11.6% LEVEL 3 DEDICATED TO VALUE SECOND LARGEST DISTRIBUTOR OF CONSUMER GOODS IN AFRICA .9% INCREASE SALES B-BBEE R53.0 BILLION STORES IN AFRICA

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1 SECOND LARGEST DISTRIBUTOR OF CONSUMER GOODS IN AFRICA B-BBEE LEVEL % SCORE SALES % INCREASE R53.0 BILLION STORES IN AFRICA HEADLINE EARNINGS PER SHARE BEFORE TRANSACTION COSTS UP BY 8.5% INTEGRATED ANNUAL REPORT 2011 DEDICATED TO VALUE OPERATING PROFIT BEFORE TRANSACTION COSTS UP BY 10.3% FOUR DIVISIONS POWERED BY

2 Contents MASSMART AT A GLANCE 1 REPORTS TO STAKEHOLDERS 29 TEN-YEAR REVIEW 63 OPERATIONAL REVIEW 81 CORPORATE ACCOUNTABILITY 125 CORPORATE GOVERNANCE 157 GROUP FINANCIAL STATEMENTS 203 COMPANY FINANCIAL STATEMENTS 299 SHAREHOLDER INFORMATION 313 Financial highlights 1 Our business model 2 Our vision and mission 4 Our investment proposition 4 Corporate accountability synopsis 6 Our shares and shareholder information 8 Group profi le 10 Store regional map 16 Executive Directors 18 Non-executive Directors 19 Executive Committee 22 Chairman's letter to stakeholders 29 Chief Executive Offi cer's review 34 Chief Financial Offi cer's review 41 Defi nitions and formulas 63 Massmart since Ten-year review 66 Massdiscounters divisional review 82 Masswarehouse divisional review 93 Massbuild divisional review 103 Masscash divisional review 113 Channel and Shared Services review 120 Introduction 125 Engaging with stakeholders 126 Defi ning sustainability priorities 128 Stakeholder engagement feedback 130 Massmart s progress update 139 Massmart s accountability by the numbers 146 Additional readings 152 Corporate governance 157 The Board 159 Executive Committee 164 Social and Ethics Committee 165 Audit and Risk Committee 166 Risk 169 Remuneration of directors and executives 178 Compliance, transparency and accountability 185 Investor relations 188 King III question and answer 190 Approval of the annual fi nancial statements 203 Directors' report 205 Income statement 209 Statement of comprehensive income 210 Statement of fi nancial position 211 Statement of cash fl ows 212 Statement of changes in equity 213 Notes to the annual fi nancial statements 214 Income statement 299 Statement of comprehensive income 299 Statement of fi nancial position 300 Statement of cash fl ows 301 Statement of changes in equity 302 Notes to the annual fi nancial statements 303 Notice of annual general meeting 313 Form of proxy 321 STAKEHOLDERS GUIDE Massmart recognises that its business must serve to all stakeholders. This guide will direct you to the parts of this annual report that specifi cally address the interests of different stakeholder groups. SHAREHOLDERS: In addition to Walmart, Massmart has over 6,100 shareholders in South Africa and abroad ranging from major institutions to individuals. Chairman's review 29 Chief Executive Offi cer's review 34 Chief Financial Offi cer's review 41 Ten-year review 66 Group Financial Statements 203 EMPLOYEES: Massmart employs over 30,495 people across its operations. Many thousands more rely on our employees for their livelihoods. Corporate accountability 125 Operational review 82 Chief Executive Offi cer's review 34 Corporate governance 157 COMMUNITIES: Massmart operates from 289 sites in South Africa and 26 sites in 12 other sub-saharan countries and is integrally involved with the communities around its operations. Corporate accountability 125 Corporate governance 157 Operational review 82 Chairman's review 29 CUSTOMERS: Massmart appeals to a wide variety of customers ranging from LSM 2 to 10. Operational review 82 Chairman's review 29 Group Financial Statements 203 Corporate accountability 125 SUPPLIERS: Massmart sources goods and uses the services of approximately 9,548 active suppliers. Group Financial Statements 203 Operational review 82 Chief Executive Offi cer's review 34 Chief Financial Offi cer's review 41 Corporate accountability 125 Corporate governance 157

