Our divisional reviews continued

Transcription

Dedicated
to adding
value
Integrated Annual Report for the year ended December 2014
2
Massmart Integrated Annual Report 2014
Chairman’s overview
Scope of the Report
Assurance
On behalf of the Massmart Board
of Directors, I am proud to present
Massmart’s 2014 Integrated
Annual 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).
Massmart 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-today 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
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
Content of the Report
The 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.
Materiality
Management’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.
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/groupafs
The 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
Chief Executive Officer
Johannes van Lierop
Chief Financial Officer
Forward Looking Statements
The 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.
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4
What’s on
our website
Contents
Our business at a glance
In addition to the content that appears in
this book, the following can be found online:
Group Annual Financial
Statements and notes
Energy
efficiencies
deliver results
p108
R41.5 million
to support
socio-economic
development
p98
Message from our Chairman
Our CEO’s letter to our stakeholders
Our Board
Our Executive Committee
www.massmart.co.za/iar2014/companyafs
Five year review
www.massmart.co.za/iar2014/5yearreview
CFO Review p46
Directors’
report p71
Auditor’s
report p75
Full assessment of the application of King III
www.massmart.co.za/iar2014/kingiii
The Risk committee
34
36
40
42
02 Our performance
These articles are all included in the ‘Our performance’
section, under ‘Financial capital’
www.massmart.co.za/iar2014/auditcom
6
8
10
12
28
30
01 Leadership review
Company Annual Financial
Statements and notes
The Audit committee
Our performance highlights
Mission, vision and investment proposition
Our business model
Our divisional reviews
Our divisional strategies map
Managing our risk
Marketside is
launched
p95
Financial and Manufactured capital
Human capital
Intellectual capital
Social capital
Relationship capital
Natural capital
46
78
92
96
104
108
03 Transparency and accountability
Corporate Governance
Our assessment of the principles of King III
Our Board
www.massmart.co.za/iar2014/riskcom
114
115
116
04 Shareholder information
The Nomination committee
www.massmart.co.za/iar2014/nomcom
Cambridge
Food voted
most trusted
Massmart
brand p105
The Executive committee
www.massmart.co.za/iar2014/execcom
Compliance, transparency and accountability
www.massmart.co.za/iar2014/compliance
Notice of Annual General Meeting
Form of proxy
122
129
Use this icon
to refer to articles online
Use this icon
to refer to articles in this report
This icon
highlights definitions
These articles are all included in the ‘Transparency and
accountability’ section
These icons refer to the capitals that we report to:
Na
tu
ra
l
ns
hi
p
ua
l
ct
Re
lat
io
In
te
lle
cia
la
nd
So
Online
offerings
perform
p94
Hu
m
an
24 SMMEs in
manufacturing
on board
p99
Fin
an
cia
M
l
an
uf
ac
tu
re
d
Visit our annual report website at
www.massmart.co.za/iar2014
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Our performance highlights
Dividend per share (cents):
Sales (Rm)
78,173.2
421.0
Operating profit before foreign exchange
movements and interest (Rm)
(421.0 in 2013)
(70,790.7 in 2013)
Earnings before interest, tax,
depreciation, amortisation and
impairments (Rm)
Active suppliers
8,372
(8,000 in 2013)
Number of stores
Number of employees
(376 in 2013)
(43,876 in 2013)
392
47,209
2,887.1
(2,706.4 in 2013)
2,015.9
(1,933.7 in 2013)
Opportunity:
Wide variety of
customers ranging
from LSM 2-10
Private label as
a percentage of
total sales
Headline EPS
before forex
(cents):
Estimated annual per capita training
investment (permanent employees)
R3,778.7
526.2
(R 2,935.0 in 2013)
(545.2 in 2013)
one million
Makro online had
9.2%
(9.2% in 2013)
active visitors in 30 days to
mid-December
Estimated annualised purchased energy
consumption intensity (KWH/GLA)/m2)
206.1
(209.0 in 2013)
BBBEE:
Employment
equity score
Estimated water
consumption
(kl/m2)
10.5
(10.2 in 2013)
0.9
Opportunity:
Headline earnings before forex (Rm)
1,141.4
(1,182.7 in 2013)
(1.7 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.
Pages 131-132 more detail on definitions and formulas
Disruption in electricity
supply impacts
negatively on foot
traffic in shopping
centres, but could
benefit our stand-alone
stores
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8
Massmart is a managed
portfolio of four Divisions,
each focused on highvolume, low-margin, lowcost 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 subSaharan Africa.
Our mission
Our vision
Our unique investment proposition
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.
Our customers…
Strategic and structural clarity
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.
…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.
• 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 nonExecutive 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.
9
10 Our business at a glance
Massmart Integrated Annual Report 2014 11
How we structure our business
Dedicated to adding value
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.
The business model
operates through the
following four units:
performs the Group management
role and defines the strategic and
broad operating principles that
guide the Group’s activities.
Massmart
Holdings
Massmart Channel
and Shared Services
implements collaborative
agreements reached by the Channel
Forums. The most important are
Group supplier negotiations for all
products sold across the Group.
Massmart
Divisions
Working towards achieving
everyday optimal performance.
This is seen in logistics and
business-to-business (B2B); standalone store formats; innovation
and ecommerce; and our private
label portfolio.
Growing talent
General Merchandise
Discounter and Food Retailer
consists of formal trading
and functional forums where
ideas on collaboration across
Divisions are shared.
Operational excellence
We 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.
We are
dedicated to
adding value
through:
Good business
Is 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.
Warehouse Club
Food Wholesaler, Retailer
and Buying Association
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.
Home Improvement
Retailer and Building
Materials supplier
report directly to the Chief
Executive Officer and comprise
Massdiscounters, Masswarehouse,
Massbuild and Masscash.
This has several advantages:
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.
For more information on good business
As a result we:
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.
page 114, ‘Transparency and accountability’
Grow sales, grow
profitability and increase
customer loyalty
Our desired
outcomes:
Embrace the requirements
of the relevant governance
and regulatory frameworks
Advocate more sustainable
practices and product choices in
all the business decisions we make
Customers
advocate Massmart
banners as ‘must-go-to’
shopping destinations
Investors and
suppliers advocate
Massmart as a ‘must
have’ retail partner
For more information on operational excellence
Be the employer
of choice
Government, academia and
civil society advocate Massmart
as a ‘must-be-like” social and
environmental leader
pages 12-27, ‘Our divisional reviews’
Our divisional reviews
Merchandise proposition:
General
Merchandise
discounter and
Food retailer
Massdiscounters operates through two
retail formats: Game and DionWired.
153
stores
(143 stores in 2013)
14,214
full-time employees
(12,870 in 2013)
5-10
8-10
Game
DionWired
Geographic presence:
South Africa,
Botswana, Ghana,
Lesotho, Malawi,
Mozambique,
Namibia, Nigeria,
Tanzania, Uganda,
Zambia
Game is a discount retailer of
General Merchandise and nonperishable 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.
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.
Value proposition
Game’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.
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.
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.
Directorate
Guy 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
Financial performance
Sales
23.0%
R17,955.2m
Up from R16,294.2m in 2013
23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash
Trading profit before interest and tax
8.8%
R180.7m
Down from R326.9m in 2013
8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash
Product inflation
3.1%
0.5% in 2013
Total assets
R7,985.5m
increased from R7,718.3million in 2013.
Total liabilities
+10
stores
Key sales drivers
•
•
•
•
Product deflation/inflation
Price/value perception
Interest rates
Consumer confidence
and disposable income
• New stores
• African economic strength
Investing in the environment
Divisional strategy
R7,820.9m
increased from R7,522.2 million in 2013.
Net capital expenditure
R542.2m
Up by 10.7%
increased from R489.7 million in 2013.
Increase in trading space
6,5%
Trading area 506,188 m2
Trading area 475,331 m2 in 2013
DC space 178,488 m2
DC space 178,488 m2 in 2013
Strategic 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”.
Investing in our community
Massdiscounters 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 resources
Massdiscounters 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.
Massdiscounters 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.
Warehouse
club trading in
Food, General
Merchandise and
Liquor
19
stores
(19 stores in 2013)
9,500
full-time employees
(9,483 in 2013)
6-10
2-8
Makro primary customers
Makro secondary customers
(via trade)
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 highvolume, 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.
South Africa
The Fruitspot is an established
wholesaler and distributor
of fresh and cut fruit and
vegetables, and was bought by Makro in 2012.
Value proposition
Highlights
Makro’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 highquality well-priced merchandise
from all major durable brands
and they are often market leaders
with innovative offerings and
aggressive promotions.
• 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
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)
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
Directorate
Guy 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 Nonexecutive, Julie Wilford Financial, Donovan Wright
Human Resources, Johannes van Lierop Non-executive
Divisional Strategy:
Total liabilities
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:
Sales
27.6%
R21,554.8m
Up from R19,271.7m in 2013
50.6%
R1,044.3m
Up from R939.5m in 2013
Product inflation
5.5%
2.1% in 2013.
+0
stores
Key sales drivers
•
•
•
•
Product deflation/inflation
Price/value perception
Interest rates
Consumer confidence
and disposable income
• New stores maturing
Total assets
R7,689m
R7,312.1m
R70.3m
Down by 79.6%
decreased from R344.8 million in 2013.
No change in trading space
no change
DC space 51,300 m2
DC space 51,300 m2 in 2013
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. Investing in our community
Makro 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 environment
Masswarehouse 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.
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 airconditioning 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.
Our 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.
Home
Improvement
retailer and
Building Materials
supplier
100
stores
(92 stores in 2013)
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:
10,187
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.
full-time employees
(8,882 in 2013)
5-10
5-10
4-8
2-6
Builders Warehouse
Builders Express
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 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 Superstore
South Africa,
Botswana,
Mozambique
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.
Value proposition
Highlights
Builders 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.
• 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
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.
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
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
Directorate
Guy 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,
Sales
13.8%
R10,822.8m
Up from R9,441.3m in 2013
26.1%
R537.6m
Product inflation
5.9%
4.1% in 2013.
+8
stores
Key sales drivers
• Residential property prices
and housing growth
• Price/value perception
• Interest rates
• Consumer confidence and
disposable income
• New stores
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.
Divisional strategy:
Total assets
R5,027.7m
decreased from R5,212 million in 2013.
Total liabilities
R4,730.6m
decreased from R4,857.4 million in 2013.
R296.8m
Up by 7.9%
6,3%
DC space 61,733 m2
DC space 61,733 m2 in 2013
• 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.
Massbuild 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 classroom
We 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 Good
We 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 openings
We 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.
We 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 .
Massbuild 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.
WHOLESALE & RETAIL
Food Wholesaler,
Retailer and buying
association
73
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.
Wholesale stores
(75 stores in 2013)
47
Retail stores
(47 stores in 2013)
12,863
full-time employees
(12,238 in 2013)
2-5
2-6
Wholesale
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 haircare 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.
Value proposition
Highlights
Masscash 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.
Wholesale
• 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
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
Retail
Improvements
Wholesale
• 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 KwazuluNatal Retail regions
Challenges
Wholesale and Retail
• Consumers have low disposable income
• Higher inflation in Food and fuel
• Weak job growth at lower-income levels
Wholesale BBBEE score Level
5 in 2013
8
South Africa,
Botswana, Lesotho,
Mozambique,
Namibia, Swaziland
Retail BBBEE score
Cambridge Food’s first
assessment
(Level 5 in 2013)
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.
Wholesale Directorate
Guy 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 Directorate
Guy 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,
WHOLESALE & RETAIL
Sales
35.6%
R27,840.4m
Up from R25,783.5m in 2013
14.5%
R299.1m
Product inflation
4.8%
4.2% in 2013
Total assets
R8,529.8m
decreased from R8,665.5 million in 2013.
