Dedicated to adding value

Transcription

1 Dedicated to adding value Integrated Annual Report for the year ended December 2014

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3 2 Massmart Integrated Annual Report Chairman s overview On behalf of the Massmart Board of Directors, I am proud to present Massmart s 2014 Integrated Annual Report. We have a diverse range of stakeholders including shareholders, customers, employees, suppliers and communities, with varied information needs. This Integrated Annual Report is our primary report to stakeholders and is aimed at addressing our stakeholders requirements. Kuseni Dlamini Chairman Scope of the Report The scope of the Massmart Integrated Annual Report includes the Group s four divisions and key functions. With respect to comparability, all significant items are reported in a consistent manner with the previous financial year, with no major restatements. It must be noted that the prior year was a 53-week period and for the sake of meaningful comparison, the pro-forma 52-week period is included. Where applicable, this report has been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), specifically IAS 34 Interim Financial Reporting, Interpretations issued by the International Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listing Requirements and the requirements of the Companies Act, No. 71 of South Africa (as amended), as well as the King Code of Governance Principles (King III). Content of the 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: 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. Assurance 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: 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 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: 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.

4 4 Massmart Integrated Annual Report What s on our website Contents In addition to the content that appears in this book, the following can be found online: Group Annual Financial Statements and notes Company Annual Financial Statements and notes Five year review These articles are all included in the Our performance section, under Financial capital Full assessment of the application of King III The Audit committee The Risk committee The Nomination committee The Executive committee Compliance, transparency and accountability These articles are all included in the Transparency and accountability section Energy efficiencies deliver results p108 Marketside is launched p95 R41.5 million to support socio-economic development p98 CFO Review p46 Directors report p71 Auditor s report p75 Cambridge Food voted most trusted Massmart brand p105 Our business at a glance Our performance highlights 6 Mission, vision and investment proposition 8 Our business model 10 Our divisional reviews 12 Our divisional strategies map 28 Managing our risk Leadership review Message from our Chairman 34 Our CEO s letter to our stakeholders 36 Our Board 40 Our Executive Committee Our performance Financial and Manufactured capital 46 Human capital 78 Intellectual capital 92 Social capital 96 Relationship capital 104 Natural capital Transparency and accountability Corporate Governance 114 Our assessment of the principles of King III 115 Our Board Shareholder information Notice of Annual General Meeting 122 Form of proxy 129 Use this icon to refer to articles online Use this icon to refer to articles in this report This icon highlights definitions These icons refer to the capitals that we report to: Visit our annual report website at 24 SMMEs in manufacturing on board p99 Online offerings perform p94 Financial Manufactured Human Intellectual Social and Relationship Natural

5 6 Our business at a glance Massmart Integrated Annual Report Our performance highlights Sales (Rm) 78,173.2 (70,790.7 in 2013) Number of stores 392 (376 in 2013) Dividend per share (cents): (421.0 in 2013) Active suppliers 8,372 (8,000 in 2013) Number of employees 47,209 (43,876 in 2013) Earnings before interest, tax, depreciation, amortisation and impairments (Rm) 2,887.1 (2,706.4 in 2013) Operating profit before foreign exchange movements and interest (Rm) 2,015.9 (1,933.7 in 2013) Opportunity: Wide variety of customers ranging from LSM 2-10 Estimated annual per capita training investment (permanent employees) R3,778.7 (R 2,935.0 in 2013) Headline EPS before forex (cents): (545.2 in 2013) Makro online had one million active visitors in 30 days to mid-december Private label as a percentage of total sales 9.2% (9.2% in 2013) Estimated annualised purchased energy consumption intensity (KWH/GLA)/m 2 ) (209.0 in 2013) Estimated water consumption (kl/m 2 ) 0.9 (1.7 in 2013) BBBEE: Employment equity score 10.5 (10.2 in 2013) Headline earnings before forex (Rm) 1,141.4 (1,182.7 in 2013) Opportunity: Disruption in electricity supply impacts negatively on foot traffic in shopping centres, but could benefit our stand-alone stores 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 more detail on definitions and formulas

6 8 Our business at a glance Massmart Integrated Annual Report Our business at a glance Our mission Our vision Our unique investment proposition 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 sub- Saharan Africa. Massmart is a South African-based, globally competitive, regionally managed Group, invested in a portfolio of differentiated, complementary, focused wholesale and retail formats, each reliant on high volumes and operational excellence as the foundation of price leadership, in the distribution of mainly branded consumer goods for cash. The Group actively seeks the continual improvement of performance in the portfolio and its parts, through strategic and structural clarity, high market shares, excellent management, principle-driven ethical leadership, cost-effective technology and the sharing or agglomeration of capabilities, knowledge, resources, influence and information. To this end, thought-leadership, individual and collective performance, and collaboration throughout the Group are appropriately rewarded, with executive management incentivised predominantly on Group performance. Our customers will regard Massmart s wholesale and retail formats as their first choice when buying those categories of merchandise offered by these formats; Our community including Government, will regard Massmart as a socially accountable corporation; Our employees will regard Massmart as the preferred employer in the retail industry; Our investors will regard Massmart as a portfolio rendering superior returns relative to the JSE Retail sector; and Our suppliers will regard Massmart as a valued partner in accessing and understanding their end-consumers. Our Board is responsible for directing the Group towards the achievement of the Massmart vision and mission and whilst doing so are also accountable to certain governance frameworks. Our business is driven by a focus to meet the expectations of all of our stakeholders. In doing so we are aware that we must embrace the requirements of the relevant governance and regulatory frameworks, as well as corporate best practice. Strategic and structural clarity Is achieved through four focused Divisions, each a leader in its target market and business model, where additional value is created through inter-divisional collaboration and behaviour is aligned through short- and long-term incentives, while adhering strictly to organic and acquisitive growth criteria. Management depth, quality and diversity The 48 Group and Divisional Executives hold 76 qualifications, of which 57 are degrees; are an average age of 47; and 15% are African, Coloured or Indian. Diversification Merchandise Massmart is the second largest distributor of consumer goods in Africa, and is the leading retailer of general merchandise, liquor, home improvement and building supplies, and the leading food wholesaler; Formats trading through a variety of formats; Customers serving all mass-market consumers; Geography operating in 12 sub-saharan African countries. Low risk Earnings underpinned by high cash generation; sensible financial leverage; and conservative through-the-cycle store opening plans. Growth Continuously improving the productivity of capital, space and labour; Strengthening Supply Chain activities; Up-weighting Group private label efforts; Complementing store growth through targeted acquisitions and greenfield opportunities; and Expansion into Food Retail through Cambridge Food, Food in Game and Makro Fresh. Good governance Board composition two Executive and seven non- Executive directors, four of whom are independent; Recognised record of good disclosure; Compliant with King III and the JSE SRII; Member of the Ethics Institute of Southern Africa; and Founding member of the Institute of Directors.

7 10 Our business at a glance Massmart Integrated Annual Report How we structure our business 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. Dedicated to adding value Operational excellence 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. The business model operates through the following four units: Massmart Holdings performs the Group management role and defines the strategic and broad operating principles that guide the Group s activities. consists of formal trading and functional forums where ideas on collaboration across Divisions are shared. General Merchandise Discounter and Food Retailer Warehouse Club Growing talent 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. Massmart Divisions 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. report directly to the Chief Executive Officer and comprise Massdiscounters, Masswarehouse, Massbuild and Masscash. Home Improvement Retailer and Building Materials supplier 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. This has several advantages: As a result we: The framework guarantees consistent compliance with the best governance standards and national legislative requirements. It commits each Division to implementing Massmart s core strategy of being a high-volume, low-margin distributor of quality branded consumer goods for cash, and ensures expansion plans add net value to the Group. Divisions are enabled to extract greater value from being part of a larger Group with greater access to goods and services or negotiating better terms and rebates with suppliers and service providers. The Divisions are differentiated as retail or wholesale formats that address different customer and market profiles. Decentralised decision-making is given effect through a Group Executive Committee reporting to the Group Chief Executive Officer (CEO). The Committee s members comprise the CEOs of Massmart s four operating Divisions and a Group Executive from each of Massmart Holdings, Channel and Shared Services. Massmart Holdings Executive Directors are also represented on each of the four Divisional boards as non-executive directors. Grow sales, grow profitability and increase customer loyalty Our desired outcomes: Embrace the requirements of the relevant governance and regulatory frameworks Customers advocate Massmart banners as must-go-to shopping destinations Advocate more sustainable practices and product choices in all the business decisions we make Investors and suppliers advocate Massmart as a must have retail partner Be the employer of choice Government, academia and civil society advocate Massmart as a must-be-like social and environmental leader For more information on good business page 114, Transparency and accountability For more information on operational excellence pages 12-27, Our divisional reviews

8 12 Our business at a glance Massmart Integrated Annual Report Our divisional reviews Merchandise proposition: General Merchandise discounter and Food retailer 153 stores (143 stores in 2013) 14,214 full-time employees (12,870 in 2013) 5-10 Game 8-10 DionWired Geographic presence: South Africa, Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda, Zambia Massdiscounters operates through two retail formats: Game and DionWired. 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. 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 out of 15 was achieved on Employment Equity. Maximum scores were achieved on both CSI and Enterprise Development. 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 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

9 14 Our business at a glance Massmart Integrated Annual Report Our divisional reviews continued Financial performance 23.0% 23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash 8.8% 8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash Product inflation 3.1% 0.5% in stores Key sales drivers Sales Product deflation/inflation Price/value perception Interest rates Consumer confidence and disposable income New stores African economic strength R17,955.2m Up from R16,294.2m in 2013 Trading profit before interest and tax R180.7m Down from R326.9m in 2013 Total assets R7,985.5m increased from R7,718.3million in Total liabilities R7,820.9m increased from R7,522.2 million in Net capital expenditure R542.2m Up by 10.7% increased from R489.7 million in Increase in trading space 6,5% Trading area 506,188 m 2 Trading area 475,331 m 2 in 2013 DC space 178,488 m 2 DC space 178,488 m 2 in 2013 Divisional strategy 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. Investing in the environment 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.

10 16 Our business at a glance Massmart Integrated Annual Report Our divisional reviews continued Merchandise proposition: 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 Makro primary customers 2-8 Makro secondary customers (via trade) Geographic presence: South Africa 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. The Fruitspot is an established wholesaler and distributor of fresh and cut fruit and vegetables, and was bought by Makro in Value proposition 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. 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) Highlights Strong profit growth now generates more than R1 billion profit before interest and tax. Makro.co.za General Merchandise and Liquor online offering launched Continued share gains as we improve our Food retail offering Achievement of Payment Card Industry DSS compliance certification, to ensure on-going secure credit card processing Introduction of the Baby category Improvements Fresh fruit and vegetable offering across most stores (16 stores) Working capital and aged inventory levels improved across all 3 merchandise divisions Mature stores profitability Employment Equity profile of executive and senior management teams Use of customer and market data to better optimise promotional and pricing activity Challenges Continued aggressive trading practices from independent wholesale competitors Availability of real estate for new stores 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

11 18 Our business at a glance Massmart Integrated Annual Report Our divisional reviews continued Financial performance 27.6% 50.6% Sales R21,554.8m Up from R19,271.7m in % Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash Trading profit before interest and tax R1,044.3m Up from R939.5m in % Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash Product inflation 5.5% 2.1% in stores Key sales drivers Product deflation/inflation Price/value perception Interest rates Consumer confidence and disposable income New stores maturing Total assets R7,689m increased from R7,166.8 million in Total liabilities R7,312.1m increased from R6,587.8 million in Net capital expenditure R70.3m Down by 79.6% decreased from R344.8 million in No change in trading space no change Trading area 195,794 m 2 Trading area 195,794 m 2 in 2013 DC space 51,300 m 2 DC space 51,300 m 2 in 2013 Divisional Strategy: The 2015 strategic focus is to bring new and young stores to optimal maturity, while ensuring stores leverage scale, and drive down costs. We will do this by: Improving fulfilment capabilities, to better serve online and commercial customers Investing in the instore and online customer experience, whilst balancing the need to achieve scale and operate at lowest possible cost per transaction Continuing to improve the Food offering to retail customers, and deepen the Fresh and Butchery offering Growing market share in Food and Liquor Optimising working capital through replenishment and supply chain investments Driving value through data-led insights into customer behaviours and needs Investing in technology to better serve customers, manage our supply chain and coordinate commercial sales and fulfilment Future Outlook: Makro remains focused on bringing all customer types - retail, wholesale and commercial - the products and brands which they know and trust, at prices that save them money so that they can live better and trade more profitably. At Fruitspot we will grow the business by ensuring it becomes a supplier of choice to the retail and hospitality industry in Gauteng and in the Group. Masswarehouse s omni-channel strategy is underway and growing. Our mobile solution for commercial customers has been well received. The Makro locker pilot programme is in the market and will be assessed for future extension opportunities. 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 Investing in our human resources 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.

12 20 Our business at a glance Massmart Integrated Annual Report Our divisional reviews continued Merchandise proposition: Home Improvement retailer and Building Materials supplier 100 stores (92 stores in 2013) 10,187 full-time employees (8,882 in 2013) 5-10 Builders Warehouse 5-10 Builders Express 4-8 Builders Trade Depot 2-6 Builders Superstore Geographic presence: South Africa, Botswana, Mozambique 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: 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 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. Builders Superstores focus on underserved markets around the country. The stores are situated in dense residential, township, rural and developing areas, and conveniently located near commuter nodes. Builders 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. Value proposition 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. Builders Trade Depot s value proposition to customers in both the residential and commercial property markets, is our unique ability to consistently deliver an appropriate, professional range at highly competitive prices underpinned by trade credit and combined with exceptional contractor support services in a relationship-driven environment. Builders Superstore focuses on the lower-income population. Their range of products and location of stores make it a favourable destination. 5 BBBEE score (Level 5 in 2013) Massbuild s BBBEE score for 2014 is estimated to be Highlights Twelve new stores opened in 2014, of which four were relocations, including the flagship Builders Warehouse Rivonia store and Builders Warehouse Matola, the first full-size Builders Warehouse store in Mozambique, both of which have achieved exceptional results. 553 new jobs created in 2014 Continued growth in operating profit in Builders Warehouse and Builders Express Improvements Improvements in productivity and transport contributed to savings in the Gauteng Distribution Centre Conversion of the Western Cape facility into a regional distribution centre resulted in a significantly higher throughput Challenges The economic environment and slowing government expenditure on infrastructure Availability of real estate for new stores 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, Johannes van Lierop Non-executive

13 22 Our business at a glance Massmart Integrated Annual Report Our divisional reviews continued Financial performance 13.8% 26.1% Sales R10,822.8m Up from R9,441.3m in % Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash Trading profit before interest and tax R537.6m Up from R467.6m in % Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash Product inflation 5.9% 4.1% in stores Key sales drivers Residential property prices and housing growth Price/value perception Interest rates Consumer confidence and disposable income New stores Total assets R5,027.7m decreased from R5,212 million in Total liabilities R4,730.6m decreased from R4,857.4 million in Net capital expenditure R296.8m Up by 7.9% increased from R275.1 million in Increase in trading space 6,3% Trading area 436,538 m 2 Trading area 410,546 m 2 in 2913 DC space 61,733 m 2 DC space 61,733 m 2 in 2013 Divisional strategy: New store roll-out; grow South Africa and Africa store footprint. Optimise Builders Trade Depot by focussing on inventory range and leveraging IT platform. Optimise Superstore offering and grow the brand. Extend and optimise the supply chain network. Builders single brand alignment rollout rebranding effort in Builders Trade Depot and Builders Express. Focus on Trade Customer and Business-to-Business Private label expansion: continue with roll out of key programmes. Omni-channel. Future outlook: Massbuild has now entered an accelerated growth phase with the aim of increasing its footprint by opening new stores in South Africa and southern Africa. Furthermore the division is intent on increasing its market penetration through its fourth format, Builders Superstore. Massbuild s objective remains to be South Africa s market leader in Home Improvement, DIY and Building Materials. Investing in our community 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 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 Mayibuye Primary School in Tembisa received a donation of 120 desks and chairs. Protea Glen and Illinge Secondary Schools each received a donation of R50,000 toward their construction requirements. Another R50,000 was donated to Cosmo City West Primary School to be used towards their kitchen makeover. Investing in our environment 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. Investing in our human resources 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 New mentees will be added to the programme annually.

