trading area 436,538 m2


DC space 61,733 m2 in 2013

Product inflation

4.1% in 2013.5.9%


Mayibuye Primary School in Tembisa received a donation of 120 desks and chairs. Protea Glen and Illinge Secondary Schools each received a donation of R50,000 toward their construction requirements. Another R50,000 was donated to Cosmo City West Primary School to be used towards their kitchen makeover.

Investing in our environmentWe are committed to minimise our impact on the

environment by:• Using natural light and efficient LED lighting systems to

save energy• Investing in air-conditioning technologies that do not

emit greenhouse gases• Recycling our bulk packaging, paper and plastic

Our new Rivonia store has been fitted with high bay LED lights that have reduced consumption per light by 60%. The roof is fitted with daylight harvesting domes that will eliminate the necessity to have all the lights burning in the store. A state of the art Building Management System has been installed to regulate the switching on of lights in the store when the daylight harvesting domes do not have sufficient light inside the store. The system will also control the air conditioners in the store and regulate the temperature. This will also alleviate maximum demand spiking .

Investing in our human resourcesMassbuild believes in building a sustainable business

by continually investing in its human capital. In 2014 a total of R29.8 million was spent on Learning and Development. Focus is on Leadership interventions where Managers are enrolled on programmes through either Massmart Corporate University or other external tertiary institutions. We also capitalise on SETA-funded leadership programmes. Skills are also imparted onto Management through online interventions.

We have had 216 people on various 12-month Learnership Programmes.

Business finance courses are also run for all levels of the organisation ranging from junior non-supervisory level to senior management level (455 attended). For team members in non-management roles, the focus is on specialist product training. In order to ensure the business adheres to good governance, training is also conducted in the areas of Compliance and Anti-corruption; Ethics; Employment Equity; and Orientation.

Priority is given to the advancement of women in the operations’ environment and to this purpose the Massbuild CEO’s Women’s Council Mentoring Programme, in which 15 mentors and 13 mentees attended various workshops and interventions throughout the year, was established in 2014. New mentees will be added to the programme annually.

Investing in our communityMassbuild aims to make a relevant and notable

contribution to the social development agenda by investing in early childhood development, education and training, women’s empowerment and nutrition.

Build a classroomWe embarked on an ambitious venture to build 15

classrooms at schools throughout the country and managed to complete nine in 2014. Since its inception in January 2014, this project has seen an investment in excess of R2 million.

Ripples for GoodWe teamed up with the non-profit organisation,

Ripples for Good in 2011 and this engagement has evolved from assisting with maintenance projects in schools to undertaking school refurbishments. In 2014 we managed to reach 100 schools.

Store openingsWe celebrated our new stores by adopting a school

in each community where a new store was opened. For example, when the new Rivonia store opened, Sefikeng Primary School received a cash donation to assist with the upkeep of their veggie tunnel donated by Massbuild in 2012.

Total assets

R5,027.7mdecreased from R5,212 million in 2013.

Total liabilities

R4,730.6mdecreased from R4,857.4 million in 2013.

• Residential property prices and housing growth

• Price/value perception• Interest rates• Consumer confidence and

disposable income• New stores

Key sales drivers



+8stores


Wholesale DirectorateGuy Hayward Chairman, Neville Dunn Chief Executive Officer, Jane Bruyns Human Resources, Norman Gray Non-executive, Dino Holmes Financial, Pearl Maphoshe Non-executive, Andrew Mardon Merchandise, Mike Spivey Non-executive, Robin Wright Non-executive, Johannes van Lierop Non-executive

Retail DirectorateGuy Hayward Chairman, Kevin Vyvyan-Day Chief Executive Officer, Bronwynne Bester Human Resources, Norman Gray Non-executive, Chris Knight Regional Gauteng, Eben Mare Financial, Mike Marshall Commercial, Mike Spivey Non-executive, Andrew Stein Marketing, Craig Surmon Regional KZN, Johannes van Lierop Non-executive

HighlightsWholesale• 11% growth of Retail franchise outlets• Successful product range extension to fruit, vegetables and

meat; enabling customers a wider choice and increased convenience

Retail• Improved store-opening processes, delivered three

successful store openings with Cambridge Evaton achieving the biggest store opening to date

• Successful rollout of new Private Label ranges

ImprovementsWholesale• Significantly improved Wholesale customer delivery

processes, resulting in higher order fill rates, and improved customer satisfaction

• Improvements in store standards and food safety; ensuring a better shopping experience

Retail• Improvement in profitability in both Gauteng and Kwazulu-

Natal Retail regions

ChallengesWholesale and Retail• Consumers have low disposable income• Higher inflation in Food and fuel• Weak job growth at lower-income levels

Masscash consists of a Wholesale Division with cash and carry food and cosmetics’ businesses, and a Retail Division which consists of food outlets which target the lower LSM groups. Our Wholesale Division consists of CBW, Jumbo Cash and Carry, Trident and Shield.

CBW and Trident wholesale food, liquor, groceries and cosmetics in bulk to independent dealers, Government feeding schemes, franchise members, small traders and hawkers in peri-urban and rural areas within southern Africa.

Jumbo sells mainly cosmetics, toiletries and hair-care products to individual customers and independent general dealers. Shield is a voluntary buying association that buys products in bulk on behalf of 523 members who own wholesale or retail businesses in South Africa, Botswana, Namibia and Swaziland.

Cambridge sell a hand-picked range of high-quality national brands, plus goods that they source and pack themselves under their own brand label, across all major categories.


Food Wholesaler, Retailer and buying association

73 Wholesale stores(75 stores in 2013)

47 Retail stores(47 stores in 2013)


2-5Wholesale

2-6Retail

Geographic presence: South Africa, Botswana, Lesotho, Mozambique, Namibia, Swaziland


Value propositionMasscash Wholesale offers

wholesale customers the ability to trade under national retail brands such as Saverite, Multisave, Powersave Liquorland and Club 10 Taverns. Our marketing team offers support to these supermarkets and bottle stores, assisting owners with marketing initiatives such as designing of leaflets, signage and implementing national television and radio advertising campaigns.

On the retail side, outlets are consolidated under the Cambridge Food or Rhino brands. Cambridge Food’s mission is to help its customers save money every day so that they can live better. Food Retail service departments, consisting of an on-site bakery, butchery and fresh fruit and vegetable offering form an important component of our Cambridge Food retail offering.

5 Wholesale BBBEE score Level 5 in 2013

8 Retail BBBEE score Cambridge Food’s first assessment(Level 5 in 2013)

WHOLESALE & RETAIL


35.6%

14.5%

Divisional strategyWholesale• Re-organise buying structure• Optimise store portfolio• Improve Supply Chain and

Logistics capability• Focus on Saverite franchise

Retail• Grow profitable regions• Improve fresh food assortment• Roll-out single platform on SAP

R27,840.4m

R299.1m

Up from R25,783.5m in 2013


Sales

Trading profit before interest and taxFuture outlookWholesale

We anticipate a continuation of the aggressive trading from the corporate food retailers serving the low-income customer but are cautiously optimistic about our growth over the next year. The LSM 2-6 market remains highly fragmented. Masscash is well positioned to offer new retail formats and to expand our current footprint to better supply food, cosmetics, liquor, cigarettes and cellular services to this market. To ensure future growth, we will expand the wholesale range to include meat, fruit and vegetables and grow the franchise formats and expand into southern Africa.

RetailCambridge Food has a solid

store roll-out plan over the next two years, with an anticipated 10 new store openings in 2015 and 10 in 2016, to strengthening its fresh operating model, to its roll-out of significant IT projects, and developing store management to provide leverage for this future growth.


Financial performance

Total assets

R8,529.8mdecreased from R8,665.5 million in 2013.

Total liabilities

R7,882mincreased from R7,838.6 million in 2013.


R269.9mUp by 40.0%



0,3%Trading area 400,775 m2


DC space 32,292 m2 in 2013

Investing in our communityWholesale

Masscash Wholesale, through donations and active involvement, invested in education and nutrition initiatives during the year.

Building on our previous success, Masscash Wholesale donated a further 15 container kitchens to our school feeding initiative. The 79 kitchens provide a hygienic space for the preparation of meals for approximately 58,000 learners.

We support the inner city Day Care Centres in central Johannesburg, through the Metropolitan Evangelical Services. This ensures that young children have a safe place to go during the day. Furthermore young street adults can be rehabilitated and equipped with skills that will enable them to access the workplace.

We invested in literacy programmes allowing 1,086 scholars to enjoy access to a school library, donated to the Empumalanga Primary School in Motherwell, Eastern Cape.

Retail • R1.6 million donation of stock to Foodbank, a 16%

increase over 2013.Container kitchen donated to the Vosloorus community.

Investing in our environmentWholesale

We supported the KwaZulu-Natal Wildlands Food For Trees project. The project encourages unemployed adults and school learners to grow indigenous trees, and exchange them for food tokens from Wildlands. Over 35,000 trees were bartered and they are used for reforestation projects controlled by Wildlands.

A 3-year programme to upgrade all stores with energy efficient lighting is expected to reduce our energy consumption by 15%.

Retail • Variety of energy-saving measures implemented

including skylights and LED lights• Multiplex refrigeration system, reduces electrical

consumption and the heat exchange unit generates hot water for the store

• Automated monitoring and adjusting of lighting levels to reduce electrical consumption

• Alarms to minimise energy wastage on fridges• Passive ventilation system reduces dependence on air

conditioning in-store

Investing in our human resourcesWholesale

The Group’s partnership with Impilo Wellness Programme provides healthcare support for 2,920 employees. It offers disease management strategies, psychological counselling, general well-being services, financial and legal support and trauma counselling.

Retail • Launched Gauteng Store of Learning to develop a

pipeline of managers• KZN Store of Learning, placed 54 learners in 2014• Implemented first Cadet programme in Gauteng, seven

learners achieved 13 distinctions in the first semester

• Food inflation, particularly commodities

• Social grants• New stores• Rate of employment

Key sales drivers



4.8%Product inflation

4.2% in 2013

-2stores

WHOLESALE & RETAIL


Strategic priorities Divisional strategy 2014 How did we do? New strategic priorities for 2015

Our divisional strategies map

20141

Expand our footprint in Africa and invest in new retail formats and categories

2

Open more low-income home improvement stores in South Africa

3

Launch new ecommerce offerings in our brands

4

Focus on owning more of our stores

Wholesale• New store roll-out in South Africa• Expand into southern Africa• Operate for less whilst improving

customer experiences• Review store portfolio• Improve Supply Chain and

Logistics capability• Focus on Saverite franchise

Retail• New store roll-out in South Africa• Expand into southern Africa• Grow profitable regions• Close smaller or less profitable

stores• Fresh food assortment

• Grow southern Africa store footprint

• Optimise Builders Trade Depot • Optimise Superstore offering and

grow the brand• Leverage RDC infrastructure

• Focus on Trade Customers and Business-to-Business

• Get new stores to trading maturity

• Enhance Food Retail offering, and refine Fresh and Butchery offering

• Gain market share in Food and Liquor

• Widen Baby category

• Increase number of commercial customers

• Supply Chain and Inventory optimisation

• Leverage CRM• Refocus on low cost, high volume

business model• Re-launch web site in support of

omni-channel strategy

• Focus on Game SA brand promise – lowest prices, focused ranges and quality guarantee

• Improve in-store shopping experience

• Improve IT and Supply Chain efficiencies

• Continue roll-out of fresh Food• Increase Game Liquor stores

2

Builders Superstores:

8 in 2014 (2 in 2013)• Opened 6 more low-income

Home Improvement stores in South Africa

1

Retail Food

132 stores with Retail Food (Makro, Game and Cambridge Food)(110 in 2013)

1

Expand our footprint 16 net new stores +9 Game stores+1 DionWired stores+1 Builders Warehouse stores+5 Builders Express stores-4 Builders Trade Depot stores+6 Builders Superstore stores-2 Masscash Wholesale stores

1

African footprint

33 stores in the Rest of Africa(30 in 2013)

20151

Improve profitability

2

Grow Builders and Retail Food in South Africa

3

Grow into Africa

4

Grow online

For more information on our strategic priorities

page 38 ‘Our CEO’s letter to our stakeholders’

3E-commerce• Makro online launched April

(General Merchandise) and October 2014 (Liquor)

• Trialling Makro convenience locker access, for later roll-out to SASOL service station forecourts

4

Owned store sales• 30.7% of total sales in

2014 (27.3% in 2013) • Focus on owning

more of our stores.

137 South Africa(129 in 2013) 16 Rest of Africa

(14 in 2013)

19 South Africa(19 in 2013)


(4 in 2013)


(12 in 2013)


Managing our risk

1 23

45

6

789

10

1

124

5

6

7 8

910

1

Poor strategic execution

Financial impact

Group Executive Committee responsibility

MitigationThe Group insists on strategic clarity at the Divisions and Massmart Corporate. The strategies of all Divisions and the Group are formally documented and are reviewed annually at Divisional level, at Group Executive Committee level and then by the Board. A Division’s strategies dictate management’s operational tactics and priorities. The annual budget process is an output of these reviews and on-going monthly monitoring of annual financial results and comparison to budget at Divisional Boards and Group Executive Committee level takes place.

Risk

Risk in order of priority

Risk after mitigation

IMPA

CT

PROBABILITY MaximumMinimum

Maximum

2

Talent retention and succession

Financial and Operational impactOngoing area of focus

Group CEO / Human Capital Executive responsibility

MitigationThis remains a major focus area. The Executive Committee actively monitors the progress, development and possible succession plans for the ‘Top 200’ employees, as well as monitoring a further 200 employees. There are in-house education programmes prepared and presented in conjunction with local and international business schools that focus on developing middle and junior executives, and there is an in-house graduate recruitment programme in place. Annual ‘fire-side chats’ are held with each executive in the Group, which are attended by that person’s superior and a third executive. The Group’s remuneration policy, incorporating short- and longer-term incentives, is designed to reward significant out-performance. The Share Scheme is intended to act as a retention mechanism.

4

Failure to address in-store health and safety issues including store or DC fire

Reputational impact

Chief Ethics and Compliance Officer / Divisional CEO’s responsibility

MitigationIncrease executive, staff and customer awareness in-stores. Internal Audit reviews. Use of professional third parties to assess in-store health and safety issues, including legislative and regulatory compliance. Supply chain focus to reduce inventory volumes. All Makro stores ASIB compliant. High awareness across Group, ongoing monitoring of system maintenance and testing. Replacement of roof insulation with appropriate fire retardant insulation in Massbuild stores. Work with external risk assessors and insurance brokers. Focus on storage of flammable products. Proper location and management of electricity generators.

5

Complexity of the Group’s African operations

Financial and Operational impact

Group CEO / Divisional CEOs responsibility

MitigationCareful pre-selection of countries for new stores, with a thorough evaluation of customs, tax, exchange control and business legislation. Regular repatriation of cash. Dedicated executives across several functions monitor and manage the African operations. Keep supply chain as short as practical. Develop relationships with key government and regulatory authorities in those countries.

6

Food Safety and Hygiene

Financial and Reputational impact

Chief Ethics and Compliance Officer’s / Divisional CEOs responsibility

MitigationSupplier compliance audits. Use of QA tests by third parties (Food Consulting Services). Food safety management system audited by Diversey. Formulated product-recall procedure. Internal audit focus.

7

Inefficient or ineffective supply chain or a failure in the supply chain

Financial impact

Group CEO’s / Divisional CEO’s responsibility

MitigationDedicated Supply Chain executives, with Group Forum. Optimisation of regional distribution centres (RDC’s). Business continuity plans in place for RDC’s. Stable forecasting and replenishment systems. Ongoing review and clearing of dated product.

8

Volatility of key economic variables


CFO responsibility

MitigationAll direct foreign exchange import liabilities are forward covered.Interest rates on the Group’s medium-term debt have been fixed.Property lease escalation rates are negotiated as low as possible. The Group continually explores means of keeping the net assets of its African operations to a minimum, thereby reducing the translation effect of any currency movement. This includes repatriating cash profits as frequently as possible and settling cross-border liabilities timeously.

3

Competitor attack on our major merchandise categories

Financial impactDifficult to predict

Group CEO / Divisional CEOs responsibility

MitigationMaintain a relevant and competitive product offering that offers affordable value to our customers. Invest in brand awareness and loyalty. Manage low-cost efficient operations. Ensure suppliers believe that our stores and associated supply chain offer an ideal route to market. Optimise our store locations, and ensure regular store refurbishments and format renewal.

9

Insufficient progress with Transformation

Reputational impact


MitigationWill set appropriate targets and expectations in the context of new codes and to maximise the visibility of initiatives such as the Supplier Development Fund, even if these initiatives do not directly influence the scorecard. Transformation is an agenda item at all Divisional and Group Board meetings and a senior executive at Massmart has overall responsibility for delivering the strategy.

10

Ineffective cost control



MitigationOngoing cost control through monitoring, benchmarking, review and innovation. Executives incentivised on PBIT growth. RDC and supply chain strategy. Reduce cost and waste.Improve effectiveness and efficiency in procurement and inventory management. Eliminate unnecessary complexity. Careful new store roll-outs. Collaborate with Walmart / ASDA on We Operate for Less programmes.

Definitions of each risk can be found at www.massmart.co.za/iar2014/riskdef

3

Message from our Chairman 34

Our CEO’s letter to our stakeholders 36

Our Board 40

Our Executive Committee 42

Leadership review01

Massmart adds and delivers sustainable value to

our customers, our shareholders, our suppliers

and our employees. We achieve this through

our deep and relentless focus on operational

excellence, good business, sustainable business

and growing our talent on an ongoing basis.

34 35Massmart Integrated Annual Report 2014Leadership review

Message from our Chairman

Kuseni DlaminiGroup Chairman

At the end of what was an eventful year for Massmart, it is an immense privilege to introduce the 2014 Massmart Integrated Annual Report. Massmart adds and delivers sustainable value to our customers, our shareholders, our suppliers and our employees. We achieve this through our deep and relentless focus on operational excellence, good business, sustainable business and growing our talent on an ongoing basis.

The business environment over the past year was very difficult and challenging for most businesses, including Massmart. South Africa held its general elections which saw the ruling African National Congress gaining over 60% of the vote and the emergence of a new political party, the Economic Freedom Fighters, which got 6.4% of the vote. The issues of social transformation, service delivery, poverty, unemployment and inequality dominated the election campaign.

Global economic growth remained largely anaemic. While the American economy showed signs of recovery, Europe and China, both of whom are major trading partners for South Africa and other African markets where we operate, experienced slowing growth. The impact of this was felt by most of our sub-Saharan African markets, where the growth picture was mixed, although encouragingly, still higher than some regions elsewhere in the world.

The South African economy experienced an unprecedented wave of protracted strikes with a mining strike that lasted for months and a metal industry strike that took weeks to resolve. The retail sector was impacted directly by these strikes given the systemic importance of both industries to the economy in general and to consumers’ disposable incomes in particular.

South Africa needs a joint effort to create and maintain productive industrial relations that are key to the stability required to grow and expand the economy, create and maintain jobs and promote the country’s global competitiveness. This requires strategic and purposeful collaboration between government, business and trade unions, underpinned by a common commitment to make South Africa work for all.

The energy situation continued to present another key challenge for the South African economy with load shedding being implemented for the first time since 2008 when the country’s energy crisis first began. The stability of the national electricity grid is key to the growth of the economy on a sustained basis. Eskom needs to be stabilised and repositioned for operational efficiency for it to play the pivotal role it has in ensuring reliable supplies of electricity.

StrategyThe key focus of our strategy is about bringing value to

our customer on an ongoing basis. We do this by embracing innovation, focusing on cost containment and proactively identifying and dealing with areas of under-performance across the business.

In 2014, we continued our focus on growth and expansion of our footprint in Africa which is key to our strategy going forward. The growing trends towards urbanisation, industrialisation, an expanding middle class and a youthful population, augur well for the future of our business across Africa.

We continued our focus on growing our fresh food offering through its introduction in some of our Game stores and the ongoing roll out of Cambridge Foods. This is an area of opportunity for growth that will continue to receive our increased focus. We will continue to invest for future growth in current and new markets in South Africa and sub-Saharan Africa.

Board and Executive changesThe year saw significant and well-managed changes

at Board and Executive levels. The former Chairman of the Board, Mark Lamberti, stepped down and I was honoured to be appointed to replace him. The former CEO, Grant Pattison, was replaced by Guy Hayward. David Cheesewright, President and Chief Executive Officer of Walmart International resigned and was replaced by Shelley Broader, President and CEO of Walmart EMEA. Andy Clarke, CEO of ASDA, was appointed to the Board as a replacement for Jeff Davis, Walmart America CFO, who resigned from the Board. Most recently Johannes van Lierop was appointed to the Board as CFO, following the resignation from the Board of Ilan Zwarenstein.

Group performance The comprehensive performance of the Group, which

is described in detail throughout this Report, was solid and satisfactory, especially considering the tough environment under which the management team had to operate. We view performance from a strategic, operational, financial and social perspective.

All of our Divisions performed well, with the exception of Massdiscounters, which showed encouraging signs of improvement towards the end of the financial year. The Board is very confident that the management team is appropriately focussed on the challenges and opportunities in its operating environment.

GovernanceThe Group’s commitment to good corporate governance

is informed by our awareness of our responsibilities to all stakeholders and our commitment to ensure the highest standards of governance.

The Board adopted a policy which outlines the engagement process with our majority shareholder, Walmart, on key issues and clarifies expectations appropriately. The process for engagement with them is working well and Massmart continues to derive value from the skills and expertise of Walmart as a majority shareholder.

Dedicated to adding valueThe context in which publicly listed multinational

companies operate continues to be in a state of flux. The different markets in which we operate pose unique economic, competitive, technological, regulatory, societal and environmental challenges of varying degrees of complexity. The role of business in society beyond narrow financial returns is becoming a key theme, especially in emerging markets such as ours. Massmart will continue to be a positive force for good in all our markets.

Our core focus in helping people save money so that they live better is key to the sustainable growth and development of the different markets in which we operate. This is partly enabled by our relentless focus on responsible sourcing, supplier development and mutually beneficial partnerships with small, medium and micro enterprises.

The rollout of our ethics and compliance programme is key to our responsibility as a trusted corporate citizen that is a champion and a catalyst for good behaviour in the markets in which we operate. Our focus and emphasis on ethics and compliance require ongoing vigilance to ensure that they are at all times entrenched as part and parcel of our culture.

This is also linked to our commitment to sustainability of not only our business but also the economies and societies in which we invest. Sustainability remains core to Massmart as a leading retailer in sub-Saharan Africa.

Our success is inextricably intertwined with the success of the countries and communities in which we operate. We continue to invest in talent development, community development, supplier development, education, job creation, entrepreneurship and the environment as ways of promoting sustainability.

AppreciationOver the past year, all our Divisions faced a very

challenging socio-economic environment. Notwithstanding they delivered pleasing results. In addition to that, good progress has been made with the integration process and focus started shifting towards leveraging off the skills and expertise of our major shareholder.

The success of the Group is underpinned by its exceptional talent and executive bench, commitment by all Massmart people to our customers and the outstanding and unwavering support of Walmart.

My thanks are due to Guy Hayward and every member of Massmart’s management and staff; to all at Walmart who continue to be very generous with their expertise and warmth; and to my colleagues on the Board, whose counsel and oversight continues to be of immense value to the Business and its stakeholders.

Kuseni Dlamini Chairman2 April 2015


Our CEO’s letter to our stakeholders

The 2014 South African consumer economy was marked by two distinct halves to the year – the first was compromised by the five-month labour strike in the Mining sector which rippled, directly and indirectly, into associated service industries and communities. This period was probably also subdued from the after-shocks of the collapse of unsecured credit lending. The second half was noticeably stronger, as seen in the national sales data and reports from South African retailers. This was likely as a result of the absence of a negative, rather than the presence of a new or positive, impetus. Low economic growth, inadequate job creation and persistent inflation remain a pressure point for many South African consumers. Upper-income consumers remained resilient however, reflected in robust sales in Makro and Builders Warehouse.

The 2014 African economy, similarly, experienced two halves to the year – the first was positive but the second affected by US Dollar strength and the decline in prices of oil and other key commodities. This caused several African economies to weaken and some were affected by currency devaluations, causing some profit pressure on our non-South African businesses that represent 8.1% of Group sales.

Financial performanceThe Group’s financial performance is covered in useful

detail in the Chief Financial Officer’s review but is summarised briefly here. For the year to December 2014 (52 weeks) Massmart reported total sales of R78.2 billion, an increase of 10.4% compared to the previous year, with comparable stores’ sales growth of 7.5% and product inflation of 4.8%.

Good management of gross margins and an increased participation of higher-margin sales in Massbuild saw slightly higher Group gross margins in 2014 at 18.6% (Dec 2013: 18.4%).

As a result of the significant investment in new stores and capacity in the last three years, total expenses grew by 11.7% which was ahead of sales growth. Within the core business, expenses were well controlled and comparable expenses grew by only 7.1%. EBITDA of R2.9 billion, before foreign exchange movements, grew by 6.7%, while Operating profit, excluding foreign exchange movements and interest, increased by 4.3%.

Higher net interest paid from funding several significant property acquisitions in 2013-14, and an adverse movement in foreign exchange translations, resulted in headline earnings decreasing by 10.2%. Excluding foreign exchange movements, headline earnings declined by 3.5%.

Operational highlights• Excellent performances from Makro, Builders Warehouse

and Builders Express. Achieved through leveraging skills, scale, SAP and supply chain. Profit growth accelerated in the second half

• Game South Africa - good second half, growing profit however Game Africa declined from weaker economies, new stores and currency devaluations

• Game Food Retail growth continues: now R3.2 billion; positive impact on General Merchandise sales

• Margin recovery in Masscash Wholesale through focus on direct distribution and larger stores

• Great performance by new Builders Warehouse stores in southern Africa

• High consumer brand affiliation for Cambridge Food; strong trading performance

• Successful launch of Makro ecommerce site offering General Merchandise and Liquor

Divisional operational review

Massdiscounters Total sales for the year increased by 10.2%. Comparable

sales grew by 4.8% with product inflation of 3.1%. Game South Africa had a better second-half and an especially strong fourth quarter where comparable sales grew by 8.1%. The weak performance for much of the 2014 financial year however, caused pressure on overall profitability resulting in Massdiscounters’ trading profit before interest and tax decreasing by 44.7%.

Game SA’s trading profit before interest and tax grew ahead of sales in the second-half of 2014. The roll-out of the Fresh offer continues with 66 Game stores in South Africa and Africa now offering this category. Food and Liquor sales comprise 19.4% of Game total sales and Food and Liquor’s growth in these comparable stores remains strong at 19.4%.

Game Africa’s total Rand sales, and sales in local currencies, increased by 18.2% and 16.6% respectively. Profit growth was below sales growth due to operational challenges, currency devaluation and the impact of our new stores opened in Nigeria in 2013-2014. The latter two issues impacted profit by R40 million; most of this in the second-half of 2014.

DionWired’s total sales growth was 13.2%. The brand remains the destination store within its category. The DionWired online offering now comprises 2.3% of total DionWired sales (December 2013: 1.8%).

Anti-competitive challengesFor the past two years we have defended several legal

actions filed against our Massdiscounters/Game division by three of the major food retailers in South Africa and a prominent property fund also located in South Africa. These interdictory actions for injunctive relief are based on contractual and delictual theories of law relating to exclusivity and restrictive usage clauses in separate lease agreements between the relevant landlord and Game on the one hand, and one or more of the major food retailers on the other. These disputes arise when one or more of these retailers are co-located in a particular shopping centre with a Game store that seeks to offer a limited fresh food offering. Along with other legal defences, we have asserted that the blanket enforcement of these clauses by the major food retailers contravenes South African competition law. In October 2014, Massmart lodged a formal complaint with the South African Competition Commission and requested the Commission to initiate a formal investigation into this behaviour. In December 2014, the Commission notified us that they would proceed with a formal investigation of our claims, together with similar complaints raised by other stakeholders. The various proceedings, including the Commission’s investigation, are on-going. If the conclusion of these proceedings is not in our favour--in whole or in part--then a key Group strategy in certain localities in South Africa could be delayed or curtailed.

Masswarehouse Makro’s total sales for the year increased by 11.8%.

Comparable sales increased by 10.7% with product inflation of 5.5%. Makro’s trading profit before interest and tax increased by 11.2% as the business traded superbly in a challenging Wholesale Food environment. It outperformed in Liquor and General Merchandise. Further it extracted value from the new stores opened in 2011-2012. Our Food business continues to benefit from increased sales to retail customers. Importantly, we have gained additional share in the Retail and Wholesale Liquor markets.

Guy HaywardGroup CEO

Total sales up by

10.4%(R78,173 million)

EBIDTA before forex up by

6.7%(R2,887 million)

Operating profit before forex and interest up

4.3%(R2,015 million)


WalmartIt is almost five years since we first met Walmart and

almost four since its 52% ownership of Massmart formally began in June 2011.

Becoming part of a multinational spanning the globe was initially challenging, particularly as Massmart was already an African multinational organisation. Since then, all functional and operational relationships between Walmart and Massmart have found the appropriate business owners and are useful and constructive.

There are now multiple points of contact between the businesses – these are not limited to executive level and stretch from: speaking to ASDA about the intricacies of the Fresh supply chain, attending ecommerce discussion with Walmart.com, attending meetings to lower store construction costs, or our Divisional management attending a two-week deep-dive with the Walmart Canada supply chain team. Much of the value-transfer from Walmart to Massmart is in the form of intellectual property and retail skills.

A strategic benefit however, is the significantly lower costs of international IT licences including SAP. This, for example, has enabled Massmart to plan SAP implementations across Cambridge and Game that will transform the retail execution in those businesses over the longer-term.

TransformationFor a business to be sustainable over the long-term it

must be instinctively responsive to the nature, needs and direction of the society within which it operates. We believe that diversity makes a business stronger, more resilient and more responsive. As a major South African Group, our focus remains steadfast on the Transformation of our employee body, especially at senior- and executive-management levels. Similarly, through our involvement with the Supplier Development Fund, we are making progress in the Transformation of the South African FMCG supply chain. Our progress in both these areas is described in greater detail on pages 79-80 and 99-101 respectively.