Total liabilities
-2
stores
Key sales drivers
• Food inflation, particularly
commodities
• Social grants
• New stores
• Rate of employment
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
Divisional strategy
R7,882m
R269.9m
Up by 40.0%
0,3%
DC space 36,654 m2
DC space 32,292 m2 in 2013
Wholesale
• 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
Future outlook
Wholesale
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.
Retail
Cambridge 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.
Wholesale
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.
Wholesale
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%.
Wholesale
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
Our divisional strategies map
Divisional strategy 2014
Strategic priorities
137
South Africa
(129 in 2013)
16
• Focus on Game SA brand
promise – lowest prices, focused
ranges and quality guarantee
• Improve in-store shopping
experience
2014
1
Expand our footprint
in Africa and invest in
new retail formats and
categories
2
Open more lowincome home
improvement stores
in South Africa
3
Launch new
ecommerce offerings
in our brands
19
E-commerce
• Improve IT and Supply Chain
efficiencies
• Continue roll-out of fresh Food
• Increase Game Liquor stores
• Makro online launched April
(General Merchandise) and October
2014 (Liquor)
• Trialling Makro convenience locker
access, for later roll-out to SASOL
service station forecourts
2
• 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
South Africa
(88 in 2013)
• 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
5
4
Builders Superstores:
8
in 2014
(2 in 2013)
Owned store sales
• 30.7% of total sales in
2014 (27.3% in 2013)
• Focus on owning
more of our stores.
• Opened 6 more low-income
Home Improvement stores in
South Africa
2015
1
Improve profitability
2
Grow Builders and
Retail Food in South
Africa
3
Rest of Africa
(4 in 2013)
• Grow southern Africa store
• Focus on Trade Customers and
footprint
Business-to-Business
• Optimise Builders Trade Depot
• Optimise Superstore offering and
grow the brand
• Leverage RDC infrastructure
Grow into Africa
1
African footprint
33
stores
in the Rest of Africa
4
Grow online
(30 in 2013)
4
Focus on owning more
of our stores
New strategic priorities for 2015
3
Rest of Africa
(14 in 2013)
South Africa
(19 in 2013)
95
How did we do?
108
South Africa
(110 in 2013)
12
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
Rest of Africa
(12 in 2013)
Retail
• New store roll-out in South Africa
• Expand into southern Africa
• Grow profitable regions
• Close smaller or less profitable
stores
• Fresh food assortment
For more information on
our strategic priorities
page 38 ‘Our CEO’s
letter to our stakeholders’
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
Retail Food
132
stores
with Retail Food (Makro,
Game and Cambridge Food)
(110 in 2013)
Managing our risk
4
Maximum
1
1
4
7
2
9
5
10
3
2
Failure to address in-store
health and safety issues
including store or DC fire
5
4
Reputational impact
8
Chief Ethics and Compliance Officer /
Divisional CEO’s responsibility
IMPACT
Mitigation
6
7
8
3
9
6
1
10
Risk in order
of priority
Risk
Risk after
mitigation
Minimum
1
PROBABILITY
2
Poor strategic execution
Talent retention and succession
Financial impact
Financial and Operational impact
Ongoing area of focus
Group Executive Committee
responsibility
Mitigation
The 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 ongoing monthly monitoring of annual
financial results and comparison to
budget at Divisional Boards and Group
Executive Committee level takes place.
Group CEO / Human Capital Executive
responsibility
Mitigation
Maximum
3
Competitor attack on our
major merchandise categories
Financial impact
Difficult to predict
Group CEO / Divisional CEOs
responsibility
Mitigation
This remains a major focus area.
The Executive Committee actively
Maintain a relevant and competitive
monitors the progress, development
product offering that offers affordable
and possible succession plans for
value to our customers. Invest in
the ‘Top 200’ employees, as well as
brand awareness and loyalty. Manage
monitoring a further 200 employees.
low-cost efficient operations. Ensure
There are in-house education
suppliers believe that our stores and
programmes prepared and presented
associated supply chain offer an ideal
in conjunction with local and
route to market. Optimise our store
international business schools that
locations, and ensure regular store
focus on developing middle and junior
refurbishments and format renewal.
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
Definitions of each risk can be found at
significant out-performance. The
www.massmart.co.za/iar2014/riskdef
Share Scheme is intended to act
as a retention mechanism.
Increase 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
Mitigation
Careful 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
9
Insufficient progress with
Transformation
Reputational impact
Chief Ethics and Compliance Officer’s /
Divisional CEOs responsibility
responsibility
Mitigation
Mitigation
Supplier 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.
Will 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.
7
Inefficient or ineffective
supply chain or a failure in
the supply chain
Financial impact
Group CEO’s / Divisional CEO’s
responsibility
Mitigation
Dedicated 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
Financial and
Operational impact
CFO responsibility
Mitigation
All direct foreign exchange import
liabilities are forward covered.
Interest rates on the Group’s mediumterm 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.
10
Ineffective cost control
Financial and Operational
impact
responsibility
Mitigation
Ongoing 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.
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
36
Our Board
40
42
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.
Strategy
The 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.
Kuseni Dlamini
Group Chairman
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 changes
The 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.
Governance
The 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 value
The 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.
Appreciation
Over 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
Chairman
2 April 2015
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. Upperincome 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 nonSouth African businesses that represent 8.1% of Group sales.
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)
The 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
Guy Hayward
Group CEO
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 challenges
For 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.
Our CEO’s letter to our stakeholders continued
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%.
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.
Walmart
Net trading space
increased by 30,857m²
(6.5%)
Net trading space
increased by 25,992m²
(6.3%)
Game
130 stores
(11 opened - 2 in Africa,
2 closed)
DIY, Home Improvement
and Building Materials
General Merchandise
discounter and Food
retailer
Trades in South Africa,
Botswana, Ghana, Lesotho,
Malawi, Mozambique,
Namibia, Nigeria, Tanzania,
Uganda and Zambia
DionWired
23 stores
(2 opened, 1 closed)
Masscash
Hi-tech retailer
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.
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.
Trades in South Africa
Strategic priorities
Warehouse-club trading in
Food, General Merchandise
and Liquor
Our 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
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)
16 stores
(1 opened, 5 closed and
converted to BEX & BSS)
Builders Superstore
8 stores
(6 opened - including
2 converted from BTD)
Makro
19 stores
(no store changes)
Fruitspot
Established wholesaler and
distributor of fresh and cut
fruit and vegetables.
Net trading space
increased by 1,138m² (0.3%).
Wholesale
73 stores
(2 closed)
Botswana, Lesotho,
Mozambique, Namibia and
Swaziland
Retail
47 stores
(3 opened, 3 closed)
Shield buying
association
Botswana, Namibia and
Swaziland
It 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.
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 people
Our 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.
Prospects
For 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.
For 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.
The Board
Conclusion
My 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.
Our appreciation and gratitude is due to all our
stakeholders for their contribution and commitment to
Massmart during this period.
Transformation
Guy Hayward
2 April 2015
Our Board
The Board of Massmart
is responsible for directing
the Group towards
achieving Massmart’s
vision and mission.
JP Suarez (51)
Guy Hayward (49)
Senior Vice President of Realty
Design, Construction and
Strategy for Walmart US
Appointed 15 May 2001
BCom, CTA (UCT), CA(SA)
Appointed 20 June 2011
E
BA (Hons) (Tufts University) JD
(University of Pennsylvania)
R
SE
SE
Johannes van Lierop (48)
Andy Clarke (51)
endent no
n-Ex
-indep
ecu
tiv
e
D
Ex
ec
u
rs
N on
Independent
cto
ire
M
eD
Appointed 16 July 2014
BA (Washington State University)
N
Chairman of the Board
Appointed 10 April 2014
BA (Hons) (KZN), MPhil (Oxon)
N
rs
Appointed 25 August 2004
BCom (Natal), BCom Hons (UNISA)
SE
A
Audit
E
Executive
M
Remuneration
N
Nomination
R
Risk
SE
Social and Ethics
A
R
M
Chris Seabrooke (62)
Deputy Chairman of the Board
Appointed 1 February 2000
BCom, BAcc, MBA, FCMA
A
Phumzile Langeni (40)
R
Kuseni Dlamini (46)
non
-E
x
e
cu
tiv
Shelley Broader (50)
President and Chief Executive
Officer of Walmart’s EMEA region
E
cto
ire
Appointed 16 July 2014
Appointed 12 March 2015
Hotel and Catering Management
Degree, Bachelor of Business
Economics, RA (Amsterdam)
eD
tiv
President and Chief
Executive Officer of ASDA
c
ire
s
tor
M
R
N
Dr Nolulamo (Lulu) Gwagwa (56)
Appointed 1 November 2006
MSc (KZN), MSc (LSE), PhD (UCL)
A
R
For the complete and detailed CVs of the Board members,
please visit www.massmart.co.za/iar2014/CVs
The Massmart Executive
Committee is the
most senior executive
decision-making body
in the Group.
Ilan Zwarenstein (40)
Group Finance Director (outgoing)
Appointed 2012
BCom, BAcc, CA(SA)
Robin Wright (59)
Guy Hayward (49)
Appointed 2001
BCom, CTA (UCT), CA(SA)
R
SE
Divisional Chief Executive
of Massdiscounters
Johannes van Lierop (48)
Appointed 1998
BCom (Natal), CA(SA)
Appointed 2015
Hotel and Catering Management
Degree, Bachelor of Business
Economics, RA (Amsterdam)
Llewellyn Walters (51)
Divisional Chief Executive of Massbuild
Chairman of the Supply Chain and
Africa Forums
R
Appointed 2008
BA, LLB (Wits)
Neville Dunn (46)
Divisional Chief Executive
of Masscash Wholesale
Appointed 2002
BCom (Natal), CA(SA)
Kevin Vyvyan-Day (50)
Divisional Chief Executive of
Cambridge Food and Chairman of
the General Merchandise Forum
Norman Gray (58)
Chief Ethics and
Compliance Officer
Appointed 2005
BCom, BAcc (Wits), CA(SA)
Appointed 2015
MBA (UK), FCMI (UK), Dip
Mgmt (UK), CRMA and
Certified Ethics Officer
Llewellyn Steeneveldt (46)
Group Commercial Executive Chairman
of the Real Estate Committee
Chairman of the TIP and Operations
Forums
R
Doug Jones (42)
Appointed 2009
BSc Eng (Phys Met), GDE (Industrial), MBA
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
Mike Spivey (51)
Massmart General Counsel
Appointed 2012
BCom, PGDA (UCT), CA(SA)
Appointed 2011
BSc and Juris Doctorate (University of
Arkansas), Master’s in Law in International
Banking and Finance (Boston University)
R
Brian Leroni (50)
Pearl Maphoshe (46)
Group Human Capital Executive,
Chairperson of the HR Forum and member
of the Social and Ethics Committee
R
Risk
SE
Social and Ethics
Appointed 2007
BA (Hons), HDipEd (Durban-Westville), MA (London)
Group Corporate Affairs Executive
Appointed 2007
BA (Wits), MPhil (Stellenbosch)
SE
For the complete and detailed CVs of the Executive Committee,
please visit www.massmart.co.za/iar2014/CVs
02 Our performance
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.
Financial and manufactured capital
46
Human capital
78
Intellectual capital
92
Social capital
96
Relationship capital
104
Natural capital
108
46 Our performance
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.