14 24 Our business at a glance Massmart Integrated Annual Report Our divisional reviews continued WHOLESALE & RETAIL Merchandise proposition: Food Wholesaler, Retailer and buying association 73 Wholesale stores (75 stores in 2013) 47 Retail stores (47 stores in 2013) 12,863 full-time employees (12,238 in 2013) 2-5 Wholesale 2-6 Retail Geographic presence: South Africa, Botswana, Lesotho, Mozambique, Namibia, Swaziland Masscash consists of a Wholesale Division with cash and carry food and cosmetics businesses, and a Retail Division which consists of food outlets which target the lower LSM groups. Our Wholesale Division consists of CBW, Jumbo Cash and Carry, Trident and Shield. CBW and Trident wholesale food, liquor, groceries and cosmetics in bulk to independent dealers, Government feeding schemes, franchise members, small traders and hawkers in peri-urban and rural areas within southern Africa. Jumbo sells mainly cosmetics, toiletries and 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. 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. Value proposition 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. On the retail side, outlets are consolidated under the Cambridge Food or Rhino brands. Cambridge Food s mission is to help its customers save money every day so that they can live better. Food Retail service departments, consisting of an on-site bakery, butchery and fresh fruit and vegetable offering form an important component of our Cambridge Food retail offering. 5 Wholesale BBBEE score Level 5 in Retail BBBEE score Cambridge Food s first assessment (Level 5 in 2013) Highlights 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 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 Kwazulu- Natal 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 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, Johannes van Lierop Non-executive

15 26 Our business at a glance Massmart Integrated Annual Report Our divisional reviews continued WHOLESALE & RETAIL Financial performance 35.6% 14.5% Sales R27,840.4m Up from R25,783.5m in % Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash Trading profit before interest and tax R299.1m Up from R260.4m in % Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash Product inflation 4.8% 4.2% in stores Key sales drivers Food inflation, particularly commodities Social grants New stores Rate of employment Total assets R8,529.8m decreased from R8,665.5 million in Total liabilities R7,882m increased from R7,838.6 million in Net capital expenditure R269.9m Up by 40.0% increased from R192.8 million in Increase in trading space 0,3% Trading area 400,775 m 2 Trading area 399,637 m 2 in 2013 DC space 36,654 m 2 DC space 32,292 m 2 in 2013 Divisional strategy 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. Investing in our community 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 Container kitchen donated to the Vosloorus community. Investing in our environment 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%. Retail Variety of energy-saving measures implemented including skylights and LED lights Multiplex refrigeration system, reduces electrical consumption and the heat exchange unit generates hot water for the store Automated monitoring and adjusting of lighting levels to reduce electrical consumption Alarms to minimise energy wastage on fridges Passive ventilation system reduces dependence on air conditioning in-store Investing in our human resources 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

16 28 Our business at a glance Massmart Integrated Annual Report Our divisional strategies map Strategic priorities Divisional strategy 2014 How did we do? New strategic priorities for 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 4 Focus on owning more of our stores South Africa Rest of Africa 137 (129 in 2013) 16 (14 in 2013) Focus on Game SA brand Improve IT and Supply Chain promise lowest prices, focused efficiencies ranges and quality guarantee Continue roll-out of fresh Food Improve in-store shopping Increase Game Liquor stores experience South Africa 19 (19 in 2013) 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 95 (88 in 2013) 5 Grow southern Africa store footprint Optimise Builders Trade Depot Optimise Superstore offering and grow the brand Leverage RDC infrastructure 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 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 Rest of Africa (4 in 2013) Focus on Trade Customers and Business-to-Business 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 2 Builders Superstores: 8 in 2014 (2 in 2013) Opened 6 more low-income Home Improvement stores in South Africa 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 E-commerce Makro online launched April (General Merchandise) and October 2014 (Liquor) Trialling Makro convenience locker access, for later roll-out to SASOL service station forecourts African footprint 33 stores in the Rest of Africa (30 in 2013) 1 4 Owned store sales 30.7% of total sales in 2014 (27.3% in 2013) Focus on owning more of our stores. Retail Food 132 stores with Retail Food (Makro, Game and Cambridge Food) (110 in 2013) Improve profitability 2 Grow Builders and Retail Food in South Africa 3 Grow into Africa 4 Grow online For more information on our strategic priorities page 38 Our CEO s letter to our stakeholders

17 30 Our business at a glance Massmart Integrated Annual Report Managing our risk Maximum 1 1 IMPACT Minimum 9 10 Poor strategic execution Financial impact 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 PROBABILITY 2 3 Talent retention and succession Financial and Operational impact Ongoing area of focus Group CEO / Human Capital Executive responsibility Mitigation This remains a major focus area. The Executive Committee actively monitors the progress, development and possible succession plans for the Top 200 employees, as well as monitoring a further 200 employees. There are in-house education programmes prepared and presented in conjunction with local and international business schools that focus on developing middle and junior executives, and there is an in-house graduate recruitment programme in place. Annual fire-side chats are held with each executive in the Group, which are attended by that person s superior and a third executive. The Group s remuneration policy, incorporating short- and longer-term incentives, is designed to reward significant out-performance. The Share Scheme is intended to act as a retention mechanism Maximum 1 Risk in order of priority Risk Risk after mitigation Competitor attack on our major merchandise categories Financial impact Difficult to predict Group CEO / Divisional CEOs responsibility Mitigation Maintain a relevant and competitive product offering that offers affordable value to our customers. Invest in brand awareness and loyalty. Manage low-cost efficient operations. Ensure suppliers believe that our stores and associated supply chain offer an ideal route to market. Optimise our store locations, and ensure regular store refurbishments and format renewal. Definitions of each risk can be found at Failure to address in-store health and safety issues including store or DC fire Reputational impact Chief Ethics and Compliance Officer / Divisional CEO s responsibility Mitigation 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. Food Safety and Hygiene Financial and Reputational impact Chief Ethics and Compliance Officer s / Divisional CEOs responsibility 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. 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. Insufficient progress with Transformation Reputational impact Group Executive Committee responsibility Mitigation 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. 10 Ineffective cost control Financial and Operational impact Group Executive Committee 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.

18 01 Leadership review 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. Message from our Chairman 34 Our CEO s letter to our stakeholders 36 Our Board 40 Our Executive Committee 42

19 34 Leadership review Massmart Integrated Annual Report Message from our Chairman At the end of what was an eventful year for Massmart, it is an immense privilege to introduce the 2014 Massmart Integrated Annual Report. Massmart adds and delivers sustainable value to our customers, our shareholders, our suppliers and our employees. We achieve this through our deep and relentless focus on operational excellence, good business, sustainable business and growing our talent on an ongoing basis. The business environment over the past year was very difficult and challenging for most businesses, including Massmart. South Africa held its general elections which saw the ruling African National Congress gaining over 60% of the vote and the emergence of a new political party, the Economic Freedom Fighters, which got 6.4% of the vote. The issues of social transformation, service delivery, poverty, unemployment and inequality dominated the election campaign. Global economic growth remained largely anaemic. While the American economy showed signs of recovery, Europe and China, both of whom are major trading partners for South Africa and other African markets where we operate, experienced slowing growth. The impact of this was felt by most of our sub-saharan African markets, where the growth picture was mixed, although encouragingly, still higher than some regions elsewhere in the world. The South African economy experienced an unprecedented wave of protracted strikes with a mining strike that lasted for months and a metal industry strike that took weeks to resolve. The retail sector was impacted directly by these strikes given the systemic importance of both industries to the economy in general and to consumers disposable incomes in particular. South Africa needs a joint effort to create and maintain productive industrial relations that are key to the stability required to grow and expand the economy, create and maintain jobs and promote the country s global competitiveness. This requires strategic and purposeful collaboration between government, business and trade unions, underpinned by a common commitment to make South Africa work for all. The energy situation continued to present another key challenge for the South African economy with load shedding being implemented for the first time since 2008 when the country s energy crisis first began. The stability of the national electricity grid is key to the growth of the economy on a sustained basis. Eskom needs to be stabilised and repositioned for operational efficiency for it to play the pivotal role it has in ensuring reliable supplies of electricity. 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

20 36 Leadership review Massmart Integrated Annual Report Our CEO s letter to our stakeholders The 2014 South African consumer economy was marked by two distinct halves to the year the first was compromised by the five-month labour strike in the Mining sector which rippled, directly and indirectly, into associated service industries and communities. This period was probably also subdued from the after-shocks of the collapse of unsecured credit lending. The second half was noticeably stronger, as seen in the national sales data and reports from South African retailers. This was likely as a result of the absence of a negative, rather than the presence of a new or positive, impetus. Low economic growth, inadequate job creation and persistent inflation remain a pressure point for many South African consumers. 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 non- South African businesses that represent 8.1% of Group sales. Guy Hayward Group CEO Total sales up by 10.4% (R78,173 million) EBIDTA before forex up by 6.7% (R2,887 million) Operating profit before forex and interest up 4.3% (R2,015 million) Financial performance 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 , and an adverse movement in foreign exchange translations, resulted in headline earnings decreasing by 10.2%. Excluding foreign exchange movements, headline earnings declined by 3.5%. Operational highlights Excellent performances from Makro, Builders Warehouse and Builders Express. Achieved through leveraging skills, scale, SAP and supply chain. Profit growth accelerated in the second half Game South Africa - good second half, growing profit however Game Africa declined from weaker economies, new stores and currency devaluations Game Food Retail growth continues: now R3.2 billion; positive impact on General Merchandise sales Margin recovery in Masscash Wholesale through focus on direct distribution and larger stores Great performance by new Builders Warehouse stores in southern Africa High consumer brand affiliation for Cambridge Food; strong trading performance Successful launch of Makro ecommerce site offering General Merchandise and Liquor Divisional operational review Massdiscounters Total sales for the year increased by 10.2%. Comparable sales grew by 4.8% with product inflation of 3.1%. Game South Africa had a better second-half and an especially strong fourth quarter where comparable sales grew by 8.1%. The weak performance for much of the 2014 financial year however, caused pressure on overall profitability resulting in Massdiscounters trading profit before interest and tax decreasing by 44.7%. Game SA s trading profit before interest and tax grew ahead of sales in the second-half of 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 The latter two issues impacted profit by R40 million; most of this in the second-half of 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 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.

21 38 Leadership review Massmart Integrated Annual Report 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%. Comparable sales increased by 9.1% with product inflation of 5.9%. Massbuild s trading profit before interest and tax increased by 15.0%. Builders Warehouse and Builders Express performed exceptionally, and are clearly market leaders in their categories. We are particularly encouraged by the success of our five stores in Botswana and Mozambique. The new store in Maputo, Mozambique opened in July It is enjoying strong trading and as a result we are actively exploring sites in other southern African countries. Builders Trade Depot struggled, likely due to some of the success and dominance of Builders Warehouse and Builders Express. The new Superstore format continues to exceed expectations. We are now committed to expanding this store format beyond the Gauteng province, South Africa. Masscash In the extremely competitive South African Wholesale and Retail Food environments, total sales increased by 8.0%. This was impacted by slowing inflation in our categories. Comparable sales increased by 6.3% with product inflation of 4.8%. Masscash s trading profit before interest and tax increased by 14.9%. Sales growth of 2.7% in our South African Wholesale business was affected by severe challenges at our two largest stores; adjusting for these saw acceptable sales growth of 5.3%. Sales growth in our non-south African Wholesale businesses was 8.0%. We remain excited at the potential of Wholesale and Hybrid formats in southern Africa. Masscash Retail performed very well, reporting comparable sales of 9.7%, improving profitability and strong customer price-perception. Both the Cambridge and Rhino brands receive strong customer support and loyalty. Strategic priorities 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 Net trading space increased by 30,857m² (6.5%) Game 130 stores (11 opened - 2 in Africa, 2 closed) General Merchandise discounter and Food retailer Trades in South Africa, Botswana, Ghana, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda and Zambia DionWired 23 stores (2 opened, 1 closed) Hi-tech retailer Trades in South Africa Trades in South Africa Makro 19 stores (no store changes) Warehouse-club trading in Food, General Merchandise and Liquor Fruitspot Established wholesaler and distributor of fresh and cut fruit and vegetables. Net trading space increased by 25,992m² (6.3%) DIY, Home Improvement and Building Materials Builders Warehouse 35 stores (3 opened, 2 closed - effectively 2 relocations) Trades in South Africa, Botswana and Mozambique Builders Express 41 stores (7 opened - including 3 converted from BTD, 2 closed) Trades in South Africa Builders Trade Depot 16 stores (1 opened, 5 closed and converted to BEX & BSS) Trades in South Africa Builders Superstore 8 stores (6 opened - including 2 converted from BTD) Trades in South Africa Net trading space increased by 1,138m² (0.3%). Wholesale 73 stores (2 closed) Trades in South Africa, Botswana, Lesotho, Mozambique, Namibia and Swaziland Retail 47 stores (3 opened, 3 closed) Trades in South Africa Shield buying association Trades in South Africa, Botswana, Namibia and Swaziland Walmart It is almost five years since we first met Walmart and almost four since its 52% ownership of Massmart formally began in June 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. Transformation 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 and respectively. The Board 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 Ilan has been with Massmart for nine years and was Group Finance Director from 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. 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 He joins Massmart from Bharti Airtel Africa in Kenya where he was CFO from 2011 to 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 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. Conclusion Our appreciation and gratitude is due to all our stakeholders for their contribution and commitment to Massmart during this period. Guy Hayward Chief Executive Officer 2 April 2015

22 40 Leadership review Massmart Integrated Annual Report Our Board The Board of Massmart is responsible for directing the Group towards achieving Massmart s vision and mission. JP Suarez (51) Senior Vice President of Realty Design, Construction and Strategy for Walmart US Appointed 20 June 2011 BA (Hons) (Tufts University) JD (University of Pennsylvania) Guy Hayward (49) Chief Executive Officer Appointed 15 May 2001 BCom, CTA (UCT), CA(SA) E R SE Andy Clarke (51) President and Chief Executive Officer of ASDA Appointed 16 July 2014 Shelley Broader (50) President and Chief Executive Officer of Walmart s EMEA region Appointed 16 July 2014 BA (Washington State University) N M SE Non-independent non-executive Directors Independent non-executive Directors Executive Directors Johannes van Lierop (48) Chief Financial Officer Appointed 12 March 2015 Hotel and Catering Management Degree, Bachelor of Business Economics, RA (Amsterdam) E R Kuseni Dlamini (46) Chairman of the Board Appointed 10 April 2014 BA (Hons) (KZN), MPhil (Oxon) N M Chris Seabrooke (62) Deputy Chairman of the Board Appointed 1 February 2000 BCom, BAcc, MBA, FCMA A M R N Phumzile Langeni (40) Appointed 25 August 2004 BCom (Natal), BCom Hons (UNISA) Dr Nolulamo (Lulu) Gwagwa (56) Appointed 1 November 2006 MSc (KZN), MSc (LSE), PhD (UCL) A Audit SE A R A R E Executive M Remuneration N Nomination R SE Risk Social and Ethics For the complete and detailed CVs of the Board members, please visit