3 Massmart Annual Report Financial highlights UP BY 11.6% R52,950.1m TOTAL SALES 2010: R47,451.0m UP BY 10.3% R2,058.7m OPERATING PROFIT* 2010: R1,866.7m 33.7% RETURN ON EQUITY* 2010: 34.9% PER SHARE PERFORMANCE FINANCIAL STATISTICS UP BY 10.0% R1,252.7m HEADLINE EARNINGS* 2010: R1,138.6m UP BY 8.5% 615.5c HEADLINE EARNINGS* 2010: cents 4.1% TRADING PROFIT BEFORE INTEREST AND TAXATION MARGIN* 2010: 4.3% DOWN BY 22.5% R881.9m HEADLINE EARNINGS INCLUDING TRANSACTION COSTS 2010: R1,138.6m 386.0c DIVIDENDS 2010: cents 47.2% RETURN ON CAPITAL EMPLOYED* 2010: 51.8% DOWN BY 28.8% R1,878.1m CASH GENERATED FROM OPERATIONS* 2010: R2,639.4m UP BY 7.7% 1,854.2c NET ASSET VALUE 2010: 1,722.0 cents 15.1% DEBT: EQUITY 2010: 11.1% * excluding effect of Transaction costs READ MORE TEN-YEAR REVIEW More detail on definitions and explanatory notes can be found on page 63 READ MORE GROUP FINANCIAL STATEMENTS More detail on headline earnings per share can be found in note 12 on page 238

4 2 Massmart at a Glance Our business model MASSMART GROUP Massmart has evolved a business model that empowers its Divisions to take trading decisions suited to their individual operating needs but within a strategic operating and fi nancial framework set by the Group. This has several advantages. The framework guarantees consistent compliance with the best governance standards and national legislative requirements. It commits each Division to implementing Massmart s core strategy of being a high-volume, low-margin distributor of quality branded consumer goods for cash, and ensures expansion plans add net value to the Group. At the same time, Divisions can 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 profi les. The model operates through four entities: R Massmart Holdings, the shareholder of the operating Divisions that consolidates the Group s fi nancial, treasury, tax and company secretarial functions and is headed by the Group CFO; R Channel, where Divisions can share best practice and develop mutually benefi cial collaborative efforts; R Shared Services, which handles those activities identifi ed by Channel that are more cost effective to share across Divisions; and R the four operating Divisions themselves. MASSMART HOLDINGS Massmart Holdings performs the Group management role and defi nes the strategic and broad operating principles that guide the Group s activities. Its functions include budget approval and capital allocation, store site location, executive appointments, development and retention, corporate affairs, human capital and internal audit. A business intelligence unit collates and analyses divisional data to inform Group strategy and decision-making. Decentralised decision-making is given effect through a Group Executive Committee reporting to the Group 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 Executives are also represented on each of the four Divisional Boards as non-executive Directors. Massmart is a managed portfolio of four divisions, each focused on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash, through 313 stores in 13 countries in sub-saharan Africa.

5 Massmart Annual Report MASSMART CHANNEL Massmart Channel consists of formal trading and functional forums where ideas on collaboration across Divisions are shared. Trading forums cover Food and Liquor, General Merchandise, and Cellular. Functional forums include Technology, Information and Process (TIP), Operations, Supply Chain and Human Resources. Trading forums are headed by Divisional CEOs and functional forums are headed by Group Executives. Directors and Executives from the Divisions attend forums in their specifi c areas of competence. Once consensus is reached on a collaborative proposal, the Executive Committee approves whether it should be rolled out across the Group. MASSMART SHARED SERVICES Massmart Shared Services implements collaborative agreements reached by Channel. The most important are Group supplier negotiations for all products sold across the Group. Shared Services also handles the Group s Payroll functions, the Shipping and associated Treasury functions for direct imports, and managing private or exclusive brands shared across Massmart s trading Divisions. SELL BUY MASSMART DIVISIONS Massmart s Divisions comprise Massdiscounters, Masswarehouse, Massbuild and Masscash. Each has a dedicated management team focusing on a particular retail or wholesale format, merchandise proposition and customer base, and is empowered to take trading decisions within a strategic framework and governance structure defi ned by the Group. SELL BUY High-volume Low-margin Massdiscounters General merchandise discounter Masswarehouse Warehouse club Massmart Holdings Overall Group strategy and performance management Channel and Shared Services Food wholesaler, retailer and buying association Masscash SELL BUY Home improvement retailer and building materials supplier Massbuild High-volume Low-margin BUY SELL