Real volume
growth
in sales
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.
excluding property acquisitions
Reduced
growth in
occupancy
costs
Financial and
manufactured
capital
Chief Financial
Officer’s review
Decreased capital
expenditure levels
Increased
depreciation,
employment
and finance
costs
Johannes
van Lierop
CFO
Comparable
costs were
well-controlled
48 Our performance
Chief Financial Officer’s review continued
Our year at a glance
Impact of the 53rd week
During 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).
In 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 52week 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:
Sales
R1,472.7 million
Operating profit before foreign exchange movements
and interest of
R151.0 million
Profit before taxation
R145.7 million
Headline earnings of
R103.0 million
Summary Consolidated Income Statement
Rm
Revenue
Sales
Cost of sales
Gross profit
Other income
Depreciation and amortisation
Impairment of assets
Employment costs
Occupancy costs
Other operating costs
Operating profit before foreign exchange movements and interest
Foreign exchange (loss)/gain
Operating profit before interest
-- Finance costs
-- Finance income
Net finance costs
Profit before taxation
Taxation
Profit for the year
Profit attributable to:
-- Owners of the parent
-- Non-controlling interests
Profit for the year
Basic EPS (cents)
Diluted basic EPS (cents)
Dividend (cents):
-- Interim
-- Final
-- Total
52 weeks
December
2014
(Audited)
52 weeks
December
2013
(Pro forma)
78,319.0
78,173.2
(63,610.8)
14,562.4
145.8
(846.6)
(24.6)
(6,109.0)
(2,678.8)
(3,033.3)
2,015.9
(49.8)
1,966.1
(386.8)
41.5
(345.3)
1,620.8
(483.4)
1,137.4
71,035.3
70,790.7
(57,733.8)
13,056.9
244.6
(731.1)
(41.6)
(5,357.5)
(2,544.5)
(2,693.1)
1,933.7
67.8
2,001.5
(278.4)
28.6
(249.8)
1,751.7
(512.6)
1,239.1
(1.8)
(38.9)
45.1
(38.2)
(7.5)
5.7
(8.2)
72,512.9
72,263.4
(58,926.4)
13,337.0
249.5
(731.1)
(41.6)
(5,423.5)
(2,555.3)
(2,750.3)
2,084.7
67.8
2,152.5
(283.8)
28.7
(255.1)
1,897.4
(555.3)
1,342.1
1,079.8
57.6
1,137.4
1,180.0
59.1
1,239.1
(8.5)
(2.5)
(8.2)
1,283.0
59.1
1,342.1
497.8
492.9
543.9
538.1
(8.5)
(8.4)
591.4
585.1
146.0
275.0
421.0
146.0
275.0
421.0
-
146.0
275.0
421.0
52 week
% change
10.3
10.4
(10.2)
11.5
(40.4)
(15.8)
40.9
(14.0)
(5.3)
(12.6)
4.3
53 weeks
December
2013
(Audited)
50 Our performance
Sales
Inflation
Total 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.
Total Group sales increased by 10.4%
R78.2 billion
Product inflation was 4.8% suggesting real comparable volume growth of 2.7%
Aligning to our strategy of owning key
properties, owned store sales as a
percentage of total sales have increased to
30.7%
Rm
(Dec 2013: 27.3%)
December
2014
52 weeks
(Audited)
December
2013
53 weeks
(Audited)
4.8
5.1
5.9
3.6
2.7
4.1
3.7
0.1
Group product inflation
Food and Liquor inflation
Home Improvement inflation
General Merchandise inflation
Owned store sales
Leased store sales
(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%)
Gross profit
8.1%
The Group’s gross profit % increased to
18.6%
2014
91.9%
(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.
7.7%
2013
92.3%
SA Sales
Rest of Africa sales
DEC
2012
DEC
2013
DEC
2014
Further information on the Group’s sales can be found
in note 5 of the Group Annual Financial Statements
Operating expenses and other income
The 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%
52 Our performance
Operating profit before interest (Rm)
2,000
2,500
3,000
3,500
2
Price-and-mixrelated gross
margin
3
Other
income
4
Employment
costs
Other operating
costs
2014
(134.3)
7
(98.5)
6
Depreciation,
Amortisation
and Impairment
of Assets
• 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
•
•
•
•
•
•
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:
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
•
•
•
•
(340.2)
Occupancy
costs
2,015.9
5
2013
(751.5)
1
Sales-related
gross margin
147.6
1,500
(98.8)
2013
1,000
1,357.9
0,500
1,933.7
0
2014
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:
• Operating profit before interest and forex of R2,015.9 million
• Increase of 4.3%
54 Our performance
Annualised benefit of property acquisitions made over the last 2 years
Saving on lease payments:
Less finance costs:
R210 million
R109 million
Less
depreciation costs:
R36m
Net savings:
Foreign exchange (loss)/ gain
The 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:
Further details regarding the Group’s foreign exchange
exposure can be found in note 7 of the Group’s Annual
Financial Statements:
R65 million
Reconciliation between Trading profit before interest and
Rm
Trading profit before interest
Loss on disposal of business
BEE transaction IFRS 2 charge
Operating profit before foreign exchange movements and
interest
52 weeks
December
2014
(Audited)
52 weeks
December
2013
(Pro forma)
%
change
53 weeks
December
2013
(Audited)
2,061.7
(24.6)
(21.2)
1,994.4
(41.6)
(1.8)
(17.3)
3.4
40.9
(22.5)
2,145.4
(41.6)
(1.8)
(17.3)
2,015.9
1,933.7
4.3
2,084.7
December
2014
52 weeks
(Audited)
December
2013
52 weeks
(Pro forma)
%
change
December
2013
53 weeks
(Audited)
2,015.9
846.6
24.6
2,887.1
2,678.8
5,565.9
1,933.7
731.1
41.6
2,706.4
2,544.5
5,250.9
4.3
15.8
40.9
6.7
5.3
6.0
2,084.7
731.1
41.6
2,857.4
2,555.3
5,412.7
EBITDA and EBITDAR
Breakdown of foreign exchange (loss)/gain
Rm
Foreign exchange (loss)/gain arising from loans to African operations
Foreign exchange gain arising from an investment in a trading and logistics structure
Foreign exchange loss arising from the translation of foreign creditors
Total
December
2014
52 weeks
(Audited)
December
2013
53 weeks
(Audited)
(35.0)
4.8
(19.6)
(49.8)
73.1
22.3
(27.6)
67.8
Rm
EBITDA
Occupancy costs
EBITDAR
56 Our performance
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 noncontrolling 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:
The 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
Taxation and tax rate reconciliation
Rm
The rate of taxation is
reconciled as follows:
Standard corporate taxation rate
Non-taxable income and
disallowed expenses
Allowances on lease premiums
and improvements
Assessed loss not utilised
Other - including foreign tax
adjustments
Effective tax rate
December
2014
(Audited)
December
2013
(Audited)
28.0
28.0
2.8
(2.0)
(0.1)
2.0
(0.3)
1.4
(2.9)
29.8
(2.2)
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:
Deferred taxation
The 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:
Summary Consolidated Statement of Comprehensive Income
Rm
Profit for the year
Items that will not subsequently be re-classified to the
income statement:
Post retirement medical aid actuarial (loss)/gain
52 weeks
December
2014
(Audited)
52 weeks
December
2013
(Pro forma)
52 week
% change
53 weeks
December
2013
(Audited)
1,137.4
1,239.1
(8.2)
1,342.1
(8.9)
(8.9)
5.7
5.7
5.7
5.7
Items that will subsequently be re-classified to the
income statement:
Foreign currency translation reserve
Cash flow hedges
Revaluation of listed shares
Income tax relating to components of other comprehensive income
(55.6)
(53.7)
1.4
(3.7)
0.4
55.8
47.2
7.0
4.7
(3.1)
55.8
47.2
7.0
4.7
(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
Total comprehensive income attributable to:
-- Owners of the parent
-- Non-controlling interests
Total comprehensive income for the year
1,015.3
57.6
1,072.9
1,241.5
59.1
1,300.6
(17.5)
1,403.6
(17.5)
1,344.5
59.1
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
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 weightedaverage 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:
Headline earnings is described in more detail in note 12
of the Group’s Annual Financial Statements:
Headline Earnings
Rm
52 weeks
December
2014
(Audited)
52 weeks
December
2013
(Pro forma)
Reconciliation of profit for the year to headline earnings
Profit for the year attributable to owners of the parent
-- Impairment of assets
-- Loss on disposal of tangible and intangible assets
-- Loss on disposal of business
-- Total tax effects of adjustments
Headline earnings
Headline earnings before foreign exchange (taxed)
1,079.8
24.6
1.4
(0.3)
1,105.5
1,141.4
1,180.0
41.6
11.9
1.8
(3.8)
1,231.5
1,182.7
(10.2)
(3.5)
1,283.0
41.6
11.9
1.8
(3.8)
1,334.5
1,285.7
Headline EPS (cents)
Headline EPS before foreign exchange (taxed) (cents)
Diluted headline EPS (cents)
Diluted headline EPS before foreign exchange (taxed) (cents)
509.7
526.2
504.7
521.1
567.7
545.2
561.6
539.4
(10.2)
(3.5)
(10.1)
(3.4)
615.2
592.7
608.6
586.4
52 week
% change
(8.5)
53 weeks
December
2013
(Audited)
58 Our performance
Summary Consolidated Statement of Financial Position
December 2014
(Audited)
December 2013
(Audited)
Assets
Non-current assets
Property, plant and equipment
Goodwill and other intangible assets
Investments and other financial assets
Deferred taxation
Current assets
Other current financial assets
Inventories
Trade, other receivables and prepayments
Taxation
Cash and bank balances
Non-current assets classified as held for sale
11,018.3
7,239.2
2,958.7
158.2
662.2
17,870.1
229.3
11,228.8
4,288.3
56.3
2,067.4
18.0
10,111.8
5,988.1
2,928.8
522.8
672.1
16,036.1
10,115.5
3,712.5
12.0
2,196.1
-
Total
28,906.4
26,147.9
Equity and liabilities
Total equity
Equity attributable to owners of the parent
Non-controlling interests
Non-current liabilities
Interest-bearing liabilities
Deferred taxation
Other non-current liabilities and provisions
Current liabilities
Trade, other payables and provisions
Taxation
Bank overdrafts
Other current liabilities
5,527.2
5,334.4
192.8
3,236.8
2,133.9
61.3
1,041.6
20,142.4
18,518.9
208.3
584.0
831.2
5,369.6
5,173.0
196.6
2,206.4
1,178.7
86.6
941.1
18,571.9
17,101.2
331.3
607.8
531.6
Total
28,906.4
26,147.9
Rm
%
change
20.9
11.0
15.5
Investments and other ﬁnancial assets
During 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.
During 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:
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:
More information relating to the fair value of the above
investments can be found in note 39 of the Group’s Annual
Tangible and intangible assets
Increased by
14.4%
Acquisition of key strategic
properties of the Group for
3.1
R784.9 million
Completed construction of our flagship
Mozambique Builders Warehouse store for
R91.7 million
8.3
Impairment to property, plant
and equipment of
R24.6 million
Goodwill increase of
R10.9 million
due to the acquisition of Fresh and Liquor businesses
partially offset by foreign exchange movements
Acquisition of subsidiaries and properties
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.
Acquisition of businesses
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
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
60 Our performance
Inventories
Fair value hierarchy
For 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 noncurrent 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.