The BoardMy Board colleagues are a source of great counsel

and support, with the occasional challenge too. Each Board member contributes to me in my role as CEO and, formally and informally, I have ready access to skills and experience across diverse areas including international retail, multinationals, corporate governance and risk, South African politics and transformation. This counsel, of course, extends beyond me to my Executive Committee colleagues and senior management.

After assisting with the transition of the new CFO, Ilan Zwarenstein resigned from Board on 12 March 2015. Ilan has been with Massmart for nine years and was Group Finance Director from 2012. His contribution to Massmart has been significant at many levels and beyond Finance too, and the Board and I acknowledge and thank him for this.

The General Merchandise and Liquor online offerings, launched in March and October 2014 respectively, are trading above expectations but are not without their logistical challenges, especially over the Christmas rush.

The Fruitspot grew sales and profit, and compared to December 2013 has doubled its intra-Group sales.

Massbuild Massbuild grew total sales for the year by 14.6%.

Comparable sales increased by 9.1% with product inflation of 5.9%. Massbuild’s trading profit before interest and tax increased by 15.0%.

Builders Warehouse and Builders Express performed exceptionally, and are clearly market leaders in their categories. We are particularly encouraged by the success of our five stores in Botswana and Mozambique. The new store in Maputo, Mozambique opened in July 2014. It is enjoying strong trading and as a result we are actively exploring sites in other southern African countries.

Builders Trade Depot struggled, likely due to some of the success and dominance of Builders Warehouse and Builders Express. The new Superstore format continues to exceed expectations. We are now committed to expanding this store format beyond the Gauteng province, South Africa.

Masscash In the extremely competitive South African Wholesale

and Retail Food environments, total sales increased by 8.0%. This was impacted by slowing inflation in our categories. Comparable sales increased by 6.3% with product inflation of 4.8%. Masscash’s trading profit before interest and tax increased by 14.9%.

Sales growth of 2.7% in our South African Wholesale business was affected by severe challenges at our two largest stores; adjusting for these saw acceptable sales growth of 5.3%. Sales growth in our non-South African Wholesale businesses was 8.0%. We remain excited at the potential of Wholesale and Hybrid formats in southern Africa.

Masscash Retail performed very well, reporting comparable sales of 9.7%, improving profitability and strong customer price-perception. Both the Cambridge and Rhino brands receive strong customer support and loyalty.

Strategic prioritiesOur areas of strategic focus remain unchanged. We

will continue to improve on Group profitability through a continued focus on sales, operating margin and expenses. We will always be prepared to invest profit into price, to drive sales and the productivity loop. We aim to achieve this through:• Driving the growth and profitability of the core South

African business over the medium-term. This is a priority and we are making good progress

• Expanding further into Food Retail and Fresh in our existing formats and Masscash Retail

• Expansion in sub-Saharan Africa. This remains a priority and in the next two years we anticipate opening 13 new stores representing African space growth of about 50%

• We will continue to expand and improve our ecommerce offerings

I welcome Johannes van Lierop, Ilan’s successor, to Massmart and the Board, and look forward to his contribution. Johannes has extensive multinational experience in Africa where he has lived in three different countries and covered over 20 countries at various times over the last 18 years. In particular, he was with Diageo from 2000 to 2011 where he worked in various roles including Finance, Supply Chain and Planning, finishing as CFO of the Diageo-subsidiary Guinness Nigeria in 2011. He joins Massmart from Bharti Airtel Africa in Kenya where he was CFO from 2011 to 2014.

I echo the remarks made by Kuseni Dlamini concerning our new non-Executive Directors.

Our peopleOur Group’s success and sustainability depends on

the five Divisional CEOs, and the over 47,000 colleagues employed across all our businesses, in stores, distribution centres, offices, processing plants and across 12 countries. Many have a significant length of service with Massmart while others have recently joined. I thank all of them for their hard work, dedication, customer service and loyalty.

ProspectsFor the 13 weeks to 29 March 2015, total sales increased by

9.5% and comparable sales increased by 7.4%. Recent sales trends in were adversely affected by the 21 March public holiday falling on a Saturday this year, rather than the Friday as was the case in the prior year. Allowing for this, the level of sales growth is similar to that seen in the latter part of 2014, and so may be indicative of future sales levels for the short-term. We remain concerned however, by the relatively fragile South African consumer economy and we are cautious about the impact of lower oil prices on those larger African countries with some dependency on oil revenues. Regardless, we remain focused on our strategic priorities to improve sustainably Group profitability and to grow in our core businesses and markets.

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

ConclusionOur appreciation and gratitude is due to all our

stakeholders for their contribution and commitment to Massmart during this period.

Guy Hayward Chief Executive Officer2 April 2015

Our CEO’s letter to our stakeholders continued

Net trading space increased by 30,857m² (6.5%)

Game130 stores (11 opened - 2 in Africa, 2 closed)

General Merchandise discounter and Food retailer

Trades in South Africa, Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda and Zambia

DionWired23 stores (2 opened, 1 closed)

Hi-tech retailer

Trades in South Africa

Net trading space increased by 25,992m² (6.3%)

DIY, Home Improvement and Building Materials

Builders Warehouse 35 stores (3 opened, 2 closed - effectively 2 relocations)Trades in South Africa, Botswana and Mozambique

Builders Express 41 stores(7 opened - including 3 converted from BTD,2 closed)Trades in South Africa

Builders Trade Depot16 stores(1 opened, 5 closed and converted to BEX & BSS)Trades in South Africa

Builders Superstore8 stores(6 opened - including 2 converted from BTD)Trades in South Africa


Makro19 stores (no store changes)

Warehouse-club trading in Food, General Merchandise and Liquor

FruitspotEstablished wholesaler and distributor of fresh and cut fruit and vegetables.

Net trading space increased by 1,138m² (0.3%).

Wholesale73 stores (2 closed)

Trades in South Africa, Botswana, Lesotho, Mozambique, Namibia and Swaziland

Retail47 stores (3 opened, 3 closed)


Shield buying association

Trades in South Africa, Botswana, Namibia and Swaziland


Our Board

Kuseni Dlamini (46)Chairman of the Board

Appointed 10 April 2014BA (Hons) (KZN), MPhil (Oxon)

N

M

Chris Seabrooke (62)Deputy Chairman of the Board

Appointed 1 February 2000BCom, BAcc, MBA, FCMA

A

M

R

N

The Board of Massmart is responsible for directing the Group towards achieving Massmart’s vision and mission.

Phumzile Langeni (40)Appointed 25 August 2004

BCom (Natal), BCom Hons (UNISA)

A RSE

Shelley Broader (50)President and Chief Executive

Officer of Walmart’s EMEA region

Appointed 16 July 2014BA (Washington State University)

N

M

Andy Clarke (51)President and Chief

Executive Officer of ASDA

Appointed 16 July 2014

JP Suarez (51)Senior Vice President of Realty

Design, Construction and Strategy for Walmart US

Appointed 20 June 2011

BA (Hons) (Tufts University) JD (University of Pennsylvania)

SE

For the complete and detailed CVs of the Board members, please visit www.massmart.co.za/iar2014/CVs

Johannes van Lierop (48)Chief Financial Officer

Appointed 12 March 2015Hotel and Catering Management Degree, Bachelor of Business Economics, RA (Amsterdam)

E

R

Dr Nolulamo (Lulu) Gwagwa (56)Appointed 1 November 2006MSc (KZN), MSc (LSE), PhD (UCL)

RA

Guy Hayward (49)Chief Executive Officer

Appointed 15 May 2001BCom, CTA (UCT), CA(SA)

E

R

SE

N

on-in

dep

ende

nt n

on-E

xecu

tive D

irectors

Executive Directors Independent non-Executive Directors

A Audit

E Executive

M Remuneration

N Nomination

R Risk

SE Social and Ethics


Mike Spivey (51)Massmart General Counsel

Appointed 2011 BSc and Juris Doctorate (University of

Arkansas), Master’s in Law in International Banking and Finance (Boston University)

R

Llewellyn Steeneveldt (46) Group Commercial Executive Chairman

of the Real Estate Committee Chairman of the TIP and Operations

Forums

Appointed 2009BSc Eng (Phys Met), GDE (Industrial), MBA

Kevin Vyvyan-Day (50)Divisional Chief Executive of

Cambridge Food and Chairman of the General Merchandise Forum

Appointed 2005BCom, BAcc (Wits), CA(SA)

Llewellyn Walters (51)Divisional Chief Executive of Massbuild

Chairman of the Supply Chain and Africa Forums

Appointed 2008BA, LLB (Wits)

Neville Dunn (46)Divisional Chief Executive of Masscash Wholesale

Appointed 2002BCom (Natal), CA(SA)

Doug Jones (42)Divisional Chief Executive of Masswarehouse, Chairman of the Food Forum Chairman of Fruitspot and Makro Logistics Services Chairman of Massmart Corporate University’s School of Management Development

Appointed 2012BCom, PGDA (UCT), CA(SA)

Brian Leroni (50)Group Corporate Affairs Executive

Appointed 2007BA (Wits), MPhil (Stellenbosch)

SE

Pearl Maphoshe (46) Group Human Capital Executive,

Chairperson of the HR Forum and member of the Social and Ethics Committee

Appointed 2007BA (Hons), HDipEd (Durban-Westville), MA (London)

Guy Hayward (49)Chief Executive Officer

Appointed 2001BCom, CTA (UCT), CA(SA)

R

SERobin Wright (59)Divisional Chief Executive

of Massdiscounters

Appointed 1998BCom (Natal), CA(SA)

Ilan Zwarenstein (40)Group Finance Director (outgoing)

Appointed 2012BCom, BAcc, CA(SA)

Johannes van Lierop (48)Chief Financial Officer

Appointed 2015Hotel and Catering Management Degree, Bachelor of Business Economics, RA (Amsterdam)

R

Norman Gray (58)Chief Ethics and Compliance Officer

Appointed 2015MBA (UK), FCMI (UK), Dip Mgmt (UK), CRMA and Certified Ethics Officer

R

The Massmart Executive Committee is the most senior executive decision-making body in the Group.

Our Executive Committee

R Risk

SE Social and EthicsFor the complete and detailed CVs of the Executive Committee, please visit www.massmart.co.za/iar2014/CVs

Our performance02

Financial and manufactured capital 46

Human capital 78

Intellectual capital 92

Social capital 96

Relationship capital 104

Natural capital 108

We have structured this section to demonstrate

our performance against the six types of capitals.

These capitals represent an important picture of our organisation’s

value creation.

46 47Massmart Integrated Annual Report 2014Our performance

Comparable costs were well-controlled

Real volume growth in sales

Increased depreciation, employment and finance costs

Financial and manufactured capital

Chief Financial Officer’s review

Massmart defines financial capital as the funds available to and utilised by the Group. Manufactured capital is defined as our Divisional structure through which we sell our products and services.

Decreased capital expenditure levels

excluding property acquisitions

Johannes van LieropCFO

For the 52 weeks ended 28 December 2014 Massmart’s total sales of R78.2 billion increased by 10.4% over the prior comparable year. Comparable stores’ sales growth was 7.5% with product inflation of 4.8%. Group EBITDA of R2.9 billion, before foreign exchange movements, grew by 6.7% while operating profit, excluding foreign exchange movements and interest, grew by 4.3%.

Definition: Earnings before interest, tax, depreciation, amortisation and impairments.

Reduced growth in occupancy costs


Our year at a glanceDuring the year, the South African economy continued

to struggle as labour in a number sectors went on strike forcing the level of unemployment to around 25%. In addition, fluctuating fuel costs, the country’s power crisis, the weakening Rand and some Food commodity deflation in the second half of the year, exacerbated the already fragile trading environment. The slowdown in credit extension, specifically unsecured credit, coupled with an increase in the level of household debt to disposable income, led to moderate growth in consumer spending. These factors affected all consumers, but the lower- and middle-income consumers were most impacted.

These challenging conditions for consumers resulted in strong performances in Massbuild and Makro being offset by a lesser performance in Game SA and difficult trading conditions in Wholesale Food.

2014 was an important year from an investment perspective as we continued to acquire properties out of which our key stores operate; we expanded our Food Retail offering in our existing structure across three divisions; and increased our African footprint. These investments resulted in increased employment, depreciation and finance costs and reduced the growth in occupancy costs.

During the year, the relationship with Walmart has continued to deliver great benefits to Massmart which are unique and will assist Massmart to form a competitive advantage. As a shareholder, Walmart has greatly assisted the Group with its strategic journey into Food Retail; the roll out of our supply chain and logistics strategy; and the introduction of Every Day Low Price (EDLP).

Chief Financial Officer’s review continued

Impact of the 53rd weekIn line with most international retailers, Massmart runs its

internal accounting and administrative timetable using the retail calendar which treats each financial year as an exact 52-week period. This has the effect of a day per year being ‘lost’ which is then caught up every seventh year by including a 53rd week in that financial year. This is not an ‘artificial’ week – the Group’s earnings and cash are higher as a result of trading during this extra week. The pro forma financial effects, for which the Directors of Massmart are responsible, are provided for illustrative purposes only, to show the effect of the additional week of trading in the prior year on the financial information of Massmart, allowing for a comparison of the 52-week periods. The pro forma financial effects have been prepared using accounting policies that comply with IFRS and the financial effects have been compiled from the audited financial information for the 53 weeks ended December 2013. In deriving our 52-week comparative, we have excluded the 53rd week. The pro forma 52-week period 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 ISAE 3420 Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus for the year ended 29 December 2013.

On a high level, the estimated impact of the 53rd week was as follows:

Summary Consolidated Income Statement

Rm

52 weeks December

2014 (Audited)

52 weeks December

2013 (Pro forma)

52 week % change

53 weeks December

2013 (Audited)

Revenue 78,319.0 71,035.3 10.3 72,512.9 Sales 78,173.2 70,790.7 10.4 72,263.4 Cost of sales (63,610.8) (57,733.8) (10.2) (58,926.4)Gross profit 14,562.4 13,056.9 11.5 13,337.0 Other income 145.8 244.6 (40.4) 249.5 Depreciation and amortisation (846.6) (731.1) (15.8) (731.1)Impairment of assets (24.6) (41.6) 40.9 (41.6)Employment costs (6,109.0) (5,357.5) (14.0) (5,423.5)Occupancy costs (2,678.8) (2,544.5) (5.3) (2,555.3)Other operating costs (3,033.3) (2,693.1) (12.6) (2,750.3)Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 2,084.7 Foreign exchange (loss)/gain (49.8) 67.8 67.8 Operating profit before interest 1,966.1 2,001.5 (1.8) 2,152.5 - Finance costs (386.8) (278.4) (38.9) (283.8) - Finance income 41.5 28.6 45.1 28.7

Net finance costs (345.3) (249.8) (38.2) (255.1)Profit before taxation 1,620.8 1,751.7 (7.5) 1,897.4 Taxation (483.4) (512.6) 5.7 (555.3)Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1

Profit attributable to: - Owners of the parent 1,079.8 1,180.0 (8.5) 1,283.0 - Non-controlling interests 57.6 59.1 (2.5) 59.1

Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1

Basic EPS (cents) 497.8 543.9 (8.5) 591.4 Diluted basic EPS (cents) 492.9 538.1 (8.4) 585.1 Dividend (cents): - Interim 146.0 146.0 - 146.0 - Final 275.0 275.0 - 275.0 - Total 421.0 421.0 - 421.0

Sales

R1,472.7 millionOperating profit before foreign exchange movements and interest of

R151.0 millionProfit before taxation

R145.7 millionHeadline earnings of

R103.0 million



SalesTotal Group sales for the December 2014 financial year

increased by 10.4% to R78.2 billion and comparable stores’ sales growth was 7.5%. A store is considered comparable in its 13th month of trading and is removed from the calculation of comparable sales from the first day of the month of closure.

Other than Cellular, the Group maintained or grew market share in each major category in which it trades during the year.

Operating expenses and other incomeThe movement in operating expenses has largely been

driven by the acquisition of some of our key stores and the roll out of new stores during the year, the proliferation of our Food Retail offering and the expansion of our African footprint.

During the year, 28 stores were opened and 12 were closed, resulting in a total of 392 stores at December 2014. Net trading space increased by 3.9% to 1,539,295m².

For more information on the store activities within the four Divisions, refer to pages 12 - 27 in this Integrated Annual Report.

Comparable operating expenses well controlled and increased by

7.1% (Dec 2013: 7.2%)This was lower than the comparable sales growth of 7.5%

Total operating expenses increased by

11.7% higher than the sales growth of 10.4%

InflationProduct inflation was 4.8% suggesting real comparable volume growth of 2.7%

Rm

December2014

52 weeks(Audited)

December2013

53 weeks(Audited)

Group product inflation 4.8 2.7

Food and Liquor inflation 5.1 4.1

Home Improvement inflation 5.9 3.7

General Merchandise inflation 3.6 0.1

SA Sales

Rest of Africa sales

Owned store sales

Leased store sales

8.1%

91.9%

2014

7.7%

92.3%

2013

Total Group sales increased by 10.4%

R78.2 billion (Dec 2013: R70.8 billion)

Total comparable sales

7.5% (Dec 2013: 3.8%)

Africa sales in Rands grew by 16.2% becoming 8.1% of total sales (Dec 2013: 7.7%)

Further information on the Group’s sales can be found in note 5 of the Group Annual Financial Statements

www.massmart.co.za/iar2014/groupafs

Gross profit

The Group’s gross profit % increased to

18.6% (Dec 2013: 18.4%)

The increase in gross profit is as a result of a combination of an increased contribution from Game Africa and improved margin performance in Massbuild, Masscash Retail and Makro. These were partially offset by a soft gross margin performance in Masscash Wholesale due to some commodity deflation; difficult trading conditions in Game; and a greater Food contribution at lower margins across the Group.

The Group’s gross margin is dependent upon the sales mix across the Divisions and the trading aggression occasioned by competitor activity. In a positive economic cycle, it should increase marginally owing to the increased contribution from the higher-margin Massbuild Division, as well as a higher proportion of General Merchandise sales. The opposite would be the case in a negative economic cycle. Gross profit also includes rebates and other forms of income earned from suppliers as well as on-going revenue from sales of cellular products and airtime.

Aligning to our strategy of owning key properties, owned store sales as a percentage of total sales have increased to

30.7% (Dec 2013: 27.3%)

DEC 2012

DEC 2013

DEC 2014


2013 • Operating profit before interest and forex of R1,933.7 million

1 • Total Group sales for the December 2014 financial year increased by 10.4%

2 A strong trading performance in Makro and Massbuild; offset by:• Greater Food contribution across the Group• A softer margin performance in Massdiscounters attributable to clearance activities• Deflation in some of our Food commodities

3 • Comprises royalties and franchise fees from in-store third parties, third party rental income, fair value movements on investments carried at fair value, dividend income, management and administration fees, distribution income, and general commission

• Prior year included insurance proceeds• Other income is shown in more detail in note 5 of the Group Annual Financial Statements:


4 • Total increase of 14.0% / Comparable increase of 8.5%• 48.1% of total operating expenses / 7.8% of sales• Increase in staff (Full-Time Equivalents) of 7.6% to +/- 47,000 FTE’s• Includes an IFRS 2 Share-based Payment charge of R127.9 million (2013: R126.2 million). Incremental cost

of the new scheme introduced in the second half of 2013 was R50.9 million. The Group’s Employee Share Incentive Schemes are described in more detail in note 29 of the Group Annual Financial Statements:


5 • Total increase of 5.3% / Comparable increase of 3.6%• 21.1% of total operating expenses / 3.4% of sales• 3.9% increase of net new trading space to a total of 1,539,295m• Electricity, rates and taxes increased by approximately 15%• Property acquisitions resulting in a reduction in the growth of occupancy costs• Includes operating lease expense of R1.9 billion. The Group’s operating lease commitments are

described in more detail in note 32 of the Group Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

6 • Depreciation growth of 15.8% is greater than sales growth of 10.4%• 6.9% of total operating expenses / 1.1% of sales• The opening of new stores, DC’s and the acquisition of key properties is driving the increase. Rate of

increase should reduce significantly from 2015• The impairment of assets in the current year relates to the impairment of tangible assets in the Masscash

Division as a result of store closures. The impairment also includes the write-down on reclassification to non-current assets classified as held for sale of a Masscash store for which a sales agreement had been entered into at year end. Further details on this impairment can be found in note 6 of the Group Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

7 • Total increase of 12.6% / Comparable increase of 7.8%• 23.9% of total operating expenses. 3.9% of sales• Credit card commission increased by 15.5%• Includes insurance, bad debts, travel, credit card commission, repairs and maintenance, pre-opening

costs, security costs, IT research and maintenance costs, professional fees, advertising and marketing, stationery and consumables. Combined, this category represents the most manageable or variable costs. This category of expenses will continue to receive intense management focus

• Also included is the cost of the bank intercharge fee which has now been decreased by the SARB and should result in a saving of approximately R55 million in 2015. Significant items, included in other operating costs, can be found in note 8 of the Group Annual Financial Statements:


2014 • Operating profit before interest and forex of R2,015.9 million• Increase of 4.3%

1,93

3.7

1,35

7.914

7.6(9

8.8)

(751

.5)

(134

.3)

(98.

5)(3

40.2

)

2,01

5.9

0 0,500 1,000 1,500 2,000 2,500 3,000 3,500

1

2013

2014

2

3

4

5

7

6

Sales-related gross margin

Price-and-mix-related gross margin

Other income

Employment costs

Occupancy costs

Other operating costs

Depreciation, Amortisation and Impairment of Assets

Operating profit before interest (Rm)




Reconciliation between Trading profit before interest and Operating profit before foreign exchange movements and interest

Rm

52 weeksDecember

2014(Audited)

52 weeksDecember

2013(Pro forma)

%change

53 weeksDecember

2013(Audited)

Trading profit before interest 2,061.7 1,994.4 3.4 2,145.4

Impairment of assets (24.6) (41.6) 40.9 (41.6)

Loss on disposal of business - (1.8) - (1.8)

BEE transaction IFRS 2 charge (21.2) (17.3) (22.5) (17.3)

Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 2,084.7

EBITDA and EBITDAR

Rm

December2014

52 weeks(Audited)

December2013

52 weeks(Pro forma)

%change

December 2013

53 weeks(Audited)

Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 2,084.7

Depreciation and amortisation 846.6 731.1 15.8 731.1

Impairment of assets 24.6 41.6 40.9 41.6

EBITDA 2,887.1 2,706.4 6.7 2,857.4

Occupancy costs 2,678.8 2,544.5 5.3 2,555.3

EBITDAR 5,565.9 5,250.9 6.0 5,412.7

R36m

Breakdown of foreign exchange (loss)/gain

Rm

December2014

52 weeks(Audited)

December2013

53 weeks(Audited)

Foreign exchange (loss)/gain arising from loans to African operations (35.0) 73.1

Foreign exchange gain arising from an investment in a trading and logistics structure 4.8 22.3

Foreign exchange loss arising from the translation of foreign creditors (19.6) (27.6)

Total (49.8) 67.8

Foreign exchange (loss)/ gainThe Group is primarily exposed to foreign exchange

losses and gains through its foreign currency and Rand denominated loans to its African subsidiaries, and its US Dollar denominated current liability to Walmart. The Group hedges all firm commitments relating its foreign denominated trading liabilities by taking out foreign exchange contracts (FEC’s). The Group naturally hedges its African loans by lending to its subsidiaries in various African countries in various African currencies, thereby spreading its foreign exchange exposure across a broad basket of currencies. In addition, the Group limits its exposure to any one currency by funding a portion of the African subsidiaries’ start-up capital via in-country bank loans.

Whilst the weakening of the Rand against the average basket of African currencies resulted in a foreign exchange gain in the African subsidiaries, it was the strengthening of the US Dollar against the average basket of African currencies that resulted in a net loss on the Group’s loans to its African subsidiaries.

Further detail on the Group’s foreign exchange risk management can be found in note 40 of the Group’s Annual Financial Statements:

www.massmart.co.za/iar2014/groupafs Further details regarding the Group’s foreign exchange

exposure can be found in note 7 of the Group’s Annual Financial Statements:


Saving on lease payments: R210 million

Less finance costs: R109 millionLess

depreciation costs:

Net savings: R65 million

Annualised benefit of property acquisitions made over the last 2 years


Taxation and tax rate reconciliation

Rm

December2014

(Audited)

December2013

(Audited)

The rate of taxation is reconciled as follows:

Standard corporate taxation rate 28.0 28.0

Non-taxable income and disallowed expenses 2.8 (2.0)

Allowances on lease premiums and improvements (0.1) (0.3)

Assessed loss not utilised 2.0 1.4

Other - including foreign tax adjustments (2.9) (2.2)

Effective tax rate 29.8 29.3

The main reason for the rate being above the standard 28% is the fact that we have continued to adopt a conservative approach to our tax as well as the fact that the old Employee Share Incentive Scheme cost is a disallowable expense. We expect Massmart’s future effective tax rate to remain just below 30%.

Massmart is unconcerned about any specific element of historical tax risk in the Group, but there remains the uncertainty that material adjustments arising from potentially unfavourable tax assessments of previous tax returns, some of which have not yet been assessed by SARS and other African tax authorities, could impact future tax charges.

More information relating to taxation can be found in note 10 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Deferred taxationThe deferred taxation asset arises primarily from

numerous temporary differences, including tax deductions on trademarks, the operating lease liability arising from the lease-smoothing accounting policy, and unutilised assessed losses. This net asset will reduce over time as the associated tax benefits are utilised. Net deferred tax increased from R585.5 million at December 2013 to R600.9 million at December 2014.

More information relating to deferred taxation can be found in note 18 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Headline earnings The main reason for the decrease in earnings and

headline earnings is the increase in employment, occupancy, depreciation and amortisation, and interest costs already discussed.

Dilutive headline EPS is determined after taking into account potentially dilutive shares of 2.1 million (Dec 2013: 2.3 million shares) that arose due to the higher weighted-average Massmart share price during this financial year in comparison to the exercise price of the Employee Share Incentive Scheme grants.

The impairment of assets in the current year relates to the impairment of tangible assets in the Masscash Division as a result of store closures. The impairment also includes the write-down on reclassification to non-current assets held for sale of a Masscash store for which a sales agreement had been entered into at year end. Further details on this impairment can be found in note 6 of the Group Annual Financial Statements:

www.massmart.co.za/iar2014/groupafsHeadline earnings is described in more detail in note 12

of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Summary Consolidated Statement of Comprehensive Income

Rm

52 weeksDecember

2014(Audited)

52 weeksDecember

2013(Pro forma)

52 week % change

53 weeksDecember

2013(Audited)

Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1

Items that will not subsequently be re-classified to the income statement: (8.9) 5.7 5.7 Post retirement medical aid actuarial (loss)/gain (8.9) 5.7 5.7

Items that will subsequently be re-classified to the income statement: (55.6) 55.8 55.8 Foreign currency translation reserve (53.7) 47.2 47.2 Cash flow hedges 1.4 7.0 7.0 Revaluation of listed shares (3.7) 4.7 4.7 Income tax relating to components of other comprehensive income 0.4 (3.1) (3.1)

Total other comprehensive (loss) / income for the year, net of tax (64.5) 61.5 61.5

Total comprehensive income for the year 1,072.9 1,300.6 (17.5) 1,403.6

Total comprehensive income attributable to: - Owners of the parent 1,015.3 1,241.5 1,344.5 - Non-controlling interests 57.6 59.1 59.1

Total comprehensive income for the year 1,072.9 1,300.6 (17.5) 1,403.6

Further information on the movements in other comprehensive income can be found in note 23 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Headline Earnings

Rm

52 weeks December

2014 (Audited)

52 weeks December

2013 (Pro forma)

52 week % change

53 weeks December

2013 (Audited)

Reconciliation of profit for the year to headline earningsProfit for the year attributable to owners of the parent 1,079.8 1,180.0 (8.5) 1,283.0 - Impairment of assets 24.6 41.6 41.6 - Loss on disposal of tangible and intangible assets 1.4 11.9 11.9 - Loss on disposal of business - 1.8 1.8 - Total tax effects of adjustments (0.3) (3.8) (3.8)

Headline earnings 1,105.5 1,231.5 (10.2) 1,334.5 Headline earnings before foreign exchange (taxed) 1,141.4 1,182.7 (3.5) 1,285.7

Headline EPS (cents) 509.7 567.7 (10.2) 615.2 Headline EPS before foreign exchange (taxed) (cents) 526.2 545.2 (3.5) 592.7 Diluted headline EPS (cents) 504.7 561.6 (10.1) 608.6 Diluted headline EPS before foreign exchange (taxed) (cents) 521.1 539.4 (3.4) 586.4


Net finance costs

Net finance costs increased by

38.2%Higher average borrowings at

R2.9 billion (Dec 2013: R2.0 billion)

Net additional medium-term funding obtained in 2014

R1.2 billion In addition to the main drivers already highlighted,

the increase in finance costs is also attributable to higher interest rates, the acquisition of some of the remaining non-controlling interest in entities within the Masswarehouse and Masscash Divisions, and the payment of contingent consideration on historic business combinations in the Masscash Division.

Further details regarding the Group’s finance costs and interest rate risk exposure and management can be found in note 9 and note 40 of the Group’s Annual Financial Statements respectively:

www.massmart.co.za/iar2014/groupafsThe Group’s gearing ratio (debt:equity) increased to 44.5%

(Dec 2013: 29.7%). Further details regarding the Group’s capital risk

management can be found in note 40 of the Group’s Annual Financial Statements:




Summary Consolidated Statement of Financial Position

RmDecember 2014

(Audited)December 2013

(Audited)%

change

AssetsNon-current assets 11,018.3 10,111.8 Property, plant and equipment 7,239.2 5,988.1 20.9

Goodwill and other intangible assets 2,958.7 2,928.8 Investments and other financial assets 158.2 522.8 Deferred taxation 662.2 672.1 Current assets 17,870.1 16,036.1 Other current financial assets 229.3 - Inventories 11,228.8 10,115.5 11.0

Trade, other receivables and prepayments 4,288.3 3,712.5 15.5

Taxation 56.3 12.0 Cash and bank balances 2,067.4 2,196.1 Non-current assets classified as held for sale 18.0 -

Total 28,906.4 26,147.9

Equity and liabilitiesTotal equity 5,527.2 5,369.6 Equity attributable to owners of the parent 5,334.4 5,173.0 3.1

Non-controlling interests 192.8 196.6 Non-current liabilities 3,236.8 2,206.4 Interest-bearing liabilities 2,133.9 1,178.7 Deferred taxation 61.3 86.6 Other non-current liabilities and provisions 1,041.6 941.1 Current liabilities 20,142.4 18,571.9 Trade, other payables and provisions 18,518.9 17,101.2 8.3

Taxation 208.3 331.3

Bank overdrafts 584.0 607.8 Other current liabilities 831.2 531.6

Total 28,906.4 26,147.9

Investments and other financial assetsDuring February 2014, the Group’s participation in an

international treasury, shipping and trading business of R117.4 million terminated, and as a result, the investment was realised.