23 42 Leadership review Massmart Integrated Annual Report Our Executive Committee The Massmart Executive Committee is the most senior executive decision-making body in the Group. R SE Risk Social and Ethics Llewellyn Walters (51) Divisional Chief Executive of Massbuild Chairman of the Supply Chain and Africa Forums Appointed 2008 BA, LLB (Wits) Kevin Vyvyan-Day (50) Divisional Chief Executive of Cambridge Food and Chairman of the General Merchandise Forum Appointed 2005 BCom, BAcc (Wits), CA(SA) Llewellyn Steeneveldt (46) Group Commercial Executive Chairman of the Real Estate Committee Chairman of the TIP and Operations Forums Appointed 2009 BSc Eng (Phys Met), GDE (Industrial), MBA Robin Wright (59) Divisional Chief Executive of Massdiscounters Appointed 1998 BCom (Natal), CA(SA) Ilan Zwarenstein (40) Group Finance Director (outgoing) Appointed 2012 BCom, BAcc, CA(SA) Mike Spivey (51) Massmart General Counsel Appointed 2011 BSc and Juris Doctorate (University of Arkansas), Master s in Law in International Banking and Finance (Boston University) R Pearl Maphoshe (46) Group Human Capital Executive, Chairperson of the HR Forum and member of the Social and Ethics Committee Appointed 2007 BA (Hons), HDipEd (Durban-Westville), MA (London) Guy Hayward (49) Chief Executive Officer Appointed 2001 BCom, CTA (UCT), CA(SA) R SE Brian Leroni (50) Group Corporate Affairs Executive Appointed 2007 BA (Wits), MPhil (Stellenbosch) SE Johannes van Lierop (48) Chief Financial Officer Appointed 2015 Hotel and Catering Management Degree, Bachelor of Business Economics, RA (Amsterdam) R Neville Dunn (46) Divisional Chief Executive of Masscash Wholesale Appointed 2002 BCom (Natal), CA(SA) Norman Gray (58) Chief Ethics and Compliance Officer Appointed 2015 MBA (UK), FCMI (UK), Dip Mgmt (UK), CRMA and Certified Ethics Officer R Doug Jones (42) Divisional Chief Executive of Masswarehouse, Chairman of the Food Forum Chairman of Fruitspot and Makro Logistics Services Chairman of Massmart Corporate University s School of Management Development Appointed 2012 BCom, PGDA (UCT), CA(SA) For the complete and detailed CVs of the Executive Committee, please visit

24 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

25 46 Our performance Massmart Integrated Annual Report 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. Increased depreciation, employment and finance costs Reduced growth in occupancy costs Decreased capital expenditure levels excluding property acquisitions Financial and manufactured capital Real volume growth in sales Comparable costs were well-controlled Chief Financial Officer s review 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. Johannes van Lierop CFO

26 48 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Our year at a glance 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 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). Impact of the 53rd week 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. 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 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 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 52 weeks December 2014 (Audited) 52 weeks December 2013 (Pro forma) 52 week % change 53 weeks December 2013 (Audited) Revenue 78, , ,512.9 Sales 78, , ,263.4 Cost of sales (63,610.8) (57,733.8) (10.2) (58,926.4) Gross profit 14, , ,337.0 Other income (40.4) Depreciation and amortisation (846.6) (731.1) (15.8) (731.1) Impairment of assets (24.6) (41.6) 40.9 (41.6) Employment costs (6,109.0) (5,357.5) (14.0) (5,423.5) Occupancy costs (2,678.8) (2,544.5) (5.3) (2,555.3) Other operating costs (3,033.3) (2,693.1) (12.6) (2,750.3) Operating profit before foreign exchange movements and interest 2, , ,084.7 Foreign exchange (loss)/gain (49.8) Operating profit before interest 1, ,001.5 (1.8) 2, Finance costs (386.8) (278.4) (38.9) (283.8) -- Finance income Net finance costs (345.3) (249.8) (38.2) (255.1) Profit before taxation 1, ,751.7 (7.5) 1,897.4 Taxation (483.4) (512.6) 5.7 (555.3) Profit for the year 1, ,239.1 (8.2) 1,342.1 Profit attributable to: -- Owners of the parent 1, ,180.0 (8.5) 1, Non-controlling interests (2.5) 59.1 Profit for the year 1, ,239.1 (8.2) 1,342.1 Basic EPS (cents) (8.5) Diluted basic EPS (cents) (8.4) Dividend (cents): -- Interim Final Total

27 50 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Sales 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 13 th 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 (Dec 2013: R70.8 billion) Total comparable sales 7.5% (Dec 2013: 3.8%) Aligning to our strategy of owning key properties, owned store sales as a percentage of total sales have increased to 30.7% (Dec 2013: 27.3%) Owned store sales Leased store sales Inflation Product inflation was 4.8% suggesting real comparable volume growth of 2.7% Rm December weeks (Audited) December weeks (Audited) Group product inflation Food and Liquor inflation Home Improvement inflation General Merchandise inflation Africa sales in Rands grew by 16.2% becoming 8.1% of total sales (Dec 2013: 7.7%) 91.9% 92.3% 8.1% % SA Sales Rest of Africa sales DEC 2012 DEC 2013 DEC 2014 Gross profit The Group s gross profit % increased to 18.6% (Dec 2013: 18.4%) The increase in gross profit is as a result of a combination of an increased contribution from Game Africa and improved margin performance in Massbuild, Masscash Retail and Makro. These were partially offset by a soft gross margin performance in Masscash Wholesale due to some commodity deflation; difficult trading conditions in Game; and a greater Food contribution at lower margins across the Group. The Group s gross margin is dependent upon the sales mix across the Divisions and the trading aggression occasioned by competitor activity. In a positive economic cycle, it should increase marginally owing to the increased contribution from the higher-margin Massbuild Division, as well as a higher proportion of General Merchandise sales. The opposite would be the case in a negative economic cycle. Gross profit also includes rebates and other forms of income earned from suppliers as well as on-going revenue from sales of cellular products and airtime. 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 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 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% Further information on the Group s sales can be found in note 5 of the Group Annual Financial Statements

28 52 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Operating profit before interest (Rm) 0 0,500 1,000 1,500 2,000 2,500 3,000 3, Sales-related gross margin Price-and-mixrelated gross margin Other income Employment costs Occupancy costs Depreciation, Amortisation and Impairment of Assets Other operating costs , ,015.9 (340.2) (98.5) (134.3) 1,357.9 (751.5) (98.8) Operating profit before interest and forex of R1,933.7 million Total Group sales for the December 2014 financial year increased by 10.4% 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 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: 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: Total increase of 5.3% / Comparable increase of 3.6% 21.1% of total operating expenses / 3.4% of sales 3.9% increase of net new trading space to a total of 1,539,295m Electricity, rates and taxes increased by approximately 15% Property acquisitions resulting in a reduction in the growth of occupancy costs Includes operating lease expense of R1.9 billion. The Group s operating lease commitments are described in more detail in note 32 of the Group Annual Financial Statements: 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: Total increase of 12.6% / Comparable increase of 7.8% 23.9% of total operating expenses. 3.9% of sales Credit card commission increased by 15.5% Includes insurance, bad debts, travel, credit card commission, repairs and maintenance, pre-opening costs, security costs, IT research and maintenance costs, professional fees, advertising and marketing, stationery and consumables. Combined, this category represents the most manageable or variable costs. This category of expenses will continue to receive intense management focus Also included is the cost of the bank intercharge fee which has now been decreased by the SARB and should result in a saving of approximately R55 million in 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%

29 54 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Annualised benefit of property acquisitions made over the last 2 years Less finance costs: R109 million Saving on lease payments: R210 million Less depreciation costs: R36m Net savings: R65 million 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: Reconciliation between Trading profit before interest and Operating profit before foreign exchange movements and interest Rm 52 weeks December 2014 (Audited) 52 weeks December 2013 (Pro forma) % change 53 weeks December 2013 (Audited) Trading profit before interest 2, , ,145.4 Impairment of assets (24.6) (41.6) 40.9 (41.6) Loss on disposal of business - (1.8) - (1.8) BEE transaction IFRS 2 charge (21.2) (17.3) (22.5) (17.3) Operating profit before foreign exchange movements and interest 2, , ,084.7 Breakdown of foreign exchange (loss)/gain Rm December weeks (Audited) December weeks (Audited) Foreign exchange (loss)/gain arising from loans to African operations (35.0) 73.1 Foreign exchange gain arising from an investment in a trading and logistics structure Foreign exchange loss arising from the translation of foreign creditors (19.6) (27.6) Total (49.8) 67.8 EBITDA and EBITDAR Rm December weeks (Audited) December weeks (Pro forma) % change December weeks (Audited) Operating profit before foreign exchange movements and interest 2, , ,084.7 Depreciation and amortisation Impairment of assets EBITDA 2, , ,857.4 Occupancy costs 2, , ,555.3 EBITDAR 5, , ,412.7

30 56 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued 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 Financial Statements: Taxation and tax rate reconciliation Rm December 2014 (Audited) December 2013 (Audited) The rate of taxation is reconciled as follows: Standard corporate taxation rate Non-taxable income and disallowed expenses 2.8 (2.0) Allowances on lease premiums and improvements (0.1) (0.3) Assessed loss not utilised Other - including foreign tax adjustments (2.9) (2.2) Effective tax rate 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 More information relating to deferred taxation can be found in note 18 of the Group s Annual Financial Statements: 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: Summary Consolidated Statement of Comprehensive Income Rm 52 weeks December 2014 (Audited) 52 weeks December 2013 (Pro forma) 52 week % change 53 weeks December 2013 (Audited) Profit for the year 1, ,239.1 (8.2) 1,342.1 Items that will not subsequently be re-classified to the income statement: (8.9) Post retirement medical aid actuarial (loss)/gain (8.9) Items that will subsequently be re-classified to the income statement: (55.6) Foreign currency translation reserve (53.7) Cash flow hedges Revaluation of listed shares (3.7) Income tax relating to components of other comprehensive income 0.4 (3.1) (3.1) Total other comprehensive (loss) / income for the year, net of tax (64.5) Total comprehensive income for the year 1, ,300.6 (17.5) 1,403.6 Total comprehensive income attributable to: -- Owners of the parent 1, , , Non-controlling interests Total comprehensive income for the year 1, ,300.6 (17.5) 1,403.6 Further information on the movements in other comprehensive income can be found in note 23 of the Group s Annual Financial Statements: Headline Earnings Rm 52 weeks December 2014 (Audited) 52 weeks December 2013 (Pro forma) 52 week % change 53 weeks December 2013 (Audited) Reconciliation of profit for the year to headline earnings Profit for the year attributable to owners of the parent 1, ,180.0 (8.5) 1, Impairment of assets Loss on disposal of tangible and intangible assets Loss on disposal of business Total tax effects of adjustments (0.3) (3.8) (3.8) Headline earnings 1, ,231.5 (10.2) 1,334.5 Headline earnings before foreign exchange (taxed) 1, ,182.7 (3.5) 1,285.7 Headline EPS (cents) (10.2) Headline EPS before foreign exchange (taxed) (cents) (3.5) Diluted headline EPS (cents) (10.1) Diluted headline EPS before foreign exchange (taxed) (cents) (3.4) 586.4

31 58 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Summary Consolidated Statement of Financial Position Rm December 2014 (Audited) December 2013 (Audited) % change Assets Non-current assets 11, ,111.8 Property, plant and equipment 7, , Goodwill and other intangible assets 2, ,928.8 Investments and other financial assets Deferred taxation Current assets 17, ,036.1 Other current financial assets Inventories 11, , Trade, other receivables and prepayments 4, , Taxation Cash and bank balances 2, ,196.1 Non-current assets classified as held for sale Total 28, ,147.9 Equity and liabilities Total equity 5, ,369.6 Equity attributable to owners of the parent 5, , Non-controlling interests Non-current liabilities 3, ,206.4 Interest-bearing liabilities 2, ,178.7 Deferred taxation Other non-current liabilities and provisions 1, Current liabilities 20, ,571.9 Trade, other payables and provisions 18, , Taxation Bank overdrafts Other current liabilities Total 28, ,147.9 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. The net cash purchase price of the Fresh Food business, of R11.5 million, gave rise to goodwill of R9.7 million. No contingent consideration liabilities were raised on any of these acquisitions and none of these acquisitions changed the Group s store profile. Acquisition of subsidiaries are described in more detail in note 4 of the Group s Annual Financial Statements: Acquisition of businesses 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. Tangible and intangible assets Increased by 14.4% Acquisition of key strategic properties of the Group for R784.9 million Completed construction of our flagship Mozambique Builders Warehouse store for R91.7 million 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 No impairment to goodwill in the current year More information relating to property, plant and equipment, goodwill and intangible assets can be found in note 13, 14 and 15 respectively of the Group s Annual Financial Statements: Investments and other financial assets 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 Financial Statements:

32 60 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued 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 Dec 2014 (Audited) Level 1 Level 2 Level 3 December 2013 (Audited) Level 1 Level 2 Level 3 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 2, , , , Medium-term loan, bank loans and capitalised finance leases 2, , , , Financial liabilities at fair value through profit or loss FEC liability Designated cash flow hedge FEC liability , , , , 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: Inventories Inventory days increased to 64.4 days (Dec 2013: 63.7 days) Increased by 11.0% ahead of sales growth, mainly due to opening new stores in the second half of the year Inventory was well managed within the Group other than the over-stocked position in Massdiscounters given the slower comparable store sales in Game SA. As a percentage of total inventory, General Merchandise of R5.1 billion (Dec 2013: R4.6 billion) is marginally lower than last year at 45.4% (Dec 2013: 45.5%). The Massdiscounters overstocked position is in this category. Food at R3.3 billion (Dec 2013: R2.9 billion) is the second largest inventory category in the Group but with the fastest stock-turns. More information relating to inventories can be found in note 19 of the Group s Annual Financial Statements: 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: More information on the Group s credit risk exposure and management can be found in note 40 of the Group s Annual Financial Statements: Composition of total inventories (%): Food 7.4 Liquor General merchandise Home improvement 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%)

33 62 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Non-current liabilities Other current liabilities Medium-term loan of R600 million (Dec 2013: R600 million) Medium-term bank loans of R1,521.7 million (Dec 2013: R562.1 million) Capitalised finance leases of R12.2 million (Dec 2013: R16.6 million) Operating lease liability arising from the lease-smoothing adjustment of R912.5 million (Dec 2013: R822.2 million) Trade creditor days decreased from 76 days to 75 days 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 found in note 24 of the Group s Annual Financial Statements: 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 Statements: Trade and other payables and provisions The figure is representative of the Group s supplier terms. More information relating to trade and other payables can be found in note 26 of the Group s Annual Financial Statements: 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 Financial Statements: 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 can be found in note 28 of the Group s Annual Financial Statements: 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. Included within other current liabilities are medium-term loans of R249.7 million (Dec 2013: R152.7 million) Commitments More information relating to these capital expenditure commitments can be found in note 31 of the Group s Annual Financial Statements: 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 December weeks (Audited) December weeks (Audited) Commitments in respect of capital expenditure approved by Directors: Contracted for ,249.3 Not contracted for 1, , ,032.7