6 4 Massmart at a Glance Our vision OUR CUSTOMERS OUR INVESTORS will regard Massmart as a portfolio rendering superior returns relative to the JSE Retail sector. will regard Massmart s wholesale and retail formats as their fi rst choice when buying those categories of merchandise offered by the formats. OUR SUPPLIERS will regard Massmart as a valued partner in accessing and understanding their end-consumers. THE MASSMART VISION Our investment proposition Massmart is a South African retail and wholesale distributor, with 287 stores in South Africa and 26 stores in sub-saharan Africa. MANAGEMENT DEPTH, QUALITY AND DIVERSITY R The 44 Group and Divisional Executives hold 81 qualifi cations of which 62 are degrees, are an average age of 45 years, and 21% are African, Coloured or Indian STRATEGIC AND STRUCTURAL CLARITY R Through four focused Divisions, each a leader in its target market and business model R Where additional value is created through inter-divisional collaboration R And behaviour is aligned through short- and long-term incentives R While adhering strictly to organic and acquisitive growth criteria R Earnings underpinned by high cash generation R Limited fi nancial leverage R Conservative through-the-cycle store opening plans LOW RISK

7 Massmart Annual Report OUR COMMUNITY including Government, will regard Massmart as a socially accountable corporation. CAREER RETAILERS will regard Massmart as the preferred employer in the distribution industry. Our mission Massmart is a South African-based, globally competitive, regional management 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, infl uence 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. DIVERSIFICATION GROWTH GOOD GOVERNANCE R 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 R Formats trading through a variety of formats R Customers serving all mass-market consumers R Geography operating in thirteen sub-saharan African countries R Continuously improving the productivity of capital, space and labour R Strengthening supply chain activities R Upweighting Group private label efforts R Complementing store growth through targeted acquisitions and greenfi eld opportunities R Expansion into Food Retail through Cambridge Foods, Game Foodco and Makro Fresh R Board composition two executive Executive and seven non-executive directors Directors R Recognised of whom four record are independent of good R disclosure Recognised record of good R Compliant disclosure with King III Report R and Compliant the JSE with SRI King criteria III Report R Member and the JSE of the SRI Ethics criteria Institute R of Member Southern of the Africa Ethics Institute of Southern Africa

8 6 Massmart at a Glance Corporate Accountability Synopsis Massmart s 2011 Corporate Accountability Report represents a departure from the content, style and format of previous reports. In addition to the Human Capital, Black Economic Empowerment, Environment, African Operations and Corporate Social Investment scorecards, this year s report provides insight into Massmart s stakeholder engagement processes and highlights the Group s accountability interventions. 1. STAKEHOLDER ENGAGEMENT DESKTOP REVIEWS, INTERACTION WITH INDEPENDENT SUBJECT MATTER EXPERTS INDEPENDENT MEDIA RESEARCHERS TO REVIEW LEADING MEDIA CONSOLIDATED ISSUES INTO A STAKEHOLDER VALIDATION FRAMEWORK VALIDATION OF CORPORATE AND RETAIL RELEVANCE OF PRIORITIES WITH STAKEHOLDERS HIGH-LEVEL WALMART ACCOUNTABILITY OPPORTUNITY ASSESSMENT REVIEW AND CONTEXTUALISE THE ENGAGEMENT PROCESS OUTPUT 2. WORKSHOP TO DEFINE PRIORITIES. Stakeholders felt that BBBEE the focus should remain on developing the business in a way that speaks to the spirit of BBBEE. PRODUCT SAFETY a Product Safety Scorecard, covering issues such as consumer complaints and supplier compliance should be incorporated into Massmart s accountability report. HEALTH CARE, HIV & AIDS innovative workplace programmes to destigmatise HIV and AIDS in order to increase the level of voluntary testing penetration should be implemented. EDUCATION with regard to education, there is opportunity for organisations to better co-ordinate their CSI activities so as to increase benefi ciary impact. PAGE 138 PAGE 137 WASTE MANAGEMENT based on Makro's e-waste intiative, further opportunities to offer post-consumer waste take-back and recycling schemes should be identifi ed. PAGE 136 LOWEST PRIORITY BBBEE HEALTH CARE, HIV AND AIDS HIGHEST PRIORITY CORRUPTION WATER SECURITY FOOD SECURITY ENERGY SECURITY JOB SECURITY corporate South Africa should adopt a more proactive stance on corruption and devote more resources to supporting institutions with a mandate to combat corruption. PAGE 135 initiatives to promote waterwise products and advocate water conservation to high water-consumption suppliers should be prioritised. PAGE 134 major food suppliers should be engaged to identify opportunities for reducing food supply chain costs and improving the user friendliness of nutritional labelling. PAGE 133 Massmart should look to improve the selection and affordability of energyeffi cient consumer products. PAGE 132 the public commitment made by Massmart and Walmart regarding the number of jobs (ie 15,000) to be created as a result of the Massmart-Walmart merger was highly relevant in light of the need for job creation in South Africa. PAGE 131