The Group sells extended warranties and places general insurance through vehicles facilitated by Mutual & Federal. In addition, the Group will sell credit life insurance through a vehicle by arrangement with Guardrisk. This cell arrangement was capitalised in the current year with no life products sold during the current financial year. The Group’s investments in insurance cell captives amounted to R125.2 million (Dec 2013: R100.3 million) at year end.

The Group also holds other listed and unlisted investments to the value of R10.1 million (Dec 2013: R14.2 million).

More information relating to investments can be found in note 16 of the Group’s Annual Financial Statements:

www.massmart.co.za/iar2014/groupafs At year end, interest-free Employee Share Trust Loans

of R37.6 million (Dec 2013: R46.7 million) are owed by participants in terms of the old Massmart Employee Share Incentive Schemes, R15.1 million of which is reflected in other current financial assets in the current year.

The finance lease deposit of R21.9 million was reversed during the 2014 financial year, upon acquisition of one of the property companies referred to earlier, that houses the Makro Strubens Valley store.

At year end the property loan of R215 million raised in 2013 was transferred from non-current investments and other financial assets to other current financial assets. During the prior financial year the Group purchased a property where transfer was not effected at year end. Due to the delay, the Group placed the purchase price on deposit with the seller honouring the transaction. Upon transfer, during February 2015, the property was recorded by the Group as land and buildings and the loan asset was paid to the seller.

More information relating to investments and other financial assets can be found in note 17 and 17.1 of the Group’s Annual Financial Statements:

www.massmart.co.za/iar2014/groupafsMore information relating to the fair value of the above

investments can be found in note 39 of the Group’s Annual Financial Statements:


Acquisition of businessesDuring this same period, the Group also acquired two

Liquor businesses in the Massdiscounters Division. Both of these acquisitions were aligned to the Group’s strategy of rolling out Retail Food and Liquor. Together these acquisitions amounted to a net cash purchase price of R2.9 million and gave rise to goodwill of R2.4 million.

During the current year, final payments of R90 million, included in working capital movements, were made to settle contingent consideration liabilities raised on historical business combinations in the Masscash division.

Tangible and intangible assets

Increased by

14.4%Acquisition of key strategic properties of the Group for

R784.9 millionCompleted construction of our flagship Mozambique Builders Warehouse store for

R91.7 millionImpairment to property, plant and equipment of

R24.6 millionGoodwill increase of

R10.9 milliondue to the acquisition of Fresh and Liquor businesses partially offset by foreign exchange movements

No impairment to goodwill in the current year

More information relating to property, plant and equipment, goodwill and intangible assets can be found in note 13, 14 and 15 respectively of the Group’s Annual Financial Statements:


During the current year, aligned to our strategy of owning our key properties, the Group acquired control of 15 key properties which had previously been leased by the Group. The cash consideration paid amounted to R784.9 million and the acquisitions were accounted for as asset acquisitions. In addition the Group acquired control of an entity within the Masscash Division that held a Fresh Food business.

The net cash purchase price of the Fresh Food business, of R11.5 million, gave rise to goodwill of R9.7 million. No contingent consideration liabilities were raised on any of these acquisitions and none of these acquisitions changed the Group’s store profile.

Acquisition of subsidiaries are described in more detail in note 4 of the Group’s Annual Financial Statements:


Acquisition of subsidiaries and properties



Fair value hierarchyFor 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 transaction 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 has been determined based on the sale agreement. 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.

RmDec 2014

(Audited) Level 1 Level 2 Level 3

December2013

(Audited) Level 1 Level 2 Level 3

AssetsFinancial assets at fair value through profit or loss

155.1 - 155.1 - 235.4 - 235.4 -

- Investments in cell captives and other 125.2 - 125.2 - 217.7 - 217.7 - - FEC asset 29.9 - 29.9 - 17.7 - 17.7 -

Designated cash flow hedge 13.7 - 13.7 - 8.8 - 8.8 - - FEC asset 13.7 - 13.7 - 8.8 - 8.8 -

Loans and receivables 30.3 - 30.3 - 34.9 - 34.9 - - Employee share trust loans 30.3 - 30.3 - 34.9 - 34.9 -

Available-for-sale financial assets 8.4 8.4 - - 12.1 12.1 - - - Other listed investments 8.4 8.4 - - 12.1 12.1 - -

Non-current assets classified as held for sale 22.0 - - 22.0 - - - - 229.5 8.4 199.1 22.0 291.2 12.1 279.1 -

LiabilitiesFinancial liabilities at amortised cost 2,653.0 - 2,653.0 - 1,724.8 - 1,724.8 - - Medium-term loan, bank loans and

capitalised finance leases 2,653.0 - 2,653.0 - 1,724.8 - 1,724.8 -

Financial liabilities at fair value through profit or loss

4.5 - 4.5 - 1.9 - 1.9 -

- FEC liability 4.5 - 4.5 - 1.9 - 1.9 - Designated cash flow hedge 2.2 - 2.2 - 0.8 - 0.8 - - FEC liability 2.2 - 2.2 - 0.8 - 0.8 -

2,659.7 - 2,659.7 - 1,727.5 - 1,727.5 -

There were no transfers of financial instruments between Level 1 and Level 2 fair value measurements during the year ended December 2014, and no transfers into, or out of, Level 3.

More information relating to the fair value measurement of these assets and liabilities reflected above can be found in note 39 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Total trade, other receivables and prepayments

Excluding the timing impact of closing our retail year end a day ahead of that of the prior year; the fair value movement of our open foreign exchange contracts; and the increase in amounts due from Walmart, trade and other receivables increased in line with sales. There is no significant concentration of trade debtors. Trade debtors is a key area of focus for management.

Trade, other receivables and prepayments are described in more detail in note 20 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

More information on the Group’s credit risk exposure and management can be found in note 40 of the Group’s Annual Financial Statements:


Composition of Total Inventories (%)

Liquor

Food

General merchandise

Home improvement

29.7

8.8

45.4

16.1

Inventories

Inventory days increased to

64.4 days(Dec 2013: 63.7 days)

Increased by

11.0% ahead of sales growth, mainly due to opening new stores in the second half of the year

Inventory was well managed within the Group other than the over-stocked position in Massdiscounters given the slower comparable store sales in Game SA. As a percentage of total inventory, General Merchandise of R5.1 billion (Dec 2013: R4.6 billion) is marginally lower than last year at 45.4% (Dec 2013: 45.5%). The Massdiscounters overstocked position is in this category. Food at R3.3 billion (Dec 2013: R2.9 billion) is the second largest inventory category in the Group but with the fastest stock-turns.

More information relating to inventories can be found in note 19 of the Group’s Annual Financial Statements:


Composition of total inventories (%):

Composition of Total Inventories (%)

Liquor

Food

General merchandise

Home improvement

28.2

7.4

45.5

18.9

2014

2013Food

Liquor

General merchandiseHome improvement

Debtors’ days remain well controlled at

9 daysIncrease of

15.5% is ahead of sales

Allowance for doubtful debt

5.2% of total trade receivables (Dec 2013: 5.0%)



CommitmentsMore information relating to these capital expenditure

commitments can be found in note 31 of the Group’s Annual Financial Statements:

www.massmart.co.za/iar2014/groupafsMassmart has the right of first refusal on the sale of any

shares by the non-controlling interest holders in various Masscash stores. Historically Massmart has exercised this right. All capital commitments will be funded using current facilities.

Rm

December2014

52 weeks(Audited)

December2013

53 weeks(Audited)

Commitments in respect of capital expenditure approved by Directors:

Contracted for 864.1 1,249.3

Not contracted for 1,155.1 783.4

2,019.2 2,032.7

Medium-term loan of

R600 million(Dec 2013: R600 million)

Medium-term bank loans of

R1,521.7 million(Dec 2013: R562.1 million)

Capitalised finance leases of

R12.2 million(Dec 2013: R16.6 million)

Operating lease liability arising from the lease-smoothing adjustment of

R912.5 million(Dec 2013: R822.2 million)

Non-current liabilities Interest-bearing liabilities include medium-term bank

loans and medium-term loans. This balance increased substantially during the financial year as two sets of R500 million five-year, fixed-rate loans were raised at rates of 8.4% and 8.6% respectively and a R600 million five-year, fixed rate loan was raised at 8.2%. The largest non-interest-bearing liability is the net operating lease liability of R912.5 million (Dec 2013: R822.2 million) arising from the lease-smoothing adjustment and which will be released over the remaining period of the Group’s operating leases. The increase in the operating lease liability is in most part due to the renewal of existing leases during the current year at higher rates and the roll-out of new stores.

More information relating to non-current liabilities can be found in note 24 of the Group’s Annual Financial Statements:

www.massmart.co.za/iar2014/groupafsMore information relating to the Group’s liquidity risk

management can be found in note 40 of the Group’s Annual Financial Statements:

www.massmart.co.za/iar2014/groupafsAt year end, the actuarial valuation of the Group’s potential

unfunded liability arising from post-retirement medical aid contributions owed to current and future retirees amounted to R101.7 million (Dec 2013: R84.2 million), R2.7 million of which has been reflected as a current provision.

The Group’s onerous lease provision decreased from R18 million to R16 million at the end of the current year.

Further information relating to non-current provisions can be found in note 25 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Trade and other payables and provisions

The figure is representative of the Group’s supplier terms. More information relating to trade and other payables can be found in note 26 of the Group’s Annual Financial Statements:

www.massmart.co.za/iar2014/groupafsContingent liabilities raised on historical business

acquisitions settled during the current financial year amounted to R90 million.

The Supplier Development Fund, a separate entity created in line with the judgement of the Competition Appeal Court at the time of the Walmart transaction, had a closing balance of R157.2 million (Dec 2013: R202.5 million) and is reported on annually to the Competition Tribunal highlighting our expenditure and achievements.

More information relating to current provisions and other can be found in note 27 of the Group’s Annual Financial Statements:


Other current liabilities Included within other current liabilities are medium-

term loans of R249.7 million (Dec 2013: R152.7 million), the majority of which relates to foreign variable-rate bank loans.

Also included is the current portion of medium-term bank loans and capitalised finance lease liabilities of R576.7 million (Dec 2013: R374.3 million).

More information relating to ‘other current liabilities’ can be found in note 28 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Contingent liabilitiesThe Group and our subsidiaries are party to a variety

of legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business. While the results of these proceedings, claims and inquiries cannot be predicted with certainty, management believes that the final outcome of the foregoing will not have a material adverse effect on the Group’s financial position.

Lease exclusivityFor the past two years we have defended several legal

actions filed against our Massdiscounters/Game division by three of the major food retailers in South Africa and a prominent property fund also located in South Africa. These interdictory actions for injunctive relief are based on contractual and delictual theories of law relating to exclusivity and restrictive usage clauses in separate lease agreements between the relevant landlord and Game on the one hand, and one or more of the major food retailers on the other. These disputes arise when one or more of these retailers are co-located in a particular shopping center with a Game store that seeks to offer a limited fresh food offering. Along with other legal defences, we have asserted that the blanket enforcement of these clauses by the major food retailers contravenes South African competition law. In October 2014, Massmart lodged a formal complaint with the South African Competition Commission and requested the Commission to initiate a formal investigation into this behaviour. In December 2014, the Commission notified us that they would proceed with a formal investigation of our claims, together with similar complaints raised by other stakeholders. The various proceedings, including the Commission’s investigation, are on-going. If the conclusion of these proceedings is not in our favour – in whole or in part – then a key Group strategy in certain localities in South Africa could be delayed or curtailed.

Trade creditor days decreased from 76 days to

75 days

Included within other current liabilities are medium-term loans of

R249.7 million (Dec 2013: R152.7 million)



Working capital movements

Rm

December2014

52 weeks(Audited)

December2013

53 weeks(Audited)

Net movement in working capital (295.1) 752.6

Increase in inventories (1,112.4) (424.0)

Increase in trade receivables (697.8) (30.7)

Increase in trade payables 1,658.3 1,254.6

Decrease in provisions (143.2) (47.3)

The reduction in working capital is primarily as a result of the 53 week comparative, the effect of which in the prior and current year is approximately R500 million.

Net capital expenditure amounted to 2.8% (Dec 2013: 3.3%) of sales. Net capital expenditure excluding business and property acquisitions amounted to 1.6% (Dec 2013: 1.8%) of sales.

Due to the high levels of trading experienced over the December holiday period, the Group banks a large amount of cash in the month, while majority of the payments to suppliers only occur after year-end. This explains the large cash and bank balances reflected in the Statement of Financial Position in both 2014 and 2013.

The Group continually refurbishes its older stores and, where possible, builds its own stores. In doing so the Group incurred expenditure of R2,179.5 million (Dec 2013: R2,087 million). Of this, R857.4 million (Dec 2013: R780.2 million) was replacement capital expenditure, while the balance of R1,322.1 million (Dec 2013: R1,306.8 million) was invested in new capital assets, including new stores and distribution centres. The increase in expansionary capital assets can largely be attributed to the property acquisitions already mentioned, as well as the construction of our flagship Mozambique Builders Warehouse store for R91.7 million.

Capital expenditure, excluding property acquisitions for the next 12 months is budgeted to slow down as we begin to realise some of the benefits of the investments we have made during the last few years. We will continue to invest in line with the Group’s strategic drive to: own more of our key stores; roll out Food Retail stores; grow online; increase our rate of expansion in Africa; and open more lower-income Home Improvement stores in South Africa.

Further information relating to the movements in the Statement of Cash Flows can be found in note 38 of the Group’s Annual Financial Statements:


Segmental reviewThe Group is organised into four Divisions for operational

and management purposes, being Massdiscounters, Masswarehouse, Massbuild and Masscash. Massmart reports its operating segment information on this basis. The principal offering for each Division is as follows:• Massdiscounters (Game, DionWired) - General

Merchandise discounter and Food retailer• Masswarehouse (Makro and The Fruitspot) - Warehouse

club trading in Food, General Merchandise and Liquor• Massbuild (Builders Warehouse, Builders Express, Builders

Trade Depot, Builders Superstore) - Home Improvement retailer and Building Materials supplier

• Masscash (Cash and Carry, Cambridge Food, Shield) - Food wholesaler, retailer and buying association

No single customer represented more than 10% of any of one of the Divisions’ revenue in the current or prior financial year.

Summary Consolidated Statement of Changes in Equity

Ordinaryshare

capitalShare

premium

Othergeneral

reservesRetained

profit

Equityattributable

to ownersof the parent

Non-controlling

interests TotalRm

Balance as at December 2012 (Audited) 2.2 752.1 323.3 3,662.1 4,739.7 175.6 4,915.3 Dividends declared - - - (913.4) (913.4) - (913.4)Total comprehensive income - - 61.5 1,283.0 1,344.5 59.1 1,403.6 Changes in non-controlling interests - - 3.8 - 3.8 (7.2) (3.4)Distribution to non-controlling interests - - - - - (30.9) (30.9)IFRS 2 charge and Share Trust transactions - - 129.0 (121.8) 7.2 - 7.2 Treasury shares acquired - (8.8) - - (8.8) - (8.8)Balance as at December 2013 (Audited) 2.2 743.3 517.6 3,909.9 5,173.0 196.6 5,369.6 Dividends declared - - - (914.0) (914.0) - (914.0)Total comprehensive income - - (64.5) 1,079.8 1,015.3 57.6 1,072.9 Changes in non-controlling interests - - (27.6) - (27.6) (11.0) (38.6)Distribution to non-controlling interests - - - - - (50.4) (50.4)IFRS 2 charge and Share Trust transactions - - 125.1 (27.4) 97.7 - 97.7 Treasury shares acquired - (9.9) (0.1) - (10.0) - (10.0)

52 weeks ended December 2014 (Audited) 2.2 733.4 550.5 4,048.3 5,334.4 192.8 5,527.2

Summary Consolidated Statement of Cash Flows

Rm

52 weeks December 2014

(Audited)

53 weeksDecember 2013

(Audited)

Operating cash before working capital movements 2,983.4 2,984.0 Working capital movements (295.1) 752.6 Cash generated from operations 2,688.3 3,736.6 Taxation paid (683.4) (732.8)Net interest paid (345.3) (255.1)Investment income - 79.2 Dividends paid (914.0) (913.4)Cash inflow from operating activities 745.6 1,914.5

Investment to maintain operations (857.4) (780.2)Investment to expand operations (1,322.1) (1,306.8)Investment in subsidiaries (14.4) - Proceeds on disposal of property, plant and equipment 32.5 25.6 Proceeds on disposal of assets classified as held for sale - 2.5 Other net investing activities 14.9 (247.4)Cash outflow from investing activities (2,146.5) (2,306.3)

Cash inflow from financing activities 1,349.7 293.0

Net decrease in cash and cash equivalents (51.2) (98.8)Foreign exchange movements (53.7) 47.2 Opening cash and cash equivalents 1,588.3 1,639.9 Closing cash and cash equivalents 1,483.4 1,588.3

Property acquisitions (Rm)

Businesses acquired (Rm)

Investment to expand operations (Rm)

Total capex as a % of sales

Investment to maintain operations (Rm)

Total capex as a % of sales excluding

business and property acquisitions

DEC2010

DEC2011

DEC2012

DEC2013

DEC2014

362.

371

1.9

310.

9

453.

878

7.6

84.0

629.

465

1.7

383.

6

752.

152

6.7

907.

512

0.0

824.

943

0.6

876.

614

.4

2.1

2.7

2.32.5

3.3

1.81.9

2.2

2.7

1.6

Property acquisitions (Rm)

Businesses acquired (Rm)

Investment to expand operations (Rm)

Total capex as a % of sales

Investment to maintain operations (Rm)

Total capex as a % of sales excluding

business and property acquisitions

DEC2010

DEC2011

DEC2012

DEC2013

DEC2014

362.

371

1.9

310.

9

453.

878

7.6

84.0

629.

465

1.7

383.

6

752.

152

6.7

907.

512

0.0

824.

943

0.6

876.

614

.4

2.1

2.7

2.32.5

3.3

1.81.9

2.2

2.7

1.6

Capital Expenditure Acceleration


Operating segments

Rm Total Other Mass-

discountersMass-

warehouse Massbuild Masscash

For the 52 week year ended December 2014

Sales 78,173.2 - 17,955.2 21,554.8 10,822.8 27,840.4

Operating profit before foreign exchange movements and interest 2,015.9 (30.6) 180.7 1,044.3 537.6 283.9

Trading profit before interest and taxation 2,061.7 - 180.7 1,044.3 537.6 299.1

Net foreign exchange (loss)/ gain (49.8) (48.4) (5.8) - 2.5 1.9

Net finance (costs)/income (345.3) (211.0) (29.4) 44.4 (63.2) (86.1)

Operating profit before taxation 1,620.8 (290.0) 145.5 1,088.7 476.9 199.7

Trading profit before taxation 1,716.4 (211.0) 151.3 1,088.7 474.4 213.0

Inventory 11,228.8 30.5 3,984.9 2,845.7 1,785.6 2,582.1

Total assets 28,906.4 (325.6) 7,985.5 7,689.0 5,027.7 8,529.8

Non-current asset held for sale 18.0 15.0 - - 3.0 -

Total liabilities 23,379.2 (4,366.5) 7,820.9 7,312.1 4,730.6 7,882.0

Net capital expenditure 2,147.0 967.8 542.2 70.3 296.8 269.9

Depreciation and amortisation 846.6 43.2 293.1 171.6 154.0 184.7

Impairment losses 24.6 9.4 - - - 15.2

Non-cash items other than depreciation and impairment 146.1 (16.2) 112.0 46.9 12.6 (9.2)

Cash flow from operating activities 745.6 (446.2) 473.4 (103.8) 707.4 114.8

Cash flow from investing activities (2,146.5) (980.8) (545.0) (70.1) (296.8) (253.8)

Cash flow from financing activities 1,349.7 1,163.0 112.9 161.8 (369.3) 281.3

Inventory days 64.4 - 107.6 57.1 84.6 37.1

Number of stores 392 - 153 19 100 120

Trading area (m2) 1,539,295 - 506,188 195,794 436,538 400,775

Trading area (m2) increase on December 2013 3.9% - 6.5% - 6.3% 0.3%

Average trading area per store (m2) 3,927 - 3,308 10,305 4,365 3,340

Distribution centre space (m2) 328,175 - 178,488 51,300 61,733 36,654

Distribution centre space (m2) increase on December 2013 1.3% - - - - 13.5%

• The ‘other’ column includes consolidation entries and various corporate functions. • All intercompany transactions have been eliminated in the above results. • Trading profit before taxation is earnings before corporate net interest, asset impairments, BEE transaction IFRS 2 charges,

foreign exchange movements, loss on disposal of business, and assets classified as held for sale.• Net capital expenditure is defined as capital expenditure less disposal proceeds.

Rm Total Other Mass-

discountersMass-

warehouse Massbuild Masscash

For the 53 week year ended December 2013

Sales 72,263.4 - 16,740.6 19,675.1 9,583.6 26,264.1

Operating profit before interest and taxation 2,152.5 (37.9) 449.0 988.1 505.3 248.0

Trading profit before interest and taxation 2,145.4 - 366.6 990.2 507.6 281.0

Net finance (costs)/income (255.1) (349.6) 34.0 38.5 29.2 (7.2)

Operating profit before taxation 1,897.4 (387.5) 483.0 1,026.6 534.5 240.8

Trading profit before taxation 2,239.9 - 400.6 1,028.7 536.8 273.8

Inventory 10,115.5 12.6 3,647.3 2,618.2 1,597.0 2,240.4

Total assets 26,147.9 (2,614.7) 7,718.3 7,166.8 5,212.0 8,665.5

Total liabilities 20,778.3 (6,027.7) 7,522.2 6,587.8 4,857.4 7,838.6

Net capital expenditure 2,061.4 759.0 489.7 344.8 275.1 192.8

Depreciation and amortisation 731.1 33.9 256.4 145.4 121.2 174.2

Impairment losses 41.6 - - 2.1 - 39.5

Non-cash items other than depreciation and impairment 138.0 458.0 23.3 (352.2) 13.6 (4.7)

Cash flow from operating activities 1,914.5 399.4 990.1 273.9 356.9 (105.8)

Cash flow from investing activities (2,306.3) (1,424.0) (490.6) (385.2) (275.2) 268.7

Cash flow from financing activities 293.0 819.4 (621.6) 209.3 1.4 (115.5)

Inventory days 64 - 109 59 92 35

Number of stores 376 - 143 19 92 122

Trading area (m2) 1,481,308 - 475,331 195,794 410,546 399,637

Trading area (m2) increase on June 2012 (excluding re-measurements) 4.8% - 7.7% 9.3% 3.7% 0.6%

Average trading area per store (m2) 3,940 - 3,324 10,305 4,462 3,276

Distribution centre space (m2) 323,813 - 178,488 51,300 61,733 32,292

Distribution centre space (m2) increase on December 2012 11.4% - - - 108.4% 3.2%



Geographic segments

Rm

TotalDecember

201452 weeks

South AfricaDecember

201452 weeks

Rest of AfricaDecember

201452 weeks

TotalDecember

201353 weeks

South AfricaDecember

201353 weeks

Rest of AfricaDecember

201353 weeks

Sales 78,173.2 71,822.4 6,350.8 72,263.4 66,676.1 5,587.3

Segment assets (Total) 21,764.8 20,226.3 1,538.5 19,238.5 18,320.0 918.5

Segment assets (Non-current) 10,197.9 9,576.5 621.4 8,916.9 8,418.7 498.2

Net capital expenditure 2,147.0 1,936.6 210.4 2,061.4 1,891.9 169.5

The Group’s four Divisions operate in two principal geographical areas - South Africa and the Rest of Africa.


More information relating to segmental reporting can be found in note 41 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Return on sales (ROS) This ratio combines all of the key Income Statement

elements, being sales, gross margin, supplier income, and expenses (including depreciation and amortisation), but excludes foreign exchange translation gains and losses. In addition, the largest asset investment in the Divisions is net working capital (being inventory and trade receivables), less the associated funding liability (in trade payables). The relative success of management’s impact on net working capital will therefore be reflected in changes to net finance costs or income from one year to the next. The reason foreign exchange translation gains and losses are excluded is because they are largely beyond management’s control, are volatile, and do not reflect the sustainable profitability of the Division or Group.

All periods are 52-week periods, Dec 2013 is for 53 weeks.

Decrease is due to:• Lesser performance in Game SA. Game SA sales were

affected by the slowdown of the middle-income consumer spending, the global slowdown in General Merchandise, particularly electronics, and some insufficient operating discipline, including poor in-stock levels.

• Difficult trading conditions in the Wholesale Food sector. The presence of strong independent traders in the Wholesale Food sector has resulted in a continued tough and competitive environment during 2014.

• Increased Depreciation and Employment costs. Depreciation and Employment costs comprised 6.9% and 48.1% of total operating expenses respectively and the high increases are a consequence of: the Group’s annualisation of RDCs in 2013; the acquisition of key properties; the roll-out of new stores; and the continued roll-out of Food Retail in three Divisions.

Return on equity (ROE)Massmart is committed to delivering superior returns to

shareholders over the longer term.


0.5

1.5

2.5

3.5

4.5

5.5

DEC2014

DEC2013

DEC2012

DEC2011

DEC2010

2.6%2.9%3.5%3.8%4.2%

ROS

Decrease is due to:• The reduction in the Group’s profitability (measured

by ROS) coupled with the Group’s strategic significant investment in Food Retail, owned stores and supply chain were the main causes of the lower Group ROE. The Group’s on-going investment in new stores, owned stores and new businesses increased the size of the net asset value. As the Group’s profitability improves, and as the new stores, RDCs and businesses begin to trade optimally, the ROE is likely to improve to higher levels.

The Divisions are responsible for delivering operational returns, being their returns to their net working capital and non-current assets. In addition to these operational returns, Massmart, through the Board and Executive Committee, is responsible for delivering investment returns that will also include the book value of intangibles (specifically goodwill arising from the acquisition of businesses), as well as setting the Group’s gearing levels that will influence returns to shareholders and the overall risk profile. Depending on the purchase price, Retail and Wholesale acquisitions of subsidiaries tend to generate significant accounting goodwill owing to the relatively low net asset values of these business models.

The Divisions are recapitalised bi-annually by Massmart with interest-free shareholder funds that are equivalent to the book value of non-current assets in each Division. Each Division is funding its net working capital position through cash or interest-bearing debt, depending on the characteristics of that business model. This process enables divisional returns to be evaluated and compared on a consistent basis across the Group, and from one year to the next.

Gearing (or leverage)


Increase is due to:• The acquisition during the year of stand-alone, key

strategic properties previously leased. This change does not represent a major financial shift, however, it will result in converting fixed long-term lease commitments, which

are recorded off-balance sheet, to on-balance sheet assets or liabilities. Significantly, the Group acquired 12 Masscash stores and one property in Masswarehouse, Massbuild and Corporate alike. The acquisition of these properties has been covered in the ‘Acquisition of subsidiaries and properties’ paragraph, previously referred to.

• Investment in new trading formats in East and West Africa, increased roll-out of Food Retail and opening more lower-income home improvement stores in South Africa.

As regards to financing any future acquisition of properties and businesses, depending on the target company’s cash profile and cash generation ability, this gearing ratio may be increased.

Dividend coverThe Board believes that the current ratio is appropriate,

given the Group’s current and forecast cash generation, planned capital expenditure and gearing levels.


Related-party transactionsRelated-party transactions comprise:

• Transactions between the Company and its subsidiaries, which have been eliminated on consolidation and are thus not disclosed in this review

• Compensation of key-management personnel• Transactions between the Group and Wal-Mart Stores,

Inc. (its ultimate holding company)• The Group holds cash reserves on behalf of the Group’s

previous Chairman’s Lamberti Education Foundation Trust

• Loans to Executive Directors and Executive Committee members

• The post-retirement medical aid liability, Massmart Pension Fund and Massmart Provident Fund which are managed for the benefit of past and current employees of the GroupMore information on related-party transactions can

be found in note 34 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

0

5

10

15

20

25

30

35

40

DEC2014

DEC2013

DEC2012

DEC2011

DEC2010

21.7%25.9%27.6%24.5%35.4%

ROE

Dividend cover

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

DEC2014

DEC2013

DEC2012

DEC2011

DEC2010

1.211.461.131.241.51

20142013201220112010

44.5%29.7%22.7%21.6%19.1%

0

5

10

15

20

25

30

35

40

45



Directors’ emoluments and how the Group measures performance

A detailed breakdown can be found in the Remuneration Report on page 82 of this Integrated Annual Report. The ‘Directors’ emoluments’ information can also be found in note 35 of the Group’s Annual Financial Statements:


Accounting policies, critical judgements and key sources of estimation uncertainty

These audited summary consolidated year end results have been prepared in accordance with the framework concepts and the measurement and recognition requirements of 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 audited summary consolidated 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. In the process of applying the Group’s accounting policies, management has made certain critical judgements that have a significant effect on the amounts recognised in the financial statements.

More detail on the Group’s accounting policies, critical judgments and key sources of estimation uncertainty is provided in note 1 and 2 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs

Going concern assertionThe Board has formally considered the going concern

assertion for Massmart and its subsidiaries and believes that it is appropriate for the forthcoming financial year.

The going concern assertion can be found in the Directors’ report on page 73 of this Integrated Annual Report.