34 64 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Summary Consolidated Statement of Changes in Equity Rm Ordinary share capital Share premium Other general reserves Retained profit Equity attributable to owners of the parent Noncontrolling interests Balance as at December 2012 (Audited) , , ,915.3 Dividends declared (913.4) (913.4) - (913.4) Total comprehensive income , , ,403.6 Changes in non-controlling interests (7.2) (3.4) Distribution to non-controlling interests (30.9) (30.9) IFRS 2 charge and Share Trust transactions (121.8) Treasury shares acquired - (8.8) - - (8.8) - (8.8) Balance as at December 2013 (Audited) , , ,369.6 Dividends declared (914.0) (914.0) - (914.0) Total comprehensive income - - (64.5) 1, , ,072.9 Changes in non-controlling interests - - (27.6) - (27.6) (11.0) (38.6) Distribution to non-controlling interests (50.4) (50.4) IFRS 2 charge and Share Trust transactions (27.4) Treasury shares acquired - (9.9) (0.1) - (10.0) - (10.0) 52 weeks ended December 2014 (Audited) , , ,527.2 Summary Consolidated Statement of Cash Flows Rm 52 weeks December 2014 (Audited) Total 53 weeks December 2013 (Audited) Operating cash before working capital movements 2, ,984.0 Working capital movements (295.1) Cash generated from operations 2, ,736.6 Taxation paid (683.4) (732.8) Net interest paid (345.3) (255.1) Investment income Dividends paid (914.0) (913.4) Cash inflow from operating activities ,914.5 Investment to maintain operations (857.4) (780.2) Investment to expand operations (1,322.1) (1,306.8) Investment in subsidiaries (14.4) - Proceeds on disposal of property, plant and equipment Proceeds on disposal of assets classified as held for sale Other net investing activities 14.9 (247.4) Cash outflow from investing activities (2,146.5) (2,306.3) Cash inflow from financing activities 1, Net decrease in cash and cash equivalents (51.2) (98.8) Foreign exchange movements (53.7) 47.2 Opening cash and cash equivalents 1, ,639.9 Closing cash and cash equivalents 1, ,588.3 Working capital movements Rm December weeks (Audited) December weeks (Audited) Net movement in working capital (295.1) Increase in inventories (1,112.4) (424.0) Increase in trade receivables (697.8) (30.7) Increase in trade payables 1, ,254.6 Decrease in provisions (143.2) (47.3) The reduction in working capital is primarily as a result of the 53 week comparative, the effect of which in the prior and current year is approximately R500 million. Net capital expenditure amounted to 2.8% (Dec 2013: 3.3%) of sales. Net capital expenditure excluding business and property acquisitions amounted to 1.6% (Dec 2013: 1.8%) of sales. Due to the high levels of trading experienced over the December holiday period, the Group banks a large amount of cash in the month, while majority of the payments to suppliers only occur after year-end. This explains the large cash and bank balances reflected in the Statement of Financial Position in both 2014 and The Group continually refurbishes its older stores and, where possible, builds its own stores. In doing so the Group incurred expenditure of R2,179.5 million (Dec 2013: R2,087 million). Of this, R857.4 million (Dec 2013: R780.2 million) was replacement capital expenditure, while the balance of R1,322.1 million (Dec 2013: R1,306.8 million) was invested in new capital assets, including new stores and distribution centres. The increase in expansionary capital assets can largely be attributed to the property acquisitions already mentioned, as well as the construction of our flagship Mozambique Builders Warehouse store for R91.7 million. Capital expenditure, excluding property acquisitions for the next 12 months is budgeted to slow down as we begin to realise some of the benefits of the investments we have made during the last few years. We will continue to invest in line with the Group s strategic drive to: own more of our key stores; roll out Food Retail stores; grow online; increase our rate of expansion in Africa; and open more lower-income Home Improvement stores in South Africa. Further information relating to the movements in the Statement of Cash Flows can be found in note 38 of the Group s Annual Financial Statements: Capital Expenditure Acceleration DEC DEC Businesses acquired (Rm) DEC 2012 Property acquisitions (Rm) Segmental review Investment to expand operations (Rm) Total capex as a % of sales DEC DEC 2014 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 Investment to maintain operations (Rm) Total capex as a % of sales excluding business and property acquisitions

35 66 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Operating segments Rm Total Other For the 52 week year ended December 2014 Massdiscounters Masswarehouse Massbuild Masscash Sales 78, , , , ,840.4 Operating profit before foreign exchange movements and interest 2,015.9 (30.6) , Trading profit before interest and taxation 2, , Net foreign exchange (loss)/ gain (49.8) (48.4) (5.8) Net finance (costs)/income (345.3) (211.0) (29.4) 44.4 (63.2) (86.1) Operating profit before taxation 1,620.8 (290.0) , Trading profit before taxation 1,716.4 (211.0) , Inventory 11, , , , ,582.1 Total assets 28,906.4 (325.6) 7, , , ,529.8 Non-current asset held for sale Total liabilities 23,379.2 (4,366.5) 7, , , ,882.0 Net capital expenditure 2, Depreciation and amortisation Impairment losses Non-cash items other than depreciation and impairment (16.2) (9.2) Cash flow from operating activities (446.2) (103.8) Cash flow from investing activities (2,146.5) (980.8) (545.0) (70.1) (296.8) (253.8) Cash flow from financing activities 1, , (369.3) Inventory days Number of stores Trading area (m 2 ) 1,539, , , , ,775 Trading area (m 2 ) increase on December % - 6.5% - 6.3% 0.3% Average trading area per store (m 2 ) 3,927-3,308 10,305 4,365 3,340 Distribution centre space (m 2 ) 328, ,488 51,300 61,733 36,654 Distribution centre space (m 2 ) increase on December % % Rm Total Other For the 53 week year ended December 2013 Massdiscounters Masswarehouse Massbuild Masscash Sales 72, , , , ,264.1 Operating profit before interest and taxation 2,152.5 (37.9) Trading profit before interest and taxation 2, Net finance (costs)/income (255.1) (349.6) (7.2) Operating profit before taxation 1,897.4 (387.5) , Trading profit before taxation 2, , Inventory 10, , , , ,240.4 Total assets 26,147.9 (2,614.7) 7, , , ,665.5 Total liabilities 20,778.3 (6,027.7) 7, , , ,838.6 Net capital expenditure 2, Depreciation and amortisation Impairment losses Non-cash items other than depreciation and impairment (352.2) 13.6 (4.7) Cash flow from operating activities 1, (105.8) Cash flow from investing activities (2,306.3) (1,424.0) (490.6) (385.2) (275.2) Cash flow from financing activities (621.6) (115.5) Inventory days Number of stores Trading area (m 2 ) 1,481, , , , ,637 Trading area (m 2 ) increase on June 2012 (excluding re-measurements) 4.8% - 7.7% 9.3% 3.7% 0.6% Average trading area per store (m 2 ) 3,940-3,324 10,305 4,462 3,276 Distribution centre space (m 2 ) 323, ,488 51,300 61,733 32,292 Distribution centre space (m 2 ) increase on December % % 3.2% 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.

36 68 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued Geographic segments Rm Total December weeks South Africa December weeks Rest of Africa December weeks Total December weeks South Africa December weeks Rest of Africa December weeks Sales 78, , , , , ,587.3 Segment assets (Total) 21, , , , , Segment assets (Non-current) 10, , , , Net capital expenditure 2, , , , The Group s four Divisions operate in two principal geographical areas - South Africa and the Rest of Africa. More information relating to segmental reporting can be found in note 41 of the Group s Annual Financial Statements: Return on sales (ROS) This ratio combines all of the key Income Statement elements, being sales, gross margin, supplier income, and expenses (including depreciation and amortisation), but excludes foreign exchange translation gains and losses. In addition, the largest asset investment in the Divisions is net working capital (being inventory and trade receivables), less the associated funding liability (in trade payables). The relative success of management s impact on net working capital will therefore be reflected in changes to net finance costs or income from one year to the next. The reason foreign exchange translation gains and losses are excluded is because they are largely beyond management s control, are volatile, and do not reflect the sustainable profitability of the Division or Group DEC % DEC % DEC % DEC % DEC % All periods are 52-week periods, Dec 2013 is for 53 weeks. Decrease is due to: Lesser performance in Game SA. Game SA sales were affected by the slowdown of the middle-income consumer spending, the global slowdown in General Merchandise, particularly electronics, and some insufficient operating discipline, including poor in-stock levels. Difficult trading conditions in the Wholesale Food sector. The presence of strong independent traders in the Wholesale Food sector has resulted in a continued tough and competitive environment during Increased Depreciation and Employment costs. Depreciation and Employment costs comprised 6.9% and 48.1% of total operating expenses respectively and the high increases are a consequence of: the Group s annualisation of RDCs in 2013; the acquisition of key properties; the roll-out of new stores; and the continued roll-out of Food Retail in three Divisions. Return on equity (ROE) Massmart is committed to delivering superior returns to shareholders over the longer term DEC % DEC % DEC % DEC % DEC % All periods are 52-week periods, Dec 2013 is for 53 weeks. Decrease is due to: The reduction in the Group s profitability (measured by ROS) coupled with the Group s strategic significant investment in Food Retail, owned stores and supply chain were the main causes of the lower Group ROE. The Group s on-going investment in new stores, owned stores and new businesses increased the size of the net asset value. As the Group s profitability improves, and as the new stores, RDCs and businesses begin to trade optimally, the ROE is likely to improve to higher levels. The Divisions are responsible for delivering operational returns, being their returns to their net working capital and non-current assets. In addition to these operational returns, Massmart, through the Board and Executive Committee, is responsible for delivering investment returns that will also include the book value of intangibles (specifically goodwill arising from the acquisition of businesses), as well as setting the Group s gearing levels that will influence returns to shareholders and the overall risk profile. Depending on the purchase price, Retail and Wholesale acquisitions of subsidiaries tend to generate significant accounting goodwill owing to the relatively low net asset values of these business models. The Divisions are recapitalised bi-annually by Massmart with interest-free shareholder funds that are equivalent to the book value of non-current assets in each Division. Each Division is funding its net working capital position through cash or interest-bearing debt, depending on the characteristics of that business model. This process enables divisional returns to be evaluated and compared on a consistent basis across the Group, and from one year to the next. Gearing (or leverage) % % % All periods are 52-week periods, Dec 2013 is for 53 weeks. Increase is due to: The acquisition during the year of stand-alone, key strategic properties previously leased. This change does not represent a major financial shift, however, it will result in converting fixed long-term lease commitments, which % % are recorded off-balance sheet, to on-balance sheet assets or liabilities. Significantly, the Group acquired 12 Masscash stores and one property in Masswarehouse, Massbuild and Corporate alike. The acquisition of these properties has been covered in the Acquisition of subsidiaries and properties paragraph, previously referred to. Investment in new trading formats in East and West Africa, increased roll-out of Food Retail and opening more lower-income home improvement stores in South Africa. As regards to financing any future acquisition of properties and businesses, depending on the target company s cash profile and cash generation ability, this gearing ratio may be increased. Dividend cover The Board believes that the current ratio is appropriate, given the Group s current and forecast cash generation, planned Dividend capital cover expenditure and gearing levels DEC DEC DEC DEC All periods are 52-week periods, Dec 2013 is for 53 weeks. Related-party transactions DEC 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 Statements:

37 70 Our performance Massmart Integrated Annual Report Chief Financial Officer s review continued 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 found in note 35 of the Group s Annual Financial Statements: Accounting policies, critical judgements and key sources of estimation uncertainty These audited summary consolidated year end results have been prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS, its interpretations issued by the IFRS Interpretations Committee, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, presentation and disclosure as required by International Accounting Standard (IAS) 34 Interim Financial Reporting, the JSE Limited Listings Requirements and the requirements of the Companies Act 71 of 2008 of South Africa. The accounting policies and methods of computation used in the preparation of the audited summary consolidated results are in terms of IFRS and are consistent in all material respects with those applied in the most recent annual financial statements, as none of the amendments coming into effect in the current financial year have had an impact on the financial reporting of the Group. In the process of applying the Group s accounting policies, management has made certain critical judgements that have a significant effect on the amounts recognised in the financial statements. More detail on the Group s accounting policies, critical judgments and key sources of estimation uncertainty is provided in note 1 and 2 of the Group s Annual Financial Statements: 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 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. 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. Directors responsibilities The Directors acknowledge responsibility for the preparation of the Group Annual Financial Statements, which, in their opinion, fairly present the results and cash flows for the year ended December 2014 and the state of affairs of Massmart Holdings Limited and its subsidiaries at the end of the year. The external auditors are responsible for reporting on the fair presentation of these financial statements. The Company and its subsidiaries have maintained satisfactory accounting records and an effective system of internal controls to ensure the integrity of the underlying information. Appropriate accounting policies, supported by sound and prudent managerial judgments and estimates, have been consistently applied. The Group s Audit Committee reviews the financial information presented and ensures that there has been adherence to IFRS. Internal and external auditors of Group companies have unrestricted access to the Committee. Group financial 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). Shares in issue The movement in ordinary and preference shares for the year under review were as follows: Ordinary Shares Balance at December ,910,195 Converted preference shares 1 198,849 Balance at December ,109,044 Converted preference shares 1 9,028 Ordinary shares in issue at December ,118,072 B Preference Shares Balance at December ,461,675 Converted to ordinary shares (198,849) Residual shares automatically redeemed (9,395,053) Balance at December ,867,773 Converted to ordinary shares (9,028) Preference shares in issue at December ,858,745 1 The preference shares relate to Massmart s Black Scarce Skills Trust Directorate and secretary The current Directorate of the Group is shown on pages 40 to 41. The Board comprises nine Directors of whom seven are non-executive and four are independent. In addition, each Board committee is chaired by an independent Director. The Company Secretary provides a central source of guidance and advice to the Board, and within the Company, on matters of ethics and good governance. The Company Secretary is Philip Sigsworth, CA(SA), whose business and postal addresses are the same as that of the Company. Philip was appointed on 7 May 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 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 Johannes van Lierop Chief Financial Officer 2 April 2015

38 72 Our performance Massmart Integrated Annual Report 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. Interests of Directors in the Company s shares 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: December 2014 December 2013 Non-executive Directors Shares Options/ Share Awards Shares Options/ Share Awards MJ Lamberti K Dlamini 2 9, CS Seabrooke S Broader D Cheesewright A Clarke JA Davis NN Gwagwa 9,800-9,800 - P Langeni - - 9,800 - JP Suarez Executive Directors GM Pattison 643, , , ,877 GRC Hayward 222, , , ,327 J van Lierop I Zwarenstein 6-201, ,343 1 Resigned with effect from 10 April Appointed with effect from 10 April Appointed with effect from 16 July Resigned with effect from 16 July 2014 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. 5 Appointed with effect from 12 March Resigned as Group FD with effect from 12 March 2015 At the date of this Report, the Directors beneficial holdings were as follows: Non-executive Directors April 2015 April 2014 Options/ Shares Share Awards Shares Options/ Share Awards MJ Lamberti K Dlamini 2 9, CS Seabrooke S Broader D Cheesewright A Clarke JA Davis NN Gwagwa 9,800-9,800 - P Langeni - - 8,800 - JP Suarez Executive Directors GM Pattison , ,877 GRC Hayward 222, , , ,327 J van Lierop I Zwarenstein ,343 There were no non-beneficial interests in either of these periods. 1 Resigned with effect from 10 April Appointed with effect from 10 April Appointed with effect from 16 July 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) 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: 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 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.