Rm
Assets
Financial assets at fair value through profit
or loss
-- Investments in cell captives and other
-- FEC asset
Designated cash flow hedge
-- FEC asset
Loans and receivables
-- Employee share trust loans
Available-for-sale financial assets
-- Other listed investments
Non-current assets classified as held for sale
Liabilities
Financial liabilities at amortised cost
-- Medium-term loan, bank loans and
capitalised finance leases
Financial liabilities at fair value through profit
or loss
-- FEC liability
Designated cash flow hedge
-- FEC liability
Dec 2014
(Audited)
December
2013
Level 3 (Audited)
Level 1
Level 2
Level 3
Level 1
Level 2
155.1
-
155.1
-
235.4
-
235.4
-
125.2
29.9
13.7
13.7
30.3
30.3
8.4
8.4
22.0
229.5
8.4
8.4
8.4
125.2
29.9
13.7
13.7
30.3
30.3
199.1
22.0
22.0
217.7
17.7
8.8
8.8
34.9
34.9
12.1
12.1
291.2
12.1
12.1
12.1
217.7
17.7
8.8
8.8
34.9
34.9
279.1
-
2,653.0
-
2,653.0
-
1,724.8
-
1,724.8
-
2,653.0
-
2,653.0
-
1,724.8
-
1,724.8
-
4.5
-
4.5
-
1.9
-
1.9
-
4.5
2.2
2.2
2,659.7
-
4.5
2.2
2.2
2,659.7
-
1.9
0.8
0.8
1,727.5
-
1.9
0.8
0.8
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
Inventory days increased to
64.4 days
Composition of Total
(%)
Composition
ofInventories
total inventories
(%):
16.1
29.7
Food
(Dec 2013: 63.7 days)
2014
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
Liquor
General merchandise
Home improvement
8.8
45.4
Composition of Total Inventories (%)
18.9
28.2
Food
2013
Liquor
General merchandise
7.4
Food
Liquor
General merchandise
Home improvement
Home improvement
45.5
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
Debtors’ days remain well controlled at
9 days
Increase of
15.5%
is ahead of sales
Allowance for doubtful debt
5.2%
of total trade receivables (Dec 2013: 5.0%)
62 Our performance
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
Operating lease liability arising from
the lease-smoothing adjustment of
R912.5 million
Non-current liabilities
Other 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-interestbearing liability is the net operating lease liability of R912.5
million (Dec 2013: R822.2 million) arising from the leasesmoothing 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
More information relating to the Group’s liquidity risk
management can be found in note 40 of the Group’s
Annual Financial Statements:
At 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
Included within other current liabilities are mediumterm 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’
Trade and other payables and
provisions
Trade creditor days
decreased from 76 days to
75 days
The figure is representative of the Group’s supplier terms.
More information relating to trade and other payables can be
Contingent 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
Included within other current liabilities are
medium-term loans of
R249.7 million
Contingent liabilities
The 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 exclusivity
For 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.
Commitments
More information relating to these capital expenditure
commitments can be found in note 31 of the Group’s Annual
Massmart 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
Commitments in respect
of capital expenditure
approved by Directors:
Contracted for
Not contracted for
December
2014
52 weeks
(Audited)
December
2013
53 weeks
(Audited)
864.1
1,155.1
2,019.2
1,249.3
783.4
2,032.7
64 Our performance
53 weeks
December 2013
(Audited)
Operating cash before working capital movements
Working capital movements
Cash generated from operations
Taxation paid
Net interest paid
Investment income
Dividends paid
Cash inflow from operating activities
2,983.4
(295.1)
2,688.3
(683.4)
(345.3)
(914.0)
745.6
2,984.0
752.6
3,736.6
(732.8)
(255.1)
79.2
(913.4)
1,914.5
Investment to maintain operations
Investment to expand operations
Investment in subsidiaries
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of assets classified as held for sale
Other net investing activities
Cash outflow from investing activities
(857.4)
(1,322.1)
(14.4)
32.5
14.9
(2,146.5)
(780.2)
(1,306.8)
25.6
2.5
(247.4)
(2,306.3)
Cash inflow from financing activities
1,349.7
293.0
Net decrease in cash and cash equivalents
Foreign exchange movements
Opening cash and cash equivalents
Closing cash and cash equivalents
(51.2)
(53.7)
1,588.3
1,483.4
(98.8)
47.2
1,639.9
1,588.3
Rm
14.4
120.0
3.3
907.5
430.6
526.7
651.7
1.6
B
P
824.9
In
629.4
787.6
DEC
2011
1.8
752.1
DEC
2010
1.9
453.8
310.9
2.1
84.0
2.3
2.2
383.6
2.5
876.6
2.7
2.7
711.9
14.4
876.6
430.6
52 weeks
December 2014
(Audited)
824.9
Summary Consolidated Statement of Cash Flows
120.0
5,527.2
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 3.3
to 2.8% (Dec 2013:
3.3%) of sales. Net capital expenditure excluding business
2.7
2.7
and property acquisitions amounted to 1.6% (Dec 2013: 1.8%)
2.5
of sales.
Due to the2.3high levels of trading experienced over the
December 2.2
holiday period, the Group banks a large amount
of
2.1 cash in the month, while majority of the payments to
1.8explains the large
suppliers only occur after 1.9
year-end. This
1.6 of
cash and bank balances reflected in the Statement
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
assetsDECcan largelyDEC
be attributed
DEC to the property
DEC
DEC
2011
2012 as well2013
2014
2010
acquisitions already
mentioned,
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
907.5
192.8
752.6
(424.0)
(30.7)
1,254.6
(47.3)
526.7
5,334.4
(295.1)
(1,112.4)
(697.8)
1,658.3
(143.2)
752.1
4,048.3
733.4
Net movement in
working capital
Increase in inventories
Increase in trade receivables
Increase in trade payables
Decrease in provisions
383.6
550.5
2.2
Rm
651.7
4,915.3
(913.4)
1,403.6
(3.4)
(30.9)
7.2
(8.8)
5,369.6
(914.0)
1,072.9
(38.6)
(50.4)
97.7
(10.0)
629.4
175.6
59.1
(7.2)
(30.9)
196.6
57.6
(11.0)
(50.4)
-
84.0
4,739.7
(913.4)
1,344.5
3.8
7.2
(8.8)
5,173.0
(914.0)
1,015.3
(27.6)
97.7
(10.0)
752.1
(8.8)
743.3
(9.9)
787.6
3,662.1
(913.4)
1,283.0
(121.8)
3,909.9
(914.0)
1,079.8
(27.4)
-
2.2
2.2
-
December
2013
53 weeks
(Audited)
453.8
Total
323.3
61.5
3.8
129.0
517.6
(64.5)
(27.6)
125.1
(0.1)
Share
premium
Capital Expenditure Acceleration
December
2014
52 weeks
(Audited)
310.9
52 weeks ended December 2014 (Audited)
Retained
profit
Noncontrolling
interests
711.9
Balance as at December 2012 (Audited)
Dividends declared
Total comprehensive income
Changes in non-controlling interests
Distribution to non-controlling interests
IFRS 2 charge and Share Trust transactions
Treasury shares acquired
Balance as at December 2013 (Audited)
Dividends declared
Total comprehensive income
Changes in non-controlling interests
Distribution to non-controlling interests
IFRS 2 charge and Share Trust transactions
Treasury shares acquired
Rm
Working capital movements
Equity
attributable
to owners
of the parent
Other
general
reserves
362.3
Ordinary
share
capital
362.3
Summary Consolidated Statement of Changes in Equity
DEC
2013
DEC
2014
In
T
T
b
DEC
2012
Businesses acquired (Rm)
Property acquisitions (Rm)
Investment to expand operations (Rm)
Investment to maintain operations (Rm)
Total capex as a % of sales
Total capex as a % of sales excluding
business and property acquisitions
Segmental review
The 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.
66 Our performance
Operating segments
Rm
Rm
Total
Other
Massdiscounters
Masswarehouse
Massbuild
Masscash
78,173.2
-
17,955.2
21,554.8
10,822.8
27,840.4
180.7
1,044.3
537.6
283.9
For the 52 week year ended
December 2014
Sales
Operating profit before foreign
exchange movements and interest
Trading profit before interest and
taxation
Net foreign exchange (loss)/ gain
Net finance (costs)/income
Operating profit before taxation
Trading profit before taxation
Inventory
Total assets
Non-current asset held for sale
Total liabilities
Impairment losses
Non-cash items other than
depreciation and impairment
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Inventory days
Number of stores
Trading area (m2)
Trading area (m2) increase on
December 2013
Average trading area per store (m2)
Distribution centre space (m2)
increase on December 2013
2,015.9
(30.6)
2,061.7
(49.8)
(345.3)
1,620.8
1,716.4
11,228.8
28,906.4
18.0
23,379.2
2,147.0
846.6
24.6
(48.4)
(211.0)
(290.0)
(211.0)
30.5
(325.6)
15.0
(4,366.5)
967.8
43.2
9.4
180.7
(5.8)
(29.4)
145.5
151.3
3,984.9
7,985.5
7,820.9
542.2
293.1
-
1,044.3
44.4
1,088.7
1,088.7
2,845.7
7,689.0
7,312.1
70.3
171.6
-
537.6
2.5
(63.2)
476.9
474.4
1,785.6
5,027.7
3.0
4,730.6
296.8
154.0
-
299.1
1.9
(86.1)
199.7
213.0
2,582.1
8,529.8
7,882.0
269.9
184.7
15.2
146.1
745.6
(2,146.5)
1,349.7
64.4
392
1,539,295
(16.2)
(446.2)
(980.8)
1,163.0
-
112.0
473.4
(545.0)
112.9
107.6
153
506,188
46.9
(103.8)
(70.1)
161.8
57.1
19
195,794
12.6
707.4
(296.8)
(369.3)
84.6
100
436,538
(9.2)
114.8
(253.8)
281.3
37.1
120
400,775
3.9%
3,927
328,175
-
6.5%
3,308
178,488
10,305
51,300
6.3%
4,365
61,733
0.3%
3,340
36,654
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.
Total
Other
Massdiscounters
Masswarehouse
Massbuild
Masscash
72,263.4
-
16,740.6
19,675.1
9,583.6
26,264.1
2,152.5
(37.9)
449.0
988.1
505.3
248.0
2,145.4
(255.1)
1,897.4
2,239.9
10,115.5
26,147.9
20,778.3
2,061.4
731.1
41.6
(349.6)
(387.5)
12.6
(2,614.7)
(6,027.7)
759.0
33.9
-
366.6
34.0
483.0
400.6
3,647.3
7,718.3
7,522.2
489.7
256.4
-
990.2
38.5
1,026.6
1,028.7
2,618.2
7,166.8
6,587.8
344.8
145.4
2.1
507.6
29.2
534.5
536.8
1,597.0
5,212.0
4,857.4
275.1
121.2
-
281.0
(7.2)
240.8
273.8
2,240.4
8,665.5
7,838.6
192.8
174.2
39.5
138.0
1,914.5
(2,306.3)
293.0
64
376
1,481,308
458.0
399.4
(1,424.0)
819.4
-
23.3
990.1
(490.6)
(621.6)
109
143
475,331
(352.2)
273.9
(385.2)
209.3
59
19
195,794
13.6
356.9
(275.2)
1.4
92
92
410,546
(4.7)
(105.8)
268.7
(115.5)
35
122
399,637
4.8%
3,940
323,813
-
7.7%
3,324
178,488
9.3%
10,305
51,300
3.7%
4,462
61,733
0.6%
3,276
32,292
11.4%
-
-
-
108.4%
3.2%
For the 53 week year ended
December 2013
Sales
Operating profit before interest
and taxation
Trading profit before interest
and taxation
Net finance (costs)/income
Operating profit before taxation
Trading profit before taxation
Inventory
Total assets
Total liabilities
Impairment losses
Non-cash items other than
depreciation and impairment
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Inventory days
Number of stores
Trading area (m2)
Trading area (m2) increase on June
2012 (excluding re-measurements)
Average trading area per store (m2)
increase on December 2012
68 Our performance
Geographic segments
Decrease is due to:
Rm
Sales
Segment assets (Total)
Segment assets (Non-current)
Total
December
2014
52 weeks
South Africa
December
2014
52 weeks
Rest of Africa
December
2014
52 weeks
Total
December
2013
53 weeks
South Africa
December
2013
53 weeks
Rest of Africa
December
2013
53 weeks
78,173.2
21,764.8
10,197.9
2,147.0
71,822.4
20,226.3
9,576.5
1,936.6
6,350.8
1,538.5
621.4
210.4
72,263.4
19,238.5
8,916.9
2,061.4
66,676.1
18,320.0
8,418.7
1,891.9
5,587.3
918.5
498.2
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
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
ROSvolatile, and do not reflect the sustainable profitability of
the
Division or Group.