The year aheadThe new year is proving to be an exciting one, as we

continue to implement our strategic priorities and tackle our strategic, environmental and operational risks head-on. Our focus on targeting new customer groups; experimenting with new formats; increasing our Private Label offering; reducing the cost of our value-chain; increasing our property portfolio; and reducing the cost of our new store openings, is looking promising as total sales for the 13 weeks to 29 March increased by 9.5% (comparable sales increased by 7.4%).

A priority for us in the upcoming year is the regeneration of Game, despite its many challenges. We are confident that the introduction of Food Retail, the appointment of experienced key personnel, and the revision of our store segmentation and merchandise range will shrink the current overstock position and improve Game’s profitability.

As we continue to establish our Retail Food proposition in the market, the cyclicality experienced on General Merchandise and Wholesale Food platforms will reduce. To date, our competitors’ reactions to our growth in Food Retail suggests that we are on-track to becoming a major player in this market.

Our goal to aggressively roll-out our Massbuild formats, expand our African footprint and grow our online offering will require extensive capital investment for which we are well positioned.

We remain optimistic about the consumer environment in the upcoming year, although we are ever cognisant of the fragility of our market.

AppreciationThe Group is tremendously grateful to Ilan Zwarenstein

for his significant contribution over the past decade, and especially the past three years, and for his management and development of a resilient and competent Finance team. This team maintains the robust financial control environment long established across the Group and continues to deliver high standards in reporting. It is already clear to me that Ilan’s significant influence will be missed and I am grateful to him for leaving in place a strong Finance organisation, making my transition into the role of Chief Financial Officer that much easier.

The contribution and efforts of the Group’s Finance teams, both at the Divisions and the Corporate Office, has again been outstanding. I want to express my deep appreciation for their continued commitment to the high standards they have set for themselves, and their determination in delivering those at all levels of the Group, to the benefit of all of our stakeholders.

Johannes van LieropChief Financial Officer2 April 2015

Directors’ reportfor the year ended December 2014

Directors’ responsibilities

The Directors acknowledge responsibility for the preparation of the Group Annual Financial Statements, which, in their opinion, fairly present the results and cash flows for the year ended December 2014 and the state of affairs of Massmart Holdings Limited and its subsidiaries at the end of the year. The external auditors are responsible for reporting on the fair presentation of these financial statements.

The Company and its subsidiaries have maintained satisfactory accounting records and an effective system of internal controls to ensure the integrity of the underlying information. Appropriate accounting policies, supported by sound and prudent managerial judgments and estimates, have been consistently applied.

The Group’s Audit Committee reviews the financial information presented and ensures that there has been adherence to IFRS. Internal and external auditors of Group companies have unrestricted access to the Committee.

Group financial resultsThe financial results of the Group are set out in the

Income Statement, Statement of Comprehensive Income, the Statement of Cash Flows and the Statement of Changes in Equity. The financial position of the Group is set out in the Statement of Financial Position and accompanying notes. A full set of the audited Group Annual Financial Statements for the year-ended December 2014 can be found at:


DividendMassmart has maintained the dividend at the same level

as the prior year. The dividend has been declared out of income reserves and will be subject to the Dividend Tax rate of 15%. With regard to the final distribution to shareholders, the Directors resolved to distribute to shareholders registered in the books of the Company on 20 March 2015, a final cash dividend of 275 cents (December 2013: 275 cents).

Shares in issueThe movement in ordinary and preference shares for the

year under review were as follows:

Ordinary Shares

Balance at December 2012 216,910,195

Converted preference shares1 198,849


Converted preference shares1 9,028

Ordinary shares in issue at December 2014 217,118,072

‘B’ Preference Shares


Converted to ordinary shares (198,849)

Residual shares automatically redeemed (9,395,053)


Converted to ordinary shares (9,028)

Preference shares in issue at December 2014 2,858,745 1The preference shares relate to Massmart’s Black Scarce Skills Trust

Directorate and secretary The current Directorate of the Group is shown on

pages 40 to 41.The Board comprises nine Directors of whom seven are

non-Executive and four are independent. In addition, each Board committee is chaired by an independent Director.

The Company Secretary provides a central source of guidance and advice to the Board, and within the Company, on matters of ethics and good governance. The Company Secretary is Philip Sigsworth, CA(SA), whose business and postal addresses are the same as that of the Company. Philip was appointed on 7 May 2012.

In March 2014, Mark Lamberti was appointed CEO of Imperial Holdings Limited and consequently resigned as Chairman of Massmart. Kuseni Dlamini was appointed the new Chairman of Massmart with effect from 10 April 2014.

Grant Pattison resigned as CEO with effect from 1 June 2014 and Guy Hayward, previously Chief Operating Officer, was appointed to succeed him.

On 10 December 2013 Wal-Mart Stores, Inc. announced the promotion of David Cheesewright to President and CEO of Walmart International. The promotion of Shelley Broader to succeed him as President and CEO of Walmart EMEA was announced on 30 May 2014.


Subsequent to these changes, David resigned from the Board and Shelley was appointed in his place. Shelley has responsibility for Walmart’s Retail operations and business development across Europe, the Middle East, Sub-Saharan Africa and Canada. She was previously CEO of Walmart Canada.

In addition, Jeff Davis resigned following a change in his role in Walmart, and in his place Andy Clarke was appointed to the Board. Andy is the President and CEO of ASDA Stores Ltd, the United Kingdom’s second-largest supermarket retailer.

The appointments of Shelley and Andy and the resignations of David and Jeff were all effective 16 July 2014

Following the August 2014 announcement of the intended resignation of Ilan Zwarenstein from his role as Group FD, the Massmart Board announced the appointment of Johannes van Lierop as CFO of Massmart with effect from 12 March 2015, at which date Ilan accordingly resigned.

Interests of Directors in the Company’s sharesAt December 2014, certain Directors owned, directly or indirectly, ordinary shares or options over ordinary shares in the

Company. These holdings were all beneficial and are aggregated in the table below:

December 2014 December 2013

Non-executive Directors SharesOptions/

Share Awards SharesOptions/

Share Awards

MJ Lamberti1 - - - -

K Dlamini2 9,800 - - -

CS Seabrooke - - - -

S Broader3 - - - -

D Cheesewright4 - - - -

A Clarke3 - - - -

JA Davis4 - - - -

NN Gwagwa 9,800 - 9,800 -

P Langeni - - 9,800 -

JP Suarez - - - -

Executive Directors

GM Pattison 643,473 196,877 596,473 243,877

GRC Hayward 222,894 342,619 222,894 298,327

J van Lierop5 - - - -

I Zwarenstein6 - 201,029 - 184,343

1 Resigned with effect from 10 April 20142 Appointed with effect from 10 April 20143 Appointed with effect from 16 July 20144 Resigned with effect from 16 July 2014

5 Appointed with effect from 12 March 20156 Resigned as Group FD with effect from 12 March 2015

At least one-third of the non-Executive Directors are required to retire every year and Massmart Executive Directors have elected to also retire on this basis. As a result, all Directors retire by rotation at least every three years and are then eligible for re-election. In addition, shareholders must ratify the initial appointment of each Director at the first Annual General Meeting following that Director’s appointment. As a result of these requirements, at the 27 May 2015 Annual General Meeting Kuseni Dlamini, Phumzile Langeni and JP Suarez retire by rotation; while Shelley Broader, Andy Clarke and Johannes van Lierop will resign, as required by the Memorandum of Incorporation. Being eligible, they all offer themselves for re-election.

At the date of this Report, the Directors’ beneficial holdings were as follows:

April 2015 April 2014

Non-executive Directors SharesOptions/

Share Awards SharesOptions/

Share Awards

MJ Lamberti1 - - - - K Dlamini2 9,800 - - - CS Seabrooke - - - - S Broader3 - - - - D Cheesewright4 - - - - A Clarke3 - - - - JA Davis4 - - - - NN Gwagwa 9,800 - 9,800 - P Langeni - - 8,800 - JP Suarez - - - -

Executive Directors

GM Pattison5 - - 596,473 243,877 GRC Hayward 222,894 342,619 222,894 298,327 J van Lierop6 - - - - I Zwarenstein7 - - - 184,343

There were no non-beneficial interests in either of these periods.

1 Resigned with effect from 10 April 20142 Appointed with effect from 10 April 20143 Appointed with effect from 16 July 20144 Resigned with effect from 16 July 2014

5 Resigned with effect from 28 December 2014, and as such his number of shares are not shown in the above table

6 Appointed with effect from 12 March 20157 Resigned as Group FD with effect from 12 March 2015, and as

such his number of shares are not shown in the above table

Directors’ report continued

Going concernThe Directors are of the opinion that the business will be

a going concern in the year ahead. In reaching this opinion, the Directors considered the following factors:• strong positive cash flows from trading;• no recurring operating losses at Divisional and Group

level;• well-controlled working capital and good quality

inventory;• approved short- and long-term financing, with sufficient

additional short-term borrowing capacity if required;• key executive management in place;• there have been no material changes that may affect

the Group in any of its customer, product or geographic markets; and

• budgets to December 2015 reflect a continuation of the above positive issues.

SubsidiariesAs at the date hereof, the following companies are

principal subsidiaries of the Company:

Massbuild Proprietary Limited 2004/035206/07

Masscash Holdings Proprietary Limited1997/014716/07

Massmart International Holdings Limited (incorporated in Mauritius)47902 C1/GBL

Massmart Management and Finance Company Proprietary Limited1992/004084/07

Masstores Proprietary Limited1991/006805/07

Wild Developments Proprietary Limited1973/000178/07

The principal subsidiaries above are determined based on the Group’s cross-surety arrangement. These subsidiaries represent the group for which the respective covenants shall be maintained. Details of the Company’s interests in principal subsidiaries are set out in note 37 in the Group Annual Financial Statements:

www.massmart.co.za/iar2014/companyafs


The Audit Committee met three times during the 52 weeks ended December 2014. The internal and external auditors presented formal reports to the Committee and attended these meetings by invitation. In response to the requirements of the Companies Act, King III and in terms of its charter, the Committee can report as follows:• The scope, independence and objectivity of the external

auditors was reviewed;• The audit firm Ernst and Young Inc. and audit partner

Allister Carshagen, are, in the Committee’s opinion, independent of the Company. They have been proposed to the shareholders for approval to be the Group’s auditor for the 2015 financial year;

• On an on-going basis, the Committee reviews and approves the fees proposed by the external auditors;

• The appointment of the external auditor complies with the Companies Act and with all other legislation relating to the appointment of external auditors;

• The nature and extent of non-audit services provided by the external auditors has been reviewed to ensure that the fees for such services do not become so significant as to call into question their independence;

• The nature and extent of future non-audit services have been defined and pre-approved;

• No reportable irregularities were identified and reported by the external auditors to the Committee;

Audit Committee reportfor the year ended December 2014

• The Committee is satisfied that the internal financial controls of the Divisions and Group operated effectively throughout the 52 weeks ended December 2014 and can be relied upon. In addition, the Committee is satisfied with the Group’s accounting policies and that these have been appropriately and consistently applied throughout the 52 weeks ended December 2014;

• The Committee reviewed this Integrated Annual Report and recommended it to the Board for approval;

• As at the date of this Report, no complaints have been received relating to accounting practices and internal audit of the Company or to the content or auditing of the Company’s financial statements, or to any related matter; and

• The Massmart website (www.massmart.co.za) has a link enabling the general public to lodge complaints with the Committee. Since establishing this functionality in 2009, no complaints have been received.

Chris SeabrookeChairperson of the Audit Committee2 April 2015

Borrowing powersIn terms of the Memorandum of Incorporation, the

Group has unlimited borrowing powers. At December 2014, borrowings were R3.6 billion (December 2013: R2.3 billion).

Direct and ultimate holding companiesThe Company’s direct holding company is Main Street

830 Proprietary Limited, incorporated in South Africa and the Company’s ultimate holding company is Wal-Mart Stores, Inc, incorporated in the United States.

Subsequent eventsThere were no significant subsequent events after the

year-end, apart from the movement in Directors already spoken to.

On behalf of the Board

Philip SigsworthCompany Secretary2 April 2015

Massmart addressThe Company’s registered office and postal address are

as follows:

Registered office: Postal address:Massmart House Private Bag X416 Peltier Drive SunninghillSunninghill Ext 6 2157Sandton, 2146 South AfricaSouth Africa

Company Secretary certificateIn terms of section 88(e) of the Companies Act No. 71 of

2008, as amended (“Companies Act”), I, Philip Sigsworth, in my capacity as Company Secretary of Massmart Holdings Limited, confirm that, to the best of my knowledge and belief, in respect of the year under review, Massmart Holdings Limited has filed with the Companies and Intellectual Property Commission all such returns and notices as are required of a public company in terms of the Companies Act and that all such returns and notices appear to be true, correct and up to date.

Directors’ report continued

To the Shareholders of Massmart Holdings Limited

The summary consolidated financial statements of Massmart Holdings Limited, incorporated in the ‘Chief Financial Officer’s Review’, which comprise the summary consolidated statement of the financial position as at 28 December 2014, the summary consolidated income statement, summary consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended on pages 58, 49, 57 and 64 respectively, and related notes on pages 60-70, are derived from the audited consolidated Annual Financial Statements of Massmart Holdings Limited for the year ended 28 December 2014. We expressed an unmodified audit opinion on those consolidated financial statements in our report dated 2 April 2015. Our auditor’s report on the audited consolidated financial statements contained an Other Matters paragraph: “Other reports required by the Companies Act” (refer below).

The summary consolidated financial statements do not contain all the disclosures required by IFRS and the requirements of the Companies Act as applicable to annual financial statements. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated Annual Financial Statements of Massmart Holdings Limited.

Directors’ responsibility for the summary consolidated financial statements

The Directors are responsible for the preparation of the summary consolidated financial statements in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, set out in the ‘Approval of the Integrated Annual Report and summarised consolidated annual financial statements’ on page 3, and the requirements of the Companies Act of South Africa as applicable to summary financial statements, and for such internal control as the directors determine is necessary to enable the preparation of the summary consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on the

summary consolidated financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810, Engagements to Report on Summary Financial Statements.

OpinionIn our opinion, the summary consolidated financial

statements derived from the audited consolidated Annual Financial Statements of Massmart Holdings Limited for the year ended 28 December 2014 are consistent, in all material respects, with those consolidated financial statements, in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, set out in the ‘Approval of the Integrated Annual Report and summarised consolidated Annual Financial Statements’ on page 3, and the requirements of the Companies Act as applicable to summary financial statements.

Other reports required by the Companies Act

The “other reports required by the Companies Act” paragraph in our audit report dated 2 April 2015 states that as part of our audit of the consolidated Annual Financial Statements for the year ended 28 December 2014, we have read the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated Annual Financial Statements. These reports are the responsibility of the respective preparers. The paragraph also states that, based on reading these reports, we have not identified material inconsistencies between these reports and the audited consolidated Annual Financial Statements. The paragraph furthermore states that we have not audited these reports and accordingly do not express an opinion on these reports. The paragraph does not have an effect on the summary consolidated financial statements or our opinion thereon.

Per: Allister CarshagenDirector Registered Auditor2 April 2015

102 Rivonia RoadJohannesburgGautengSouth Africa

Independent auditor’s report on summary consolidated financial statements for the year ended 28 December 2014


Net earn

ings

retained

0.9%R165.9 m

R351.7 m1.9%

in 2013

Non-contro

lling

interests

0.3%R57.6 m

R59.1 m0.3%

in 2013

To sh

areholders

as divi

dends

5.2%R914.0 m

R913.4 m4.9%

in 2013

Depreciatio

n

and am

ortisa

tion

4.8%R846.6 m

R731.1 m4.0%

in 2013

To G

overn

ment

as ta

xatio

n

51.4%R8,969.0 m

R10,705.3 m57.9%

in 2013

Value added statement

December 201452 weeks

Rm

December 201353 weeks

Rm

Sales, royalties, franchise fees, rentals and management and adminisitration fees (inclusive of VAT)

86,779.9 82,650.9 5.0%

Cost of sales (63,610.8) (58,926.4) 7.9%

Interest and investment income 66.3 40.7 62.9%

Net costs of services and other operating expenses (5,771.1) (5,279.3) 9.3%

Value added 17,464.3 18,485.9 -5.5%

35.1%

To em

ployees a

s sala

ries,

wages a

nd other b

enefits

R6,109.0 m

R5,423.5 m29.4%

in 2013

To le

nders

as in

terest

2.2%R386.8 m

R283.8 m1.5%

in 2013

CSI

0.1%R15.4 m

R18.0 m0.1%

in 2013

The value we added:

Here’s how we shared it:

R17.5 billion

Numberof holders %

Numberof shares %

Shareholder spread

1 - 1,000 shares 4,232 85.0 841,823 0.4

1,001 - 10,000 shares 521 10.5 1,581,549 0.7

10,001 - 100,000 shares 146 2.9 4,709,637 2.2

100,001 - 1,000,000 shares 53 1.1 17,420,328 8.0

1,000,001 shares and over 24 0.5 192,564,735 88.7

4,976 100.0 217,118,072 100.0

Public/non-public shareholders

Non-public shareholders:

Walmart subsidiary: Main Street 830 Proprietary Limited

1 - 113,859,293 52.4

Directors and Group Executives of the Company

4 0.1 838,967 0.4

Share trusts 1 - 194,765 0.1

Public shareholders 4,970 99.9 102,225,047 47.1

4,976 100.0 217,118,072 100.0

Distribution of shareholders

Walmart subsidiary: Main Street 830 Proprietary Limited

1 - 113,859,293 52.4

Unit Trusts/Mutual Funds 77 1.5 48,739,296 22.4

Pension Funds 75 1.5 29,180,660 13.4

Other Managed Funds 49 1.0 8,446,937 3.9

Sovereign Wealth 13 0.3 6,023,147 2.8

Custodians 15 0.3 4,193,454 1.9

Private Investors 16 0.3 2,026,985 0.9

Hedge Fund 1 - 1,431,489 0.7

Charities 9 0.2 1,378,003 0.6

Insurance Companies 5 0.1 866,537 0.4

Exchange-Traded Fund Total 3 0.1 473,338 0.2 BEE 1 - 100,271 - Investment Trusts 2 - 86,936 - Local Authorities 2 - 87,889 - American Depositary Receipt

2 - 95,239 -

University 1 - 70,220 -

Remainder 4,704 94.7 58,378 0.4

4,976 100.0 217,118,072 100.0

Shareholder analysis

The following analysis of shareholders was extracted from the shareholder register as at December 2014:

Custodians and managers holding 3% or more

The following custodians and managers held beneficially, directly or indirectly, equal to or in excess of 3% of the Company’s shares:

Aberdeen Asset Management Group 9,381,191 4.3Public Investment Corporation 15,724,370 7.2Walmart subsidiary: Main Street 830 (Pty) Ltd 113,859,293 52.4

Distribution of Shareholders (%)

Shareholder Spread (%)

Public/Non-public Shareholders (%)

79Massmart Integrated Annual Report 2014

The objective of the Group humancapital function is to

facilitate the execution of Massmart’s business strategy through people

The retail industry is a fast and exciting business. It deals with a vast amount of suppliers, service providers and diverse communities.

at large. We share people-centric values that define our behaviour and shape our culture, allowing us to: service our customers; show respect for the individual; and strive for excellence and integrity. Our adherence to these principles has created a unique work culture within our business. These are built on a foundation of integrity where the principles of honesty, fairness and objectivity guide how we apply these values in the workplace.

Massmart offers diverse career choices such as: Marketing, Business Intelligence, Accounting, Information Systems and Business Processes, Supply Chain, Operations, Legal, Compliance, Human Capital, Merchandising and International Commerce; to name but a few. This is what differentiates us and strengthens our value proposition to our employees. We aspire to be the most trusted retailer in Africa and the ultimate home of the career retailer. This goal can only be achieved when excellence is demonstrated through inspired and engaged people.

Humancapital

Massmart defines human capital as our commitment to our people.

Estimated % employeeswith medical benefits

63.7%2013: 53.6%

Estimated annual per capita training investment

R3,778.662013: R2,935

Unionised Staff

38.8%2013: 36.0%

Black management as a % of all management and professionals

74.8%in line with prior year

We believe that each of our people brings a unique set of skills, experiences, perspectives and ideas that gives us the competitive edge. We believe people drive their own development, but it is our duty to provide an environment that is conducive for nurturing their talent and creating opportunities for them.

We offer an authentic retail experience which encourages a spirit of entrepreneurship. We recognise that a diverse and inclusive workforce is crucial for sustained business growth.

The Group actively seeks the continuous improvement of performance in the portfolio and its parts, through strategic and structural clarity, high market shares, excellent management, principle-driven ethical leadership, cost-effective technology and the sharing or accumulation of capabilities, knowledge, resources, influence and information.

To this end, thought-leadership, individual and collective performance, and collaboration throughout the Group are appropriately recognised, valued and rewarded. Our vision as an organisation is to deliver value to our customers, suppliers, employees, investors, communities and other social partners

For more information on our human capital pages 12 to 27, Our divisional reviews


Talent management and succession planning

The objective of the Group human capital function is to facilitate the execution of Massmart’s business strategy through people. We do this by enabling the business with the leadership and technical capability required to competitively deliver on its strategy and value proposition. In particular, there is a need to manage the business risk associated with core and critical skills, and to identify and develop competent leaders at all levels throughout the organisation.

The Massmart executive succession management process is a key component in achieving this objective.

Bi-annual talent reviews of the most senior leadership talent across the organisation ensure that high potential leaders are identified, developed and retained for future opportunities.

Graduate Development ProgrammesMassmart offers two distinct programmes for newly

qualified graduates. The Graduate Development Programme (GDP) focuses on attracting and selecting newly qualified university graduates with a minimum qualification of a degree. These graduates are placed in different functional areas within the organisation at head office level such as supply chain, marketing, finance, human resources, information systems, corporate affairs, general merchandise.

The Store Operations Development Programme (SODP) has been designed to specifically attract and select graduates from universities of technology to fill our store talent pipeline. Trainees typically have a minimum of a Diploma in areas including business management, retail operations, entrepreneurship, supply chain and other related fields of study. The store operations’ trainees are typically high energy individuals who are keen to develop as career retailers. They enjoy customer interaction and rolling up their sleeves to get the job done.

The Massmart Corporate UniversityMassmart Corporate University was developed to create a

robust, flexible and diverse workforce. Kevin Wheeler defines a corporate university as “a chief vehicle for disseminating an organisation’s culture and fostering the development of not only job skills, but also core skills like leadership, creative thinking and problem solving”.

Through this virtual institution Massmart aims to:• build a strong talent pipeline,• retain key talent,• facilitate best in-class training and development solutions,• align the learning agenda with business strategy, and• maximise our return on learning and development

investment.The university is tailored to suit industry best practice

and to address the strategic objective of Massmart group. We offer functional acumen, strategic thinking, leadership, problem-solving and personal mastery.

Human capital continued

Diversity and inclusionMassmart is committed to responsible, fair and

enlightened employment practices. This includes building and nurturing a diverse workforce that brings together the very best in local talent with world-class retail practice. Through diversity, we are building a business that is attractive to both young talented job-seekers and the seasoned professionals.

CEO’s Council of Women LeadersTo promote gender equality and foster female mentoring,

we launched our CEO’s Council of Women Leaders in 2012.The Council is chartered to advise senior leadership and

act as a catalyst in the identification development, retention and advancement of women to more senior leadership roles. It consists of influential senior woman leaders across all functional areas in our operating divisions. These leaders are required to act as advisors and catalysts for women’s initiatives across Massmart. The Council partners with key leaders across the organisation to align all our efforts to achieve our Corporate Mission.

ImpiloMassmart offers its employees a comprehensive

workplace wellness programme called IMPILO. IMPILO Wellness Program was launched in 2006 and initially offered ARV treatment and VCT for all permanent employees and spouses. It has evolved into a fully integrated well-being programme. An educational information session provides employees with lifestyle and health risks assessments. The screening service includes tests for diabetes, cholesterol, blood pressure, TB and BMI and each employee is given their own Health Card.

Human capital performance indicators

Human capital data is based on Group and Divisional payroll data. Due to the large number and geographical positioning of stores, testing is not conducted at all stores every year. Data is internally audited prior to publication. Comparative data represents the best available performance disclosed by South African retailers, except otherwise noted. HIV prevalence is based on Healthy Choices VCT testing figures.

R3,108.00Average monthly Minimum Wage (R)

R 2,688.00 in 2013, R2,953 in 2012, R2,859 in 2011, R2,555 in 2010, R2,456 comparative*

Prevalence has decreased and remains well below the national prevalence rate.

*Source: Sectoral Determination for Wholesale and Retail Sectors**Source: published national prevalence rate according to Statistics South Africa Mid-year population estimates 2013***Source: 2012 – 2013 Commission for Employment Equity Annual Report

R3,778.66Estimated annual per capita training investment – permanent (R)

R2,935.00 in 2013, R3,012 in 2012, R1,879 in 2011, R1,574 in 2010, R1,204 comparative

10.2 in 2013, 10.0 in 2012, 10.2 in 2011, 9.4 in 2010, 17.3 comparativeEstimated staff turnover

12.17%36.0 in 2013, 36.2 in 2012, 37.3 in 2011, 35.0 in 2010, 33.3 comparative

Unionised Staff 38.75%

37.5 in 2013, 33.9 in 2012, 32.1 in 2011, 33.0 in 2010, 67.6 comparativeFlexi-timers36.96%

5.5 in 2013, 6.6 in 2012, 5.6 in 2011, 5.5 in 2010, 10.0 comparative**HIV Prevalence5.83%

53.6 in 2013, 48.4 in 2012, 41.9 in 2011, 41.0 in 2010, 19.0 comparative

Estimated % employees with medical benefits

63.66%

61.69%Black management as a % of all management and professionals

There has been a slight decrease % in black management as the Company is aligning with globally recognised job evaluation and grading processes.

74.8 in 2013, 78.5 in 2012, 77.7 in 2011, 77.0 in 2010, 53.7 comparative***

87.46%Local management in non-South African operations as a % of total management

This indicates the percentage of local management in our African operations outside of South Africa.

90.5 in 2013, 89.3 in 2012, 86.7 in 2011, 87.0 in 2010, comparative N/A


Introductory statement by the Chairman of the Remuneration Committee

The Remuneration report is intended to provide stakeholders with an understanding of Massmart’s remuneration philosophy and practices and how these have been designed to support Massmart’s mission and vision. The information provided in this report has been approved by the Board on the recommendation of the Remuneration Committee.

Chris SeabrookeChairman of the Remuneration Committee2 April 2015

The Remuneration report

The report details information applicable to Massmart’s remuneration policy and practice for Executive and non-Executive Directors and Prescribed Officers. It sets out the actual payments, accruals and awards for the year ended 28 December 2014. The Remuneration report is aligned with the Remuneration guidelines of the King Code of Governance Principles (King III). It is fully compliant with the Companies Act.

The report seeks to provide the following:• A summary of the Group’s remuneration philosophy,

strategy and policy;• The Remuneration Committee and its role;• Key remuneration decisions taken during the 2014

financial year;• Key remuneration priorities for the 2015 financial year;• Guaranteed remuneration;• Short term incentives (STI’s);• Long term incentives (LTI’s);• Executive Directors’ contractual arrangements, pay-mix

and payments; and• Independent non-Executive Directors’ contracts and

payments.

Remuneration philosophy, strategy and policy

The purpose of Massmart’s remuneration philosophy is to establish fair and equitable reward levels that will attract, motivate and retain high calibre employees. This is in keeping with the Group’s culture and values, whilst aligning remuneration with shareholder interests and best practice.

We strive to ensure that our remuneration policy supports the development and retention of top talent and critical skills.

Its purpose is to ensure a workforce that is motivated to successfully develop, implement and support the Group’s business strategy. The focus is on ensuring the long-term growth and success of the Group and enhancement of stakeholder value.

Primary objectives of the remuneration programmes: • Provide competitive and equitable remuneration, based

on an employee’s skills, performance and contributions to the Group, among other factors;

• Attract and retain the talent necessary to achieve the Group’s business objectives;

• Develop a sense of Group ownership and align the interests of employees with those of its shareholders; and

• Provide opportunities for the potential of greater financial rewards to those who perform well with their job responsibilities.

Massmart is committed to maintaining market-related pay levels that reflect a job’s worth to the Group. This includes incentives that recognise and reward individuals for business and individual performance against targets.

Massmart’s total reward offering comprises the following elements:• Guaranteed package, specifically basic salary and benefits

including motor vehicles, retirement funding and medical aid;

• STI’s, represented as multiples of basic monthly salary linked to the achievement of targets and / or personal performance; and

• LTI’s, represented as a percent of guaranteed package in a mix of Performance and Restricted share awards.

The total reward offering of guaranteed package, STI’s and LTI’s is intended to provide value to employees at a minimum of the 75th percentile of the market, dependent on achievement of goals against targets. Regular reviews of remuneration against market ensure that the total reward offering remains competitive.

Each year at the Annual General Meeting, in accordance with King III, the Group remuneration policy is put to a non-binding advisory vote. This non-binding advisory vote allows shareholders to express their views on the remuneration policies adopted by the Group and on their implementation.

Remuneration Committee and its role

CompositionThe Remuneration Committee consists of three non-

Executive Directors, two of whom are independent. Meetings are held four times per year and more often if deemed necessary. The CEO is a permanent invitee to all Committee meetings. Other nominated Executives attend meetings by invitation. Neither the CEO nor nominated invitees are present when matters relating to their own remuneration are discussed. The Group General Counsel acts as secretary for the Committee.

Remuneration report

Overview of remunerationMassmart remains committed to ensuing competitive

remuneration packages whilst managing costs. Massmart participates in a number of annual industry surveys to ensure the remuneration, benefits and incentives on offer are maintained at market-competitive levels. Remuneration packages as a whole are regularly measured against the national market with additional comparisons within the retail industry and against similar-sized South African listed companies.

Guaranteed remuneration

Annual salaries

Salaries are reviewed annually against market data and increases are awarded on basic salary. The actual percentage increases awarded are determined based on both market trends and on individual merit, taking salary positioning against the Massmart salary structure into account. The Committee is alert to the concentrated and highly competitive nature of the South African retail market, as well as a shortage of retail-specific skills, and sets compensation levels accordingly.