39 74 Our performance Massmart Integrated Annual Report Directors report continued Independent auditor s report on summary consolidated financial statements for the year ended 28 December 2014 Borrowing powers 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). 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 Philip Sigsworth Company Secretary 2 April 2015 Audit Committee report for the year ended December 2014 The Audit Committee met three times during the 52 weeks ended December 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; Massmart address The Company s registered office and postal address are as follows: Registered office: Postal address: Massmart House Private Bag X4 16 Peltier Drive Sunninghill Sunninghill Ext Sandton, 2146 South Africa 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. 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 ( 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 To the Shareholders of Massmart Holdings Limited The summary consolidated financial statements of Massmart Holdings Limited, incorporated in the Chief Financial Officer s Review, which comprise the summary consolidated statement of the financial position as at 28 December 2014, the summary consolidated income statement, summary consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended on pages 58, 49, 57 and 64 respectively, and related notes on pages 60-70, are derived from the audited consolidated Annual Financial Statements of Massmart Holdings Limited for the year ended 28 December We expressed an unmodified audit opinion on those consolidated financial statements in our report dated 2 April Our auditor s report on the audited consolidated financial statements contained an Other Matters paragraph: Other reports required by the Companies Act (refer below). The summary consolidated financial statements do not contain all the disclosures required by IFRS and the requirements of the Companies Act as applicable to annual financial statements. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated Annual Financial Statements of Massmart Holdings Limited. Directors responsibility for the summary consolidated financial statements The Directors are responsible for the preparation of the summary consolidated financial statements in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports, set out in the Approval of the Integrated Annual Report and summarised consolidated annual financial statements on page 3, and the requirements of the Companies Act of South Africa as applicable to summary financial statements, and for such internal control as the directors determine is necessary to enable the preparation of the summary consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s 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 Rivonia Road Johannesburg Gauteng South Africa

40 76 Our performance Massmart Integrated Annual Report Value added statement Shareholder analysis The value we added: Sales, royalties, franchise fees, rentals and management and adminisitration fees (inclusive of VAT) December weeks Rm December weeks Rm 86, , % Cost of sales (63,610.8) (58,926.4) 7.9% Interest and investment income % Net costs of services and other operating expenses (5,771.1) (5,279.3) 9.3% Value added 17, , % The following analysis of shareholders was extracted from the shareholder register as at December 2014: Shareholder Spread (%) Number of holders % Number of shares % Shareholder spread 1-1,000 shares 4, , ,001-10,000 shares ,581, , ,000 shares ,709, ,001-1,000,000 shares ,420, ,000,001 shares and over ,564, , ,118, R17.5 billion Here s how we shared it: To Government as taxation 51.4% R8,969.0 m R10,705.3 m 57.9% in % R6,109.0 m R5,423.5 m 29.4% in 2013 To employees as salaries, wages and other benefits 5.2% R914.0 m R913.4 m 4.9% in 2013 To shareholders as dividends 4.8% R846.6 m R731.1 m 4.0% in 2013 Depreciation and amortisation To lenders as interest 2.2% R386.8 m R283.8 m 1.5% in 2013 Net earnings retained 0.9% R165.9 m R351.7 m 1.9% in 2013 Non-controlling interests 0.3% R57.6 m R59.1 m 0.3% in 2013 CSI 0.1% R15.4 m R18.0 m 0.1% in 2013 Public/Non-public Shareholders (%) Distribution of Shareholders (%) Public/non-public shareholders Non-public shareholders: Walmart subsidiary: 1-113,859, Main Street 830 Proprietary Limited Directors and Group , Executives of the Company Share trusts 1-194, Public shareholders 4, ,225, , ,118, Distribution of shareholders Walmart subsidiary: 1-113,859, Main Street 830 Proprietary Limited Unit Trusts/Mutual Funds ,739, Pension Funds ,180, Other Managed Funds ,446, Sovereign Wealth ,023, Custodians ,193, Private Investors ,026, Hedge Fund 1-1,431, Charities ,378, Insurance Companies , Exchange-Traded Fund Total , BEE 1-100,271 - Investment Trusts 2-86,936 - Local Authorities 2-87,889 - American Depositary 2-95,239 - Receipt University 1-70,220 - Remainder 4, , , ,118, 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, Public Investment Corporation 15,724, Walmart subsidiary: Main Street 830 (Pty) Ltd 113,859,

41 Massmart Integrated Annual Report Massmart defines human capital as our commitment to our people. Estimated % employees with medical benefits 63.7% 2013: 53.6% Unionised Staff 38.8% 2013: 36.0% Human capital Estimated annual per capita training investment R3, : R2,935 The objective of the Group human capital function is to facilitate the execution of Massmart s business strategy through people Black management as a % of all management and professionals 74.8% in line with prior year 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.

42 80 Our performance Massmart Integrated Annual Report 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. 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 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. Human capital performance indicators 63.66% Estimated % employees with medical benefits 38.75% Unionised Staff 12.17% Estimated staff turnover 36.96% Flexi-timers 5.83% HIV Prevalence 87.46% Local management in non- South African operations as a % of total management 61.69% Black management as a % of all management and professionals R3, Estimated annual per capita training investment permanent (R) R2, in 2013, R3,012 in 2012, R1,879 in 2011, R1,574 in 2010, R1,204 comparative 53.6 in 2013, 48.4 in 2012, 41.9 in 2011, 41.0 in 2010, 19.0 comparative 36.0 in 2013, 36.2 in 2012, 37.3 in 2011, 35.0 in 2010, 33.3 comparative 10.2 in 2013, 10.0 in 2012, 10.2 in 2011, 9.4 in 2010, 17.3 comparative 37.5 in 2013, 33.9 in 2012, 32.1 in 2011, 33.0 in 2010, 67.6 comparative 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. This indicates the percentage of local management in our African operations outside of South Africa in 2013, 89.3 in 2012, 86.7 in 2011, 87.0 in 2010, comparative N/A There has been a slight decrease % in black management as the Company is aligning with globally recognised job evaluation and grading processes in 2013, 78.5 in 2012, 77.7 in 2011, 77.0 in 2010, 53.7 comparative*** R3, Average monthly Minimum Wage (R) R 2, in 2013, R2,953 in 2012, R2,859 in 2011, R2,555 in 2010, R2,456 comparative* 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: Commission for Employment Equity Annual Report

43 82 Our performance Massmart Integrated Annual Report 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 non- Executive Directors and Prescribed Officers. It sets out the actual payments, accruals and awards for the year ended 28 December 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 75 th 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 non- Executive Directors, two of whom are independent. Meetings are held four times per year and more often if deemed necessary. The CEO is a permanent invitee to all Committee meetings. Other nominated Executives attend meetings by invitation. Neither the CEO nor nominated invitees are present when matters relating to their own remuneration are discussed. The Group General Counsel acts as secretary for the Committee. Responsibilities 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 non- Executive Directors and Board committee members fees and also the fees of any director-related entities providing services to the Group; Reviewing Group remuneration practices and policies; and Selecting independent consultants to advise the Board where appropriate. A full account of the role and responsibilities of the Remuneration Committee is described in the Remuneration Committee Charter and is available on request. Key decisions taken in 2014 Retirement date change: The retirement age for all employees was increased from 60 to 65. The decision was taken to provide an additional five years employment to retain employee skills whilst providing further opportunity for employees to save for retirement. Remuneration structure: Massmart introduced a formal and uniform salary structure in the business during 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. Overview of remuneration 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. 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

44 84 Our performance Massmart Integrated Annual Report 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 Gross annualised returns MRF Balanced 3, % MRF Conservative % MRF Aggressive % Investment Solutions Performer % Investment Solutions Banker % Other Investment Solutions Portfolios* 51.3 Total 3,863.3 *Other Investment Solutions Portfolios are made up of IS Conserver, IS Real Return and IS Prescient Pensioner Fund Name December 2013 Portfolio value Rm Gross annualised returns MRF Balanced 2, % MRF Conservative % MRF Aggressive % Investment Solutions Performer % Investment Solutions Banker % Other Investment Solutions Portfolios 62.6 Total 3,432.4 Medical plans It is compulsory for all new permanent Massmart Group employees to join a Company-approved medical plan. The Group has the responsibility of ensuring that the appropriate plans are offered to employees and that the contribution levels are sustainable and affordable for all levels of employees. The current Massmart Health Plan offers employees a broad range of options with good benefits at very competitive rates and so aims to reduce reliance on open schemes. The current Group subsidy is 50% of total contribution for principal member and spouse. The Massmart Health Plan is regulated in terms of the Medical Schemes Act and the Council for Medical Schemes. The Scheme has been audited by PWC and has been found to be compliant with all required submissions. Affordable and accessible private health cover has been an on-going objective for Massmart since 2009, and Massmart has consistently been able to increase its coverage targets year-on-year. In 2014, Massmart achieved an estimated 65% healthcare coverage of permanent employees and in the same year introduced a Network option which currently covers almost 1,600 employees. Massmart is on a journey to achieving affordable and sustainable healthcare for all of its employees. The current strategy is to be able to offer employees a broad range of good benefits at affordable rates within the Massmart Health Plan and reduce reliance on open schemes due to the challenges that open schemes have of anti-selection, retiree buy-downs and broker commission, resulting in cross subsidisation by younger and healthier members. Open schemes therefore tend to have higher annual contribution increases and benefit restrictions in order to manage these risks. Current company-approved medical aid plans for all new permanent employees from 2015: Medical plan Employees Ocsacare (Employee only option) (Occupational health offering) 3,898 Massmart Health Plan - Choice (Company s closed scheme) 3,135 Massmart Health Plan - Network (Company s closed scheme) 1,633 Africa-approved (Africa expatriate employees) 37 Total 8,703 The medical aid schemes below are closed to new membership however existing members can remain on these. Different company subsidies exist on these schemes due to historic employer / employee commitments. Medical plan Employees Resolution Health (closed 1 January 2014) 3,026 Compcare NetworX (closed 1 January 2015) 2,579 Other 418 Total 6,023 Total employees on medical schemes 14,726 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 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. Share award parameters At Executive level, the value of the award ranges between % of guaranteed package. At other levels, the award is based on 25% of guaranteed package. The plan provides for a mix of performance shares, which are awarded annually in March and grants of restricted shares which are granted annually in September, based on the level of employee. At Executive levels, the mix is 75% performance shares and 25% restricted shares, and at other levels, 50% / 50%. The performance share metrics have been designed to align with Walmart s metrics and are measured individually against approved annual nominal sales and ROI targets over three separate years with an equal weighting. Both targets have ranges and the final awards are calculated based on a sliding scale between the ranges 50%-150%. If achieved, the awards are equity-settled at the end of the third year. If performance against either of the targets does not achieve at least the minimum of the range, no performance share awards will be provided against that target. Performance against target has resulted in the release of performance shares equivalent to 35.9% (2013) and 108.2% (2014). Restricted share grants are specifically utilised for retention purposes and vest on a time basis, being one third each at the end of years 3, 4 and 5. As is the case with the AIP, this is only the second year since plan inception; therefore there is not enough information to provide trends on plan performance. The intention is to include this information in subsequent remuneration reports. Massmart Employee Share 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 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. Executive pay mix Anticipated contribution to total annual packages The Committee believes that over an extended period and subject to business performance, Executives annual package should comprise approximately equal amounts from basic salary, Annual Incentives (AIP) and Share Incentives (SIP). The amounts received annually under AIP will vary on business performance, while those received under the SIP will also vary on business performance and growth of the Massmart share price. It is anticipated that about two thirds of Executives compensation should be variable and conditional upon sustainably improving business performance.

45 86 Our performance Massmart Integrated Annual Report Remuneration report continued Executive Directors contracts and earnings 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 R 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 Guy is contractually bound by a notice period of twelve months. 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 Having tendered his resignation in February 2014, Grant was not eligible for and did not receive a salary increase, AIP payment or shares under the SIP. During the year to December 2014 Grant converted 47,000 Massmart options and settled loans on 183,750 shares from the Employee Share Trust. For the year ended December 2014, through the Employee Share Trust, Grant held 453,271 Massmart shares and options of which 42,202 shares and 158,603 options are held by the Pattison Family Trust, of which Grant is a discretionary beneficiary. The average length of time that he has held these shares is 6.23 years and the average strike price is R95.31 per share. In addition, the Pattison Family Trust and a related company, GPAM, own an additional 348,805 shares. Actual values paid in % 49.6% 17.5% * Average of total remuneration for Prescribed Officers CEO GROUP FD PRESCRIBED OFFICERS* 41.5% 47.9% 50.4% 41.0% Guaranteed Package AIP Gain on exercise of share options Ilan Zwarenstein The Remuneration Committee awarded Ilan a 6.5% increase on his basic salary in July 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 per share. Through the SIP, Ilan was awarded 16,686 performance awards on 17 March 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 Having tendered his resignation, he received no restricted share grants on 15 September 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 Top three executives salaries 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 1,200, ,000 Deputy Chairman 625, ,000 Directors 275, ,000 Committee Chairpersons 252, ,000 Committee Members 128, ,000

46 88 Our performance Massmart Integrated Annual Report Remuneration report continued 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 shares 2 R000 Gains on exercise of share options and on shares purchased by directors R000 For the 52 weeks ended December 2014 Executive directors Pattison, GM 3-5, ,272 1,365 15,788 23,425 Hayward, GRC - 4,443 5, , ,207 Zwarenstein, I - 2,603 2, , ,695-12,261 8,743 1, ,330 2,209 15,788 41,327 Non-executive directors Lamberti, MJ Seabrooke, CS 1, , ,491 Cheesewright, D Davis, JA Gwagwa, NN Langeni, P Dlamini, KD Suarez, JP Broader, S Clarke, A , , ,012 Prescribed Officers Prescribed Officer A , ,976 Prescribed Officer B , ,115 Prescribed Officer D , ,703 Prescribed Officer E , ,089 Prescribed Officer F ,718-2,300 16,018 Prescribed Officer G , ,715 Prescribed Officer I , ,133 Prescribed Officer K , ,787 Prescribed Officer L , ,912 Prescribed Officer M , , , ,509 72,154 Total 4,012 12,261 8,743 1, ,368 2,828 18, ,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 Resigned with effect from 10 April Resigned with effect from 16 July Appointed with effect from 16 July 2014 Total R000 Services as directors of Massmart Holdings Limited R000 Salary and allowances R000 Bonuses and performance related payments R000 Other benefits R000 Retirement and related benefits R000 Subtotal R000 Fringe benefit of interestfree loans used to finance shares 2 R000 Gains on exercise of share options and on shares purchased by directors R000 For the 53 weeks ended December 2013 Executive directors Pattison, GM 3-5,215 1, ,656 1,413-9,069 Hayward, GRC - 3, , ,225 Zwarenstein, I - 2, , ,863 5,138-11,222 2,781 1, ,341 2,228 1,863 20,432 Non-executive directors Lamberti, MJ 4 1, , ,213 Seabrooke, CS 1, , ,256 Cheesewright, D Davis, JA Gwagwa, NN Langeni, P Suarez, JP , , ,609 Prescribed Officers Prescribed Officer A , ,702 12,784 Prescribed Officer B , ,161 Prescribed Officer D , ,904 9,604 Prescribed Officer E , ,327 Prescribed Officer F , ,145 Prescribed Officer G , ,759 Prescribed Officer I , ,593 Prescribed Officer K , ,979 Prescribed Officer L , ,930 Prescribed Officer M , , , ,714 55,937 Total 3,609 11,222 2,781 1, ,452 2,949 11,577 79,978 1 In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year. 2 Held in terms of the rules of the Company s share scheme. 3 Resigned with effect from 31 December Resigned with effect from 10 April Resigned with effect from 16 July Total R000

47 90 Our performance Massmart Integrated Annual Report Remuneration report continued Details of Directors shares and share options per Director: Pattison, GM Employee Share Option Scheme Relevant date Subscription price (R) Market price (R) Number of shares/ share options Gain on sale/ exercise (R 000 s) Expiry date Balance at December ,021 Options exercised / shares sold Balance at December ,021 - Options exercised 1 April (47,000) 1,969 Shares sold 23 May (183,750) - Balance at December ,271 Comprising: 23 May , May May , May May , May May , May September , August 2021 Employee Share Awards Scheme Balance at December Performance share awards 16 September , September 2016 Restricted share grants 16 September , September 2018 Balance at December ,274 Share awards / Share grants Balance at December ,274 Comprising: Performance share awards 16 September , September 2016 Restricted share grants 16 September , September 2018 Hayward, GRC Employee Share Option Scheme Balance at December ,906 Options exercised / shares sold Balance at December ,906 - Options exercised / shares sold Balance at December ,906 - Comprising: 24 May , May April , March May , May May , May September , August May , May 2022 Employee Share Awards Scheme Relevant date Subscription price (R) Market price (R) Number of shares/ share options Gain on sale/ exercise (R 000 s) Expiry date Balance at December Performance share awards 16 September , September 2016 Restricted share grants 16 September , September 2018 Balance at December ,798 Performance share awards 17 March , March 2017 Restricted share grants 15 September , September 2019 Balance at December ,090 Comprising: Performance share awards 16 September , September 2016 Restricted share grants 16 September , September 2018 Performance share awards 17 March , March 2017 Restricted share grants 15 September , September 2019 Zwarenstein, I Employee Share Option Scheme Balance at December ,659 Options exercised 1 April (2,742) 354 Options exercised 26 May (5,234) 644 Options exercised 27 May (7,352) 871 Balance at December ,331 1,869 Options exercised Balance at December ,331 Comprising: 26 May , May May , May September , August May , May 2022 Employee Share Awards Scheme Balance at December Performance share awards 16 September , September 2016 Restricted share grants 16 September , September 2018 Balance at December ,012 Performance share awards 17 March , March 2017 Balance at December ,698 Comprising: Performance share awards 16 September , September 2016 Restricted share grants 16 September , September 2018 Performance share awards 17 March , March 2017 Read more: Shares and options at reporting date can be found in the Directors Report on page 72 Read more: More detail on the Employee Share Incentive Schemes can be found in the Remuneration Report on page 85

48 92 Our performance Massmart Integrated Annual Report Massmart defines intellectual capital as how we pass on benefits to our customers New private label offering launch: Marketside into Fresh, Bakery and Butchery Intellectual capital ShieldOnline: 351,809 orders placed ShieldOnline sales: R3.78 bn The country s largest pure B2B ecommerce business DionWired online: 4m page views: up 100% Every Day Low Price: EDLP Plumb Pride Geyser which has been held at the same selling price for four years. 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.