5.5
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)
ROE
3.5
DEC
2011
DEC
2012
DEC
2013
DEC
2014
4.2%
3.8%
3.5%
2.9%
2.6%
0
15
2010
2011
2012
2013
2014
19.1% 21.6% 22.7% 29.7% 44.5%
10
5
All periods are 52-week periods, Dec 2013 is for 53 weeks.
0
30
5
20
DEC
2010
35
10
25
0.5
DEC
2010
DEC
2011
DEC
2012
DEC
2013
DEC
2014
35.4% 24.5% 27.6% 25.9% 21.7%
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 cover
The Board believes that the current ratio is appropriate,
given the Group’s current and forecast cash generation,
planned
Dividendcapital
cover expenditure and gearing levels.
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
DEC
2010
DEC
2011
DEC
2012
DEC
2013
DEC
2014
1.51
1.24
1.13
1.46
1.21
Related-party transactions
40
15
30
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.
20
35
1.5
Gearing (or leverage)
25
40
2.5
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.
45
Massmart is committed to delivering superior returns to
shareholders over the longer term.
4.5
• 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.
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
Related-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 Group
More information on related-party transactions can
be found in note 34 of the Group’s Annual Financial
70 Our performance
Directors’ report
for the year ended December 2014
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
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
Going concern assertion
The 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 ahead
Directors’ responsibilities
Shares in issue
The 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.
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 movement in ordinary and preference shares for the
year under review were as follows:
Appreciation
The 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 Lierop
2 April 2015
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 results
The 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:
Dividend
Massmart 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).
Ordinary Shares
Balance at December 2012
Converted preference shares1
Converted preference shares1
Ordinary shares in issue at
December 2014
216,910,195
198,849
217,109,044
9,028
217,118,072
‘B’ Preference Shares
Converted to ordinary shares
Residual shares automatically
redeemed
Converted to ordinary shares
Preference shares in issue at
December 2014
12,461,675
(198,849)
(9,395,053)
2,867,773
(9,028)
2,858,745
The preference shares relate to Massmart’s Black Scarce Skills Trust
1
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.
72 Our performance
Directors’ report continued
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.
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.
December 2014
December 2013
Non-executive Directors
Shares
Options/
Share Awards
Shares
Options/
Share Awards
MJ Lamberti1
K Dlamini2
CS Seabrooke
S Broader3
D Cheesewright4
A Clarke3
JA Davis4
NN Gwagwa
P Langeni
JP Suarez
9,800
9,800
-
-
9,800
9,800
-
-
643,473
222,894
-
196,877
342,619
201,029
596,473
222,894
-
243,877
298,327
184,343
Executive Directors
Resigned with effect from 10 April 2014
Appointed with effect from 10 April 2014
Appointed with effect from 16 July 2014
Resigned with effect from 16 July 2014
April 2014
Options/
Share Awards
Options/
Share Awards
Non-executive Directors
Shares
MJ Lamberti1
K Dlamini2
CS Seabrooke
S Broader3
D Cheesewright4
A Clarke3
JA Davis4
NN Gwagwa
P Langeni
JP Suarez
9,800
9,800
-
-
9,800
8,800
-
-
222,894
-
342,619
-
596,473
222,894
-
243,877
298,327
184,343
GM Pattison5
GRC Hayward
J van Lierop6
I Zwarenstein7
At 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:
1
2
3
4
April 2015
Shares
Executive Directors
Interests of Directors in the Company’s shares
GM Pattison
GRC Hayward
J van Lierop5
I Zwarenstein6
At the date of this Report, the Directors’ beneficial holdings were as follows:
5 Appointed with effect from 12 March 2015
6 Resigned as Group FD with effect from 12 March 2015
There were no non-beneficial interests in either of these periods.
1
2
3
4
Resigned with effect from 10 April 2014
Appointed with effect from 10 April 2014
Resigned with effect from 16 July 2014
Subsidiaries
As at the date hereof, the following companies are
principal subsidiaries of the Company:
Massbuild Proprietary Limited
2004/035206/07
Masscash Holdings Proprietary Limited
1997/014716/07
Massmart International Holdings Limited
(incorporated in Mauritius)
47902 C1/GBL
Massmart Management and Finance Company
Proprietary Limited
1992/004084/07
Masstores Proprietary Limited
1991/006805/07
Wild Developments Proprietary Limited
1973/000178/07
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
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 2015
7
Resigned as Group FD with effect from 12 March 2015, and as
such his number of shares are not shown in the above table
Going concern
The 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.
74 Our performance
Directors’ report continued
Independent auditor’s report
on summary consolidated financial statements for the year ended 28 December 2014
Borrowing powers
Massmart address
In 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).
The Company’s registered office and postal address are
as follows:
Direct and ultimate holding companies
The 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 events
There were no significant subsequent events after the
year-end, apart from the movement in Directors already
spoken to.
On behalf of the Board
Registered office:
Massmart House
16 Peltier Drive
Sunninghill Ext 6
Sandton, 2146
South Africa
Postal address:
Private Bag X4
Sunninghill
2157
South Africa
Company Secretary certificate
In 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.
Philip Sigsworth
Company Secretary
2 April 2015
Audit Committee report
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 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;
To the Shareholders of Massmart
Holdings Limited
• 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 Seabrooke
Chairperson of the Audit Committee
2 April 2015
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 responsibility
Our 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.
Opinion
In 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 Carshagen
Director
Registered Auditor
2 April 2015
102 Rivonia Road
Johannesburg
Gauteng
South Africa
76 Our performance
Value added statement
Shareholder analysis
The value we added:
December 2014
52 weeks
Rm
Sales, royalties, franchise fees, rentals and management
and adminisitration fees (inclusive of VAT)
Cost of sales
Interest and investment income
Net costs of services and other operating expenses
Value added
The following analysis of shareholders was extracted
from the shareholder register as at December 2014:
December 2013
53 weeks
Rm
86,779.9
82,650.9
5.0%
(63,610.8)
66.3
(5,771.1)
17,464.3
(58,926.4)
40.7
(5,279.3)
18,485.9
7.9%
62.9%
9.3%
-5.5%
R17.5 billion
Shareholder Spread (%)
1,001 - 10,000 shares
10,001 - 100,000 shares
100,001 - 1,000,000 shares
1,000,001 shares and over
Public/Non-public Shareholders (%)
Distribution of shareholders
Walmart subsidiary:
Main Street 830 Proprietary
Limited
Unit Trusts/Mutual Funds
Pension Funds
Other Managed Funds
Custodians
Private Investors
Distribution of Shareholders (%)
Hedge Fund
Charities
Insurance Companies
CS
I
N
in onte co
re n
sts tro
llin
g
N
re et e
ta ar
in ni
e d ng
s
Sovereign Wealth
D
an epr
d ec
am iat
o r io n
tis
at
io
n
To
as len
in de
te r
re s
st
To
e
ag mp
es l o
an yee
d s
ot as
he s a
r b lar
en ies
To
efi ,
as sh
ts
di are
v id h
o
en ld
ds ers
w
Public/non-public shareholders
Non-public shareholders:
Walmart subsidiary:
Main Street 830 Proprietary
Limited
Directors and Group
Executives of the Company
Share trusts
Public shareholders
Here’s how we shared it:
To
as Go
ta ve
xa r n
tio m
n en
t
Shareholder spread
1 - 1,000 shares
Exchange-Traded Fund Total
BEE
Investment Trusts
Local Authorities
American Depositary
Receipt
University
Remainder
51.4% 35.1% 5.2% 4.8% 2.2% 0.9% 0.3% 0.1%
R8,969.0 m
R6,109.0 m
R914.0 m
R846.6 m
R386.8 m
R165.9 m
R57.6 m
R15.4 m
R10,705.3 m
57.9%
in 2013
R5,423.5 m
29.4%
in 2013
R913.4 m
4.9%
in 2013
R731.1 m
4.0%
in 2013
R283.8 m
1.5%
in 2013
R351.7 m
1.9%
in 2013
R59.1 m
0.3%
in 2013
R18.0 m
0.1%
in 2013
Number
of holders
%
Number
of shares
%
4,232
521
146
53
24
4,976
85.0
10.5
2.9
1.1
0.5
100.0
841,823
1,581,549
4,709,637
17,420,328
192,564,735
217,118,072
0.4
0.7
2.2
8.0
88.7
100.0
1
-
113,859,293
52.4
4
0.1
838,967
0.4
1
4,970
4,976
99.9
100.0
194,765
102,225,047
217,118,072
0.1
47.1
100.0
1
-
113,859,293
52.4
77
75
49
13
15
16
1
9
5
3
1
2
2
2
1.5
1.5
1.0
0.3
0.3
0.3
0.2
0.1
0.1
-
48,739,296
29,180,660
8,446,937
6,023,147
4,193,454
2,026,985
1,431,489
1,378,003
866,537
473,338
100,271
86,936
87,889
95,239
22.4
13.4
3.9
2.8
1.9
0.9
0.7
0.6
0.4
0.2
-
1
4,704
4,976
94.7
100.0
70,220
58,378
217,118,072
0.4
100.0
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
4.3
Public Investment Corporation
15,724,370
7.2
Walmart subsidiary: Main Street 830 (Pty) Ltd
113,859,293
52.4
Estimated %
employees
with medical benefits
Massmart defines
human capital as our
commitment
to our people.
63.7%
2013: 53.6%
Unionised Staff
38.8%
2013: 36.0%
The objective of the Group human
capital function is to
facilitate the execution
of Massmart’s business
strategy through people
Human
capital
Estimated annual per capita training investment
R3,778.66
Black management
as a % of all
management and
professionals
74.8%
in line with prior year
2013: R2,935
The retail industry is a fast and
exciting business. It deals with a vast
amount of suppliers, service providers
and diverse communities.
For more information on our human capital
pages 12 to 27, Our divisional reviews
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, costeffective 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
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.
80 Our performance
Human capital continued
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 Programmes
Massmart 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 University
Massmart 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 performance indicators
Diversity and inclusion
Massmart 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 Leaders
To 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.
Impilo
Massmart 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.
63.66%
Estimated % employees
with medical benefits
38.75%
Unionised Staff
12.17%
Estimated staff
turnover
53.6 in 2013, 48.4 in 2012, 41.9 in 2011, 41.0 in 2010, 19.0 comparative
36.96%
Flexi-timers
5.83%
HIV Prevalence
5.5 in 2013, 6.6 in 2012, 5.6 in 2011, 5.5 in 2010, 10.0 comparative**
Prevalence has decreased and remains well below the national prevalence rate.
87.46%
This indicates the percentage of
local management in our African
operations outside of South Africa.