In July 2014, increases awarded to Massmart’s Execucom and Divisional Directorates averaged 7.2%, however this average includes market-related adjustments for six of the Executive team members. If the market adjustments for these six executives are excluded from the metrics, the average annual increase percentage awarded to these Executives amounts to 6.6%. The average percentage increase to salaries across the Group was 6%.

Motor vehicle benefits

Travel allowances, or company cars, are provided to nominated employees to enable them to perform their duties as required. The quantum of the allowance or company car value is determined based on the requirements of each specific role.

Retirement funding

All employees are required to belong to either a pension or provident fund. The current Group-approved funds are all defined contribution schemes. The remainder of funds comprise those funds that have been incorporated into the Group through acquisitions. These are in the process of being incorporated into the Group-approved funds through Section 14 transfers. The distribution of employees across the various Massmart funds is noted in the table below.

Fund Name % of Employee Base

Massmart Pension Fund 15

Massmart Provident Fund 73

SACCAWU National Provident Fund 8

Other* 4

* Funds currently undergoing Section 14 transfers

ResponsibilitiesIn accordance with the Remuneration Committee

Charter, as set out by the Board, the responsibilities of the Committee include:• Reviewing the Group remuneration strategy and policies

to ensure alignment with the Group strategic, operating and financial objectives and remuneration best practice principles;

• Evaluating the remuneration packages of the Executive Directors and Group Executive Committee to ensure base pay and benefits are market-competitive and fair, and STI’s and LTI’s are equitably related to relevant performance indicators;

• Approving performance-related STI and LTI targets;• Making recommendations to the Board on amendments

to STI and LTI schemes;• Reviewing and recommending independent non-

Executive Directors’ and Board committee members’ fees and also the fees of any director-related entities providing services to the Group;

• Reviewing Group remuneration practices and policies; and• Selecting independent consultants to advise the Board

where appropriate.

A full account of the role and responsibilities of the Remuneration Committee is described in the Remuneration Committee Charter and is available on request.

Key decisions taken in 2014• Retirement date change: The retirement age for all

employees was increased from 60 to 65. The decision was taken to provide an additional five years employment to retain employee skills whilst providing further opportunity for employees to save for retirement.

• Remuneration structure: Massmart introduced a formal and uniform salary structure in the business during 2014. This structure will be used to measure employee basic salaries and ensure internal and external parity, and is linked to the Hay process noted below.

• Job grading and profiling: the Hay Group job evaluation system was formally implemented and is currently being rolled-out across the Group. Each Executive role has been evaluated using the Hay Guide Chart® Profile Method of Job Evaluation, to enable accurate, objective and consistent monitoring of pay and benefits against relevant market levels.

Key priorities for 2015• Review of the competitive positioning of the Massmart

Annual Incentive Plan and Share Incentive Plan to better align the plans to Massmart’s business requirements.

• Continue the development of job descriptions, the evaluation of all jobs and the formalisation of grade levels throughout the Group through to store level.

• Review of employee participation in the medical schemes to assess the feasibility of providing health care benefits to all permanently appointed employees.


Alexander Forbes has administered the Massmart funds for a number of years. A formal service level agreement is in place that regulates this relationship. The trustees of the funds monitor fund performance on a quarterly basis.

Fund Name December 2014

Portfolio value

Rm

Gross annualised

returns

MRF Balanced 3 ,181.8 12.1%

MRF Conservative 151.0 11.4%

MRF Aggressive 107.2 12.3%

Investment Solutions Performer 283.0 11.5%

Investment Solutions Banker 89.0 7.9%

Other Investment Solutions Portfolios*

51.3

Total 3,863.3

*Other Investment Solutions Portfolios are made up of IS Conserver, IS Real Return and IS Prescient Pensioner

Fund Name December 2013

Portfolio value

Rm

Gross annualised

returns

MRF Balanced 2,775.7 24.7%

MRF Conservative 148.4 12.1%

MRF Aggressive 80.6 24.3%

Investment Solutions Performer 263.8 25.5%

Investment Solutions Banker 101.3 6.5%

Other Investment Solutions Portfolios

62.6

Total 3,432.4

Medical plans

It is compulsory for all new permanent Massmart Group employees to join a Company-approved medical plan. The Group has the responsibility of ensuring that the appropriate plans are offered to employees and that the contribution levels are sustainable and affordable for all levels of employees.

The current Massmart Health Plan offers employees a broad range of options with good benefits at very competitive rates and so aims to reduce reliance on open schemes. The current Group subsidy is 50% of total contribution for principal member and spouse. The Massmart

Health Plan is regulated in terms of the Medical Schemes Act and the Council for Medical Schemes. The Scheme has been audited by PWC and has been found to be compliant with all required submissions.

Affordable and accessible private health cover has been an on-going objective for Massmart since 2009, and Massmart has consistently been able to increase its coverage targets year-on-year. In 2014, Massmart achieved an estimated 65% healthcare coverage of permanent employees and in the same year introduced a Network option which currently covers almost 1,600 employees. Massmart is on a journey to achieving affordable and sustainable healthcare for all of its employees.

The current strategy is to be able to offer employees a broad range of good benefits at affordable rates within the Massmart Health Plan and reduce reliance on open schemes due to the challenges that open schemes have of anti-selection, retiree buy-downs and broker commission, resulting in cross subsidisation by younger and healthier members. Open schemes therefore tend to have higher annual contribution increases and benefit restrictions in order to manage these risks.

Current company-approved medical aid plans for all new permanent employees from 2015:

Medical plan Employees

Ocsacare (Employee only option) (Occupational health offering)

3,898

Massmart Health Plan - Choice (Company’s closed scheme)

3,135

Massmart Health Plan - Network (Company’s closed scheme)

1,633

Africa-approved (Africa expatriate employees)

37

Total 8,703

The medical aid schemes below are closed to new membership however existing members can remain on these. Different company subsidies exist on these schemes due to historic employer / employee commitments.

Medical plan Employees

Resolution Health(closed 1 January 2014)

3,026

Compcare NetworX(closed 1 January 2015)

2,579

Other 418

Total 6,023

Total employees on medical schemes 14,726

Remuneration report continued

Short-term IncentivesMassmart places particular emphasis on generous annual

incentives for high performance. The Annual Incentive Plan (AIP) categorises a range of performance incentives linked to the approved annual operating income targets for both Group and Divisions. In order to align with the Walmart metrics, performance against planned operating income targets was selected as the performance measure. For business performance below 90% of planned operating income, no incentives are earned. At the lower levels of the AIP, an individual metric based on employee performance is included.

Participating employees can earn an increasing multiple of their monthly basic salary dependent upon achievement against these agreed targets.

Outside of the AIP, the Committee also has the option to provide discretionary awards to reward individual performance. The discretionary awards are capped at not more than 25% of target AIP. If awarded, these incentives are paid annually.

With this being only the second year since plan inception, there is not enough information to provide trends on plan performance. The intention is to provide this information in subsequent remuneration reports.

Long-term IncentivesThe Massmart Share Incentive Plan (SIP) is a long-term

equity incentive plan that ensures alignment of reward with shareholders’ interests, in particular the sustained creation of shareholder value. Full-value shares rights are awarded bi-annually to qualifying permanently employed individuals. Initial qualification is based on a minimum earning criteria as well as motivation by the Executive Committees of each of the Divisions. Final approval for participation is provided by the Remuneration Committee.

Share award parametersAt Executive level, the value of the award ranges between

40 – 100% of guaranteed package. At other levels, the award is based on 25% of guaranteed package. The plan provides for a mix of performance shares, which are awarded annually in March and grants of restricted shares which are granted annually in September, based on the level of employee. At Executive levels, the mix is 75% performance shares and 25% restricted shares, and at other levels, 50% / 50%.

The performance share metrics have been designed to align with Walmart’s metrics and are measured individually against approved annual nominal sales and ROI targets over three separate years with an equal weighting. Both targets have ranges and the final awards are calculated based on a sliding scale between the ranges 50%-150%. If achieved, the awards are equity-settled at the end of the third year. If performance against either of the targets does not achieve at least the minimum of the range, no performance share

awards will be provided against that target. Performance against target has resulted in the release of performance shares equivalent to 35.9% (2013) and 108.2% (2014).

Restricted share grants are specifically utilised for retention purposes and vest on a time basis, being one third each at the end of years 3, 4 and 5.

As is the case with the AIP, this is only the second year since plan inception; therefore there is not enough information to provide trends on plan performance. The intention is to include this information in subsequent remuneration reports.

Massmart Employee Share TrustPrior to 2013, qualifying Massmart employees were

eligible to receive a share option allocation, which was subject to a Group performance target set at CPI plus 5% growth in Headline Earnings per Share (HEPS). Performance hurdles had to be met in order for employees to receive an allocation. Options vest in equal amounts over four years commencing on the second anniversary of the grant date. Options expire five years after the last vesting date, at which time any unexercised options are returned to the Scheme.

During 2012, the final allocation was awarded under the scheme, which was subsequently replaced by the Massmart Share Incentive Plan. No options have been awarded under the Trust since.

Massmart Black Scarce Skills TrustThe Black Scarce Skills Trust is a share-scheme used

to attract and retain skilled African, Coloured and Indian employees. The Executive Committees of each of the divisions and the Massmart Remuneration Committee submit their nominations to the Black Scarce Skills Trust trustees for approval, upon which allocations are made bi-annually in April and October of each year. A beneficiary is only eligible for a single allocation.

Executive pay mix

Anticipated contribution to total annual packages

The Committee believes that over an extended period and subject to business performance, Executives’ annual package should comprise approximately equal amounts from basic salary, Annual Incentives (AIP) and Share Incentives (SIP). The amounts received annually under AIP will vary on business performance, while those received under the SIP will also vary on business performance and growth of the Massmart share price. It is anticipated that about two thirds of Executives’ compensation should be variable and conditional upon sustainably improving business performance.



Ilan ZwarensteinThe Remuneration Committee awarded Ilan a 6.5%

increase on his basic salary in July 2014.In terms of Massmart’s AIP, Ilan received an incentive

payment of R 2,8 million (equivalent to 14.2 months of salary). During the 52 weeks ended December 2014 Ilan did not

convert any Massmart options. Through the Employee Share Trust, Ilan holds 167,331

options. The average length of time that he has held these is 3.15 years and the average strike price is R 151.44 per share.

Through the SIP, Ilan was awarded 16,686 performance awards on 17 March 2014.

In August 2014, Ilan announced his intention to resign as Group Finance Director. At the request of the Board he remained in his role until 12 March 2015. Having tendered his resignation, he received no restricted share grants on 15 September 2014.

Johannes van LieropFollowing the resignation of Ilan Zwarenstein from his

role as Group Finance Director, Johannes van Lierop was appointed as Chief Financial Officer of Massmart with effect from 12 March 2015.

Top three executives’ salariesWith the exception of the Executive Directors’

remuneration, the Board has made the decision not to disclose the individual salaries of the top three executives but has instead, disclosed the aggregate salaries of the three Executives concerned. This decision was taken due to the specialised retail skills of these executives, their value to Massmart and the highly competitive South African retail environment.

During the 52 weeks ended December 2014, the top three Executives’ combined salaries (comprising basic salary, motor vehicle allowances, medical aid, retirement benefits and bonuses and performance-related payments) were R34.7 million (December 2013: R23.6 million).

Non-Executive Directors contracts and policies

One-third of the non-Executive directors are required to retire every year and Massmart Executive Directors have elected to also retire on this basis. As a result, all Directors retire by rotation at least every three years and are then eligible to offer themselves for re-election. In addition, shareholders must ratify the initial appointment of each Director at the first Annual General Meeting following that Director’s appointment.

Executive Directors’ contracts and earningsThe comments below provide further background and

context to the figures disclosed in tables which follow.

Guy RC HaywardGuy was appointed as CEO in June 2014 following the

resignation of Grant Pattison. The Remuneration Committee awarded Guy a 36.5% increase in basic salary commensurate with his new position following a third party executive remuneration analysis.

In terms of Massmart’s AIP, Guy received an incentive payment of R5,9 million (equivalent to 14.2 months of salary).

During the year to December 2014 Guy did not convert or sell any Massmart options or shares.

Through the Employee Share Trust, Guy holds 456,906 Massmart shares and options of which 19,912 shares are held by the Bluett-Hayward Trust, of which Guy is a discretionary beneficiary. The average length of time that he has held these is 4.26 years and the average strike price is R124.67 per share. Guy also owns 36,517 Massmart shares directly.

Through the SIP, Guy was awarded 32,786 performance share awards on 17 March 2014 and 11,506 restricted share grants on 15 September 2014.

Guy is contractually bound by a notice period of twelve months.

Grant M PattisonGrant resigned and stepped down as CEO at the end of

May 2014 and agreed to remain on the Massmart Board as an Executive Director until the end of December 2014. Having tendered his resignation in February 2014, Grant was not eligible for and did not receive a salary increase, AIP payment or shares under the SIP.

During the year to December 2014 Grant converted 47,000 Massmart options and settled loans on 183,750 shares from the Employee Share Trust.

For the year ended December 2014, through the Employee Share Trust, Grant held 453,271 Massmart shares and options of which 42,202 shares and 158,603 options are held by the Pattison Family Trust, of which Grant is a discretionary beneficiary. The average length of time that he has held these shares is 6.23 years and the average strike price is R95.31 per share. In addition, the Pattison Family Trust and a related company, GPAM, own an additional 348,805 shares.

Actual values paid in 2014

AIP

Guaranteed Package

Gain on exerciseof share options

47.9%52.1%

CEO

50.4%49.6%

GROUPFD

* Average of total remuneration for

Prescribed Officers

41.0%17.5%

41.5%

PRESCRIBED OFFICERS*

All Committee members complete detailed self-assessments covering the composition, duties, responsibilities, process and effectiveness of the relevant committees. The results of these assessments are collated by the Company Secretary and sent in summarised form to the Chairperson for a formal written response. The summarised results, together with the Chairperson’s written response, are included in the Board papers at the November Board meeting.

Payments made to non-Executive Directors

The Walmart-appointed non-Executive Directors do not receive fees from Massmart.

Each independent non-Executive Director receives a fixed fee for their services based on their board membership and membership of the Board sub-committees. The Board has elected to pay a fixed fee only, without the payment of additional attendance fees. This decision was taken on the basis that many Directors provide expertise that extends beyond the boardroom.

The remuneration of non-Executive Directors is reviewed annually by the Remuneration Committee and the Board, after a benchmarking exercise against market. Fees are required to be competitive but not in the top quartile of the market. Recommendations for increases are made to shareholders at the Annual General Meeting for consideration and approval.

Non-Executive Directors do not qualify for participation in any share or incentive scheme.

The following fees for the non-Executive Directors will be proposed at the May 2015 Annual General Meeting for the period from 28 May 2015, to the date of Massmart’s Annual General Meeting in respect of its financial year ending December 2015:

2015 2014

Chairman of the Board 1,200,000 871,000

Deputy Chairman 625,000 625,000

Directors 275,000 259,000

Committee Chairpersons 252,000 252,000

Committee Members 128,000 120,000


Directors’ emoluments

Services as directors of

Massmart Holdings

LimitedR000

Salary and allowances

R000

Bonuses and per-

formance related

payments1 R000

Other benefits

R000

Retirement and related

benefits R000

Subtotal R000

Fringe benefit of

interest-free loans

used to finance shares2

R000

Gains on exercise of share options and on shares

purchased by

directors R000

Total R000

For the 52 weeks ended December 2014

Executive directors

Pattison, GM3 - 5,215 - 692 365 6,272 1,365 15,788 23,425 Hayward, GRC - 4,443 5,916 667 337 11,363 844 - 12,207 Zwarenstein, I - 2,603 2,827 103 162 5,695 - - 5,695

- 12,261 8,743 1,462 864 23,330 2,209 15,788 41,327 Non-executive directors

Lamberti, MJ4 359 - - - - 359 - - 359 Seabrooke, CS 1,491 - - - - 1,491 - - 1,491 Cheesewright, D5 - - - - - - - - - Davis, JA5 - - - - - - - - - Gwagwa, NN 512 - - - - 512 - - 512 Langeni, P 758 - - - - 758 - - 758 Dlamini, KD 892 - - - - 892 - - 892 Suarez, JP - - - - - - - - - Broader, S6 - - - - - - - - - Clarke, A6 - - - - - - - - -

4,012 - - - - 4,012 - - 4,012 Prescribed Officers

Prescribed Officer A - - - - - 13,683 293 - 13,976 Prescribed Officer B - - - - - 8,115 - - 8,115 Prescribed Officer D - - - - - 4,703 - - 4,703 Prescribed Officer E - - - - - 6,089 - - 6,089 Prescribed Officer F - - - - - 13,718 - 2,300 16,018 Prescribed Officer G - - - - - 4,476 239 - 4,715 Prescribed Officer I - - - - - 4,913 11 209 5,133 Prescribed Officer K - - - - - 4,787 - - 4,787 Prescribed Officer L - - - - - 3,912 - - 3,912 Prescribed Officer M - - - - - 4,630 76 - 4,706

- - - - - 69,026 619 2,509 72,154 Total 4,012 12,261 8,743 1,462 864 96,368 2,828 18,297 117,493

1 In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year.2 Held in terms of the rules of the Company’s share scheme.3 Resigned with effect from 31 December 2014.4 Resigned with effect from 10 April 2014.5 Resigned with effect from 16 July 2014.6 Appointed with effect from 16 July 2014


Services as directors of

Massmart Holdings

Limited R000

Salary and allowances

R000

Bonuses and performance

related payments

R000

Other benefits

R000

Retirement and related

benefits R000

Subtotal R000

Fringe benefit of

interest-free loans

used to finance shares2

R000

Gains on exercise of share

options and on shares

purchased by directors

R000Total R000

For the 53 weeks ended December 2013

Executive directors

Pattison, GM3 - 5,215 1,304 772 365 7,656 1,413 - 9,069 Hayward, GRC - 3,560 916 686 249 5,411 814 - 6,225 Zwarenstein, I - 2,447 561 113 153 3,274 1 1,863 5,138

- 11,222 2,781 1,571 767 16,341 2,228 1,863 20,432 Non-executive directors

Lamberti, MJ4 1,213 - - - - 1,213 - - 1,213 Seabrooke, CS 1,256 - - - - 1,256 - - 1,256 Cheesewright, D5 - - - - - - - - - Davis, JA - - - - - - - - - Gwagwa, NN 451 - - - - 451 - - 451 Langeni, P 689 - - - - 689 - - 689 Suarez, JP - - - - - - - - -

3,609 - - - - 3,609 - - 3,609 Prescribed Officers

Prescribed Officer A - - - - - 9,712 370 2,702 12,784 Prescribed Officer B - - - - - 6,161 - - 6,161 Prescribed Officer D - - - - - 3,694 6 5,904 9,604 Prescribed Officer E - - - - - 4,327 - - 4,327 Prescribed Officer F - - - - - 7,756 - 389 8,145 Prescribed Officer G - - - - - 2,530 229 - 2,759 Prescribed Officer I - - - - - 2,831 43 719 3,593 Prescribed Officer K - - - - - 2,979 - - 2,979 Prescribed Officer L - - - - - 2,930 - - 2,930 Prescribed Officer M - - - - - 2,582 73 - 2,655

- - - - - 45,502 721 9,714 55,937 Total 3,609 11,222 2,781 1,571 767 65,452 2,949 11,577 79,978

1 In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year.2 Held in terms of the rules of the Company’s share scheme.3 Resigned with effect from 31 December 2014.4 Resigned with effect from 10 April 2014.5 Resigned with effect from 16 July 2014.


Relevant dateSubscription

price (R)

Market price

(R) Number of shares/

share options

Gain on sale/exercise

(R 000’s) Expiry date

Pattison, GM

Employee Share Option Scheme

Balance at December 2012 684,021

Options exercised / shares sold - - - - -

Balance at December 2013 684,021 -

Options exercised 1 April 2005 42 120 (47,000) 1,969

Shares sold 23 May 2006 54 120 (183,750) -


Comprising: 23 May 2006 54 183,750 22 May 2016

24 May 2007 94 26,948 23 May 2017

26 May 2008 73 41,768 25 May 2018

27 May 2009 78 42,202 26 May 2019

1 September 2011 154 158,603 31 August 2021

Employee Share Awards Scheme

Balance at December 2012 -

Performance share awards 16 September 2013 - - 28,705 - 15 September 2016

Restricted share grants 16 September 2013 - - 9,569 - 15 September 2018


Share awards / Share grants - - - - - -


Comprising: Performance share awards 16 September 2013 - - 28,705 - 15 September 2016


Hayward, GRC



Options exercised / shares sold - - - - - -


Options exercised / shares sold - - - - -


Comprising: 24 May 2007 94 - 24,444 23 May 2017

1 April 2008 67 - 19,912 31 March 2018

26 May 2008 73 - 36,573 25 May 2018

27 May 2009 78 - 105,448 26 May 2019

1 September 2011 154 - 120,987 31 August 2021

16 May 2012 160 - 149,542 15 May 2022


Details of Directors’ shares and share options per Director:

Relevant dateSubscription

price (R)

Market price

(R) Number of shares/

share options

Gain on sale/exercise

(R 000’s) Expiry date






Performance share awards 17 March 2014 - - 32,786 - 16 March 2017



Comprising: Performance share awards 16 September 2013 - - 20,848 - 15 September 2016




Zwarenstein, I



Options exercised 1 April 2008 67 196 (2,742) 354

Options exercised 26 May 2008 73 196 (5,234) 644

Options exercised 27 May 2009 78 196 (7,352) 871

Balance at December 2013 167,331 1,869

Options exercised - - - - - -


Comprising: 26 May 2008 73 - 8,037 25 May 2018

27 May 2009 78 - 3,677 26 May 2019

1 September 2011 154 - 63,941 31 August 2021

16 May 2012 160 - 91,676 15 May 2022








Comprising:




Read more: Shares and options at reporting date can be found in the ‘Directors’ Report’ on page 72

Read more: More detail on the Employee Share Incentive Schemes can be found in the ‘Remuneration Report’ on page 85


In order to remain relevant to

a rapidly evolving and digitally

connected Customer 2.0, Massmart

must understand and stay in touch

with the technology innovations

impacting retail formats, and the

increasingly complex omni-channel

paths to purchase.

Ecommerce / onlineWe recognise that smartphone penetration and declining

costs of bandwidth are creating a digitally-connected customer that will be ubiquitous in every market segment we serve. Put simply, the internet and mobile phone have created new dimensions in retail that enable us to raise the bar on convenience, service, choice and communication.

To take advantage of the opportunity to win, serve and retain customers in new ways, we must become literate in the new dimensions of retail, acquire new competencies and adapt existing assets, in order to retain and advance our leadership in the categories we trade, and market segments we serve.

To this end we have spent time in various Walmart markets around the world to understand the context, trends, best practices and competency gaps impacting retail operations like ours, in order to inform our strategic choices. We have identified the need to evolve our formats to synthesise the physical and digital elements of retail, in ways that create compelling new value propositions for customers, and to align with their expectations of a digitally-augmented shopping experience; and new standards for convenience, choice and service.

Intellectualcapital

Massmart defines intellectual capital as how we pass on benefits to our customers

ShieldOnline:

351,809orders placed

New private label offering launch:

Marketsideinto Fresh, Bakery and Butchery

ShieldOnline sales:

R3.78 bnThe country’s largest pure B2B ecommerce business

Every Day Low Price:

EDLPPlumb Pride Geyser which has been held at the same selling price for four years.

DionWired online:

4mpage views: up 100%

Whilst the strategic choices and directions are clear, online shopping adoption in the markets we serve has been relatively slow. Consequently there is no burning platform driving an online shopping agenda. We therefore have the time to develop important foundation competencies and implement new systems in a phase of omni-channel readiness.

In support of this, all of our operating divisions have brought strong focus to the acquisition of these competencies, and the development of supporting systems required to prepare their operations for omni-channel:• Massdiscounters has added the Game catalogue to its

DionWired online store, allowing customers to research products before making a purchase

• Masswarehouse launched Makro’s online store with a complete General Merchandise offering in March, followed shortly by Liquor, allowing customers the convenience of collecting in store or having purchases delivered.

• Masscash continues to invest in its ShieldOnline trading portal, upgrading mobile interfaces, and extending the portal to cash and carry stores.

• Massbuild has invested in master data governance systems and processes in parallel with an ecommerce system implementation, and will focus initially on the trade customer.


Massbuild’s EDLP journey to date

Performance of our online offerings in 2014

Intellectual capital continued

DionWired • 2.3% contribution to total

DionWired sales• 1.5m website visitors• 0.45% conversion rate

DionWired, experienced solid growth for a fourth year in a row. User visits were up 26% to 400,000 visitors for the peak period (November and December), page views were up over 100% to four million for the period and an average online basket size of R3,300 was achieved during this period.

Sales up

44%Website visitors:

1.5 millionGame

Christmas came early for Game’s online visitors with a new look Game website launching in early December. The fully responsive Game website was designed to allow for simple, intuitive navigation across all devices from desktop PC to mobile phones.

Other key enhancements included:• New look design built on global best

practise while maintaining Game’s brand identity

• Interactive store finder with full Google map integration

• Improved product information• Improved search and site navigation

The website proved extremely popular with Game customers with 1.1 million of them visiting the site over the peak period.

Website visitors in peak period:

1.1 millionIncrease in website visitors:

23% Makro Since the launch of Makro website

from April 2014, the site attracted 9.7 million visitors of which 4.5 million were unique visitors.

Makro Ecommerce went live in April 2014. During the 30 days between mid-November and mid-December, the site saw a surge in unique visitors to one million. During this period we also ran a successful online campaign named Pricegate on the 5th of December 2014.

Majority of Makro site visitors accessed the site through Desktop (65%) and the remainder accessed the site through mobile (24%) and tablets (11%). Various changes were made to optimise the website and also to improve user experience.

Website visitors since April 2014 launch:

9,7 millionSales up

14.7%Orders placed:

351,809

1 April 2015

5Another Price Lock campaign launched• Following on from

excellent results of first campaign - 48 products locked for six months yielding a growth of 75%

Results:• A quarterly independent price

survey of 150 products showed that Builders Warehouse consistently aligned with the best in the market

• EDLP initiatives have enabled us to increase promotional margin on adverts, while still offering consumers excellent value for money and gaining price trust

• Excellent success stories across multiple price categories such as the Plumb Pride Geyser, which has been held at the same selling price for four years

May 2013

4Price communication changed to fulfill these objectives:• build price trust• increase price visibility• simplicity• consistencyCancellation of birthday campaign and launch of the Price Lock campaign for an initial period of six months

February 2013

3Do more for less with Builders• new positioning

message

July 2012

2Changed price communication• implemented price rounding• developed unique price device• dropped the “was” and “now”

pricing and use of “best buy” on selected items

April 2012

1Maximised month-end promotionCancelled mid-month promos, increased month-end promos to three weeks• minimised amount of products

promoted in adverts and increased size of pictures

Every Day Low Price (EDLP)

EDLP is Massmart’s simple, transparent approach to shifting consumer behaviour in an uncertain economic climate. It strengthens loyalty and protects the trust that consumers have for Massmart.

ShieldShieldOnline is a pure B2B model

interfacing directly between suppliers and retailers. The online platform is used by our suppliers, our internal call centre as well as customers, to place orders. All sales orders in Shield are placed on the system. The site has recently been adapted to perform on tablets.

ShieldOnline has automated interfaces to accept incoming electronic orders from both suppliers and customers, as well as an outgoing interface to suppliers and is capable of customer pricing downloads.At R3,78 billion in sales and in the cate-gories we trade in, as far as we are aware Shield runs the country’s largest pure B2B ecommerce business.

Private label

Shared private label has always been an important focus for our business, as can been seen from the growth numbers across our Campmaster and Gardenmaster brands, as well as small exercise equipment under the Trojan brand. We strive for brand excellence whether through product innovation, world class social media or website platforms off which our customers can not merely view product range, but also engage directly with us. With our Campmaster and Trojan health repair centres we are unrivalled in the space of post-purchase customer care.

The private label space in our Food business is very exciting right now with the recent launch of Marketside into Fresh, Bakery and Butchery and the Equate brand into Health and Beauty.

Shared private label has a duel role: it excites and delights our customers with an outstanding brand encounter; and it allows our business to leverage our strength in terms of joint buying, expansion of brand footprint and ultimately being able to bring our customer more-for-less. We are continually searching for new products, brands and initiatives that both fulfil our customers’ needs and give Massmart Private Label a sustainable advantage.


27 million meals servedto learners through the Amalunchbox and Econo mobile kitchen projects

R23.6millioninvested in nutrition projects

Investment in social projects:

R41.5million(equivalent to 3.6% PAT)

At the heart of our social sustainability approach is a desire to support social equality initiatives in our business and supply chain. We believe that nurturing talent and creating opportunities for our employees, and emerging suppliers is fundamental to realising this significant objective.

targets small manufacturing and agricultural suppliers. To this end, we are working with 24 manufacturers and 146 small holder farmers distributed across six provinces. These enterprises supply a diverse range of manufactured products, fresh produce and meat.

For the 15 months ending 28 December 2014, Massmart disbursed more than R50 million in funding to SMME suppliers. Altogether, approximately R43.4 million was disbursed as grants and R6.7 million as loan guarantees. The remainder was utilised, primarily, on support services. 47% of funding was invested in manufacturing with the remainder being deployed to assist small holder farmers.

Facilitating responsible sourcingUnder Walmart’s guidance Massmart established, in 2013,

a responsible sourcing programme focusing on private label, direct import and exclusive brand products. In terms of the programme, participating suppliers are assessed by independent auditors on a broad range of human rights and safety dimensions that include, among other things; fair labour practices and compliance with health, safety and environmental regulations.

Social capital

Massmart defines social capital as our commitment to champion social equality initiatives in our business and our supply chain.

Prioritising social equality initiatives All our social equality initiatives are vetted against

stringent assessment criteria including legislation, commercial relevance to Massmart’s global sustainability commitments and reputational benefit. More information can be found online.