49 94 Our performance Massmart Integrated Annual Report Intellectual capital continued Performance of our online offerings in 2014 Private label Sales up 44% Website visitors: 1.5 million DionWired 2.3% contribution to total DionWired sales 1.5m website visitors 0.45% conversion rate DionWired, experienced solid growth for a fourth year in a row. User visits were up 26% to 400,000 visitors for the peak period (November and December), page views were up over 100% to four million for the period and an average online basket size of R3,300 was achieved during this period. Website visitors in peak period: Sales up Website visitors since April 2014 launch: 1.1 million 14.7% Increase in website visitors: Orders placed: 9,7 million Makro 23% 351,809 Since the launch of Makro website Game Shield from April 2014, the site attracted 9.7 million visitors of which 4.5 million Christmas came early for Game s ShieldOnline is a pure B2B model were unique visitors. online visitors with a new look Game interfacing directly between suppliers Makro Ecommerce went live in April website launching in early December. and retailers. The online platform is used During the 30 days between The fully responsive Game website was by our suppliers, our internal call centre as mid-november and mid-december, the designed to allow for simple, intuitive well as customers, to place orders. site saw a surge in unique visitors to one navigation across all devices from All sales orders in Shield are placed on million. During this period we also ran desktop PC to mobile phones. the system. The site has recently been a successful online campaign named Other key enhancements included: adapted to perform on tablets. Pricegate on the 5 New look design built on global best th of December ShieldOnline has automated interfaces Majority of Makro site visitors accessed practise while maintaining Game s to accept incoming electronic orders from the site through Desktop (65%) and the brand identity both suppliers and customers, as well as remainder accessed the site through Interactive store finder with full an outgoing interface to suppliers and is mobile (24%) and tablets (11%). Various Google map integration capable of customer pricing downloads. changes were made to optimise the Improved product information At R3,78 billion in sales and in the categories we trade in, as far as we are aware website and also to improve user Improved search and site navigation experience. The website proved extremely Shield runs the country s largest pure B2B popular with Game customers with ecommerce business. 1.1 million of them visiting the site over the peak period. 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. Every Day Low Price (EDLP) EDLP is Massmart s simple, transparent approach to shifting consumer behaviour in an uncertain economic climate. It strengthens loyalty and protects the trust that consumers have for Massmart. 1 April 2012 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 2 July 2012 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 Do more for less with Builders new positioning message 4 May 2013 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 5 1 April 2015 Another Price Lock campaign launched Following on from excellent results of first campaign - 48 products locked for six months yielding a growth of 75% Results: A quarterly independent price survey of 150 products showed that Builders Warehouse consistently aligned with the best in the market EDLP initiatives have enabled us to increase promotional margin on adverts, while still offering consumers excellent value for money and gaining price trust Excellent success stories across multiple price categories such as the Plumb Pride Geyser, which has been held at the same selling price for four years Massbuild s EDLP journey to date

50 96 Our performance Massmart Integrated Annual Report 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 Social capital Investment in social projects: R41.5million (equivalent to 3.6% PAT) R71.2m invested in developing small suppliers since the inception of the Supplier Development Fund 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 pages 12 to 27, Our divisional reviews 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.

51 98 Our performance Massmart Integrated Annual Report Social capital continued Supplier Development Fund 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. 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 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 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. 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. R71.2 million The actual disbursements to and on behalf of suppliers as at end December 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. Supplier Development Fund A proud initiative 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.

52 100 Our performance Massmart Integrated Annual Report Supplier Development Fund continued XChem Chemicals Rivoningo Steel and Design Biscotti Nkuleko Bricks stores Builders Warehouse stores 36 supplied Builders Superstore 19 supplied stores 19 supplied 4 stores Massbuild Makro supplied Massbuild Through the SDF s support, XChem has grown from just a handful of stores to a national presence in Massbuild. XChem is now listed through the Massbuild RDC and has total sales in excess of R2.0 million. The Massmart SDF started working with Angela Chris Pitsi of XChem in 2012, by supporting her through supplying her products in five Pretoria based Builders Warehouse stores. In 2014 XChem demonstrated proof of concept with an increase in sales. Full execution of a national rollout plan followed with strong SDF and buyer support. This included: In-store merchandising support Listing with the Massbuild Regional Distribution Centre, a move from own distribution to single delivery Challenges: Listing their entire range Packaging and compliance support Expanding into other Massmart formats Opportunities: In 2015 the SDF is sponsoring Angela to attend a comprehensive business management training programme that is run in conjunction with the Gordon Institute of Business Science s Enterprise Development Academy. While XChem is set to graduate from the SDF s funding support, sales will be closely tracked, merchandising support will continue for an additional 12-month period and new crosslisting opportunities will be sought within the Massmart Group. Rivoningo is a strong example of how women-owned businesses can break into steel manufacturing and steel products supply, for the home construction industry. Rivoningo has grown from just a single store listing a year ago, to 19 Massbuild stores today. The total sales from the business are now close to R3.0 million having grown from a base of R500,000. Rivoningo Steel Designs, owned by Nomhle Ndlovu, is a 100% black woman owned manufacturer of steel window and door frames. Rivoningo was established with the sole purpose of actively participating in the steel industry. The company is dedicated to delivering high quality products and craftsmanship. Challenges: Inadequate factory plant: the business currently operates from a 600m 2 factory with a height of 3.5 meters which limits them from installing larger equipment. Rivoningo requires assistance with accessing equipment to improve efficiencies and ISO compliance and certification needs. Opportunities: Grow production to optimal capacity. Extend store presence. Investment in equipment and ISO compliance and certification. There is an opportunity for funding assistance for a better facility. With the ensuing growth, all efforts are geared towards empowering Rivoningo to become a preferred and trusted supplier to Massbuild. 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. 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.

53 102 Our performance Massmart Integrated Annual Report CSI performance indicators 3.6% 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 R41.55 million 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 R23.6 million Total Investment In Nutrition Programmes (Rm) 28.2 in 2013, 26.2 in 2012, 7.8 in 2011, 4.3 in 2010 R6.0 million 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. Supplier and Staff contributions amounted to R1,1 million for the period and comprised funds raised through initiatives such as casual day, slipper day and the SANDF goodwill project. Infrastructure and school maintenance: spend in this area has increased, with the bulk of the investment coming from our Massbuild division. Investment in Early Childhood Developments: Makro have through their partnership with Hope World Wide increased their spend on early childhood development programmes Divisional Discretionary Projects: The bulk of the Groups discretionary expenditure was made by Massmart, and included a R1.0 million donation to the Nelson Mandela Fund Centre of Memory and a R1.3 million donation to the National Education Collaboration Trust. Investment in Early Childhood Development (ECD) includes Game s Tools 2 Play ECD kits and Tools 2 Teach stationary hampers, as well as Makro s contributions to ECD partners such as HOPE Worldwide. Investment in infrastructure and school maintenance is primarily based on a Builders Warehouse project that provides schools with equipment and supplies for basic repair and maintenance. Investment in discretionary projects includes donations to Community Chest, Vodacom Wheelchair Fund and ad hoc requests. BBBEE performance indicators 5.67 Ownership 6.0 in 2013, 7.6 in 2012, 14.8 in 2011, 6.6 in 2010, comparative 5.09 Management Control 4.5 in 2013, 5.2 in 2012, 5.2 in 2011, 5.6 in 2010, 9.7 comparative Employment Equity 10.2 in 2013, 12.6 in 2012, 12.3 in 2011, 11.5 in 2010, comparative 12.5 Skills Development 11.0 in 2013, 12.2 in 2012, 10.6 in 2011, 10.4 in 2010, comparative 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: Preferential Procurement 14.8 in 2013, 15.0 in 2012, 12.9 in 2011, 12.2 in 2010, comparative Enterprise Development 15.0 in 2013, 15.0 in 2012, 15.0 in 2011, 15.0 in 2010, 15.0 comparative 5.0 Socio-Economic Development 5.0 in 2013, 5.0 in 2012, 5.0 in 2011, 5.0 in 2010, 5.0 comparative BBBEE Score 66.3 in 2013, 72.8 in 2012, 75.9 in 2011, 66.1 in 2010, 77.2 comparative 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 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

54 104 Our performance Massmart Integrated Annual Report Massmart defines relationship capital as the value added to our business through our relationship with stakeholders. 18,000 face-to-face interviews with customers Cambridge Food rated the most trusted Massmart brand in a study conducted with customers. Relationship capital Supplier advocacy: 494 suppliers profiled on 35 different environmental indicators since Direct feedback from 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 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. Responding to Stakeholder Feedback Surveys and workshops are supplemented by informal discussion and one-on-one meetings as required. The engagement process in its entirety resulted in a number of follow-up actions examples of which are indicated below: In response to the results of the BUA survey, the Massmart CEO tasked divisional leaders to drive 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.

55 106 Our performance Massmart Integrated Annual Report 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 18,000 face-to-face interviews with customers were conducted on topics ranging from satisfaction and trust to e-commerce trends. 330 suppliers completed the supplier relationship survey. It covered distribution, store operations and merchant relations. 494 suppliers profiled on 35 different environmental indicators since suppliers participated in the recent environmental advocacy survey. Attended by The Black Management Forum; South African Human Rights Commission; National African Federated Chamber of Commerce; Foodbank; National Business Initiatives; South African NGO Coalition and the South African Foodlab. Attended by: Earthlife Africa, Conservation South Africa, Greenpeace South Africa, Endangered Wildlife Trust, World Wildlife Fund South Africa, Marine Stewardship Council, Forestry Stewardship Council, The Wildlife and Environment Society of South Africa. Employee feedback Customer feedback Supplier feedback Supplier advocacy Socio-economic development workshop Environmental workshop Our stakeholders responses Employees are satisfied with the level of support they receive from managers and feel empowered to make decisions in the workplace. Our relationships with suppliers remains positive, in particular, the ethical practices of our merchants continue to be highly regarded by our suppliers. Our relationships with suppliers remains positive, in particular, the ethical practices of our merchants continue to be highly regarded by our suppliers. Our suppliers have made respectable progress in driving innovation and piloting environmentally-focused product improvement initiatives. Our perspective is that Social NGOs hold positive views on the progress we have made in developing small suppliers through our supplier development programme. Our perspective is that environmental NGOs are satisfied with the level of detail covered in our supplier advocacy processes as well as our environmental accountability priorities. What we need to do better They have indicated that more active engagement in career planning is needed. Our supplier called for us to respond more rapidly to new opportunities. Our supplier called for us to respond more rapidly to new opportunities. More effort needs to be invested in driving climate change impact mitigation initiatives. It is recommended we more closely align our efforts with existing impactful activities of NGOs in the areas of skills development and community development. We were encouraged to more aggressively investigate the implementation of renewable energy within our operations. 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 Consumer Protection Act performance indicators 5,079 * Number of customer complaints involving product quality (not safety related) or warranty claims 5,499 in 2013, 6,110 in ,093 Number of customer complaints involving promotional claims, insufficient stock or marketing errors 3,318 in 2013, 2,704 in Number of customer complaints involving product liability claims and product safety claims 138 in 2013, 24 in Number of complaints at national consumer commission / tribunal 29 in 2013, 122 in 2012 The period has seen a declining trend in our complaints which could be related to improved consumer protection practices in the business The period has seen a declining trend in our complaints which could be related to improved consumer protection practices in the business The increasing trend is currently being investigated to understand the circumstances thereof. Addressing customer complaints is a priority for Massmart and we are pleased that according to the Consumer Goods Services Ombud (CGSO), we have been recognised as the fastest retailer in responding to customer complaints. 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. 32 Number of Product Recalls in Food and Liquor 21 in 2013, 22 in Number of Product Recalls in General Merchandise and Home Improvement 45 in 2013, 31 in ,065 Number of random product tests conducted on private label products 2,426 in 2013, 1,269 in 2012 Indicative of a higher amount of product testing and higher internal standards. Increase is due to the application of more stringent product safety standards and an increase in testing rates. Random product testing provides a basis for ensuring product safety. The increased testing rate is indicative of a heightened focus in this area. *Makro data for product quality and insufficient stock has been annualised as a result of a system change which was completed in 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.

56 108 Our performance Massmart Integrated Annual Report Massmart defines natural capital as our commitment to collectively reduce our environmental footprint and to enable sustainable supply chain and consumerism. Waste management: 24,000 additional tons of waste diverted from landfill Water conservation: 7,750kl harvested across 75 sites Operational cost avoidance: R52 million delivered by energy saving initiatives Energy efficiency: First new generation Builders Warehouse launched with LED sales floor lighting Natural capital Recycling: 74% 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 Our environmental initiatives are driven by an understanding that advocating more sustainable practices and product choices is fundamental to our commitment to enable sustainable supply and consumerism. In this context we recognise that minimising our own environmental footprint is the nucleus around which we develop credibility for our advocacy with our suppliers and customers. Minimising Massmart s environmental footprint Our priorities are energy efficiency, waste management and minimisation and water conservation. Massmart s corporate accountability initiatives are identified and prioritised on the basis of stakeholder feedback and with reference to set assessment criteria. More information regarding the criteria we use and the prioritisation of our initiatives can be found online. Energy 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 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 tonnes of waste diverted from landfill 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.