9 Massmart Annual Report PROGRESS AND UPDATE ACCOUNTABILITY THEMES Amongst the feedback received from stakeholders, particularly employees, was the view that Massmart has not to date been suffi ciently clear and concise in communicating our corporate accountability commitment in a memorable and easy to understand way. As a result, we have begun classifying our accountability interventions under the umbrella of three broad accountability themes that relate to our operations, people and products; these themes are: ACCOUNTABILITY THEME 1 ACCOUNTABILITY THEME 2 ACCOUNTABILITY THEME 3 KEY PERFORMANCE INDICATORS VALUE ADDED (Rm) 13, , , , ,955.8 (239.9) MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH OTHER CUSTOMER SATISFACTION (%) MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH TESTED HIV/AIDS PREVALENCE (%) MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH BLACK PROFESSIONALS AS A % OF MANAGEMENT PROFESSIONALS 77.7 OUR BBBEE SCORE (%) MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH OTHER MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH READ MORE CORPORATE ACCOUNTABILITY REPORT Additional detailed information about the stakeholder process, sustainability objectives and performance indicators covered here can be found on page 125 OUR PURCHASED ELECTRICITY EMISSIONS INTENSITY (C0 2 e(kg)/m²) MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH CORPORATE SOCIAL INVESTMENT AS % OF PAT MASSDISCOUNTERS MASSWAREHOUSE 1.3 MASSBUILD AFRICA OPERATIONS LOCAL MANAGEMENT AS A % OF TOTAL MANAGEMENT Not reported MASSCASH

10 8 Massmart at a Glance Our shares and shareholder information KEY INFORMATION R Ordinary shares Authorised: 500,000,000 Issued: 213,883,460 Number of shareholders: 6,109 R Year-end End of June R Ordinary general meeting of shareholders Held annually in Johannesburg towards the end of November R Administrators of shareholders register Computershare Investor Services (Pty) Limited, 70 Marshall Street Johannesburg 2000 R Share code MSM HIGH, LOW AND CLOSING SHARE PRICE (CENTS PER SHARE) SHAREHOLDER SPREAD SHARES % 1-1,000 shares 1,167, ,001-10,000 shares 10, ,000 shares 100,001-1,000,000 shares 1,000,001 shares and over 2,329, ,714, ,939, ,732, DISTRIBUTION OF SHAREHOLDERS SHAREHOLDER SPLIT BETWEEN PUBLIC AND NON-PUBLIC Non-public: Walmart subsidiary: Main Street 830 (Pty) Ltd Non-public: Directors and Group Executives of the Company Non-public: Share trust Public shareholders SHARES % 113,859, ,355, , ,558, Closing 8,800 6,149 8,000 12,200 13,239 High Low 9,997 9,724 9,029 12,580 4,185 5,910 5,650 7,275 15,460 11,358 SHARES % Walmart subsidiary: Main Street 830 (Pty) Ltd 113,859, Unit Trusts/Mutual Fund 40,911, Pension Funds Other Managed Funds Foreign Government Custodians Private Investors Insurance Companies American Depository Receipts Charity Investment Trust Remainder 28,731,090 9,341,004 8,254,903 4,842,377 3,977,513 1,472, , , , ,