Supporting small business developmentMassmart has established an in-house small supplier

development unit comprising a team of nine professionals. The team is tasked with identifying and facilitating small and medium local supplier access to opportunities within the Massmart supply chain. Because retail is customer demand-driven, the programme applies a demand-driven strategy, placing emphasis on structural supply shortages in areas of demonstrated customer demand within the Massmart supply chain.

Our overall focus is on assisting small and medium enterprises, with a maximum turnover of R50 million. Preference, but not exclusivity, is given to women–owned and black-owned enterprises. The programme currently

R71.2minvested in developing small suppliers since the inception of the Supplier Development Fund

For more information on our social capital pages 12 to 27, Our divisional reviews

During the period under review, 60 suppliers from 9 countries including Bangladesh, China, India, Brazil and Thailand were subjected to independent responsible sourcing audits. Although 38% of participants were found to be fully compliant, 62% of suppliers were required to remedy minor infringements which included, among other things, displaying appropriately warning and emergency exit signage. As a result of this process, two suppliers were removed from Massmart’s supply chain for non-negotiable infringements.

In 2015, we aim to ensure that all direct import facilities have been audited. In addition, we will be focussing on building the capacity of our domestic manufacturers to meet Walmart Global Standards for Suppliers. This capacity building will include responsible sourcing training, conducting one-on-one visits and providing advice, on areas such as the development of corrective action plans, to factories that require additional support. In addition, we have prioritised training buyers on our global responsible sourcing programme and putting controls in place for product and supplier listing.


Promoting Broad-based Black Economic Empowerment

In 2014, we maintained our level 4 Broad-based Black Economic Empowerment (BBBEE) Contributor status achieving a 2.5 point improvement in our 2013 score, due largely to better performance in the areas of skills development and employment equity.

We are particularly pleased by the role that the Massmart Supplier Development Fund (SDF) is playing in developing black manufacturers and producers. The SDF is currently working with 19 black-owned manufacturers and 146 smallholder farmers, who supply products including: bricks; steel doors and window frames; paint; cooler boxes; tea; lampshades; mosaic tiles; cosmetics; fruit juice; biscuits; clothing; maize meal; ceramic pots; insecticides; adhesives; vegetables; and beef to Massmart’s stores. Some of the participants in our Supplier Development programme can be seen on pages 100 and 101 of this report.

Whilst we continue to prioritise BBBEE as a key performance area, we anticipate that our group BBBEE contributor status will decline in 2015 when the amended Codes of Good Practise come into effect.

Empowering WomenWalmart has prioritised the empowerment of women

across their operations and supply chains. As part of this initiative, and as a first step towards identifying opportunities to support and work with our majority women owned suppliers, Massmart conducted a supply chain assessment to identify businesses that have a minimum of 25% women ownership. The assessment was distributed to over 1,426 suppliers, 59 of whom indicated that they had more than 25% women ownership. Our focus for 2015, will involve engaging with our divisional buying teams to identify opportunities to optimise procurement from these identified suppliers.

Within our own business, we continue to support the progression of woman through the Massmart Chief Executive Officers Council of Woman Leaders and the Massmart Corporate University. Although not focused solely on woman, our Corporate University has in excess of 265 woman participants. Our Graduate Development Programme represents another avenue through which we attract and retain talented women, and we are encouraged that of the 127 female graduates who have participated in the programme since its inception in 2007, 106 remain in the business today.

Supporting socio-economic developmentMassmart’s corporate social investment is focused on

school nutrition, early childhood development (ECD), school maintenance and infrastructure. We remain committed to investing a minimum of 1% Profit after Tax (PAT) in social projects. We typically exceed this target and in 2014, we invested R41.5 million which is equivalent to 3.6% PAT.

Honouring Nelson Mandela’s legacy

In honour of Nelson Mandela’s 94th birthday in 2012, Massmart on behalf of the Walmart Foundation committed to providing 94 mobile kitchens to 94 primary schools around the country. 2014 saw the completion of the project when we delivered the final Walmart Foundation funded container kitchen to Dikgabane Primary School in Soweto. We were also delighted to have exceeded our original goal by delivering 101 kitchens, versus the 94 originally committed. Further, Game, Masscash and the Walmart foundation have donated 280 mobile kitchens to government schools across South Africa since the project was launched in 2008. These kitchens enable the hygienic preparation of approximately 27 million meals each year.

This year we initiated a process to assess the effectiveness of the mobile kitchen project. The assessment, which took the form of engagement with mobile kitchen recipients through site visits and telephonic interviews, revealed the need to ensure that these kitchens receive ongoing maintenance. We are currently exploring options for facilitating this.

Group highlights Builders Warehouse continued its nutrition and school

maintenance initiatives, investing R4 million in basic maintenance programmes at 101 schools. Since 2011 Builders Warehouse have, through this project, helped maintain 205 schools and Early Childhood Development Centres (ECD’s) around South Africa.

Makro, in partnership with HOPE Worldwide, provided funding to 41 ECD’s in disadvantaged communities. The assistance offered through this initiative includes providing training to teaching staff and facilitating the renovation and registration of these centres. In 2014 the project directly benefited 3,274 children below the age of five.

Game, together with the Kingsley Holgate Foundation, supplied insecticide-treated mosquito nets to combat Malaria in Botswana, Malawi, Mozambique and Zambia. Since 2012, Game have donated 39,200 mosquito nets to assist in preventing the spread of this potentially deadly disease. While over and above their Econokitchen project Masscash, in 2014, invested approximately R0,5 million in feeding schemes across Mozambique, Botswana, Namibia and Lesotho. Notwithstanding the investments made by our divisions, Massmart Holdings participated in a variety of projects, which included contributing food to the SANDF goodwill parcel project, donating generators and equipment to support the South African National Department of Health’s efforts in responding to the Ebola outbreak in West Africa, and donating R1 million to the Nelson Mandela Centre of Memory.

In 2015 our objective is to implement an operating framework that will synergise our social development efforts with those of key suppliers who are engaged in complimentary activities, specifically in the primary schools education arena.

Social capital continued Supplier Development Fund

On 9 February 2015 we marked the two-year point in the implementation of the Massmart Supplier Development Fund (SDF), under the condition of the Competition Appeal Court (CAC) Order. The Fund has reached several significant milestones over this period.

It has not just been about getting funding out the door and Massmart has worked hard to ensure that it is creating sustainable opportunities for small, medium and micro-enterprises (SMMEs).

The greatest excitement over the previous financial year has been the take-off of the SDF’s manufacturing portfolio.

The SDF closed the year with 24 manufacturing SMMEs on-board all supplying a range of retail products.

The Fund also provided market access to 139 smallholder vegetable farmer beneficiaries in 2014 and commenced its first red meat sourcing pilot with smallholder farmers in the Eastern Cape.

In 2015 the focus will be on maximising sales for listed SMME suppliers and prioritising even higher impact opportunities in assembly and import replacement.

R71.2 million

The following two pages include some of the suppliers who have been supported by the Supplier Development Fund.

SupplierDevelopmentFund

A proud initiative

The actual disbursements to and on behalf of suppliers as at end December 2014. This represents 36% of the planned direct spend with beneficiaries of the R200 million.


Through the SDF’s support, XChem has grown from just a handful of stores to a national presence in Massbuild. XChem is now listed through the Massbuild RDC and has total sales in excess of R2.0 million.

The Massmart SDF started working with Angela Chris Pitsi of XChem in 2012, by supporting her through supplying her products in five Pretoria based Builders Warehouse stores. In 2014 XChem demonstrated proof of concept with an increase in sales. Full execution of a national rollout plan followed with strong SDF and buyer support. This included:• In-store merchandising support• Listing with the Massbuild Regional Distribution Centre, a

move from own distribution to single delivery

Challenges: • Listing their entire range• Packaging and compliance support• Expanding into other Massmart formats

Opportunities:In 2015 the SDF is sponsoring Angela to attend a

comprehensive business management training programme that is run in conjunction with the Gordon Institute of Business Science’s Enterprise Development Academy. While XChem is set to graduate from the SDF’s funding support, sales will be closely tracked, merchandising support will continue for an additional 12-month period and new cross-listing opportunities will be sought within the Massmart Group.

XChem Chemicals

Rivoningo is a strong example of how women-owned businesses can break into steel manufacturing and steel products supply, for the home construction industry.

Rivoningo has grown from just a single store listing a year ago, to 19 Massbuild stores today. The total sales from the business are now close to R3.0 million having grown from a base of R500,000.

Rivoningo Steel Designs, owned by Nomhle Ndlovu, is a 100% black woman owned manufacturer of steel window and door frames. Rivoningo was established with the sole purpose of actively participating in the steel industry. The company is dedicated to delivering high quality products and craftsmanship.

Challenges: • Inadequate factory plant: the business currently operates

from a 600m2 factory with a height of 3.5 meters which limits them from installing larger equipment.

• Rivoningo requires assistance with accessing equipment to improve efficiencies and ISO compliance and certification needs.

Opportunities:Grow production to optimal capacity. Extend store

presence. Investment in equipment and ISO compliance and certification. There is an opportunity for funding assistance for a better facility. With the ensuing growth, all efforts are geared towards empowering Rivoningo to become a preferred and trusted supplier to Massbuild.

Supplier Development Fund continued

The Supplier Development Fund is working with Biscotti to grow their presence throughout the Massmart Divisions. The project kicked-off in Makro at the end of November 2014 and there has been strong early sales uptake.

The Supplier Development Fund provided a finance guarantee into Bheki Zondo’s acquisition of Biscotti. The Fund also assisted the business with food safety compliance support and some limited factory upgrades.

Biscotti Biscuits was a family owned and run biscuit manufacturing business in Vereeniging that came up for sale. Bheki Zondo has since purchased the company and is now the new owner of the biscuit factory. Biscotti make a range of biscuits from entry level to premium level biscuits.

Challenges:• Bringing the factory into improved compliance • Taking production capacity higher than the current 33%

Opportunities:Biscotti is set to expand into the other Massmart Group

formats with opportunities in product range extensions and supplying private label.

Biscotti

The Supplier Development Fund is supporting the development of regional SMME brick suppliers such as Nkuleko to be able to meet Massbuild’s growing demand for quality clay bricks.

Nkuleko Bricks, based in Balmoral Mpumalanga, is a 50% Black-owned company. They specialise in the manufacturing of mainly face and semi-face clay bricks with a current capacity of two million bricks a month.

Challenges: • The current brick firing capacity is insufficient to grow

production• Maintaining a consistent, more efficient and

environmentally sustainable drying and firing• Addressing ISO compliance and certification needs

Opportunities:The project will increase their capacity with another

1.7 to two million stock bricks per month, thereby doubling output. An additional 35 jobs will be created.

They will also be able to manufacture and supply Massbuild with Quantum bricks used in RDP projects.

Once complete, Massbuild will buy an additional 1.5 million bricks per month.

Nkuleko BricksRivoningo Steel and Design

19 436 storessupplied

storessupplied

storessupplied

storessupplied

Builders WarehouseBuilders Superstore Massbuild Makro Massbuild19


The Massmart Social and Ethics Committee was constituted in June 2011 and comprises the Massmart CEO and two non-Executive Directors. The Committee is chaired by a non-Executive Director. An independent external advisor, the Group Chief Compliance Officer, the Group Chief Ethics Officer, the Group Corporate Affairs Executive, the Group General Counsel and the Group Human Capital Executive attended meetings by invitation.

The Committee is governed by a charter and monitors Group performance in terms of defined Social and Ethics performance indicators that have been formulated with reference to Regulation 43(5) of the 2008 Companies Act.

These indicators, which include but are not limited to, OECD anti-corruption guidelines, United Nations Global Compact principles, the Employment Equity Act, Johannesburg Stock Exchange Socially Responsible Index criteria and Broad-based Black Economic Empowerment elements, are reviewed by the Committee, on a rotational or core agenda basis.

The Committee met twice during the 52 weeks ended 28 December 2014, at which meetings performance in the following areas were reviewed, in response to the requirements of the Companies Act:

Social and Ethics Committee Report for the year ended 28 December 2014

• JSE Socially Responsible Investment Index;• Anti-corruption Compliance;• Consumer and Product Safety;• Human Capital Management;• Regulatory and Compliance Matters;• Stakeholder Relations;• Socio-Economic Development; and• Environmental Impact.

These meetings were supplemented by bi-monthly management briefings by the Group Corporate Affairs Executive to the Committee Chairperson regarding on-going operational items of relevance including the Group’s response to the Ebola epidemic in West Africa, product re-calls, feedback from stakeholder meetings and transformation progress.

The Committee confirms that no material issues were identified during either the formal review or the briefing process.

Phumzile LangeniChairperson of the Social and Ethics Committee2 April 2015

CSI performance indicators

3.1 in 2013, 3.1 in 2012, 2.0 in 2011, 1.6 in 2010

3.6%Total Massmart Group CSI spend as a % of Profit After Tax

5.2 in 2013, 1.2 in 2012, 0 in 2011, 0 in 2010

R7.28 millionTotal Investment in Early Childhood Developments (Rm)

41.7 in 2013, 37.4 in 2012, 0 in 2011, 0 in 2010

R41.55 millionTotal Massmart Group Contribution (Rm)

4.3 in 2013, 9.5 in 2012, 10.6 in 2011, 10.2 in 2010

R3.51 millionTotal Investment in Divisional Discretionary Projects (Rm)

42.3 in 2013, 46.4 in 2012, 24.4 in 2011, 20.6 in 2010

R42.65 millionTotal Massmart Group, Supplier and Staff Contribution (Rm)

28.2 in 2013, 26.2 in 2012, 7.8 in 2011, 4.3 in 2010

R23.6 millionTotal Investment In Nutrition Programmes (Rm)

3.8 in 2013, 0.5 in 2012, 0 in 2011, 0 in 2010

R6.0 millionTotal Investment In Infrastructure and School Maintenance (Rm)

Supplier and Staff contributions amounted to R1,1 million for the period and comprised funds raised through initiatives such as casual day, slipper day and the SANDF goodwill project.

Infrastructure and school maintenance: spend in this area has increased, with the bulk of the investment coming from our Massbuild division.

Investment in Early Childhood Developments: Makro have through their partnership with Hope World Wide increased their spend on early childhood development programmes

Divisional Discretionary Projects: The bulk of the Groups discretionary expenditure was made by Massmart, and included a R1.0 million donation to the Nelson Mandela Fund Centre of Memory and a R1.3 million donation to the National Education Collaboration Trust.

• CSI data is based on actual Group expenditure figures which have been internally audited.

• Government beneficiaries include the Department of Basic Education, the South African National Defence Force and the South African Police Service. Support is provided through the provision of school container kitchens, school building and infrastructure maintenance, library containers, food hampers and assistance with service delivery.

• Investment in feeding schemes includes spend on container kitchens, vegetable gardens, NGO and government feeding schemes and Foodbank contributions.

• Investment in Early Childhood Development (ECD) includes Game’s Tools 2 Play ECD kits and Tools 2 Teach stationary hampers, as well as Makro’s contributions to ECD partners such as HOPE Worldwide.

• Investment in infrastructure and school maintenance is primarily based on a Builders Warehouse project that provides schools with equipment and supplies for basic repair and maintenance.

• Investment in discretionary projects includes donations to Community Chest, Vodacom Wheelchair Fund and ad hoc requests.

BBBEE performance indicators

Massmart’s BBBEE figures are calculated externally by Empowerdex Economic Empowerment Rating Agency. These figures are based on actual staff numbers (not estimates). BBBEE scores are calculated retrospectively, therefore the data reported is based on the scorecard compiled in February 2014 for the period January – December 2013.


5.09Management Control


10.54Employment Equity


12.5Skills Development


15.0Enterprise Development


5.0Socio-Economic Development


68.83BBBEE Score


15.03Preferential Procurement

5.67Ownership6.0 in 2013, 7.6 in 2012, 14.8 in 2011, 6.6 in 2010, 19.13 comparative


We aim to create transparent trust-based relationships with our stakeholders. We believe that understanding their perspectives in areas of mutual interest can positively influence our actions, enabling us to make thoughtful choices for a better future.

To enable this, we practice an open-door policy with all our stakeholders. We host workshops, undertake surveys and facilitate one-on-one meetings to understand our stakeholders’ views and to test the validity of our corporate accountability approach.

Engaging our stakeholdersOur stakeholder engagement programme covers a range

of key topics. It enables customers, suppliers, civil society and employees to provide input and feedback in areas of interest including:1. Customer satisfaction: covering price competitiveness,

product quality and safety, product availability and Consumer Protection Act Compliance.

2. Supplier partnering: dealing with supply chain ethics, brand custodianship, logistics efficiency and operational practices.

3. Employee engagement: including management style, career management, equal opportunities and work environment.

4. Environmental sustainability: covering waste management in the supply chain, energy efficiency, sustainable seafood and timber sourcing.

5. Socio-economic development: involving our corporate social investment priorities, our BBBEE progress and our approach to supplier development.

Relationship capital

Massmart defines relationship capital as the value added to our business through our relationship with stakeholders.

Cambridge Food rated the

most trusted Massmart brand in a study conducted with customers.

Direct feedback from

26,000employees

Supplier advocacy:

494suppliers profiled on

35 different environmental indicators since 2011.

Responding to Stakeholder Feedback Surveys and workshops are supplemented by informal

discussion and one-on-one meetings as required. The engagement process in its entirety resulted in a number of follow-up actions examples of which are indicated below:• In response to the results of the BUA survey, the Massmart

CEO tasked divisional leaders to drive management-lead feedback sessions to engage employees further on feedback and derive corrective measures where needed.

• In recognising efforts to drive customer satisfaction, Massmart acknowledged the Cambridge Food team for being rated the most trusted Massmart brand in a study conducted with customers.

• Relational feedback received from suppliers was supplemented by a divisional merchant leaders’ debrief and direct follow ups with suppliers who had indicated dissatisfaction in their response were conducted.

• We recognised topics such as nation-building and greening the supply chain as areas of mutual interest with suppliers over and above our commercial relationship.

18,000face-to-face interviews with customers


To this end, we hosted an information sharing session with suppliers who have indicated a desire to work more closely with us on social and environmental initiatives.

• In response to the National Business Initiative’s (NBI) interest in engaging our suppliers to identify energy savings opportunities in the supply chain we used feedback from our annual environmental survey to link the NBI with suppliers who indicated that they were focussed on implementing energy efficiency initiatives.

• Following Conversation South Africa’s recommendation that we do more to acknowledge suppliers who have performed exceptionally well in our supplier advocacy surveys, we hosted Massmart ‘s first Environmental Supplier Awards ceremony where we recognised suppliers who have demonstrated an industry-leading

What we learned from our Stakeholders

Employee feedback

26,000 permanent and non-permanent employees completed the 2014 BUA-Massmart Employee Engagement

Customer feedback

18,000 face-to-face interviews with customers were conducted on topics ranging from satisfaction and trust to e-commerce trends.

Supplier feedback

330 suppliers completed the supplier relationship survey. It covered distribution, store operations and merchant relations.

Supplier advocacy

494 suppliers profiled on 35 different environmental indicators since 2011.

268 suppliers participated in the recent environmental advocacy survey.

Socio-economic development

workshop

Attended by The Black Management Forum; South African Human Rights Commission; National African Federated Chamber of Commerce; Foodbank; National Business Initiatives; South African NGO Coalition and the South African Foodlab.

Environmental workshop

Attended by: Earthlife Africa, Conservation South Africa, Greenpeace South Africa, Endangered Wildlife Trust, World Wildlife Fund South Africa, Marine Stewardship Council, Forestry Stewardship Council, The Wildlife and Environment Society of South Africa.

Our various engagement activities

Employees are satisfied with the level of support they receive from managers and feel empowered to make decisions in the workplace.

Our relationships with suppliers remains positive, in particular, the ethical practices of our merchants continue to be highly regarded by our suppliers.

Our relationships with suppliers remains positive, in particular, the ethical practices of our merchants continue to be highly regarded by our suppliers.

Our suppliers have made respectable progress in driving innovation and piloting environmentally-focused product improvement initiatives.

Our perspective is that Social NGOs hold positive views on the progress we have made in developing small suppliers through our supplier development programme.

Our perspective is that environmental NGOs are satisfied with the level of detail covered in our supplier advocacy processes as well as our environmental accountability priorities.

They have indicated that more active engagement in career planning is needed.

What we need to do betterOur stakeholders’ responses

Our supplier called for us to respond more rapidly to new opportunities.

Our supplier called for us to respond more rapidly to new opportunities.

More effort needs to be invested in driving climate change impact mitigation initiatives.

It is recommended we more closely align our efforts with existing impactful activities of NGOs in the areas of skills development and community development.

We were encouraged to more aggressively investigate the implementation of renewable energy within our operations.

Relationship capital continued

commitment to sustainable supply chain management. This year Mondi South Africa was identified as the overall winner.

• At the request of WWF: SASSI we facilitated a sustainable seafood site visit with our suppliers, Pioneer Foods, where we reviewed Pioneer Foods’ practices and sustainability approach. WWF: SASSI were impressed with Pioneer Food’s efforts and suggested that as a further action Pioneer, as well as other Massmart suppliers, consider adopting the WWF: SASSI Ensure Trawl Bycatch Programme.

On the basis of our stakeholder engagement over the course of 2014, we are satisfied that our existing accountability and stakeholder priorities remain relevant within the context of the broader public narrative and our commercial goals.

Consumer Protection Act performance indicators

*Makro data for product quality and insufficient stock has been annualised as a result of a system change which was completed in 2014. Consumer protection Act data is based on actual Group and Divisional figures which have been internally audited. Consumer Protection Act figures are believed to be 100% accurate at time of publication.

Customer complaints refer to those logged through the central complaints system and exclude those at stores which are resolved immediately at the store.

103Number of complaints at national consumer commission / tribunal

29 in 2013, 122 in 2012

5,079*Number of customer complaints involving product quality (not safety related) or warranty claims

5,499 in 2013, 6,110 in 2012

2,093Number of customer complaints involving promotional claims, insufficient stock or marketing errors

3,318 in 2013, 2,704 in 2012

39Number of customer complaints involving product liability claims and product safety claims

138 in 2013, 24 in 2012

The period has seen a declining trend in our complaints which could be related to improved consumer protection practices in the business

The period has seen a declining trend in our complaints which could be related to improved consumer protection practices in the business

The increasing trend is currently being investigated to understand the circumstances thereof.

Addressing customer complaints is a priority for Massmart and we are pleased that according to the Consumer Goods Services Ombud (CGSO), we have been recognised as the fastest retailer in responding to customer complaints.

60Number of Product Recalls in General Merchandise and Home Improvement

45 in 2013, 31 in 2012

32Number of Product Recalls in Food and Liquor

21 in 2013, 22 in 2012

2,065Number of random product tests conducted on private label products

2,426 in 2013, 1,269 in 2012

Indicative of a higher amount of product testing and higher internal standards.

Increase is due to the application of more stringent product safety standards and an increase in testing rates.

Random product testing provides a basis for ensuring product safety. The increased testing rate is indicative of a heightened focus in this area.


Energy efficiency:First new generation Builders Warehouse launched with LED sales floor lighting

Waste management:

24,000additional tons of waste diverted from landfill

Natural capital

Our environmental initiatives are driven by an understanding that advocating more sustainable practices and product choices is fundamental to our commitment to enable sustainable supply and consumerism. In this context we recognise that minimising our own environmental footprint is the nucleus around which we develop credibility for our advocacy with our suppliers and customers.

Minimising Massmart’s environmental footprint

Our priorities are energy efficiency, waste management and minimisation and water conservation. Massmart’s corporate accountability initiatives are identified and prioritised on the basis of stakeholder feedback and with reference to set assessment criteria. More information regarding the criteria we use and the prioritisation of our initiatives can be found online.

Energy efficiencyBy December 2020 we will reduce the per square meter

energy intensity of our stores by 10% (as compared with our 2010 baseline stores). We will achieve this by implementing a range of energy efficiency interventions aimed at maximising energy savings.

In 2014 we opened our first new generation Builders Warehouse store that makes use of 100% LED sales floor lighting, daylight harvesting and evaporative cooling. Introduced Building Management Systems, that leverage the ASDA Energy Bureau, to remotely monitor and manage energy consumption across 12 Cambridge stores. Completed the rollout of independent electricity meters across all Masscash stores.

Massmart defines natural capital as our commitment to collectively reduce our environmental footprint and to enable sustainable supply chain and consumerism.

Water conservation:

7,750klharvested across 75 sites

JSE Socially Responsible Investment IndexIn 2014, Massmart achieved ‘best practice’ status in the area of environmental performance and climate change

Operational cost avoidance:

R52 milliondelivered by energy saving initiatives

Recycling:

74%74% of all Massmart stores recycling and separating waste

Massmart’s energy intensity is currently 18.6% below the Group’s modelled Business As Usual (BAU) consumption. These energy saving initiatives have resulted in an estimated operational cost avoidance of R52 million in 2014.

While we are encouraged by the progress achieved in improving energy efficiencies, so far we have been unsuccessful in achieving our goal to pilot test a commercially viable proof of concept Photo-voltaic (PV) pilot at one of our standalone stores. Despite this, we remain optimistic about the opportunities presented by renewable technologies and will continue working towards identifying potential solutions. Our initial analysis indicates that PV projects, based on a power purchase model, hold considerable promise. Identifying grid-tied solutions, which operate on a power-purchase model, will therefore be our key focus for the future.

Water efficiencyIn 2013 we communicated our intention to more

accurately quantify our Group operational water consumption. As a result, in 2014 we re-focussed our water consumption tracking to cover kilolitres consumed rather than rand cost of water consumed. We also improved tracking of actual consumption by expanding the installation of independent water check meters to include selected

Makro, Builders Warehouse and Cambridge stores. Based on this more accurate data, Builders Warehouse and Makro were confirmed as the highest water users within the Group. This reinforces our prior decision to prioritise water-saving initiatives including rainwater harvesting and condensate capture within these two formats. Our water harvesting initiatives in these two formats now cover 75 sites, which we estimate have combined, helped us to save 7,750kl of water.

Operational waste recycling In 2013 we confirmed our commitment to minimising the

volume of operational waste we send to landfill. Our priority remains the separation and recycling of board, plastic and paper produced at our stores and Distribution Centres

The results of our most recent waste assessment survey indicate that 74% of all Massmart stores are actively separating and recycling their waste. This corresponds to a 15% increase in the number of sites that recycle and approximately an additional 24 000 tonnes of waste diverted from landfill.

2014 highlights include: a 16% increase in the number of Builders Warehouse stores that recycle, and an estimated 70% of Makro’s waste diverted from landfill.


However, accurately calculating the volume of waste generated by our operations remains a challenge. In 2014 we embarked on a waste diversion validation process together with Walmart to improve the accuracy of our waste data reporting. The process which, was lead by Walmart consultants UL Environment, found no evidence to indicate that the diversion rates reported by Massmart are materially inaccurate.

We also conducted our first due diligence review of third party waste service providers to ensure that they were suitably qualified to responsible manage and dispose of the waste produced by our stores. One unanticipated consequence of this review was that we identified opportunity to improve efficiencies and service effectiveness by rationalising the number of waste service providers contracted to the group. This will be a key focus in 2015.

Enabling sustainable supply and consumerism

Offering our customers products that have been responsibly sourced and manufactured is fundamental to enabling sustainable supply and consumerism. However, we recognise that to achieve this, we must screen potentially high risk products, such as seafood and timber, and proactively advocate more sustainable practices to members of our supply chain.

Rationalising primary packaging We recognise that many consumers are concerned with

over-packaging of products sold by retailers. With this in mind Massmart initiated in 2012 a review of our private label packaging. Initially, our efforts centered around exposing our buyers, through packaging rationalisation workshops, to packaging approaches that emphasised recyclability, resource efficiency, and product waste minimising. A key outcome of these workshops was the development of a Group packaging evaluation scorecard, which enabled us to more critically appraise our private label packaging and pinpoint the area’s most in need of improvement.

In 2014, subsequent to the completion of a Group-wide private label packaging rationalisation audit, we were pleased to see a marked improvement in the quality, recyclability and suitability of the Group’s private label packaging. Specifically we have noted that our buyers are more adept at specifying environmentally intelligent packaging options. Whilst we recognise that there is still considerable room for improvement we are pleased with progress to date which includes: the introduction of doypacks to the M brand snack range; the rationalisation of the Builders Pride nut and bolt range; and through the inclusion of child-safe closures across the entire Builders pride solvents range, which on their own will impact one million packs supplied to customers in 2015. Further progress was made when we, in collaboration with our peers in the retail sector, launched a more customer-centric packaging recycling logo. The new on pack recycling logo, which has been launched on our Builders Warehouse Private Label packaging, is intended to

simplify the separation and recycling process for consumers and in so doing, reduce recyclable materials finding their way to landfill.

Local supplier advocacyMassmart proactively promotes responsible

environmental practices within our supply chain. Since the launch of Massmart’s supplier advocacy process in 2009 we have engaged and benchmarked the environmental practices of over a 1,000 suppliers through focused environmental advocacy surveys. We are intent on playing a hands-on role in encouraging more sustainable supply chain practices, to this end we expand the survey process to include site visits to verify survey responses and better understand our suppliers’ environmental performance. Our current advocacy process includes a generic environmental survey that is supplemented with focused seafood, timber and palm oil advocacy surveys. In the area of seafood alone, we have conducted environmentally orientated site visits with suppliers who comprise over 61% of our annual seafood procurement.

Environmental advocacy supply chain survey findings• 20% of respondents launched products that appeal to

environmentally aware consumers• 31.8% of respondents utilise energy saving practices and

technologies to improve operational energy efficiency • 31% of respondents implement in-house waste reduction

processes On the basis of our engagement with suppliers over

the last four years, we were pleased that we were in a position to host Massmart’s first Environmental Supplier Awards ceremony to recognise top performing suppliers who have demonstrated an industry-leading commitment to sustainable supply chain management. Our finalists, representing multiple local industries, were selected based on survey feedback, input from leading environmental NGOs and site inspections by a three person Massmart environmental team. Altogether 9 finalists were identified resulting in our awarding Mondi the accolade of Massmart Supplier of the year. Looking forward to 2015, our goal is to intensify our supplier site visit programme and increase our efforts to educate and promote sustainable fishery management practices amongst our smaller seafood suppliers.