57 110 Our performance Massmart Integrated Annual Report 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 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 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 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. Climate change and environmental performance indicators 0.59 Estimated water consumption (KL/m 2 ) 1.7 in 2013, 2.6 in 2012, 2.6 in 2011, 1.6 in Purchased energy consumption (kwh/gla) 209 in 2013, 184 in 2012, 178 in 2011, 181 in Scope 1 emissions intensity (CO 2 /Rm) 0.6 in 2013, 0.4 in 2012, 0.5 in 2011, 0.4 in 2010 We continue to refine our water reporting, this process has revealed that we have overestimated our water intensity in previous years Decreased intensity can be attributed to the energy efficiency initiatives implemented across our formats Eco-label advocacy 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 Through our Sustainable Timber Sourcing survey and one-on-one engagement with suppliers, we have learned that 68% of the suppliers we surveyed in 2014, offer Forest Stewardship Council (FSC) certified timber products. However, these suppliers have indicated that there continues to be a lack of consumer understanding of FSC labelled products. To address this, our objective in 2015 is to engage more closely with the FSC to develop proactive marketing strategies that will increase consumer awareness of the label Scope 1 emissions intensity (CO 2 /GLA) 0.03 in 2013, 0.02 in 2012, 0.02 in 2011, 0.01 in Scope 2 emissions intensity (CO 2 /Rm) 5.3 in 2013, 5.0 in 2012, 5.3 in 2011, 5.6 in Scope 2 emissions intensity (CO 2 /GLA) 0.21 in 2013, 0.18 in 2012, 0.18 in 2011, 0.19 in 2010 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 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 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 pages 12 to 27, Our divisional reviews

58 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. Corporate Governance 114 Our assessment of the principles of King III 115 Our Board 116 Our Board committees 118 Board and committee attendance 119

59 114 Transparency and accountability Massmart Integrated Annual Report Corporate Governance Our assessment of the principles of King III 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: 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. 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. Not applied Partially applied Partially applied Principle 2.25: The Company remunerates its Directors and Executives fairly Non-executive Directors fees comprise both a base fee and an attendance fee per meeting. The Board does not believe that Directors should earn attendance fees in addition to a base fee. Many Directors add significant value and apportion significant time to the Group outside of the formal Board and Committee meetings, sometimes greater value than they might do within the confines of a formal meeting. Principle 3.4: The Audit Committee oversees integrated reporting. The Audit Committee recommends to the Board to engage an external assurance provider over material elements of the sustainability reporting within the integrated report. The Audit Committee evaluates both the independence and quality of the external providers of assurance on sustainability. Principle 9.3: Sustainability reporting and disclosure should be independently assured. The integrated report discloses the scope and methodology of independent assurance of the sustainability report, as well as the name of the assurer. Sustainability reporting is independently assured in accordance with a formal assurance process established. Massmart s sustainability report has not been audited by an external assurance provider but verification of the key sustainability metrics have been obtained through agreed upon procedures performed by internal audit. A copy of the agreed upon procedures report is available at the registered offices of the Company. Principle 8.6: The Board should ensure that disputes are resolved effectively and as expeditiously as possible. The Board has adopted formal dispute resolution processes for internal and external disputes. The Board does not have a formal dispute resolution process as it believes that the existing processes within the Group operate satisfactorily and do not require a more formal and separate mechanism. The Group Legal Executive and General Counsel is responsible for managing and advising the Board of significant disputes that arise within the Group. This individual manages a group of attorneys who supervise, manage or advise the business on external legal disputes within the Group. Internal disputes are managed through subjectspecific policies and procedures. The General Counsel reports to the Board all significant legal exposures and disputes within the Group.

60 116 Transparency and accountability Massmart Integrated Annual Report 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 non- Executive Directors. Annually, the Nomination Committee prepares and circulates a questionnaire aimed at gauging the independence status of each non-executive Director. This is completed by each non-executive Director and returned to the Committee, which then considers each Director s independence. The Committee feels that the following aspects are important in assessing a non-executive Director s independence: whether the Director had been employed in an executive capacity in the Group in the previous three years; whether the Director had served on the Board for longer than nine years. In this case, the Committee considers whether that Director s independence, judgement and contribution to the Board s deliberation could be compromised, or may appear to be compromised, by this length of service; whether the Director is a representative of a major shareholder; and whether the proportion of that Director s shareholding in Massmart (if any) or Director s fees represent a material part (10% or more) of their wealth or income. The three Walmart-appointees are not considered independent. The Committee also believes that none of the four independent non-executive Directors, or entities associated with or controlled by them, owns shares in Massmart which, relative to their personal wealth or income, are sufficiently material to affect his/her independence. The Board is comfortable that it meets the King III principle of having an arm s-length relationship with the Company Secretary and confirms that the Company Secretary is not a Director of any of the main operating companies within the Group. The Company Secretary, Philip Sigsworth, CA (SA), was the Financial Director of JSE listed company, Austro Group Limited (Austro Group), prior to joining Massmart, where he also performed company secretarial work. The Board confirms that it has assessed and is happy with the qualification, competence and expertise of the Company Secretary. The Company Secretary assists the Board in fulfilling its functions and is empowered by the Board to perform his duties. The Company Secretary, directly or indirectly: assists the Chairman, CEO and CFO with the induction of new Directors; assists the Board with Director orientation, development and education; ensures that the Group complies with all legislation applicable/relevant to it; monitors the legal and regulatory environment and communicates new legislation, and any changes to existing legislation, relevant to the Board and the Divisions; and provides the Board with a central source of guidance and assistance. At least one-third of the non-executive Directors are required to retire every year and Massmart Executive Directors have elected to also retire on this basis. As a result, all Directors retire by rotation at least every three years and are then eligible for re-election. In addition, shareholders must ratify the initial appointment of each Director at the first Annual General Meeting following that Director s appointment. As a result of these requirements, at the 27 May 2015 Annual General Meeting Kuseni Dlamini, Phumzile Langeni and JP Suarez retire by rotation; while Shelley Broader, Andy Clarke and Johannes van Lierop will resign, as required by the Memorandum of Incorporation. Being eligible, they all offer themselves for re-election. Board process and 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 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.

61 118 Transparency and accountability Massmart Integrated Annual Report Our Board committees Board and committee attendance Risk Committee Meets twice per year Reviewing and reporting on compliance with King III. Overseeing the Group s risk management programme as contemplated in King III. Chris Seabrooke, Norman Gray, Lulu Gwagwa, Guy Hayward, Phumzile Langeni, Mike Spivey, Johannes van Lierop* 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* * Ilan Zwarenstein resigned as Group FD with effect from 12 March 2015, at which time Johannes van Lierop was appointed as CFO of Massmart. 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. Kuseni Dlamini, Shelley Broader, Chris Seabrooke R E N A M SE Audit Committee Meets 3 times per year Overseeing the effectiveness of the Group s internal control systems. Reviewing the scope and effectiveness of the external and internal audit functions. Ensuring that adequate accounting records have been maintained. Ensuring the appropriate accounting policies have been adopted and consistently applied. Overseeing the quality and integrity of the annual financial statements. Testing that the Group s going-concern assertion remains appropriate. Chris Seabrooke, Lulu Gwagwa, Phumzile Langeni Remuneration Committee Meets 4 times per year 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 Social and Ethics Committee Meets twice per year Assists the Group with its responsibility towards sustainability with respect to practices that are consistent with good corporate citizenship. Considers the Group s standing in terms of consumer relationships, with particular attention to the United Nations Global Compact Principles and the OECD recommendations concerning corruption. Considers the Group s contribution to the social and economic development within our communities. Monitoring the Group s activities relating to labour and employment, the environment, health and public safety, and consumer relationships. Phumzile Langeni, Guy Hayward, JP Suarez More information on the activities and responsibilities of the Audit, Risk, Nomination and Executive Committees can be found on the web at More information on the activities and responsibilities of the Remuneration and Social and Ethics Committees can be found on p82 and p103 respectively. The table below reflects the Board Committee members meeting attendance for the 52 weeks ended December 2014 Status / Position Board AGM Audit Risk Nomination Remuneration Social and Ethics Board Members K Dlamini 1 Independent non-executive 3/3 C 1/ /3 C 3/3 - MJ Lamberti 2 Independent non-executive 1/1 C - 1/1 1/1 1/1 C 1/1 - CS Seabrooke Independent non-executive 4/4 1/1 C 3/3 C 2/2 C 4/4 4/4 C - S Broader 3 Non-Executive 2/2-2/2* 1/1* 2/2 2/2 2/2* D Cheesewright 4 Non-Executive 0/2 0/ /2 0/2 - A Clarke 3 Non-Executive 1/ JA Davis 4 Non-Executive 2/2 1/1 1/1* 1/1* 1/1* 1/2* - NN Gwagwa Independent non-executive 4/4 1/1 3/3 2/2 1/1* - - GRC Hayward 5 Executive 4/4 1/1 3/3* 2/2 4/4* 4/4* 1/1 P Langeni Independent non-executive 4/4 1/1 3/3 2/2 1/1* - 2/2 C GM Pattison 5 Executive 2/4 1/ /1* 1/4* 0/1 JP Suarez Non-Executive 3/4 0/ /4* 1/2 I Zwarenstein 6 Executive 4/4 1/1 3/3* 2/2 1/1* - - Management T Doorasamy Chief Compliance Officer - - 1/1* 2/2* - - 1/2* N Gray Chief Audit Executive - 1/1* 3/3* 2/ B Leroni Corporate Affairs Executive /2* P Maphoshe Human Capital Executive /2* P Sigsworth Company Secretary 4/4* 1/1* 3/3* 2/2* M Spivey General Counsel 4/4* 1/1* 3/3* 2/2 4/4* 4/4* 1/2* L Walters 7 Divisional Chief Executive Massbuild / J Wilford 7 Financial Director Masswarehouse / C Chairperson * 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 5 Following Grant Pattison s resignation as CEO, Guy Hayward, his successor, was appointed to the Social and Ethics Committee with effect from 1 June Ilan 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

62 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

63 122 Shareholder information Massmart Integrated Annual Report Notice of the Annual General Meeting for the year ended December 2014 Notice is hereby given that the Annual General Meeting of holders of all classes of shares of the Company will be held on Wednesday, 27 May 2015, at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, Sandton, for purposes of: 1. Transacting the following business: 1.1 presenting the audited Annual Financial Statements of the Company and its subsidiaries (Group) for the year ended December 2014, and the associated Directors report and External Auditors report, the Audit Committee report and the Social and Ethics Committee report; 1.2 electing Directors in the place of those resigning and retiring in accordance with the Company s Memorandum of Incorporation; and 1.3 such other business as may be transacted at an annual general meeting. 2. Considering and, if deemed fit, passing, with or without modification, the below mentioned ordinary and special resolutions. The Board of Directors of the Company has determined, in accordance with section 59 of the Companies Act 71 of 2008, as amended (Act), that the respective record dates for shareholders to be recorded as shareholders in the securities register of the Company in order to: (i) be entitled to receive this notice of Annual General Meeting is Friday, 17 April 2015; and (ii) be entitled to attend, participate and vote at the Annual General Meeting is Friday, 22 May The last date to trade to be entitled to attend, participate and vote at the Annual General Meeting is Friday, 15 May Ordinary business The audited summarised consolidated Annual Financial Statements of the Company and the Group (as approved by the Directors of the Company), including the Directors report and External Auditors report, the Audit Committee report and the Social and Ethics Committee report for the year ended December 2014, circulated together with this notice of Annual General Meeting, are presented to the shareholders for their consideration. The audited summarised consolidated Annual Financial Statements for the year ended December 2014 are set out in the Chief Financial Officer s Review on pages 46 to 70 of the Integrated Annual Report. A full set of the audited Group Annual Financial Statements for the year ended December 2014 can be found on the Company s website at: massmart.co.za/iar2014/groupafs Ordinary resolutions Biographical details of the Directors resigning and retiring below can be found on pages 40 to 41 and in more detail on the Company s website at: massmart.co.za/iar2014/cvs Ordinary resolution number 1 Resolved that Shelley Broader, who resigns as required by the Memorandum of Incorporation and has offered herself for re-election, be and is hereby re-elected to the Board of Directors of the Company. In terms of the Act, more than 50% of the voting rights exercised on this resolution must be cast in favour of ordinary resolution number 1 for it to be adopted. Ordinary resolution number 2 Resolved that Andy Clarke, who resigns as required by the Memorandum of Incorporation and has offered himself for reelection, be and is hereby re-elected to the Board of Directors of the Company. In terms of the Act, more than 50% of the voting rights exercised on this resolution must be cast in favour of ordinary resolution number 2 for it to be adopted. Ordinary resolution number 3 Resolved that Johannes van Lierop, who resigns as required by the Memorandum of Incorporation and has offered himself for re-election, be and is hereby re-elected to the Board of Directors of the Company. 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 3 for it to be adopted. Ordinary resolution number 4 Resolved that Kuseni Dlamini, who retires by rotation and has offered himself for re-election, be and is hereby re-elected to the Board of Directors of the Company. 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 4 for it to be adopted. Ordinary resolution number 5 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. 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 5 for it to be adopted. Ordinary resolution number 6 Resolved that JP Suarez, who retires by rotation and has offered himself for re-election, be and is hereby re-elected to the Board of Directors of the Company. 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 6 for it to be adopted. Ordinary resolution number 7 Resolved that Ernst & Young Inc. (with Mr Allister Carshagen as the Audit Partner) be and are hereby elected as the Company s auditors for the ensuing financial year to hold office until the Company s next Annual General Meeting, as approved by the Audit Committee and recommended to shareholders. 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. Ordinary resolution number 8 Resolved that the following persons be and are hereby appointed, each by way of a separate vote, as members of the Audit Committee: 8.1 Chris Seabrooke (Chairman) 8.2 Lulu Gwagwa 8.3 Phumzile Langeni* * Subject to her re-election as Director pursuant to ordinary resolution number 5. In terms of the Act, more than 50% of the voting rights exercised on each of these resolutions must be cast in favour of each of ordinary resolution numbers 8.1, 8.2 and 8.3 for such resolutions to be adopted. Ordinary resolution number 9 Resolved that, subject to the JSE Limited (JSE) Listings Requirements (JSE Listings Requirements), the Directors be and are hereby authorised to issue ordinary shares in the authorised but unissued shares of the Company (or to issue options or convertible securities convertible into ordinary shares) for cash to such person or persons on such terms and conditions as they may deem fit, subject to the following: 9.1 the securities shall be of a class already in issue, or convertible into a class already in issue; 9.2 the securities shall be issued to public shareholders (as defined in the JSE Listings Requirements) and not to related parties (as defined in the JSE Listings Requirements); 9.3 the issues of securities in the aggregate under the authority of this resolution during the period in 9.5 below shall not exceed 5% of the number of securities of that class already in issue as at the date of this notice of Annual General Meeting, being 217,123,982 ordinary shares, determined in accordance with the relevant provisions of the JSE Listings Requirements, provided that: any equity securities issued under the authority during the period contemplated in 9.5 below must be deducted from such number in 9.3 above; and in the event of a sub-division or consolidation of the issued equity securities during the period contemplated in 9.5 below, the existing authority must be adjusted accordingly to represent the same allocation ratio; 9.4 the maximum discount at which the shares may be issued shall be 10% of the weighted average traded price of the shares of the Company measured over the 30 business days prior to the date that the price of the issue is agreed between the Company and the party subscribing for the shares; 9.5 the authority hereby granted will be valid until the Company s next Annual General Meeting, provided that it will not extend beyond 15 months from the date on which this resolution is passed; and 9.6 once shares representing, on a cumulative basis within the period contemplated in 9.5 above, 5% or more of the Company s issued ordinary and/or preference shares prior to that issue, have been issued, the Company shall publish an announcement in accordance with the JSE Listings Requirements. Pursuant to the JSE Listings Requirements, the Company will only be entitled to implement this general authority to allot and issue ordinary shares for cash if this ordinary resolution number 9 is passed by a majority of 75% or more of the votes cast by all shareholders present or represented by proxy at the Annual General Meeting, excluding any votes cast by the Massmart Holdings Limited Employee Share Trust. Ordinary resolution number 10 Resolved that, by way of a non-binding advisory vote, the remuneration policy of the Company, as outlined in the Remuneration Report on pages 82 to 91 of the Integrated Annual Report, is endorsed. As this is a non-binding advisory vote, no minimum voting threshold is required. Nevertheless, for record purposes, in terms of King III more than 50% of the voting rights exercised on this resolution must be cast in favour of ordinary resolution number 10 for it to be adopted. This non-binding advisory vote allows shareholders to express their views on the remuneration policies adopted by the Company and on their implementation. Special 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: 1.1 the authority hereby granted will be valid until the Company s next Annual General Meeting or for 15 months from the date of this special resolution, whichever period is shorter; 1.2 repurchases may not be made at a price greater than 10% above the weighted average of the market value for the shares determined over the 5 business days immediately preceding the date that the repurchase is effected (or, if no shares of the Company have been traded in that period, subject to a ruling by the JSE);