Local management in nonSouth African operations as a 90.5 in 2013, 89.3 in 2012, 86.7 in 2011, 87.0 in 2010, comparative N/A
% of total management
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***
R3,778.66
R3,108.00
R2,935.00 in 2013, R3,012 in 2012, R1,879 in
2011, R1,574 in 2010, R1,204 comparative
R 2,688.00 in 2013, R2,953 in 2012,
R2,859 in 2011, R2,555 in 2010,
R2,456 comparative*
Estimated annual per capita training
investment – permanent (R)
Average monthly Minimum Wage (R)
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.
*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
82 Our performance
Remuneration report
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 Seabrooke
Chairman of the Remuneration Committee
2 April 2015
The Remuneration report
The report details information applicable to Massmart’s
remuneration policy and practice for Executive and nonExecutive 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 nonbinding 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
Composition
The Remuneration Committee consists of three nonExecutive 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.
Responsibilities
Overview of remuneration
In 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 nonExecutive 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.
Massmart 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.
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.
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
84 Our performance
Remuneration report continued
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
MRF Balanced
Gross
annualised
returns
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
MRF Balanced
MRF Conservative
MRF Aggressive
Medical plan
December 2013
Portfolio
value
Rm
Gross
annualised
returns
2,775.7
24.7%
148.4
12.1%
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
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:
3,432.4
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)
Total
37
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 plans
Medical plan
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
Resolution Health
(closed 1 January 2014)
3,026
Compcare NetworX
(closed 1 January 2015)
2,579
Other
Total
Total employees on medical schemes
Employees
418
6,023
14,726
Short-term Incentives
Massmart 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 Incentives
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 Trust
Prior 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 Trust
The 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.
The 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 biannually in April and October of each year. A beneficiary is
only eligible for a single allocation.
Share award parameters
Executive pay mix
At 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
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.
86 Our performance
Executive Directors’ contracts and earnings
Actual values paid in 2014
The comments below provide further background and
context to the figures disclosed in tables which follow.
Guy RC Hayward
Guy 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.
52.1%
47.9%
CEO
49.6%
50.4%
GROUP
FD
17.5%
41.0%
PRESCRIBED
OFFICERS*
41.5%
* Average of total
remuneration for
Prescribed Officers
The 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 Lierop
Following 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’ salaries
Grant M Pattison
Grant 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.
Ilan Zwarenstein
Guaranteed Package
AIP
Gain on exercise
of share options
With 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.
All Committee members complete detailed selfassessments
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:
Chairman of the Board
Deputy Chairman
Directors
Committee Chairpersons
Committee Members
2015
2014
1,200,000
625,000
275,000
252,000
128,000
871,000
625,000
259,000
252,000
120,000
88 Our performance
Directors’ emoluments
Services as
directors of
Massmart
Holdings
Limited
R000
Salary and
allowances
R000
Bonuses
and performance
related
payments1
R000
Other
benefits
R000
Retirement
and related
benefits
R000
Subtotal
R000
Fringe
benefit of
interestfree loans
used to
finance
shares2
R000
Gains on
exercise
of share
options
and on
shares
purchased
by
directors
R000
Total
R000
-
5,215
4,443
2,603
12,261
5,916
2,827
8,743
692
667
103
1,462
365
337
162
864
6,272
11,363
5,695
23,330
1,365
844
2,209
15,788
15,788
23,425
12,207
5,695
41,327
359
1,491
512
758
892
4,012
-
-
-
-
359
1,491
512
758
892
4,012
-
-
359
1,491
512
758
892
4,012
4,012
12,261
8,743
1,462
864
13,683
8,115
4,703
6,089
13,718
4,476
4,913
4,787
3,912
4,630
69,026
96,368
293
239
11
76
619
2,828
Prescribed Officers
Total
Retirement
and related
benefits
R000
Subtotal
R000
Pattison, GM3
Hayward, GRC
Zwarenstein, I
-
5,215
3,560
2,447
11,222
1,304
916
561
2,781
772
686
113
1,571
365
249
153
767
7,656
5,411
3,274
16,341
1,413
814
1
2,228
1,863
1,863
9,069
6,225
5,138
20,432
1,213
1,256
451
689
3,609
-
-
-
-
1,213
1,256
451
689
3,609
-
-
1,213
1,256
451
689
3,609
3,609
11,222
2,781
1,571
767
9,712
6,161
3,694
4,327
7,756
2,530
2,831
2,979
2,930
2,582
45,502
65,452
370
6
229
43
73
721
2,949
2,702
5,904
389
719
9,714
11,577
12,784
6,161
9,604
4,327
8,145
2,759
3,593
2,979
2,930
2,655
55,937
79,978
Non-executive directors
Non-executive directors
Prescribed Officer A
Prescribed Officer B
Prescribed Officer D
Prescribed Officer E
Prescribed Officer F
Prescribed Officer G
Prescribed Officer I
Prescribed Officer K
Prescribed Officer L
Prescribed Officer M
Other
benefits
R000
Executive directors
Executive directors
Lamberti, MJ4
Seabrooke, CS
Cheesewright, D5
Davis, JA5
Gwagwa, NN
Langeni, P
Dlamini, KD
Suarez, JP
Broader, S6
Clarke, A6
Total
R000
Salary and
allowances
R000
Bonuses and
performance
related
payments
R000
Services as
directors of
Massmart
Holdings
Limited
R000
For the 53 weeks ended
December 2013
For the 52 weeks ended
December 2014
Pattison, GM3
Hayward, GRC
Zwarenstein, I
Gains on
exercise
of share
options and
on shares
purchased
by directors
R000
Fringe
benefit of
interestfree loans
used to
finance
shares2
R000
13,976
8,115
4,703
6,089
2,300
16,018
4,715
209
5,133
4,787
3,912
4,706
2,509
72,154
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
Lamberti, MJ4
Seabrooke, CS
Cheesewright, D5
Davis, JA
Gwagwa, NN
Langeni, P
Suarez, JP
Prescribed Officers
Prescribed Officer A
Prescribed Officer B
Prescribed Officer D
Prescribed Officer E
Prescribed Officer F
Prescribed Officer G
Prescribed Officer I
Prescribed Officer K
Prescribed Officer L
Prescribed Officer M
Total
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.
90 Our performance
Details of Directors’ shares and share options per Director:
Relevant date
Subscription
price (R)
Market
price
(R)
Number of shares/
share options
Gain
on sale/
exercise
(R 000’s)
Expiry date
Pattison, GM
684,021
-
-
-
1 April 2005
23 May 2006
42
54
120
120
23 May 2006
24 May 2007
26 May 2008
27 May 2009
1 September 2011
54
94
73
78
154
684,021
(47,000)
(183,750)
453,271
183,750
26,948
41,768
42,202
158,603
1,969
22 May 2016
23 May 2017
25 May 2018
26 May 2019
31 August 2021
Performance share awards
Restricted share grants
Comprising:
16 September 2013
16 September 2013
-
-
-
-
-
16 September 2013
16 September 2013
-
-
28,705
9,569
38,274
38,274
-
17 March 2014
15 September 2014
-
-
16 September 2013
16 September 2013
17 March 2014
15 September 2014
-
-
1 April 2008
26 May 2008
27 May 2009
67
73
78
196
196
196
-
-
-
26 May 2008
27 May 2009
1 September 2011
16 May 2012
73
78
154
160
-
16 September 2013
16 September 2013
-
-
17 March 2014
-
-
16 September 2013
16 September 2013
17 March 2014
-
-
Expiry date
20,848
6,950
27,798
32,786
11,506
72,090
20,848
6,950
32,786
11,506
- 15 September 2016
- 15 September 2018
16 March 2017
- 14 September 2019
- 15 September 2016
- 15 September 2018
16 March 2017
- 14 September 2019
28,705
9,569
Employee Share Option Scheme
- 15 September 2016
- 15 September 2018
-
-
- 15 September 2016
- 15 September 2018
Options exercised
Options exercised
Options exercised
Options exercised
Comprising:
Hayward, GRC
Options exercised /
shares sold
Options exercised /
shares sold
Comprising:
-
Number of shares/
share options
Zwarenstein, I
Employee Share Awards Scheme
Share awards / Share grants
Comprising:
16 September 2013
16 September 2013
Relevant date
Gain
on sale/
exercise
(R 000’s)
Options exercised /
shares sold
Options exercised
Shares sold
Comprising:
Subscription
price (R)
Market
price
(R)
182,659
(2,742)
(5,234)
(7,352)
167,331
167,331
8,037
3,677
63,941
91,676
354
644
871
1,869
-
25 May 2018
26 May 2019
31 August 2021
15 May 2022
456,906
-
-
-
456,906
-
-
-
-
-
24 May 2007
1 April 2008
26 May 2008
27 May 2009
1 September 2011
16 May 2012
94
67
73
78
154
160
-
456,906
24,444
19,912
36,573
105,448
120,987
149,542
-
23 May 2017
31 March 2018
25 May 2018
26 May 2019
31 August 2021
15 May 2022
Comprising:
ead more: Shares and options at reporting date
R
can be found in the ‘Directors’ Report’ on page 72
12,759
4,253
17,012
16,686
33,698
12,759
4,253
16,686
- 15 September 2016
- 15 September 2018
-
16 March 2017
- 15 September 2016
- 15 September 2018
16 March 2017
ead more: More detail on the Employee Share Incentive
R
Schemes can be found in the ‘Remuneration Report’ on page 85
92 Our performance
New private label offering launch:
Marketside
Massmart defines intellectual
capital as how we pass on
benefits to our customers
into Fresh, Bakery and Butchery
ShieldOnline:
351,809
orders placed
ShieldOnline sales:
R3.78 bn
Intellectual
capital
The country’s largest pure B2B ecommerce business
DionWired online:
4m
Every Day
Low Price:
EDLP
Plumb Pride Geyser
which has been held at
the same selling price
for four years.
page views: up 100%
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 / online
We 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.
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.
94 Our performance
Intellectual capital continued
Performance of our online offerings in 2014
Private label
Sales up
Website visitors in peak period:
44%
1.1 million
1.5 million 23%
Sales up
Website visitors:
Increase in website visitors:
Orders placed:
DionWired
Game
• 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.
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.
ShieldOnline 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 categories we trade in, as far as we are aware
Shield runs the country’s largest pure B2B
ecommerce business. 14.7%
351,809
Shield
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. Website visitors since
April 2014 launch:
9,7 million
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.
Every Day Low Price (EDLP)
Results:
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.
May 2013
4
July 2012
April 2012
1
Maximised month-end promotion
Cancelled mid-month promos, increased
month-end promos to three weeks
• minimised amount of products
promoted in adverts and increased size
of pictures
Massbuild’s EDLP journey to date
2
Changed price communication
• implemented price rounding
• developed unique price device
• dropped the “was” and “now”
pricing and use of “best buy” on
selected items
February 2013
3
Do more for less
with Builders
• new positioning
message
Price communication changed
to fulfill these objectives:
• build price trust
• increase price visibility
• simplicity
• consistency
Cancellation of birthday
campaign and launch of the
Price Lock campaign for an initial
period of six months
1 April 2015
5
Another Price Lock
campaign launched
• Following on from
excellent results of first
campaign - 48 products
locked for six months
yielding a growth of 75%
• 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
96 Our performance
Massmart defines social
capital as our commitment
to champion social equality
initiatives in our business
and our supply chain.
R23.6million
invested in nutrition projects
27 million
meals served
to learners through the Amalunchbox and Econo
mobile kitchen projects
Investment in social projects:
R41.5 million
Social
capital
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.