11 Massmart Annual Report FOREIGN SHAREHOLDING FOREIGN SHAREHOLDERS Massmart foreign holding JSE General Retailers average foreign holding % UK, Europe and other 19.2 US 17.0 Walmart subsidiary: Main Street 830 (Pty) Ltd 53.2 South Africa 10.6 MASSMART S SHARE PRICE AND TRADING VOLUMES ON THE JOHANNESBURG STOCK EXCHANGE (REBASED TO R12.95, OUR LISTING PRICE ON 4 JULY 2000) MASSMART TRADING VOLUMES (m S) Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun MASSMART SHARE PRICE AND JSE GERNERAL RETAILERS INDEX MASSMART SHARE PRICE JSE GENERAL RETAIL INDEX BIANNUAL MASSMART TRADING VOLUMES PRINCIPAL SHAREHOLDERS Number of shares Equity stake (%) Walmart subsidiary: Main Street 830 (Pty) Ltd 113,859, Custodians and managers holding 3% or more The following custodians and managers held beneficially, directly or indirectly, 3% or more of the Company s shares: Number of shares Equity stake (%) Aberdeen Asset Management Group 28,724, Public Investment Corporation 14,002, JP Morgan Asset Management 9,264, Baillie Gifford & Co Limited 7,558, Lazard Asset Management LLC Group 6,546,

12 10 Massmart at a Glance Group profile MASSMART GROUP MASSDISCOUNTERS DIVISIONS General merchandise discounter STORES AND OUTLETS 313 stores 100 stores 13 stores COUNTRIES SA, Botswana, Ghana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania, Uganda, Zambia SA, Botswana, Ghana, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Tanzania, Uganda, Zambia SA PRODUCT CATEGORIES Food/liquor/general merchandise/ home improvement General merchandise and FMCG Electrical appliances FINANCIAL HIGHLIGHTS Sales Sales (%) R52,950.1m R13,332.5m Sales (25%) Trading profi t before tax* Trading profi t before tax* (%) R2,331.6m R782.0m Trading profit 15 before taxation (34%) 34 * Trading profi t defi nitions can be found on page 63.

13 Massmart Annual Report MASSWAREHOUSE MASSBUILD MASSCASH Warehouse club Home improvement retailer and building materials supplier Food wholesaler, retailer and buying association 14 warehouse clubs 27 stores 24 stores 30 stores 81 stores 24 stores 661 outlets SA SA SA SA SA, Botswana, Lesotho, Mozambique, Namibia, Swaziland Food/liquor/general merchandise Home improvement tools/building materials Home improvement tools/building materials Building materials/ tools Food/liquor/ groceries Sales (%) Sales (%) Sales (%) R12,722.9m R7,271.0m R19,623.7m SA Food/ groceries SA, Botswana, Lesotho, Namibia, Swaziland Food/ groceries Sales (24%) Sales (14%) Sales (37%) Trading profi t before tax* (%) Trading profi t before tax* (%) Trading profi t before tax*(%) R803.2m R354.7m R391.7m Trading profit 15 before taxation (34%) Trading profit 15 before taxation (15%) Trading profit 15 before taxation (17%) 34

14 12 Massmart at a Glance Group profile continued MASSMART GROUP MASSDISCOUNTERS DIVISIONS General merchandise discounter HIGHLIGHTS R Operating profi t before Transaction costs grew 10.3% to R2,058.7 million R 7.1% of sales from African stores R Retail food strategy gaining momentum with Foodco, Makro and Cambridge Foods R Achieved double-digit sales growth R Successfully launched Foodco offering R Two RDCs operational with fi nal RDC being developed R First retailer to achieve a BBBEE score of over 80% KEY SALES DRIVERS R Consumer confi dence and disposable income R New stores R Interest rates R Social grants R Product infl ation R Product infl ation R Price perception R Interest rates R Consumer confi dence and disposable income R New stores R African economic recovery 2011 TRADING SPACE (m 2 ) 1,280, , NET NEW STORES TARGET 2014 NET NEW TRADING SPACE TARGET (m 2 ) ,455 95,228

15 Massmart Annual Report MASSWAREHOUSE MASSBUILD MASSCASH Warehouse club Home improvement retailer and building materials supplier Food wholesaler, retailer and buying association R Makro s food division achieves turnover of more than R5 billion R New Vaal store opened. Store openings in Nelspruit, Polokwane and Milnerton secured R Introduction of fresh produce R Strengthening skills and capacity in fresh supply chain R Product infl ation R Price perception R Interest rates R Consumer confi dence and disposable income R New stores R Double-digit sales and profi t growth achieved in diffi cult trading environment R Two Builders Warehouse stores achieved turnover of more than R300 million R Massbuild s roof truss business grew 300% R Opening new 30,000m 2 Distribution Centre in Midrand R Interest rates R Residential property prices and housing growth R Consumer confi dence and disposable income R Price perception R New stores R Selected acquisitions of competitors' sites 128, , , R Cambridge retail format becoming a single, national identity R New Cambridge stores performing well R Wholesale division-wide IT system roll-out complete R Private label sales growth of 25% R Food infl ation, particularly commodities R Social grants R New stores R Retail food acquisitions 71,000 21,340 96,887