64 124 Shareholder information Massmart Integrated Annual Report Notice of the Annual General Meeting continued for the year ended December repurchases in the aggregate in any one financial year shall not exceed 15% of that class of the Company s issued shares; 1.4 the repurchase of shares will be effected through the order book operated by the JSE trading system and will be done without any prior understanding or arrangement between the Company and the counterparty; 1.5 the Company may only appoint one agent, at any point in time, to effect the repurchases on the Company s behalf; 1.6 neither the Company nor its subsidiaries may repurchase shares during a prohibited period (as defined in the JSE Listings Requirements) unless a repurchase programme is in place where the dates and quantities of shares to be traded during the relevant period are fixed (not subject to any variation) and has been submitted to the JSE in writing. The Company will instruct an independent third party, which makes its investment decisions in relation to the Company s securities independently of, and uninfluenced by, the Company, prior to the commencement of the prohibited period to execute the repurchase programme submitted to the JSE; 1.7 an announcement complying with paragraph of the JSE Listings Requirements will be published by the Company when the Company and/or its subsidiaries have cumulatively repurchased 3% of the Company s initial number of issued ordinary and/or preference shares at the time that the general authority from shareholders is granted and for each 3% in aggregate of the initial number of that class acquired thereafter; and 1.8 a resolution by the Board of Directors that it authorises such repurchase, that the Company and its subsidiaries have passed the solvency and liquidity test as set out in section 4 of the Act and that since the application by the Board of Directors of the solvency and liquidity test, there have been no material changes to the financial position of the Group, has been passed. Statement by the Board of 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 In terms of the Act, at least 75% of the voting rights exercised on this resolution must be cast in favour of special resolution number 1 for it to be adopted. Special resolution number 2 Resolved, as a special resolution, that the following Directors remuneration (payable to the applicable non- Executive Directors for services to be rendered by them in their capacities as such), be and is hereby approved, each by way of a separate vote, for the period commencing on 28 May 2015 to the date of the Company s next Annual General Meeting: R Chairman of the Board 1,200, , Deputy Chairman 625, , Independent non-executive Directors 275, , Committee Chairpersons 252, , Committee Members 128, ,000 In terms of the Act, at least 75% of the voting rights exercised on each of these resolutions must be cast in favour of special resolution numbers 2.1, 2.2, 2.3, 2.4 and 2.5 for such resolutions to be adopted. The Remuneration Report for the year ended December 2014 can be found on pages 82 to 91 of the Integrated Annual Report. Special resolution number 3 Resolved, as a special resolution, to the extent required in terms of, and subject to the provisions of, section 45 of the Act, that the shareholders hereby approve of the Company providing, at any time and from time to time during the period of 2 years commencing on the date of this special resolution, any direct or indirect financial assistance as contemplated in such section of the Act to any one or more related or inter-related companies or corporations (as defined in the Act) of the Company and/or to any one or more members of any such related or inter-related company or corporation and/or to any one or more persons related to any such company or corporation, on such terms and conditions as the Board of Directors of the Company, or any one or more persons authorised by the Board of Directors of the Company from time to time for such purpose, deems fit, provided that any such financial assistance shall not in the aggregate exceed an amount of R15 billion in any financial year. In terms of the Act, at least 75% of the voting rights exercised on this resolution must be cast in favour of special resolution number 3 for it to be adopted. The following direct and/or indirect financial assistance was provided by the Company to related and/or inter-related companies and/or corporations of the Company as at the financial year ended December 2014: Rbn Cross Suretyships in respect of 9.0 banking facilities 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.

65 126 Shareholder information Massmart Integrated Annual Report Notice of AGM continued for the year ended December 2014 Special resolution number Resolved as a special resolution of the holders of ordinary shares and subject to the passing of resolution 4.2, that the Memorandum of Incorporation of the Company be and is hereby amended in terms of section 16 of the Act to give effect to each of the proposed amendments contained in Schedule 1 attached to the notice of Annual General Meeting in terms of which this special resolution is proposed. In terms of the Act, at least 75% of the voting rights exercised by holders of ordinary shares on this resolution must be cast in favour of special resolution number 4.1 for it to be adopted. 4.2 Resolved as a special resolution of the holders of B preference shares and subject to the passing of resolution 4.1, that the Memorandum of Incorporation of the Company be and is hereby amended in terms of section 16 of the Act to give effect to each of the proposed amendments contained in Schedule 1 attached to the notice of Annual General Meeting in terms of which this special resolution is proposed. In terms of the Act, at least 75% of the voting rights exercised by the holders of B preference shares on this resolution must be cast in favour of special resolution number 4.2 for it to be adopted. Reason for special resolution number 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. Special resolution number Resolved as a special resolution of the holders of ordinary shares and subject to the passing of resolutions 4.1 and 5.2 that the new, consolidated revision of the Memorandum of Incorporation of the Company be and is hereby ratified and adopted in terms of section 18 of the Act. In terms of the Act, at least 75% of the voting rights exercised by holders of ordinary shares on this resolution must be cast in favour of special resolution number 5.1 for it to be adopted. 5.2 Resolved as a special resolution of the holders of B preference shares and subject to the passing of resolutions 4.2 and 5.1 that the new, consolidated revision of the Memorandum of Incorporation of the Company be and is hereby ratified and adopted in terms of section 18 of the Act. In terms of the Act, at least 75% of the voting rights exercised by the holders of B preference shares on this resolution must be cast in favour of special resolution number 5.2 for it to be adopted. Reason for special resolution number 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 Annual General Meeting. General Identification, voting and proxies Shareholders are entitled to attend, speak and vote at the Annual General Meeting. In terms of section 63(1) of the Act, any person attending or participating in the Annual General Meeting must present reasonably satisfactory identification and the person presiding at the Annual General Meeting must be reasonably satisfied that the right of any person to participate in and vote (whether as a shareholder or as proxy for a shareholder) has been reasonably verified. Forms of identification include valid identity documents, driver s licences or passports. Shareholders holding dematerialised shares, but not in their own name, must furnish their Central Securities Depository Participant (CSDP) or broker with their instructions for voting at the Annual General Meeting. If your CSDP or broker, as the case may be, does not obtain instructions from you, it will be obliged to act in accordance with your mandate furnished to it, or if the mandate is silent in this regard, complete the form of proxy attached. Unless you advise your CSDP or broker, in terms of the agreement between you and your CSDP or broker by the cut-off time stipulated therein, that you wish to attend the Annual General Meeting or send a proxy to represent you at the Annual General Meeting, your CSDP or broker will assume that you do not wish to attend the Annual General Meeting or send a proxy. If you wish to attend the Annual General Meeting or send a proxy, you must request your CSDP or broker to issue the necessary letter of authority to you. Shareholders holding dematerialised shares, and who are unable to attend the Annual General Meeting and wish to be represented thereat, must complete the form of proxy attached in accordance with the instructions therein and lodge it with or mail it to the transfer secretaries, Computershare Investor Services Proprietary Limited (Computershare). A form of proxy (which is attached) must be dated and signed by the shareholder appointing a proxy and should be forwarded to reach Computershare by no later than 09h00 on Monday, 25 May 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 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

66 128 Shareholder information Massmart Integrated Annual Report Schedule 1 Proposed amendments to Memorandum of Incorporation Form of proxy Massmart Holdings Limited Incorporated in the Republic of South Africa Registration number 1940/014066/06 JSE share code MSM ISIN ZAE ( Massmart or the Company ) 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 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 The Memorandum of Incorporation of the Company is amended by the deletion of clause 8.1 and the replacement thereof with a new clause 8.1 which reads as follows: 8.1 Pursuant to section 33(2) of the Financial Markets Act, the Company may only issue further listed Securities in uncertificated form. Except to the extent otherwise provided in the Act, the rights and obligations of Security holders shall not be different solely on the basis of their Securities being Certificated Securities or Uncertificated Securities and each provision of this Memorandum of Incorporation applies with respect to any Uncertificated Securities in the same manner as it applies to Certificated Securities, unless otherwise stated or indicated by the context. Reason for and effect of proposed amendment The Financial Markets Act 19 of 2012 commenced on 3 June It provides in section 33(2) that listed securities may now only be issued in uncertificated (dematerialised) form. This requirement will now be incorporated into the relevant provisions of the Memorandum of Incorporation of the Company concerning the issuance by the Company of certificated and uncertificated securities. Proposed amendment 3 The Memorandum of Incorporation of the Company is amended by the insertion of a new clause therein which reads as follows: All results of voting by the Shareholders on resolutions submitted to them shall be announced and disclosed by the Company as required by the JSE Listings Requirements. The announcement shall include the following: the resolutions proposed at the meeting; the Shares voted in person or by proxy disclosed as a number and a percentage (in relation to the total issued Share capital of that class of the Company); the Shares abstained disclosed as a percentage (in relation to the total issued Share capital of that class of the Company); 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 ); and to the extent that the number of Shares in clauses and differ for each resolution, details must be provided per resolution. Reason for and effect of proposed amendment 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. Proposed amendment 4 The Memorandum of Incorporation of the Company is amended by the deletion of clause 27 thereof and replacing it with a new clause 27 which reads as follows: 27 Restriction on shareholders acting other than at a meeting Despite section 60, only the following resolutions of Shareholders may be proposed as written resolutions in accordance with section 60 of the Act, as per the JSE Listings Requirements: 27.1 a change of name of the Company; 27.2 resolutions in respect of odd-lot offers as contemplated in clause 20; 27.3 an increase in the number of authorised Shares; and 27.4 approval of any amendment to this Memorandum of Incorporation, and apart from the above, all resolutions of Shareholders may only be passed at general meetings. Reason for and effect of proposed amendment 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. For use by certificated and dematerialised shareholders who have own name registration of shares on Friday, 22 May 2015 at the Annual General Meeting to be held on Wednesday, 27 May 2015 at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, Sandton I/We (Please PRINT full names) of (address) being the holders of ordinary shares/ B preference shares, hereby appoint (see note 3), 1. or failing him/her, 2. or failing him/her, the Chairman of the Annual General Meeting as my/our proxy to participate in, speak and vote for me/us on my/our behalf at the Annual General Meeting which will be held for the purpose of considering and, if deemed fit, passing the ordinary and special resolutions to be proposed and at each adjournment of the Annual General Meeting and to vote for or against the ordinary and special resolutions or to abstain from voting in respect of the shares in the issued capital of the Company registered in my/our name/s, in accordance with the following instructions (see note 4). Insert an X or the number of ordinary shares/ B preference shares (see note 4) 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 4.1 Authorisation by ordinary shareholders for the Company to amend its Memorandum of Incorporation N/A N/A N/A 4.2 Authorisation by B preference shareholders for the Company to amend its Memorandum of Incorporation N/A N/A N/A 5.1 Authorisation by ordinary shareholders for the Company to ratify and adopt the consolidated revised Memorandum of Incorporation N/A N/A N/A 5.2 Authorisation by B preference shareholders for the Company to ratify and adopt the consolidated revised Memorandum of Incorporation N/A N/A N/A (Indicate with an X or the relevant number of shares, in the applicable space, how you wish your votes to be cast.) If you return this form duly signed, without any specific directions, the proxy will vote as he/she thinks fit. *OS Ordinary shares *PS Preference shares Signed at on 2015 Signature Assisted by me (where applicable) Completed forms of proxy must be lodged with Computershare Investor Services Proprietary Limited, not less than 48 (fortyeight) hours before the time for holding the Annual General Meeting, i.e. by no later than 09h00 on Monday, 25 May Please read the notes on the reverse side of this form of proxy.

67 130 Shareholder information 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 Call Centre 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 The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the Annual General Meeting and speaking and voting in person at such meeting to the exclusion of any proxy appointed in terms of this form of proxy. 7. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity or other legal capacity must be attached to this form of proxy unless previously recorded by Computershare or waived by the Chairman of the Annual General Meeting. 8. Any alterations or corrections made to this form of proxy must be initialled by the signatory/ies. 9. A minor must be assisted by his/her parent or guardian unless the relevant documents establishing his/her legal capacity are produced or have been registered by Computershare. 10. The Chairman of the Annual General Meeting may accept any form of proxy which is completed other than in accordance with these notes if the Chairman is satisfied as to the manner in which the shareholder wishes to vote. 11. If any shares are jointly held, the first name appearing in the register shall, in the event of a dispute, be taken as a shareholder. Definitions and formulas Employment costs Includes the IFRS 2 Share-based Payment expense. 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 (m 2 ) Trading space excludes parking, yard, warehouse space, office space and receiving areas. Regional distribution centre space (m 2 ) 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 LSM 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. 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. Sales per FTE Sales FTEs Sales per trading m 2 Sales Trading m 2 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 Operating margin (%) Operating profit Sales Trading profit before interest and taxation margin (%) Trading profit before interest and taxation Sales EBITDA margin (%) Effective tax rate (%) EBITDA Sales Taxation Profit before tax Return on average shareholders equity (%) Headline earnings Average of opening and closing equity attributable to equity holders of the parent Return on capital employed (%) Operating profit before asset 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 (%) 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 Net cash to total equity (%) Cash and cash equivalents, net of borrowings Total equity at the end of the financial year Current ratio Current assets Current liabilities Quick ratio Current assets excluding inventory Current liabilities The tax rate reconciliation can be found on page 56.

68 Glossary / definitions Inventory days Inventory Total cost of sales multiplied by the number of days traded in the financial year Inventory turn Total cost of sales Inventory Payable days Trade payables excluding VAT Total cost of sales multiplied by the number of days traded in the financial year Asset turn Sales Total assets Total liabilities to total equity Current and non-current liabilities Total equity 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 Headline earnings per share Headline earnings Weighted average number of shares in issue Diluted headline earnings per share Headline earnings Diluted weighted average 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 Dividends/distribution per share Distribution to shareholders Total number of shares in issue Cash generated from operations before working capital movements per share Cash generated from operations before working capital movements Weighted average number of shares in issue JAN FEB MAR APR Operating cash flow per share Net cash flow from operating activities Weighted average number of shares in issue Net cash flow from operating activities, excludes dividends paid. Net asset value per share Closing equity attributable to equity holders of the parent Total number of shares in issue Return on equity (%) Headline earnings excluding foreign exchange Average ordinary shareholders equity Return on sales (%) Operating profit before interest and tax excluding foreign exchange Sales Dividend cover Headline earnings per share Interim and final dividend per share MAY JUN JUL AUG SEP OCT NOV DEC We strive to provide useful and frequent disclosure to our shareholders, regardless of how uncomfortable this may be in periods of difficulty or under performance. Massmart reports formally to shareholders twice a year (in February and August) when its full-year and half-year results, together with a thorough Executive overview, are announced and issued to shareholders and the media. On both occasions the CEO, CFO and certain Group Executives give presentations to institutional investors, analysts and the media. Early in January and July, shortly after the conclusion of the full-year and half-year trading periods, on release of the Integrated Annual Report and at the Group s annual general meeting in May, Massmart releases sales updates reporting on the Group s year-to-date sales performance. In addition, annually in November, the CEO and CFO host a day-long visit by institutional analysts and investors to Massmart stores. A sales update is released along with this visit. During the year, apart from closed periods, the CEO and CFO together meet regularly with institutional shareholders and, in addition, are available for meetings or conference calls with analysts and any existing or prospective Massmart shareholders. Stock exchange information at 24 December 2014 Shares in issue (millions) Shares traded (millions) 88.0 Percentage of shares traded (%) 40.5 Earnings yield (%) 3.5 Dividends yield (%) 2.9 Market capitalisation (Rm) 31,249 Closing share price South African (Rand) Company Secretary P Sigsworth, CA(SA) Registered office Massmart House, 16 Peltier Drive Sunninghill Ext 6, Sandton, 2146, South Africa Postal address Private Bag X4, Sunninghill, 2157, South Africa Telephone number + 27 (0) Facsimile number + 27 (0) Website Company registration number 1940/014066/06 (incorporated in South Africa) JSE share code MSM ISIN ZAE 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 Auditors Ernst & Young Inc. Corporate law advisors Cliffe Dekker Hofmeyr Edward Nathan Sonnenbergs Lead sponsor Deutsche Securities (SA) Proprietary Limited