For more information on our social capital
(equivalent to 3.6% PAT)
R71.2m
invested in developing small suppliers since the
inception of the Supplier Development Fund
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 development
Massmart 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 demanddriven, 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
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 sourcing
Under 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.
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.
98 Our performance
Social capital continued
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 Women
Walmart 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 development
Massmart’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.
Supplier Development Fund
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.
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.
A proud
initiative
R71.2 million
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.
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 microenterprises (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.
The following two pages include some of the suppliers who have been supported by the Supplier Development Fund.
100 Our performance
Supplier Development Fund continued
XChem Chemicals
36
stores
supplied
Rivoningo Steel and Design
Builders Warehouse
Builders Superstore
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.
19
stores
supplied
Massbuild
Rivoningo is a strong example of how
women-owned businesses can break into
steel manufacturing and steel products
supply, for the home construction industry.
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
Rivoningohasgrownfromjustasinglestorelistingayearago,
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:
Challenges:
• Listing their entire range
• Packaging and compliance support
• Expanding into other Massmart formats
• 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:
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 crosslisting opportunities will be sought within the Massmart
Group.
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.
Biscotti
Nkuleko Bricks
19
stores
supplied
Makro
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.
4
stores
supplied
Massbuild
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.
102 Our performance
CSI performance indicators
BBBEE performance indicators
3.6%
5.67
15.03
R41.55 million
5.09
15.0
Ownership
6.0 in 2013, 7.6 in 2012, 14.8 in 2011,
6.6 in 2010, 19.13 comparative
Total Massmart Group CSI spend as
a % of Profit After Tax
3.1 in 2013, 3.1 in 2012, 2.0 in 2011, 1.6 in 2010
Management Control
4.5 in 2013, 5.2 in 2012, 5.2 in 2011,
Total Massmart Group Contribution
(Rm)
41.7 in 2013, 37.4 in 2012, 0 in 2011, 0 in 2010
R42.65 million
Total Massmart Group, Supplier
and Staff Contribution (Rm)
42.3 in 2013, 46.4 in 2012, 24.4 in 2011, 20.6 in 2010
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.
Skills Development
11.0 in 2013, 12.2 in 2012, 10.6 in 2011,
Total Investment In Nutrition
Programmes (Rm)
28.2 in 2013, 26.2 in 2012, 7.8 in 2011, 4.3 in 2010
Total Investment In Infrastructure
and School Maintenance (Rm)
3.8 in 2013, 0.5 in 2012, 0 in 2011, 0 in 2010
R7.28 million
Total Investment in Early Childhood
Developments (Rm)
5.2 in 2013, 1.2 in 2012, 0 in 2011, 0 in 2010
R3.51 million
Total Investment in Divisional
Discretionary Projects (Rm)
4.3 in 2013, 9.5 in 2012, 10.6 in 2011, 10.2 in 2010
• 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.
Employment Equity
10.2 in 2013, 12.6 in 2012, 12.3 in 2011,
12.5
R23.6 million
R6.0 million
10.54
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.
• 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.
Preferential Procurement
14.8 in 2013, 15.0 in 2012, 12.9 in 2011,
Enterprise Development
15.0 in 2013, 15.0 in 2012, 15.0 in 2011,
5.0
Socio-Economic Development
5.0 in 2013, 5.0 in 2012, 5.0 in 2011,
68.83
BBBEE Score
66.3 in 2013, 72.8 in 2012, 75.9 in 2011,
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.
Social and Ethics Committee Report
for the year ended 28 December 2014
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:
•
•
•
•
•
•
•
•
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 Langeni
Chairperson of the Social and Ethics Committee
2 April 2015
104 Our performance
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.
18,000
face-to-face interviews with customers
Supplier advocacy:
494
35
Relationship
capital
suppliers profiled on
Direct feedback from
different environmental
indicators since 2011.
26,000
employees
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 stakeholders
Responding to Stakeholder Feedback
Our 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.
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 managementlead 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.
106 Our performance
Relationship capital continued
What we learned from our Stakeholders
Our various engagement activities
26,000
permanent and nonpermanent employees
completed the 2014
BUA-Massmart Employee
Engagement
Employee
feedback
18,000
face-to-face interviews
with customers were
conducted on topics ranging
from satisfaction and trust to
e-commerce trends.
Customer
feedback
330
suppliers completed the
supplier relationship survey.
It covered distribution, store
operations and merchant
relations.
494
suppliers
profiled on
35 different
environmental
indicators since
2011.
Supplier
feedback
Our stakeholders’ responses
Employees are satisfied with
the level of support they
receive from managers and feel
empowered to make decisions
in the workplace.
What we need to do better
They have indicated that
more active engagement
in career planning is
needed.
Our relationships with suppliers
remains positive, in particular,
the ethical practices of our
merchants continue to be highly
regarded by our suppliers.
Our supplier called for us
to respond more rapidly
to new opportunities.
Our relationships with suppliers
remains positive, in particular,
the ethical practices of our
merchants continue to be highly
regarded by our suppliers.
Our supplier called for us
to respond more rapidly
to new opportunities.
5,079*
Number of customer
complaints involving
product quality (not safety
related) or warranty claims
The period has seen a
declining trend in our
complaints which could
be related to improved
consumer protection
practices in the business
5,499 in 2013, 6,110 in 2012
Supplier
advocacy
Attended by The Black
Management Forum; South
African Human Rights
Commission; National African
Federated Chamber of
Commerce; Foodbank;
Socio-economic
National Business Initiatives;
development
South African NGO Coalition
and the South African Foodlab.
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 Environmental
Society of South Africa.
workshop
Our suppliers have made
respectable progress in driving
innovation and piloting
environmentally-focused
product improvement initiatives.
More effort needs to
be invested in driving
climate change impact
mitigation initiatives.
2,093
Number of customer
promotional claims,
insufficient stock or
marketing errors
The period has seen a
declining trend in our
complaints which could
be related to improved
consumer protection
practices in the business
3,318 in 2013, 2,704 in 2012
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.
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
268
suppliers
participated
in the recent
environmental
advocacy
survey.
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
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.
39
Number of customer
product liability claims
and product safety claims
The increasing
trend is currently
being investigated
to understand the
circumstances thereof.
32
Number of Product Recalls
in Food and Liquor
Indicative of a higher
amount of product
testing and higher
internal standards.
21 in 2013, 22 in 2012
60
Number of Product Recalls
in General Merchandise
and Home Improvement
Increase is due to the
application of more
stringent product safety
standards and an increase
in testing rates.
45 in 2013, 31 in 2012
2,065
Random product testing
provides a basis for
Number of random product ensuring product safety.
tests conducted on private The increased testing
label products
rate is indicative of a
heightened focus in
2,426 in 2013, 1,269 in 2012
this area.
138 in 2013, 24 in 2012
103
Number of complaints
at national consumer
commission / tribunal
29 in 2013, 122 in 2012
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.
*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.
108 Our performance
Waste management:
24,000
Massmart defines natural
capital as our commitment
to collectively reduce our
environmental footprint and
to enable sustainable supply
chain and consumerism.
additional tons of waste diverted from landfill
Energy efficiency:
First new generation
Builders Warehouse
launched with LED
sales floor lighting
Water conservation:
7,750kl
harvested across 75 sites
Operational cost avoidance:
R52 million
delivered by energy saving initiatives
Recycling:
74%
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.
74% of all Massmart
stores recycling and
separating waste
JSE Socially Responsible
Investment Index
In 2014, Massmart achieved ‘best practice’
status in the area of environmental performance
and climate change
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 efficiency
By 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’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 powerpurchase model, will therefore be our key focus for the future.
Water efficiency
In 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.
110 Our performance
Natural capital continued
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 advocacy
Massmart
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 Index
Massmart 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.
Helping consumers to recycle e-waste
Eco-label advocacy
Rapidly 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.
In 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.
Climate change and environmental performance indicators
0.59
Estimated water
consumption (KL/m2)
1.7 in 2013, 2.6 in 2012,
2.6 in 2011, 1.6 in 2010
We continue to refine
our water reporting,
this process has
revealed that we
have overestimated
our water intensity in
previous years
Purchased energy
consumption (kWh/GLA)
209 in 2013, 184 in 2012,
178 in 2011, 181 in 2010
Decreased intensity
can be attributed
to the energy
efficiency initiatives
implemented across
our formats
203.53
0.70
Scope 1 emissions
intensity (CO2/Rm)
0.6 in 2013, 0.4 in 2012,
0.5 in 2011, 0.4 in 2010
0.03
Scope 1 emissions
intensity (CO2/GLA)
0.03 in 2013, 0.02 in 2012,
0.02 in 2011, 0.01 in 2010
4.77
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
Scope 2 emissions
intensity (CO2/Rm)
5.3 in 2013, 5.0 in 2012,
5.3 in 2011, 5.6 in 2010
0.21
Scope 2 emissions
intensity (CO2/GLA)
0.21 in 2013, 0.18 in 2012,
0.18 in 2011, 0.19 in 2010
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.
For more information on our natural capital
03 Transparency and
accountability
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.
114
Our assessment of the principles
of King III
115
Our Board
116
Our Board committees
118
Board and committee attendance
119
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/kingiii
Massmart’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.
Our assessment of the principles of King III
The purpose of King III
The 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.
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.
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.
Not applied
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.
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.
Partially applied
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.
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.
Partially applied
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 subjectspecific policies and procedures. The General Counsel reports to the Board all significant
legal exposures and disputes within the Group.
Our Board
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 nonExecutive 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:
• 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.
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.
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.
Board process and evaluation
The 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.
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 selfassessments 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.
Our Board committees
Board and committee attendance
The table below reflects the Board Committee members’
meeting attendance for the 52 weeks ended December 2014
Nomination Committee
Meets 4 times per year
• Assessment, recruitment and
nomination of new executive and nonexecutive 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.
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.
Kuseni Dlamini,
Shelley Broader, Chris Seabrooke
Chris Seabrooke,
Norman Gray, Lulu Gwagwa,
Guy Hayward, Phumzile Langeni,
Mike Spivey, Johannes van Lierop*
E
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*
Remuneration Committee
• Designing, monitoring and
communicating the Group’s
remuneration policies.
• Considering and approving executive
remuneration including short- and longterm incentives.
Chris Seabrooke,
Shelley Broader, Kuseni Dlamini
N
R
Status / Position
SE
Social and Ethics Committee
Meets twice per year
• Assists the Group with its responsibility
A
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
Audit Committee
Global Compact Principles and the OECD
recommendations concerning corruption.
• Overseeing the effectiveness of the
• Considers the Group’s contribution to the
Group’s internal control systems.
• Reviewing the scope and effectiveness social and economic development within
our communities.
of the external and internal audit
• Monitoring the Group’s activities
functions.
relating to labour and employment, the
• Ensuring that adequate accounting
environment, health and public safety, and
records have been maintained.
consumer relationships.
• Ensuring the appropriate accounting
policies have been adopted and
Phumzile Langeni ,
consistently applied.
Guy Hayward, JP Suarez
• 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
* Ilan Zwarenstein resigned as Group
FD with effect from 12 March 2015,
at which time Johannes van Lierop
was appointed as CFO of Massmart.
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.