JSE Socially Responsible Investment IndexMassmart qualified for inclusion in the JSE Socially

Responsible Investment Index (Equivalent of FTSE4good). We are proud to have been members of the Index since its inception. This year we achieved ‘Best Practise’ status in the area of environmental performance and climate change, within the medium impact category. Massmart met 64 of the 65 indicators that measure environmental governance and sustainability practices.

Natural capital continued

Helping consumers to recycle e-wasteRapidly rising volumes of electronic (e-waste) presents a

growing environmental concern both globally and locally. E-waste, made up of electronic consumer items, is now one of the fastest growing waste streams worldwide. It contains potentially hazardous and polluting substances which need to be disposed of carefully to avoid disrupting soil ecology, micro-organisms and polluting ground water supplies.

In 2008, Makro launched its first e-waste recycling project with Fujitsu-Siemens and electronic recycling specialists DESCO. Initially piloted at Makro’s Woodmead store, it was rolled out to ten Makro stores in South Africa. In 2013 Makro and DESCO, together with new partners Samsung Electronics expanded the e-waste project to 18 Makro stores across the country. It is now South Africa’s largest retail-led e-waste collection programme, Makro-Samsung e-Waste programme is available across 18 Makro stores. So far an excess of 596 tons of e-waste has been processed. However, despite increasing bin numbers, in late 2014 we noticed a reduction in e-waste collection figures. We are investigating the cause and will work with Samsung to generate greater consumer participation in this project.

Eco-label advocacyIn line with our commitment in 2014 to increase the

penetration of energy rating labels on major appliances sold in our stores, we have, through engagement with the Department of Energy (DOE) and our suppliers, formalised a group wide approach to energy efficient appliance labelling. Key to this is an undertaking to enforce a discipline that requires major appliance manufacturers to apply energy efficiency ratings labels on their products in accordance with the standards set out by the DOE.

Recognising that we have made indifferent progress toward implementing this undertaking, we have prioritised it as a key focus in 2015. Through our Sustainable Timber Sourcing survey and one-on-one engagement with suppliers, we have learned that 68% of the suppliers we surveyed in 2014, offer Forest Stewardship Council (FSC) certified timber products. However, these suppliers have indicated that there continues to be a lack of consumer understanding of FSC labelled products. To address this, our objective in 2015 is to engage more closely with the FSC to develop proactive marketing strategies that will increase consumer awareness of the label.

Scope 1 and 2 emissions figures are calculated externally by GCX Africa consultants. Scope 1 emissions relate to direct emissions resulting from company-owned vehicles, generator use and refrigerant gas emissions. Scope 2 figures are based on Divisional electricity consumption figures. Energy consumption data is annualised and normalised (outlying data is excluded). Consequently the margin of error on reported data is considered to between 10%-15%. Electricity consumption and Scope 2 emissions figures include only Masscash African operations. Scope 2 emissions factor has been updated from 1.00 to 1.03. The total Group sales are used to calculate Scope 1 and 2 emissions’ intensity per Rand million (Rm). Water usage has been derived with reference to the cost of water consumed. Water consumption is based on Rand Water Tariff for retail customers.

Climate change and environmental performance indicators

1.7 in 2013, 2.6 in 2012, 2.6 in 2011, 1.6 in 2010

0.59Estimated water consumption (KL/m2)

0.21 in 2013, 0.18 in 2012, 0.18 in 2011, 0.19 in 2010

0.21Scope 2 emissions intensity (CO

2/GLA)

209 in 2013, 184 in 2012, 178 in 2011, 181 in 2010

203.53Purchased energy consumption (kWh/GLA)

0.6 in 2013, 0.4 in 2012, 0.5 in 2011, 0.4 in 2010


2/Rm)

0.03 in 2013, 0.02 in 2012, 0.02 in 2011, 0.01 in 2010


2/GLA)

5.3 in 2013, 5.0 in 2012, 5.3 in 2011, 5.6 in 2010


2/Rm)

The decrease in Scope 1 emissions intensity is as result of the inclusion of Contractor truck fuel usage under Scope 3 emissions and not Scope 1 as previously reported

We continue to refine our water reporting, this process has revealed that we have overestimated our water intensity in previous years

Decreased intensity can be attributed to the energy efficiency initiatives implemented across our formats

For more information on our natural capital pages 12 to 27, Our divisional reviews

Massmart believes that the first steps towards good corporate governance must include

embracing the requirements of the relevant governance and regulatory frameworks, as

well as corporate best practice.

Transparency and accountability

03

Corporate Governance 114

Our assessment of the principles of King III 115

Our Board 116

Our Board committees 118

Board and committee attendance 119

114 115Massmart Integrated Annual Report 2014Transparency and accountability

Corporate Governance

Our Chairman’s Corporate Governance overview

Massmart believes that the first steps towards good corporate governance must include embracing the requirements of the relevant governance and regulatory frameworks, as well as corporate best practice.

More than this, Massmart believes that sustainable and effective corporate governance is best demonstrated through a consistent pattern of doing the right thing regardless of the circumstances.

I am pleased to report that Massmart has responded appropriately to these requirements.

Corporate Governance approach The primary South African corporate governance

framework is the King Report on Governance for South Africa and King Code of Governance Principles (King III), which forms the backbone to Massmart’s own corporate governance framework. In addition Massmart applies high ethical standards to its operating environment as reflected in the Group’s Code of Ethical Conduct.

Massmart believes that these guides to corporate decision making are essential for any governance framework to achieve desired outcomes consistent with our Group values. In addition to this corporate governance framework, the Group is committed to complying with all legislation, regulations and best practices relevant to our business, in every country where we conduct business. A register documenting the assessment of all 75 principles of King III is available on the web:

www.massmart.co.za/iar2014/kingiiiMassmart’s Executive Committee has established a

subcommittee to focus on Ethics and Compliance. This subcommittee meets every other month to consider a legal update; an ethics review; specific areas of focus that Massmart’s compliance team manage closely; feedback from Internal Audit; and ethics and compliance in general.

The purpose of King IIIThe philosophy of King III revolves around leadership,

sustainability and corporate citizenship. To facilitate an understanding of the thought process, debate and changes in King III, the following key aspects are highlighted:• Good governance is essentially about effective

leadership. Leaders should rise to the challenges of modern governance. Such leadership is characterised by the ethical values of responsibility, accountability, fairness and transparency and based on moral duties that find expression in the concept of Ubuntu. Responsible leaders direct company strategies and operations with a view to achieving sustainable economic, social and environmental performance.

• Sustainability is the primary moral and economic imperative of the 21st century. It is one of the most important sources of both opportunities and risks for businesses. Nature, society, and business are interconnected in complex ways that should be understood by decision-makers. Most importantly, current incremental changes towards sustainability are not sufficient – we need a fundamental shift in the way companies and directors act and organise themselves.

• The concept of corporate citizenship flows from the fact that the company is a person and should operate in a sustainable manner. Sustainability considerations are rooted in the South African Constitution which is the basic social contract that South Africans have entered into. The Constitution imposes responsibilities upon individuals and juristic persons for the realisation of the most fundamental rights.

Our assessment of the principles of King III

For the year ended December 2014, apart from the exceptions outlined below, the Board confirms that the Group complied with the Code of Governance Principles as set out in King III.

Not applied

Principle 2.25: The Company remunerates its Directors and Executives fairly

Non-executive Directors’ fees comprise both a base fee and an attendance fee per meeting.

The Board does not believe that Directors should earn attendance fees in addition to a base fee. Many Directors add significant value and apportion significant time to the Group outside of the formal Board and Committee meetings, sometimes greater value than they might do within the confines of a formal meeting.

Partially applied

Principle 3.4: The Audit Committee oversees integrated reporting.

The Audit Committee recommends to the Board to engage an external assurance provider over material elements of the sustainability reporting within the integrated report. The Audit Committee evaluates both the independence and quality of the external providers of assurance on sustainability.

Principle 9.3: Sustainability reporting and disclosure should be independently assured.

The integrated report discloses the scope and methodology of independent assurance of the sustainability report, as well as the name of the assurer. Sustainability reporting is independently assured in accordance with a formal assurance process established.

Massmart’s sustainability report has not been audited by an external assurance provider but verification of the key sustainability metrics have been obtained through agreed upon procedures performed by internal audit. A copy of the agreed upon procedures report is available at the registered offices of the Company.

Partially applied

Principle 8.6: The Board should ensure that disputes are resolved effectively and as expeditiously as possible.

The Board has adopted formal dispute resolution processes for internal and external disputes.

The Board does not have a formal dispute resolution process as it believes that the existing processes within the Group operate satisfactorily and do not require a more formal and separate mechanism. The Group Legal Executive and General Counsel is responsible for managing and advising the Board of significant disputes that arise within the Group. This individual manages a group of attorneys who supervise, manage or advise the business on external legal disputes within the Group. Internal disputes are managed through subject-specific policies and procedures. The General Counsel reports to the Board all significant legal exposures and disputes within the Group.


Our Board

At least one-third of the non-Executive Directors are required to retire every year and Massmart Executive Directors have elected to also retire on this basis. As a result, all Directors retire by rotation at least every three years and are then eligible for re-election. In addition, shareholders must ratify the initial appointment of each Director at the first Annual General Meeting following that Director’s appointment. As a result of these requirements, at the 27 May 2015 Annual General Meeting Kuseni Dlamini, Phumzile Langeni and JP Suarez retire by rotation; while Shelley Broader, Andy Clarke and Johannes van Lierop will resign, as required by the Memorandum of Incorporation. Being eligible, they all offer themselves for re-election.

Board process and evaluationThe Board meets four times a year and on an ad hoc basis

should a particular issue demand its attention. In addition, the Board meets annually to formally consider and approve the strategies of the Massmart Divisions and Group.

The Board’s authority is devolved sequentially through the Massmart Executive Committee, the Divisional Boards and the Divisional Executive Committees, as formally prescribed by the Massmart Delegation of Authority (described below). In addition, the Board has delegated certain specific responsibilities to five Board Committees, described more fully below. These Committees assist the Board and Directors in discharging their duties and responsibilities under King III and the Delegation of Authority. Full transparency of the Committees’ deliberations is encouraged and the minutes of all Committee meetings are included in the formal Board papers at the ensuing Board meeting. All Directors are welcome to attend any Board Committee meeting or Divisional Board meeting.

The Massmart Delegation of Authority describes the specific levels of authority and required approvals for all major decisions at both Group and Divisional level. It clarifies which executive position, Committee or Board needs to be consulted prior to taking the decision, which body makes the decision and which bodies should thereafter be informed of the decision. Where appropriate, it now includes Walmart’s position on the decision.

• whether the Director had been employed in an executive capacity in the Group in the previous three years;

• whether the Director had served on the Board for longer than nine years. In this case, the Committee considers whether that Director’s independence, judgement and contribution to the Board’s deliberation could be compromised, or may appear to be compromised, by this length of service;

• whether the Director is a representative of a major shareholder; and

• whether the proportion of that Director’s shareholding in Massmart (if any) or Director’s fees represent a material part (10% or more) of their wealth or income.

The three Walmart-appointees are not considered independent. The Committee also believes that none of the four independent non-Executive Directors, or entities associated with or controlled by them, owns shares in Massmart which, relative to their personal wealth or income, are sufficiently material to affect his/her independence.

The Board is comfortable that it meets the King III principle of having an arm’s-length relationship with the Company Secretary and confirms that the Company Secretary is not a Director of any of the main operating companies within the Group. The Company Secretary, Philip Sigsworth, CA (SA), was the Financial Director of JSE listed company, Austro Group Limited (Austro Group), prior to joining Massmart, where he also performed company secretarial work. The Board confirms that it has assessed and is happy with the qualification, competence and expertise of the Company Secretary.

The Company Secretary assists the Board in fulfilling its functions and is empowered by the Board to perform his duties. The Company Secretary, directly or indirectly:• assists the Chairman, CEO and CFO with the induction of

new Directors;• assists the Board with Director orientation, development

and education;• ensures that the Group complies with all legislation

applicable/relevant to it;• monitors the legal and regulatory environment and

communicates new legislation, and any changes to existing legislation, relevant to the Board and the Divisions; and

• provides the Board with a central source of guidance and assistance.

The Board has also adopted a policy which describes Walmart’s access to the Massmart business. This policy is fully described on the Company’s website under FAQ.

The Board works to a formal agenda that covers strategy, structure, operating performance, growth initiatives, sustainability, investor relations, risk and governance, and any other key activities of the Group. An annual agenda structure ensures that other areas including IT and compliance are addressed. Formal Board papers are prepared for every discussion item on the meeting’s agenda and are distributed timeously to Board members.

Directors are encouraged to take independent advice, at the Company’s cost, for the proper execution of their duties and responsibilities.

Directors have unrestricted access to any Executive, manager or employee in the Group.

Annually in October, the Nomination Committee facilitates a comprehensive formal performance evaluation of the CEO, comprising a questionnaire evaluating the CEO by every non-Executive Director, and an appraisal of the CEO by each of his direct reports using a different questionnaire. The Board Chairman provides the summary and feedback of the above to the CEO, and he is encouraged to probe and debate any aspect of the evaluation with the Board. Given his appointment earlier in the year, CEO Guy Hayward did not have a performance evaluation in 2014.

At the same time, all Board members and permanent invitees complete a detailed Board self-assessment, covering the composition, duties, responsibilities, process and effectiveness of the Board. Similarly, all Board Committee members and permanent invitees complete detailed self-assessments covering the same aspects of their committees. The results of these assessments are collated by the Company Secretary and sent in summarised form to the respective Board and Committee Chairpersons for discussion and review by that Committee. The summarised results are included in the Board papers at the November meeting.

Finally, all Board members formally assess the Chairman’s performance. The Deputy Chairman provides feedback from this process to the Chairman. Assessments are approached in a constructive manner and provide valuable input that enhances the effectiveness of the Chairman, the Board and its Committees.

The Board of Massmart is responsible for directing the Group towards achieving Massmart’s vision and mission. The Board is therefore accountable for the development and execution of the Group’s strategy, operating performance and financial results, as well as being the custodian of the Group’s corporate governance. The Board appreciates that strategy, risk, performance and sustainability are inseparable.

The Board is responsible for its own composition, the appointment of the Chairman and CEO, and the constitution and composition of its Committees. The Board has a charter setting out its policies, roles and responsibilities in the execution of its mandate described above. Each Board Committee also has a charter that is formally signed off by the Board. Annually, the Committees and Board review, and amend if necessary, the respective charters to ensure their relevance.

The role and appointment of Directors and the Company Secretary

The role of all Directors is to bring independent judgement and experience to the Board’s deliberations and decisions. The Board comprises two Executive Directors, four independent non-Executive Directors and three non-Executive Directors.

Annually, the Nomination Committee prepares and circulates a questionnaire aimed at gauging the independence status of each non-Executive Director. This is completed by each non-Executive Director and returned to the Committee, which then considers each Director’s independence. The Committee feels that the following aspects are important in assessing a non-Executive Director’s independence:


Board and committee attendance

The table below reflects the Board Committee members’ meeting attendance for the 52 weeks ended December 2014

Status / Position Board AGM Audit Risk Nomination RemunerationSocial and Ethics

Board Members

K Dlamini1Independent non-Executive 3/3C 1/1 - - 3/3C 3/3 -

MJ Lamberti2Independent non-Executive 1/1C - 1/1 1/1 1/1C 1/1 -

CS Seabrooke Independent non-Executive 4/4 1/1C 3/3C 2/2C 4/4 4/4C -

S Broader3 Non-Executive 2/2 - 2/2* 1/1* 2/2 2/2 2/2*D Cheesewright4 Non-Executive 0/2 0/1 - - 0/2 0/2 -A Clarke3 Non-Executive 1/2 - - - - - -JA Davis4 Non-Executive 2/2 1/1 1/1* 1/1* 1/1* 1/2* -

NN Gwagwa Independent non-Executive 4/4 1/1 3/3 2/2 1/1* - -

GRC Hayward5 Executive 4/4 1/1 3/3* 2/2 4/4* 4/4* 1/1

P Langeni Independent non-Executive 4/4 1/1 3/3 2/2 1/1* - 2/2C

GM Pattison5 Executive 2/4 1/1 - - 1/1* 1/4* 0/1JP Suarez Non-Executive 3/4 0/1 - - - 1/4* 1/2I Zwarenstein6 Executive 4/4 1/1 3/3* 2/2 1/1* - -

Management

T DoorasamyChief Compliance Officer - - 1/1* 2/2* - - 1/2*

N GrayChief Audit Executive - 1/1* 3/3* 2/2 - - -

B LeroniCorporate Affairs Executive - - - - - - 2/2*

P MaphosheHuman Capital Executive - - - - - - 2/2*

P Sigsworth Company Secretary 4/4* 1/1* 3/3* 2/2* - - -M Spivey General Counsel 4/4* 1/1* 3/3* 2/2 4/4* 4/4* 1/2*

L Walters7

Divisional Chief Executive Massbuild - - - 1/1 - - -

J Wilford7

Financial Director Masswarehouse - - - 1/1 - - -

C Chairperson* Invitee1 Appointed on 10 April 2014 and as such was only invited to meetings post that date in the 2014 financial year2 Resigned on 10 April 2014 and as such was only invited to meetings prior to that date in the 2014 financial year3 Appointed on 16 July 2014 and as such was only invited to meetings post that date in the 2014 financial year4 Resigned on 16 July 2014 and as such was only invited to meetings prior to that date in the 2014 financial year5 Following Grant Pattison’s resignation as CEO, Guy Hayward, his successor, was appointed to the Social and Ethics Committee

with effect from 1 June 20146 Ilan Zwarenstein resigned as Group FD on 12 March 2015, at which time Johannes van Lierop was appointed as CFO of Massmart7 At the end of their rotation, a decision was made that divisional participation in the Risk Committees was no longer necessary

Our Board committees

R

E

A

SE

M

N

Audit Committee Meets 3 times per year

• Overseeing the effectiveness of the Group’s internal control systems.

• Reviewing the scope and effectiveness of the external and internal audit

functions.• Ensuring that adequate accounting

records have been maintained.• Ensuring the appropriate accounting

policies have been adopted and consistently applied.

• Overseeing the quality and integrity of the annual financial statements.

• Testing that the Group’s going-concern assertion remains appropriate.

Chris Seabrooke, Lulu Gwagwa, Phumzile Langeni

Risk Committee Meets twice per year

• Reviewing and reporting on compliance with King III.

• Overseeing the Group’s risk management programme as

contemplated in King III.

Chris Seabrooke, Norman Gray, Lulu Gwagwa,

Guy Hayward, Phumzile Langeni, Mike Spivey, Johannes van Lierop*

Nomination Committee Meets 4 times per year

• Assessment, recruitment and nomination of new executive and non-

executive directors.• Making recommendations as to the

composition of the Board.• Formulating succession plans for the approval of the Board for the

appointment of new executive and non-executive Directors, including

the Chairperson, CEO and the Group’s Executives.

Kuseni Dlamini, Shelley Broader, Chris Seabrooke

Remuneration Committee Meets 4 times per year

• Designing, monitoring and communicating the Group’s

remuneration policies.• Considering and approving executive remuneration including short- and long-

term incentives.

Chris Seabrooke, Shelley Broader, Kuseni Dlamini

Social and Ethics Committee Meets twice per year

• Assists the Group with its responsibility towards sustainability with respect to

practices that are consistent with good corporate citizenship.

• Considers the Group’s standing in terms of consumer relationships, with

particular attention to the United Nations Global Compact Principles and the OECD recommendations concerning corruption.

• Considers the Group’s contribution to the social and economic development within

our communities.• Monitoring the Group’s activities

relating to labour and employment, the environment, health and public safety, and

consumer relationships.

Phumzile Langeni , Guy Hayward, JP Suarez

Executive Committee Meets monthly

• Deliberating and taking decisions or making recommendations on all

matters affecting Group strategy, growth, performance and operations, including

risk management, and executive and senior management succession.

Guy Hayward, Johannes van Lierop*, Neville Dunn,

Norman Gray, Doug Jones, Brian Leroni, Pearl Maphoshe, Mike Spivey,

Llewellyn Steeneveldt, Kevin Vyvyan-Day, Llewellyn Walters, Robin Wright,

Ilan Zwarenstein*

More information on the activities and responsibilities of the Audit, Risk, Nomination and Executive Committees can be found on the web at www.massmart.co.za/iar2014/t&a More information on the activities and responsibilities of the Remuneration and Social and Ethics Committees can be found on p82 and p103 respectively.

* Ilan Zwarenstein resigned as Group FD with effect from 12 March 2015, at which time Johannes van Lierop was appointed as CFO of Massmart.

Notice of AGM 122

Schedule 1 - Proposed amendments to Memorandum of Incorporation 128

Form of proxy 129

Notes to the form of proxy 130

Shareholder information

04

Notice is hereby given that the Annual General Meeting of holders of all classes of shares of the Company will be held on Wednesday, 27 May 2015, at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, Sandton.

122 123Massmart Integrated Annual Report 2014Shareholder information

Notice of the Annual General Meetingfor the year ended December 2014

Notice is hereby given that the Annual General Meeting of holders of all classes of shares of the Company will be held on Wednesday, 27 May 2015, at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, Sandton, for purposes of:

1. Transacting the following business:1.1 presenting the audited Annual Financial Statements

of the Company and its subsidiaries (Group) for the year ended December 2014, and the associated Directors’ report and External Auditors’ report, the Audit Committee report and the Social and Ethics Committee report;

1.2 electing Directors in the place of those resigning and retiring in accordance with the Company’s Memorandum of Incorporation; and

1.3 such other business as may be transacted at an annual general meeting.

2. Considering and, if deemed fit, passing, with or without modification, the below mentioned ordinary and special resolutions.

The Board of Directors of the Company has determined, in accordance with section 59 of the Companies Act 71 of 2008, as amended (Act), that the respective record dates for shareholders to be recorded as shareholders in the securities register of the Company in order to: (i) be entitled to receive this notice of Annual General Meeting is Friday, 17 April 2015; and (ii) be entitled to attend, participate and vote at the Annual General Meeting is Friday, 22 May 2015. The last date to trade to be entitled to attend, participate and vote at the Annual General Meeting is Friday, 15 May 2015.

Ordinary businessThe audited summarised consolidated Annual Financial

Statements of the Company and the Group (as approved by the Directors of the Company), including the Directors’ report and External Auditors’ report, the Audit Committee report and the Social and Ethics Committee report for the year ended December 2014, circulated together with this notice of Annual General Meeting, are presented to the shareholders for their consideration.

The audited summarised consolidated Annual Financial Statements for the year ended December 2014 are set out in the “Chief Financial Officer’s Review” on pages 46 to 70 of the Integrated Annual Report. A full set of the audited Group Annual Financial Statements for the year ended December 2014 can be found on the Company’s website at:

massmart.co.za/iar2014/groupafs

Ordinary resolutions Biographical details of the Directors resigning and retiring

below can be found on pages 40 to 41 and in more detail on the Company’s website at:

massmart.co.za/iar2014/cvs

Ordinary resolution number 1“Resolved that Shelley Broader, who resigns as required by

the Memorandum of Incorporation and has offered herself for re-election, be and is hereby re-elected to the Board of Directors of the Company.”

In terms of the Act, more than 50% of the voting rights exercised on this resolution must be cast in favour of ordinary resolution number 1 for it to be adopted.

Ordinary resolution number 2 “Resolved that Andy Clarke, who resigns as required by the

Memorandum of Incorporation and has offered himself for re-election, be and is hereby re-elected to the Board of Directors of the Company.”


Ordinary resolution number 3 “Resolved that Johannes van Lierop, who resigns as

required by the Memorandum of Incorporation and has offered himself for re-election, be and is hereby re-elected to the Board of Directors of the Company.”


Ordinary resolution number 4 “Resolved that Kuseni Dlamini, who retires by rotation and

has offered himself for re-election, be and is hereby re-elected to the Board of Directors of the Company.”


Ordinary resolution number 5“Resolved that Phumzile Langeni, who retires by rotation

and has offered herself for re-election, be and is hereby re-elected to the Board of Directors of the Company.”


Ordinary resolution number 6“Resolved that JP Suarez, who retires by rotation and has

offered himself for re-election, be and is hereby re-elected to the Board of Directors of the Company.”


Ordinary resolution number 7“Resolved that Ernst & Young Inc. (with Mr Allister

Carshagen as the Audit Partner) be and are hereby elected as the Company’s auditors for the ensuing financial year to hold office until the Company’s next Annual General Meeting, as approved by the Audit Committee and recommended to shareholders.”


Ordinary resolution number 8“Resolved that the following persons be and are hereby

appointed, each by way of a separate vote, as members of the Audit Committee:8.1 Chris Seabrooke (Chairman)8.2 Lulu Gwagwa8.3 Phumzile Langeni* * Subject to her re-election as Director pursuant to ordinary

resolution number 5.In terms of the Act, more than 50% of the voting rights

exercised on each of these resolutions must be cast in favour of each of ordinary resolution numbers 8.1, 8.2 and 8.3 for such resolutions to be adopted.

Ordinary resolution number 9 “Resolved that, subject to the JSE Limited (JSE) Listings

Requirements (JSE Listings Requirements), the Directors be and are hereby authorised to issue ordinary shares in the authorised but unissued shares of the Company (or to issue options or convertible securities convertible into ordinary shares) for cash to such person or persons on such terms and conditions as they may deem fit, subject to the following:9.1 the securities shall be of a class already in issue, or

convertible into a class already in issue;9.2 the securities shall be issued to public shareholders

(as defined in the JSE Listings Requirements) and not to related parties (as defined in the JSE Listings Requirements);

9.3 the issues of securities in the aggregate under the authority of this resolution during the period in 9.5 below shall not exceed 5% of the number of securities of that class already in issue as at the date of this notice of Annual General Meeting, being 217,123,982 ordinary shares, determined in accordance with the relevant provisions of the JSE Listings Requirements, provided that:

9.3.1 any equity securities issued under the authority during the period contemplated in 9.5 below must be deducted from such number in 9.3 above; and

9.3.2 in the event of a sub-division or consolidation of the issued equity securities during the period contemplated in 9.5 below, the existing authority must be adjusted accordingly to represent the same allocation ratio;

9.4 the maximum discount at which the shares may be issued shall be 10% of the weighted average traded price of the shares of the Company measured over the

30 business days prior to the date that the price of the issue is agreed between the Company and the party subscribing for the shares;

9.5 the authority hereby granted will be valid until the Company’s next Annual General Meeting, provided that it will not extend beyond 15 months from the date on which this resolution is passed; and

9.6 once shares representing, on a cumulative basis within the period contemplated in 9.5 above, 5% or more of the Company’s issued ordinary and/or preference shares prior to that issue, have been issued, the Company shall publish an announcement in accordance with the JSE Listings Requirements.”

Pursuant to the JSE Listings Requirements, the Company will only be entitled to implement this general authority to allot and issue ordinary shares for cash if this ordinary resolution number 9 is passed by a majority of 75% or more of the votes cast by all shareholders present or represented by proxy at the Annual General Meeting, excluding any votes cast by the Massmart Holdings Limited Employee Share Trust.

Ordinary resolution number 10“Resolved that, by way of a non-binding advisory vote,

the remuneration policy of the Company, as outlined in the Remuneration Report on pages 82 to 91 of the Integrated Annual Report, is endorsed.”

As this is a non-binding advisory vote, no minimum voting threshold is required. Nevertheless, for record purposes, in terms of King III more than 50% of the voting rights exercised on this resolution must be cast in favour of ordinary resolution number 10 for it to be adopted. This non-binding advisory vote allows shareholders to express their views on the remuneration policies adopted by the Company and on their implementation.

Special resolutionsSpecial resolution number 1

“Resolved, as a special resolution, that the Company and/or its subsidiaries be and are hereby authorised to generally repurchase the ordinary and/or preference shares in the issued shares of the Company from such shareholder/s, at such price, in such manner and subject to such terms and conditions as the Directors may deem fit, but subject to the Memorandum of Incorporation of the Company, the Act and the JSE Listings Requirements, and provided that:1.1 the authority hereby granted will be valid until the

Company’s next Annual General Meeting or for 15 months from the date of this special resolution, whichever period is shorter;

1.2 repurchases may not be made at a price greater than 10% above the weighted average of the market value for the shares determined over the 5 business days immediately preceding the date that the repurchase is effected (or, if no shares of the Company have been traded in that period, subject to a ruling by the JSE);


1.3 repurchases in the aggregate in any one financial year shall not exceed 15% of that class of the Company’s issued shares;

1.4 the repurchase of shares will be effected through the order book operated by the JSE trading system and will be done without any prior understanding or arrangement between the Company and the counterparty;

1.5 the Company may only appoint one agent, at any point in time, to effect the repurchases on the Company’s behalf;

1.6 neither the Company nor its subsidiaries may repurchase shares during a prohibited period (as defined in the JSE Listings Requirements) unless a repurchase programme is in place where the dates and quantities of shares to be traded during the relevant period are fixed (not subject to any variation) and has been submitted to the JSE in writing. The Company will instruct an independent third party, which makes its investment decisions in relation to the Company’s securities independently of, and uninfluenced by, the Company, prior to the commencement of the prohibited period to execute the repurchase programme submitted to the JSE;

1.7 an announcement complying with paragraph 11.27 of the JSE Listings Requirements will be published by the Company when the Company and/or its subsidiaries have cumulatively repurchased 3% of the Company’s initial number of issued ordinary and/or preference shares at the time that the general authority from shareholders is granted and for each 3% in aggregate of the initial number of that class acquired thereafter; and

1.8 a resolution by the Board of Directors that it authorises such repurchase, that the Company and its subsidiaries have passed the solvency and liquidity test as set out in section 4 of the Act and that since the application by the Board of Directors of the solvency and liquidity test, there have been no material changes to the financial position of the Group, has been passed.”