16 14 Massmart at a Glance Group profile continued MASSMART GROUP MASSDISCOUNTERS DIVISIONS General merchandise discounter MEDIUM-TERM OBJECTIVES R Maintain trading aggression R Organic store growth R Explore greenfi eld opportunities R Sustainability R Explore acquisitions R African expansion R New Game outlets in South Africa and Africa R Develop DionWired R Build a supply chain capability R Private label R Leverage fi nancial services capability R Foodco rollout PERFORMANCE AGAINST OBJECTIVES R Despite diffi cult trading, gained market share in both Massdiscounters and Builders Warehouse R Food retail acquisitions and new stores in Masscash R Group BBBEE score of 66.1% up from 55.7% R Seven new Game stores in South Africa R Five new DionWired stores R Johannesburg, Gauteng, RDC opened in June 2010 R Successful July 2010 launch of Game credit card with third party, RCS R Four Foodco conversions REVISED MEDIUM-TERM OBJECTIVES MAJOR POTENTIAL RISK AREAS R Maintain trading aggression R Organic store growth R Explore greenfi eld opportunities R Sustainability R Explore acquisitions R African expansion R Supply chain development R Food retail initiatives R Poor business model or strategic execution R Insuffi cient progress with transformation at executive level R Economic volatility R Acquisition risk R Talent retention and succession R Customer safety R New Game stores in South Africa and Africa R Private label R Finalise switch-over to Gauteng RDC and realise supply chain effi ciencies. Focus on a new KwaZulu-Natal RDC R Leverage further benefi ts from RCS relationship R New DionWired stores in South Africa R Foodco rollout R Financial health and confi dence of consumers in South Africa and Africa R Supply chain execution R African economic volatility and recovery

17 Massmart Annual Report MASSWAREHOUSE MASSBUILD MASSCASH Warehouse club Home improvement retailer and building materials supplier Food wholesaler, retailer and buying association R New stores in South Africa R Leverage customer relationship management capabilities R Invest in supply chain capability R Private label R Anticipate opening 4 5 stores in next three years, the fi rst in Vanderbijlpark in October 2010 R SAP Forecasting & Replenishment applied to 70% of merchandise R Identify sites and open new stores R Leverage customer relationship management capabilities R Continue to invest in supply chain capability R Private label R African expansion R Financial health and confi dence of consumers R Supply chain execution R Customer safety R Sustained defl ation in Food R Extract benefi ts from IT and structural investments R Optimise joint buying and merchandising benefi ts R New Builders Warehouse stores in major centres R New Builders Express stores in suburbs R Invest in supply chain capability R Private label R Two new Builders Warehouse stores, one new Builders Express store and one new Builders Trade Depot store R Improved profi tability in Builders Warehouse and Builders Express, and gained market share R Evaluate merger of Builders Warehouse and Builders Trade Depot management and administration R New stores in South Africa and Africa R Supply chain capability R Private label R Focus on building materials and subcontractors through Builders Warehouse and Builders Trade Depot R Finding appropriate sites in right locations for Builders Warehouse stores R Decline of the bonded residential housing market R Supply chain R Customer safety R Refi ne and grow new Retail Food format R Roll out point-of-sales IT system to all stores R Manage Wholesale for cash and returns R Private label R In-store and back-offi ce IT system now implemented at 70 stores R Acquired and opened ten retail stores and eight wholesale stores R Annualised retail turnover R3.5 billion R Rebranding retail stores as Cambridge Food R Aggressively grow new Retail Food format R Finalise roll out point-of-sales IT system in all stores R Manage Wholesale for cash and returns R Private label R Government social welfare programme scaling back R Poor acquisition or poor integration R HIV and Aids R Customer safety R Sustained defl ation in Food