AGM
Audit
Risk
Nomination
Remuneration
Social and
Ethics
Board Members
K Dlamini1
MJ Lamberti2
CS Seabrooke
S Broader3
D Cheesewright4
A Clarke3
JA Davis4
NN Gwagwa
GRC Hayward5
M
Board
P Langeni
GM Pattison5
JP Suarez
I Zwarenstein6
Independent
non-Executive
Independent
non-Executive
Independent
non-Executive
Non-Executive
Non-Executive
Non-Executive
Non-Executive
Independent
non-Executive
Executive
Independent
non-Executive
Executive
Non-Executive
Executive
3/3C
1/1
-
-
3/3C
3/3
-
1/1C
-
1/1
1/1
1/1C
1/1
-
4/4
2/2
0/2
1/2
2/2
1/1C
0/1
1/1
3/3C
2/2*
1/1*
2/2C
1/1*
1/1*
4/4
2/2
0/2
1/1*
4/4C
2/2
0/2
1/2*
2/2*
-
4/4
4/4
1/1
1/1
3/3
3/3*
2/2
2/2
1/1*
4/4*
4/4*
1/1
4/4
2/4
3/4
4/4
1/1
1/1
0/1
1/1
3/3
3/3*
2/2
2/2
1/1*
1/1*
1/1*
1/4*
1/4*
-
2/2C
0/1
1/2
-
-
-
1/1*
2/2*
-
-
1/2*
-
1/1*
3/3*
2/2
-
-
-
-
-
-
-
-
-
2/2*
4/4*
4/4*
1/1*
1/1*
3/3*
3/3*
2/2*
2/2
4/4*
4/4*
2/2*
1/2*
-
-
-
1/1
-
-
-
-
-
-
1/1
-
-
-
Management
T Doorasamy
N Gray
B Leroni
P Maphoshe
P Sigsworth
M Spivey
L Walters7
J Wilford7
Chief Compliance
Officer
Chief Audit
Executive
Corporate Affairs
Executive
Human Capital
Executive
Company Secretary
General Counsel
Divisional Chief
Executive Massbuild
Financial Director
Masswarehouse
CChairperson
*Invitee
1 Appointed on 10 April 2014 and as such was only invited to meetings post that date in the 2014 financial year
2 Resigned on 10 April 2014 and as such was only invited to meetings prior to that date in the 2014 financial year
3 Appointed on 16 July 2014 and as such was only invited to meetings post that date in the 2014 financial year
4 Resigned on 16 July 2014 and as such was only invited to meetings prior to that date in the 2014 financial year
5Following Grant Pattison’s resignation as CEO, Guy Hayward, his successor, was appointed to the Social and Ethics Committee
with effect from 1 June 2014
6Ilan Zwarenstein resigned as Group FD on 12 March 2015, at which time Johannes van Lierop was appointed as CFO of Massmart
7 At the end of their rotation, a decision was made that divisional participation in the Risk Committees was no longer necessary
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.
04 Shareholder
information
Notice of AGM
122
Schedule 1 - Proposed
amendments to Memorandum
of Incorporation
128
Form of proxy
129
Notes to the form of proxy
130
Notice of the Annual General Meeting
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
1.3such 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 business
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.
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
Ordinary resolution number 7
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
“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.”
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 7 for it to be adopted.
“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.”
“Resolved that Andy Clarke, who resigns as required by the
Memorandum of Incorporation and has offered himself for reelection, be and is hereby re-elected to the Board of Directors
of the Company.”
“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.”
“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.”
“Resolved that Phumzile Langeni, who retires by rotation
and has offered herself for re-election, be and is hereby reelected to the Board of Directors of the Company.”
“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.”
“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)
8.2Lulu Gwagwa
8.3Phumzile Langeni*
*Subject to her re-election as Director pursuant to ordinary
resolution number 5.
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.
“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:
9.1the securities shall be of a class already in issue, or
convertible into a class already in issue;
9.2the 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:
9.3.1any 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
9.3.2in 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;
9.4the 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;
9.5the 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
9.6once 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.
“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 resolutions
Special 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:
1.1the 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;
1.2repurchases 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);
Notice of the Annual General Meeting continued
1.3repurchases 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;
1.5the Company may only appoint one agent, at any point
in time, to effect the repurchases on the Company’s
behalf;
1.6neither 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;
1.7an 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
1.8a 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 Directors
In 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 longterm 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
“Resolved, as a special resolution, that the following
Directors’ remuneration (payable to the applicable nonExecutive 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:
R
2.1 Chairman of the Board
2015
2014
1,200,000
871,000
2.2 Deputy Chairman
625,000
625,000
2.3Independent
non-Executive Directors
275,000
259,000
2.4 Committee Chairpersons
252,000
252,000
2.5 Committee Members
128,000
120,000
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.
“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.”
exercised on this resolution must be cast in favour of special
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 interrelated 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 continued
4.1
“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.”
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
‘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.”
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 4
The 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.
5.1
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.”
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
‘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.”
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 5
The 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
General
Identification, voting and proxies
Shareholders are entitled to attend, speak and vote at the
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 info@
massmart.co.za 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 Secretary
2 April 2015
Schedule 1 – Proposed amendments
to Memorandum of Incorporation
Introduction and rationale
The 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 1
The 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 amendment
The 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.
Proposed amendment 2
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.”
The 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.
The Memorandum of Incorporation of the Company
is amended by the insertion of a new clause 24.11 therein
which reads as follows:
“24.11All 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:
24.11.1the resolutions proposed at the meeting;
24.11.2the 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);
24.11.3the 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
24.11.5to 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.”
The 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:
“27Restriction 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:
27.1a change of name of the Company;
27.2resolutions in respect of odd-lot offers as
contemplated in clause 20;
27.3an increase in the number of authorised Shares; and
27.4approval of any amendment to this Memorandum
of Incorporation,
and apart from the above, all resolutions of Shareholders
may only be passed at general meetings.”
Schedule 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.
Form of proxy
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 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)
holders of
1.
2.
being the
ordinary shares/‘B’ preference shares, hereby appoint (see note 3),
or failing him/her,
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)
For
Against Abstain
OS PS OS PS OS PS
Ordinary Resolutions
1. Re-election of Shelley Broader to the Board of Directors
2. Re-election of Andy Clarke to the Board of Directors
3. 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 Directors
6. Re-election of JP Suarez to the Board of Directors
7. Election of Ernst & Young Inc. as the Company’s auditors
8. Appointment of the Audit Committee members:
8.1 Chris Seabrooke
8.2 Lulu Gwagwa
8.3 Phumzile Langeni
9. Authorisation for the Directors to issue ordinary shares for cash, not exceeding 5% of the shares in issue
10.Endorsement of the Company’s remuneration policy
Special Resolutions
1. 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 Board
2.2 Deputy Chairman
2.3 Independent non-Executive Directors
2.4 Committee Chairpersons
2.5 Committee Members
3. Authorisation to provide financial assistance
4.1Authorisation by ordinary shareholders for the Company to amend its
N/A
N/A
N/A
Memorandum of Incorporation
4.2Authorisation by ‘B’ preference shareholders for the Company to amend its
N/A
N/A
N/A
Memorandum of Incorporation
5.1Authorisation by ordinary shareholders for the Company to ratify and adopt the consolidated
N/A
N/A
N/A
revised Memorandum of Incorporation
5.2Authorisation by ‘B’ preference shareholders for the Company to ratify and adopt the
N/A
N/A
N/A
consolidated revised Memorandum of Incorporation
(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
Signature
2015
Assisted by me (where applicable)
Completed forms of proxy must be lodged with Computershare Investor Services Proprietary Limited, not less than 48 (fortyeight) 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.
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
Transfer secretaries
Computershare Investor Services Proprietary Limited
Ground Floor
70 Marshall Street
Johannesburg 2011
PO Box 61051, Marshalltown 2107
Telephone 011 370 5000
Call Centre 086 110 09818
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
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
Employment costs
LSM
Includes the IFRS 2 Share-based Payment
expense.
The 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.
Net finance costs
Interest received less interest paid.
EBITDA
Earnings before interest, taxation,
depreciation, amortisation and asset
impairments.
EBITDAR
Earnings before interest, taxation,
depreciation, amortisation, asset
impairments and occupancy costs.
Trading profit before interest and taxation
Earnings 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 sales
A 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 store
Sales
Number of stores
Sales for Shield are excluded as they do not
have stores.
DC
Distribution centre
Return on average shareholders’ equity (%)
Year
In 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.
Headline earnings
Average of opening and closing equity
attributable to equity holders of the parent
Return on capital employed (%)
Operating profit before
asset impairments
Average 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 (%)
Sales per FTE
Sales
FTEs
Sales per trading m2
Sales
Trading m2
Sales for Shield are excluded as they do not
have stores.
Net asset turn
Sales
Net assets
The Group defines net assets as total equity
and non-current interest-bearing liabilities.
Gross margin (%)
Gross profit
Sales
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 interestbearing liabilities.
Cash earnings cover
Operating cash flow per share
Headline earnings per share
Operating margin (%)
Operating profit
Sales
Net cash to total equity (%)
Cash and cash equivalents,
net of borrowings
Total equity at the end
of the financial year
Trading profit before interest and taxation
margin (%)
Trading profit before
interest and taxation
Sales
Current ratio
Current assets
Current liabilities
EBITDA margin (%)
EBITDA
Sales
Quick ratio
Effective tax rate (%)
Taxation
Profit before tax
The tax rate reconciliation can be found on page 56.
Current assets excluding inventory
Current liabilities
Glossary / definitions
Net cash flow from operating activities,
excludes dividends paid.
Diluted headline earnings per share
Headline earnings
Diluted weighted average number
of shares in issue
Net asset value per share
Closing equity attributable to equity
holders of the parent
Total number of shares in issue
Attributable earnings per share
Earnings attributable to the equity
holders of the parent
Weighted average number of
shares in issue
Return on equity (%)
Headline earnings excluding
foreign exchange
Average ordinary shareholders equity
Dividends/distribution per share
Cash generated from operations before
working capital movements per share
Dividend cover
Cash generated from operations before
working capital movements
Weighted average number of
shares in issue
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
Company Secretary
P Sigsworth, CA(SA)
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.
Postal address
Private Bag X4, Sunninghill, 2157, South Africa
DEC
Interim and final dividend per share
MAY
JAN
Current and non-current liabilities
Total equity
Operating profit before interest and tax
excluding foreign exchange
Sales
APR
Total liabilities to total equity
Return on sales (%)
Distribution to shareholders
Total number of shares in issue
MAR
Sales
Total assets
FEB
Asset turn
NOV
Trade payables excluding VAT
Total cost of sales multiplied
by the number of days traded in the
financial year
OCT
Payable days
SEP
Total cost of sales
Inventory
Net cash flow from operating activities
Weighted average number of shares
in issue
AUG
Inventory turn
Headline earnings
Weighted average number
of shares in issue
JUL
Inventory
Total cost of sales multiplied
by the number of days traded in the
financial year
Operating cash flow per share
JUN
Inventory days
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.
Registered office
Massmart House, 16 Peltier Drive
Sunninghill Ext 6, Sandton, 2146, 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 secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
Principal bankers
ABSA Bank Limited
First National Bank (A division of FirstRand Bank Limited)
Investec Bank Limited
Nedbank Group Limited
The Standard Bank of South Africa Limited
•
•
•
•
•
•
•
Stock exchange information
at 24 December 2014
•
•
•
•
Shares in issue (millions)
Shares traded (millions)
Percentage of shares traded (%)
Earnings yield (%)
Dividends yield (%)
Market capitalisation (Rm)
Closing share price South African (Rand)
217.1
88.0
40.5
3.5
2.9
31,249
143.93
Auditors
Ernst & Young Inc.
Corporate law advisors
Cliffe Dekker Hofmeyr
Edward Nathan Sonnenbergs
Lead sponsor
Deutsche Securities (SA) Proprietary Limited
www.massmart.co.za
www.massmart.co.za/iar2014
Massmart values your feedback
Do you have any questions or suggestions
regarding Massmart’s Integrated Annual Report 2014?
Email: [email protected]

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