Statement by the Board of DirectorsIn accordance with the JSE Listings Requirements, the

Directors state that:(a) the intention of the Directors is to utilise the authority

given under special resolution number 1 at a future date, provided that the cash resources of the Company are in excess of its requirements. In this regard, the Directors will take into account, inter alia, an appropriate capitalisation structure for the Company and the long-term cash needs of the Company, and will ensure that any such utilisation is in the interests of the shareholders;

(b) having considered the effect of the maximum number of ordinary and preference shares that may be acquired pursuant to the authority given under special resolution number 1:

• the Company and the Group will in the ordinary course of business be able to pay its debts for a period of 12 months after the date of this notice of Annual General Meeting;

• the assets of the Company and the Group will be in excess of the liabilities of the Company and the Group for a period of 12 months after the date of this notice of Annual General Meeting, such assets and liabilities being recognised and measured in accordance with the accounting policies used in the Annual Financial Statements of the Company and the Group for the year ended December 2014;

• the issued share capital and reserves of the Company and the Group will be adequate for ordinary business purposes for a period of 12 months after the date of this notice of Annual General Meeting; and

• the working capital available to the Company and the Group will be adequate for ordinary business purposes for a period of 12 months after the date of this notice of Annual General Meeting.The following additional information, which appears in

the Integrated Annual Report of which this notice of Annual General Meeting forms part, is provided in terms of the JSE Listings Requirements for purposes of special resolution number 1:• major shareholders – page 77;• material changes – page 124;• share capital of the Company – page 71; and• responsibility statement – page 124.

The Directors, whose names are set out on pages 40 to 41 of the Integrated Annual Report, collectively and individually, accept responsibility for the accuracy of information contained in this statement and certify that, to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement false or misleading and that they have made all reasonable enquiries in this regard.

Other than the facts and developments reported in the Integrated Annual Report, to which this notice of Annual General Meeting is attached, there have been no material changes in the financial or trading position of the Company and its subsidiaries since the publication of the audited Annual Financial Statements for the year ended December 2014.

In terms of the Act, at least 75% of the voting rights exercised on this resolution must be cast in favour of special resolution number 1 for it to be adopted.

Special resolution number 2“Resolved, as a special resolution, that the following

Directors’ remuneration (payable to the applicable non-Executive Directors for services to be rendered by them in their capacities as such), be and is hereby approved, each by way of a separate vote, for the period commencing on 28 May 2015 to the date of the Company’s next Annual General Meeting:

Notice of the Annual General Meeting continuedfor the year ended December 2014

R 2015 2014

2.1 Chairman of the Board 1,200,000 871,000

2.2 Deputy Chairman 625,000 625,000

2.3 Independent non-Executive Directors

275,000 259,000

2.4 Committee Chairpersons 252,000 252,000

2.5 Committee Members 128,000 120,000

In terms of the Act, at least 75% of the voting rights exercised on each of these resolutions must be cast in favour of special resolution numbers 2.1, 2.2, 2.3, 2.4 and 2.5 for such resolutions to be adopted. The Remuneration Report for the year ended December 2014 can be found on pages 82 to 91 of the Integrated Annual Report.

Special resolution number 3“Resolved, as a special resolution, to the extent required

in terms of, and subject to the provisions of, section 45 of the Act, that the shareholders hereby approve of the Company providing, at any time and from time to time during the period of 2 years commencing on the date of this special resolution, any direct or indirect financial assistance as contemplated in such section of the Act to any one or more related or inter-related companies or corporations (as defined in the Act) of the Company and/or to any one or more members of any such related or inter-related company or corporation and/or to any one or more persons related to any such company or corporation, on such terms and conditions as the Board of Directors of the Company, or any one or more persons authorised by the Board of Directors of the Company from time to time for such purpose, deems fit, provided that any such financial assistance shall not in the aggregate exceed an amount of R15 billion in any financial year.”

In terms of the Act, at least 75% of the voting rights exercised on this resolution must be cast in favour of special resolution number 3 for it to be adopted.

The following direct and/or indirect financial assistance was provided by the Company to related and/or inter-related companies and/or corporations of the Company as at the financial year ended December 2014:

Rbn

Cross Suretyships in respect of banking facilities

9.0

Loans to subsidiary companies 2.0

Total 11.0

It is anticipated that such financial assistance will increase during the period of 2 years commencing on the date of special resolution number 3, mainly as a result of the Group’s expansion plans but that the total financial assistance after such anticipated increase will not exceed R15 billion in any financial year.

In the event that the Company provides financial assistance to its subsidiary companies in the form of loans, the Company’s solvency and liquidity will not be impaired as the Company will raise an asset in its books for the equivalent amount then due by that subsidiary.

Notice to shareholders of the Company in terms of section 45(5) of the Act of a resolution adopted by the Board authorising the Company to provide direct or indirect financial assistance.

By the time this notice of Annual General Meeting is delivered to shareholders, the Board of Directors will have adopted a resolution (Section 45 Board Resolution) authorising the Company to provide, at any time and from time to time during the period of 2 years commencing on the date on which special resolution number 3 is adopted, any direct or indirect financial assistance as contemplated in section 45 of the Act to any one or more related or inter-related companies or corporations of the Company and/or to any one or more members of any such related or inter-related company or corporation and/or to any one or more persons related to any such company or corporation, provided that any such financial assistance shall not in the aggregate exceed an amount of R15 billion in any financial year.

The Section 45 Board Resolution will be effective only if and to the extent that special resolution number 3 is adopted by the shareholders, and the provision of any such direct or indirect financial assistance by the Company, pursuant to such resolution, will always be subject to the Board of Directors being satisfied that (i) immediately after providing such financial assistance, the Company will satisfy the solvency and liquidity test as referred to in section 45(3)(b)(i) of the Act, and that (ii) the terms under which such financial assistance is to be given are fair and reasonable to the Company as referred to in section 45(3)(b)(ii) of the Act.

In as much as the Section 45 Board Resolution contemplates that such financial assistance will in the aggregate exceed one–tenth of one percent of the Company’s net worth at the date of adoption of such resolution, the Company hereby provides notice of the Section 45 Board Resolution to shareholders. Such notice will also be provided to any trade union representing any employees of the Company.

”


Notice of AGM continuedfor the year ended December 2014

Special resolution number 44.1 “Resolved as a special resolution of the holders of

ordinary shares and subject to the passing of resolution 4.2, that the Memorandum of Incorporation of the Company be and is hereby amended in terms of section 16 of the Act to give effect to each of the proposed amendments contained in Schedule 1 attached to the notice of Annual General Meeting in terms of which this special resolution is proposed.”

In terms of the Act, at least 75% of the voting rights exercised by holders of ordinary shares on this resolution must be cast in favour of special resolution number 4.1 for it to be adopted.

4.2 “Resolved as a special resolution of the holders of ‘B’ preference shares and subject to the passing of resolution 4.1, that the Memorandum of Incorporation of the Company be and is hereby amended in terms of section 16 of the Act to give effect to each of the proposed amendments contained in Schedule 1 attached to the notice of Annual General Meeting in terms of which this special resolution is proposed.”

In terms of the Act, at least 75% of the voting rights exercised by the holders of ‘B’ preference shares on this resolution must be cast in favour of special resolution number 4.2 for it to be adopted.

Reason for special resolution number 4The detailed reasons for and effects of each of the

proposed amendments contained in Schedule 1, are set out immediately below each of the proposed amendments. The general intention is to update the Company’s Memorandum of Incorporation so as to provide for those changes necessitated by the commencement of the Financial Markets Act No 19 of 2012 as well as certain changes to the JSE Listings Requirements. None of the proposed amendments materially alter the rights of any shareholder of the Company or materially alter the rights attaching to any class of shares in the Company.

Special resolution number 55.1 “Resolved as a special resolution of the holders of

ordinary shares and subject to the passing of resolutions 4.1 and 5.2 that the new, consolidated revision of the Memorandum of Incorporation of the Company be and is hereby ratified and adopted in terms of section 18 of the Act.”

In terms of the Act, at least 75% of the voting rights exercised by holders of ordinary shares on this resolution must be cast in favour of special resolution number 5.1 for it to be adopted.

5.2 “Resolved as a special resolution of the holders of ‘B’ preference shares and subject to the passing of resolutions 4.2 and 5.1 that the new, consolidated revision of the Memorandum of Incorporation of the Company be and is hereby ratified and adopted in terms of section 18 of the Act.”

In terms of the Act, at least 75% of the voting rights exercised by the holders of ‘B’ preference shares on this resolution must be cast in favour of special resolution number 5.2 for it to be adopted.

Reason for special resolution number 5The reason for this special resolution is to consolidate

all of the proposed amendments in one memorandum of incorporation in terms of section 18 of the Act.

A complete copy of the consolidated revision will be made available for inspection by shareholders during normal business hours at the registered office of the Company for a period of not less than 14 days prior to the Annual General Meeting and on the Company’s website: www.massmart.co.za. The consolidated revised Memorandum of Incorporation will also be tabled at the Annual General Meeting and initialled by the Chairman for identification. The proposed amendments to the Memorandum of Incorporation are contained in Schedule 1 to this notice of Annual General Meeting.

General

Identification, voting and proxiesShareholders are entitled to attend, speak and vote at the

Annual General Meeting.In terms of section 63(1) of the Act, any person attending

or participating in the Annual General Meeting must present reasonably satisfactory identification and the person presiding at the Annual General Meeting must be reasonably satisfied that the right of any person to participate in and vote (whether as a shareholder or as proxy for a shareholder) has been reasonably verified. Forms of identification include valid identity documents, driver’s licences or passports.

Shareholders holding dematerialised shares, but not in their own name, must furnish their Central Securities Depository Participant (CSDP) or broker with their instructions for voting at the Annual General Meeting. If your CSDP or broker, as the case may be, does not obtain instructions from you, it will be obliged to act in accordance with your mandate furnished to it, or if the mandate is silent in this regard, complete the form of proxy attached.

Unless you advise your CSDP or broker, in terms of the agreement between you and your CSDP or broker by the cut-off time stipulated therein, that you wish to attend the Annual General Meeting or send a proxy to represent you at the Annual General Meeting, your CSDP or broker will assume that you do not wish to attend the Annual General Meeting or send a proxy.

If you wish to attend the Annual General Meeting or send a proxy, you must request your CSDP or broker to issue the necessary letter of authority to you. Shareholders holding dematerialised shares, and who are unable to attend the Annual General Meeting and wish to be represented thereat, must complete the form of proxy attached in accordance with the instructions therein and lodge it with or mail it to the transfer secretaries, Computershare Investor Services Proprietary Limited (Computershare).

A form of proxy (which is attached) must be dated and signed by the shareholder appointing a proxy and should be forwarded to reach Computershare by no later than 09h00 on Monday, 25 May 2015. Before a proxy exercises any rights of a shareholder at the Annual General Meeting, such form of proxy must be so delivered.

In compliance with the provisions of section 58(8) (b) (i) of the Act, a summary of the rights of a shareholder to be represented by proxy, as set out in section 58 of the Act, is set out immediately hereunder:• A shareholder entitled to attend and vote at the Annual

General Meeting may appoint any individual (or two or more individuals) as a proxy or as proxies to attend, participate in and vote at the Annual General Meeting in the place of the shareholder. A proxy need not be a shareholder of the Company.

• A proxy appointment must be in writing, dated and signed by the shareholder appointing a proxy and, subject to the rights of a shareholder to revoke such appointment (as set out below), remains valid only until the end of the Annual General Meeting.

• A proxy may delegate the proxy’s authority to act on behalf of a shareholder to another person, subject to any restrictions set out in the instrument appointing the proxy.

• The appointment of a proxy is suspended at any time and to the extent that the shareholder who appointed such proxy chooses to act directly and in person in the exercise of any rights as a shareholder.

• The appointment of a proxy is revocable by the shareholder in question cancelling it in writing, or making a later inconsistent appointment of a proxy, and delivering a copy of the revocation instrument to the proxy and to Computershare. The revocation of a proxy appointment constitutes a complete and final cancellation of the proxy’s authority to act on behalf of the shareholder as of the later of: (i) the date stated in the revocation instrument, if any and (ii) the date on which the revocation instrument is delivered to Computershare as required in the first sentence of this paragraph.

• If the instrument appointing the proxy or proxies has been delivered to Computershare, as long as that appointment remains in effect, any notice that is required by the Act or the Company’s Memorandum of Incorporation to be delivered by the Company to the shareholder, must be delivered by the Company to: (i) the shareholder or (ii) the proxy or proxies, if the shareholder has: (a) directed the Company to do so in writing and (b) paid any reasonable fee charged by the Company for doing so.

• Attention is also drawn to the “Notes to the form of proxy”.• The completion of a form of proxy does not preclude any

shareholder from attending the Annual General Meeting.

Shareholders may participate (but not vote) electronically in the Annual General Meeting. Shareholders wishing to participate in the Annual General Meeting electronically should contact the Assistant Company Secretary on [email protected] or +27 11 517 0000 not less than 5 business days prior to the Annual General Meeting. Access to the Annual General Meeting by way of electronic participation will be at the shareholder’s expense. Only persons physically present at the Annual General Meeting or represented by a valid proxy shall be entitled to cast a vote on any matter put to a vote of shareholders.

By order of the Board

Philip Sigsworth Company Secretary2 April 2015


Introduction and rationaleThe memorandum of incorporation is the document that

sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company. The Company’s existing Memorandum of Incorporation requires updating to ensure compliance with the current regulatory framework. This Schedule 1 sets out each of the proposed amendments, and details the reasons for and effects of the proposed changes.

Proposed amendment 1The Memorandum of Incorporation of the Company is

amended by the replacement of all references therein to the Securities Services Act 36 of 2004 with the Financial Markets Act 19 of 2012.

Reason for and effect of proposed amendmentThe Financial Markets Act 19 of 2012 commenced on

3 June 2013 and replaced the Securities Services Act 36 of 2004 in its entirety. The Memorandum of Incorporation is accordingly to be updated so as to refer to the new legislation.


amended by the deletion of clause 8.1 and the replacement thereof with a new clause 8.1 which reads as follows:“8.1 Pursuant to section 33(2) of the Financial Markets Act,

the Company may only issue further listed Securities in uncertificated form. Except to the extent otherwise provided in the Act, the rights and obligations of Security holders shall not be different solely on the basis of their Securities being Certificated Securities or Uncertificated Securities and each provision of this Memorandum of Incorporation applies with respect to any Uncertificated Securities in the same manner as it applies to Certificated Securities, unless otherwise stated or indicated by the context.”

Reason for and effect of proposed amendmentThe Financial Markets Act 19 of 2012 commenced on 3

June 2013. It provides in section 33(2) that listed securities may now only be issued in uncertificated (dematerialised) form. This requirement will now be incorporated into the relevant provisions of the Memorandum of Incorporation of the Company concerning the issuance by the Company of certificated and uncertificated securities.

Proposed amendment 3The Memorandum of Incorporation of the Company

is amended by the insertion of a new clause 24.11 therein which reads as follows:“24.11 All results of voting by the Shareholders on resolutions

submitted to them shall be announced and disclosed by the Company as required by the JSE Listings Requirements. The announcement shall include the following:

24.11.1 the resolutions proposed at the meeting;

24.11.2 the Shares voted in person or by proxy disclosed as a number and a percentage (in relation to the total issued Share capital of that class of the Company);

24.11.3 the Shares abstained disclosed as a percentage (in relation to the total issued Share capital of that class of the Company);

24.11.4 the votes carried (i) for and (ii) against each resolution, disclosed as a percentage (in relation to the total number of Shares voted at the meeting in respect of clause 24.11.2); and

24.11.5 to the extent that the number of Shares in clauses 24.11.2 and 24.11.3 differ for each resolution, details must be provided per resolution.”

Reason for and effect of proposed amendmentThe JSE Listings Requirements were amended with

effect from 30 September 2014 to include more detailed requirements on the disclosure and announcement of the voting processes undertaken at issuer companies’ general meetings. These requirements are now contained in section 3.91 of the JSE Listings Requirements, and are to be incorporated into the Memorandum of Incorporation of the Company for ease of reference and completeness.


amended by the deletion of clause 27 thereof and replacing it with a new clause 27 which reads as follows:

“27 Restriction on shareholders acting other than at a meeting

Despite section 60, only the following resolutions of Shareholders may be proposed as written resolutions in accordance with section 60 of the Act, as per the JSE Listings Requirements:

27.1 a change of name of the Company; 27.2 resolutions in respect of odd-lot offers as

contemplated in clause 20; 27.3 an increase in the number of authorised Shares; and 27.4 approval of any amendment to this Memorandum

of Incorporation, and apart from the above, all resolutions of Shareholders

may only be passed at general meetings.”

Reason for and effect of proposed amendmentSchedule 10 of the JSE Listings Requirements, containing

the requirements for issuers’ memoranda of incorporation, was amended to limit and regulate the passing of written resolutions of shareholders in respect of certain matters, under section 60 of the Act. These matters are contained in item 10.11(h) of schedule 10 and are accordingly to be incorporated into the Company’s Memorandum of Incorporation in terms of the above proposed amendment. Apart from these matters, all shareholder resolutions must be passed at duly convened meetings of the Company as per section 61 of the Act.

Schedule 1 – Proposed amendments to Memorandum of Incorporation

Form of proxy

For use by certificated and dematerialised shareholders who have ‘own name’ registration of shares on Friday, 22 May 2015 at the Annual General Meeting to be held on Wednesday, 27 May 2015 at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, Sandton

I/We (Please PRINT full names)of (address) being theholders of ordinary shares/‘B’ preference shares, hereby appoint (see note 3),1. or failing him/her,2. or failing him/her,

the Chairman of the Annual General Meeting as my/our proxy to participate in, speak and vote for me/us on my/our behalf at the Annual General Meeting which will be held for the purpose of considering and, if deemed fit, passing the ordinary and special resolutions to be proposed and at each adjournment of the Annual General Meeting and to vote for or against the ordinary and special resolutions or to abstain from voting in respect of the shares in the issued capital of the Company registered in my/our name/s, in accordance with the following instructions (see note 4).Insert an “X” or the number of ordinary shares/‘B’ preference shares (see note 4)

Massmart Holdings Limited Incorporated in the Republic of South Africa Registration number 1940/014066/06

JSE share code MSM ISIN ZAE000152617(“Massmart” or “the Company”)

For Against AbstainOS PS OS PS OS PS

Ordinary Resolutions1. Re-election of Shelley Broader to the Board of Directors2. Re-election of Andy Clarke to the Board of Directors3. Re-election of Johannes van Lierop to the Board of Directors 4. Re-election of Kuseni Dlamini to the Board of Directors 5. Re-election of Phumzile Langeni to the Board of Directors6. Re-election of JP Suarez to the Board of Directors 7. Election of Ernst & Young Inc. as the Company’s auditors8. Appointment of the Audit Committee members:

8.1 Chris Seabrooke8.2 Lulu Gwagwa8.3 Phumzile Langeni

9. Authorisation for the Directors to issue ordinary shares for cash, not exceeding 5% of the shares in issue10. Endorsement of the Company’s remuneration policySpecial Resolutions1. Authorisation for the Company and/or its subsidiaries to repurchase its own shares 2. Approval of Non-Executive Directors’ remuneration

2.1 Chairman of the Board2.2 Deputy Chairman2.3 Independent non-Executive Directors2.4 Committee Chairpersons2.5 Committee Members

3. Authorisation to provide financial assistance4.1 Authorisation by ordinary shareholders for the Company to amend its

Memorandum of Incorporation N/A N/A N/A4.2 Authorisation by ‘B’ preference shareholders for the Company to amend its

Memorandum of Incorporation N/A N/A N/A5.1 Authorisation by ordinary shareholders for the Company to ratify and adopt the consolidated

revised Memorandum of Incorporation N/A N/A N/A5.2 Authorisation by ‘B’ preference shareholders for the Company to ratify and adopt the

consolidated revised Memorandum of Incorporation N/A N/A N/A

(Indicate with an “X” or the relevant number of shares, in the applicable space, how you wish your votes to be cast.) If you return this form duly signed, without any specific directions, the proxy will vote as he/she thinks fit.

*OS – Ordinary shares *PS – Preference shares

Signed at on 2015

Signature Assisted by me (where applicable)

Completed forms of proxy must be lodged with Computershare Investor Services Proprietary Limited, not less than 48 (forty-eight) hours before the time for holding the Annual General Meeting, i.e. by no later than 09h00 on Monday , 25 May 2015.

Please read the notes on the reverse side of this form of proxy.

130 Shareholder information

Transfer secretariesComputershare Investor Services Proprietary LimitedGround Floor70 Marshall StreetJohannesburg 2011PO Box 61051, Marshalltown 2107Telephone 011 370 5000Call Centre 086 110 09818

Notes to the form of proxy

1. A form of proxy is only to be completed by those shareholders who are:

1.1 holding shares in certificated form; or 1.2 recorded on the sub-register of the Company in dematerialised

electronic form in “own name” on the record date for attending, participating and voting at the Annual General Meeting.

2. If you have already dematerialised your shares through a Central Securities Depository Participant (CSDP) or broker and wish to attend the Annual General Meeting, you must request your CSDP or broker to provide you with a letter of representation or you must instruct your CSDP or broker to vote by proxy on your behalf in terms of the agreement between yourself and your CSDP or broker.

3. A shareholder may insert the name of a proxy or the names of alternative proxies of the shareholder’s choice in the space/s provided, with or without deleting ‘the Chairman of the Annual General Meeting’ but any such deletion must be initialled by the shareholder. The person whose name stands first on this form of proxy and who is present at the Annual General Meeting will be entitled to act as proxy to the exclusion of those whose names follow.

4. Please insert an ‘X’ in the relevant space according to how you wish your votes to be cast. However, if you wish to cast your votes in respect of a lesser number of shares than you own in the Company, insert the number of shares held in respect of which you wish to vote. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he/she deems fit in respect of all the shareholders’ votes exercisable at the Annual General Meeting. A shareholder or his/her proxy is not obliged to use all the votes exercisable by the shareholder or by his/her proxy, but the total of the votes cast

and in respect of which an abstention is recorded may not exceed the total of the votes exercisable by the shareholder or by his/her proxy.

5. Forms of proxy must be received by the transfer secretaries, Computershare Investor Services Proprietary Limited (Computershare), Ground Floor, 70 Marshall Street, Johannesburg 2001 (PO Box 61051, Marshalltown 2107) by no later than 09h00 on Monday, 25 May 2015.

6. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person at such meeting to the exclusion of any proxy appointed in terms of this form of proxy.

7. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity or other legal capacity must be attached to this form of proxy unless previously recorded by Computershare or waived by the Chairman of the Annual General Meeting.

8. Any alterations or corrections made to this form of proxy must be initialled by the signatory/ies.

9. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by Computershare.

10. The Chairman of the Annual General Meeting may accept any form of proxy which is completed other than in accordance with these notes if the Chairman is satisfied as to the manner in which the shareholder wishes to vote.

11. If any shares are jointly held, the first name appearing in the register shall, in the event of a dispute, be taken as a shareholder.

Definitions and formulas

Return on average shareholders’ equity (%)Headline earnings

Average of opening and closing equity attributable to equity holders of the parent

Return on capital employed (%)Operating profit before

asset impairmentsAverage of opening and closing capital

employed balances

The Group defines capital employed as the average of opening and closing equity attributable to equity holders of the parent and non-current interest-bearing liabilities.

Return on invested capital (%)Adjusted operating profit Average invested capital

Adjusted operating profit includes finance income and adds back depreciation, amortisation and occupancy costs.

Average invested capital is average total assets of continuing operations plus average accumulated depreciation and amortisation less average accounts payable less average accrued liabilities plus occupancy costs x8.

Debt: Equity (%)Average debt

Average total equity

Debt comprises non-current interest-bearing liabilities.

Cash earnings coverOperating cash flow per share Headline earnings per share

Net cash to total equity (%)Cash and cash equivalents,

net of borrowingsTotal equity at the end

of the financial year

Current ratioCurrent assets

Current liabilities

Quick ratioCurrent assets excluding inventory

Current liabilities

LSMThe South African Advertising Research Foundation (SAARF) Living Standards Measure (LSM) has become the most widely used segmentation tool in South Africa. It is a means of segmenting the South African market that cuts across race, gender, age or any other variable used to categorise people. Instead, it groups people according to their living standards.

YearIn line with most international retailers, Massmart runs its internal accounting and administrative timetable using the retail calendar which treats each financial year as an exact 52-week period.

Sales per FTESales FTEs

Sales per trading m2

Sales Trading m2

Sales for Shield are excluded as they do not have stores.

Net asset turnSales

Net assets

The Group defines net assets as total equity and non-current interest-bearing liabilities.

Gross margin (%)Gross profit

Sales

Operating margin (%)Operating profit

Sales

Trading profit before interest and taxation margin (%)

Trading profit before interest and taxation

Sales

EBITDA margin (%)EBITDA

Sales

Effective tax rate (%)Taxation

Profit before tax

Employment costsIncludes the IFRS 2 Share-based Payment expense.

Net finance costsInterest received less interest paid.

EBITDAEarnings before interest, taxation, depreciation, amortisation and asset impairments.

EBITDAREarnings before interest, taxation, depreciation, amortisation, asset impairments and occupancy costs.

Trading profit before interest and taxationEarnings before interest, taxation, asset impairments, the BEE IFRS 2 charge, foreign exchange movements, loss on disposal of business and assets classified as held for sale.

Comparable salesA store is considered comparable in its 13th month of trading and is removed from comparable sales from the first day of the month of closure.

FTE (full-time equivalents)Includes all permanent employees and the permanent equivalent of temporary employees and contracted workers.

Trading space (m2)Trading space excludes parking, yard, warehouse space, office space and receiving areas.

Regional distribution centre space (m2)Distribution centre space excludes parking and yard space.

Sales per storeSales

Number of stores

Sales for Shield are excluded as they do not have stores.

DCDistribution centre

The tax rate reconciliation can be found on page 56.

Glossary / definitions

JAN

FEB

MA

R

APR

MA

Y

JUN

JUL

AU

G

SEP

OC

T

NO

V

DEC

Analyst presentation and preliminary announcement •

Final dividend declared •

Cape Town institutional investor roadshow •

Johannesburg institutional investor roadshow •

Final dividend paid •

Publication of Annual Report •

Annual General Meeting •

Analyst presentation and preliminary announcement •

Interim dividend declared •

Cape Town institutional roadshow •

Johannesburg institutional roadshow •

Interim dividend paid •

United States institutional investor roadshow •

United Kingdom institutional investor roadshow •

Financial year-end •

Glossary / definitions

Inventory daysInventory

Total cost of sales multiplied by the number of days traded in the

financial year

Inventory turnTotal cost of sales

Inventory

Payable daysTrade payables excluding VATTotal cost of sales multiplied

by the number of days traded in the financial year

Asset turnSales

Total assets

Total liabilities to total equityCurrent and non-current liabilities

Total equity

Operating cash flow per shareNet cash flow from operating activities

Weighted average number of shares in issue

Net cash flow from operating activities, excludes dividends paid.

Net asset value per shareClosing equity attributable to equity

holders of the parentTotal number of shares in issue

Return on equity (%)Headline earnings excluding

foreign exchange Average ordinary shareholders equity

Return on sales (%)Operating profit before interest and tax

excluding foreign exchangeSales

Dividend coverHeadline earnings per share

Interim and final dividend per share

Headline earnings per shareHeadline earnings

Weighted average number of shares in issue

Diluted headline earnings per shareHeadline earnings

Diluted weighted average number of shares in issue

Attributable earnings per shareEarnings attributable to the equity

holders of the parentWeighted average number of

shares in issue

Dividends/distribution per shareDistribution to shareholders

Total number of shares in issue

Cash generated from operations before working capital movements per shareCash generated from operations before

working capital movementsWeighted average number of

shares in issue

We strive to provide useful and frequent disclosure to our shareholders, regardless of how uncomfortable this may be in periods of difficulty or under performance.

Massmart reports formally to shareholders twice a year (in February and August) when its full-year and half-year results, together with a thorough Executive overview, are announced and issued to shareholders and the media. On both occasions the CEO, CFO and certain Group Executives give presentations to institutional investors, analysts and the media.

Early in January and July, shortly after the conclusion of the full-year and half-year trading periods, on release of the Integrated Annual Report and at the Group’s annual general meeting in May, Massmart releases sales updates reporting on the Group’s year-to-date sales performance. In addition, annually in November, the CEO and CFO host a day-long visit by institutional analysts and investors to Massmart stores. A sales update is released along with this visit.

During the year, apart from closed periods, the CEO and CFO together meet regularly with institutional shareholders and, in addition, are available for meetings or conference calls with analysts and any existing or prospective Massmart shareholders.

Company SecretaryP Sigsworth, CA(SA)

Registered office Massmart House, 16 Peltier Drive Sunninghill Ext 6, Sandton, 2146, South Africa

Postal addressPrivate Bag X4, Sunninghill, 2157, South Africa

Telephone number + 27 (0) 11 517 0000

Facsimile number + 27 (0) 11 517 0020

Website www.massmart.co.za

Company registration number 1940/014066/06 (incorporated in South Africa)

JSE share code MSM

ISIN ZAE000152617

Design and publisher Ninepoint

Printer Lawprint

Photographer Gareth Gilmour / Maritza Kriel

Transfer secretariesComputershare Investor Services Proprietary Limited70 Marshall Street, Johannesburg, 2001

Principal bankers ABSA Bank LimitedFirst National Bank (A division of FirstRand Bank Limited) Investec Bank LimitedNedbank Group Limited The Standard Bank of South Africa Limited

AuditorsErnst & Young Inc.

Corporate law advisors Cliffe Dekker HofmeyrEdward Nathan Sonnenbergs

Lead sponsorDeutsche Securities (SA) Proprietary Limited

Stock exchange information at 24 December 2014

Shares in issue (millions) 217.1Shares traded (millions) 88.0Percentage of shares traded (%) 40.5Earnings yield (%) 3.5Dividends yield (%) 2.9Market capitalisation (Rm) 31,249Closing share price South African (Rand) 143.93

www.massmart.co.zawww.massmart.co.za/iar2014

Massmart values your feedbackDo you have any questions or suggestions

regarding Massmart’s Integrated Annual Report 2014? Email: [email protected]

Documents

Dedicated to adding value - Home - Massmartmassmart.co.za/iar2014/wp-content/uploads/MassmartIAR... · strategic intent, such that Management believe omission of disclosure thereof