18 16 Massmart at a Glance Store regional map GHANA NIGERIA 1 1 UGANDA 1 TANZANIA 1 1 ZAMBIA 1 MALAWI MOZAMBIQUE 2 1 NAMIBIA MAURITIUSUS 1 BOTSWANA 2 1 SWAZILAND LESOTHO SOUTH AFRICA INTERNATIONAL: A TOTAL OF 26 STORES Chain Country Stores City Game Botswana 2 Francistown and Gaborone Ghana 1 Accra Malawi 2 Blantyre and Lilongwe Mauritius 1 Quatre Bornes Mozambique 1 Maputo Namibia 2 Oshakati and Windhoek Nigeria 1 Lagos Tanzania 1 Dar es Salaam Uganda 1 Kampala Zambia 1 Lusaka CBW Botswana 9 Francistown, Gaborone x2, Mahalapye, Maun x3, Palapye and Selebi Phikwe Lesotho 2 Maseru x2 Namibia 1 Windhoek Swaziland 1 Manzini

19 Massmart Annual Report SOUTH AFRICA: A TOTAL OF 287 STORES South Africa International Total 2010 Change Change Change 2011 Game DionWired Makro Builders Warehouse Builders Trade Depot 31 (1) (1) 30 Builders Express CBW Jumbo Cambridge Group SPRINGBOK VREDENBURG PAARL CAPE TOWN NORTHERN CAPE 1 WORCESTER 1 1 WESTERN CAPE STELLENBOSCH SOMERSET WEST HERMANUS UPINGTON GEORGE MOSSEL BAY 1 MAKHADO POLOKWANE MOKOPANE 1 1 TZANEEN BRITS LIMPOPO 2 1 PRETORIA RUSTENBURG NELSPRUIT KRUGERSDORP GROBLERSDAL OLIFANTSFONTEIN HAZYVIEW MAFIKENG WITBANK JOHANNESBURG MIDRAND 1 NORTH WEST 18 1 POTCHEFSTROOM MPUMALANGA SWAZILAND VRYBURG 1 VANDERBIJLPARK 1 1 SECUNDA ERMELO MANGUZI 1 1 VEREENIGING PIET MKUZE KLERKSDORP RETIEF NONGOMA 1 VRYHEID 1 NEWCASTLE 1 EMPANGENI MTUBATUBA KIMBERLEY WELKOM 2 2 QWA QWA FREE STATE DUNDEE FICKSBURG 1 PHUTHADITJHABA 1 1 ULUNDI LADYSMITH ESHOWE RICHARDS BAY BLOEMFONTEIN 1 KWAZULU-NATAL 1 GINGINDLOVU LESOTHO PIETERMARITZBURG 1 1 BALLITO LADYBRAND UMHLANGA BOTSHABELO DURBAN 1 ISIPINGO THABA NCHU KOKSTAD PARK RYNIE 1 AMANZIMTOTI WILLOWVALE 1 1 PORT SHEPSTONE SHELLEY BEACH 1 MARGATE UMTATA QUEENSTOWN BUTTERWORTH KING WILLIAM S TOWN 1 1 GONUBIE EASTERN CAPE 2 2 KEY TO INFORMATION 1 1 UITENHAGE EAST LONDON Colour denotes the stores KNYSNA 1 2 by chain PORT ELIZABETH JEFFREYS BAY Number denotes the 4 number of stores in that specifi c region Denotes cities and towns

20 18 Massmart at a Glance Executive Directors Grant Pattison (40) BSc (Eng) (Hons) (UCT) Guy Hayward (46) BCom, CTA (UCT), CA(SA) Chief Executive Officer and member of the Social and Ethics Committee Appointed 7 December Grant graduated from the University of Cape Town as an electrical engineer. After four years with the Anglo American group and two years consulting with The Monitor Group, Grant joined Massmart as Executive Assistant to the Executive Chairman in He has since held various positions within the Group, including Managing Director of Massdiscounters and Group Commercial Executive. He joined the Executive Committee in 2000 and the Board in 2004, becoming Deputy Chief Executive Offi cer in 2005, Chief Executive Offi cer Designate in 2006 and Chief Executive Offi cer on 1 July Chief Financial Officer Appointed 15 May Guy graduated from the University of Cape Town in 1986 and, after serving articles with Deloitte Haskins & Sells, qualifi ed as a Chartered Accountant in During the 1990s he held senior fi nancial roles at Malbak and CNA Gallo in South Africa and at Goldman Sachs in London. He joined Massmart as Group Financial Executive in 2000 and was appointed Chief Financial Offi cer in Guy is also a Governor of Hilton College.

21 Massmart Annual Report Non-executive Directors Chairman of the Board and Chairman of the Remuneration and Nominations Committee Appointed 1 August Following progress through a multi-functional retail career that began in 1975, Mark was appointed Managing Director of the ailing six-store Makro chain in After successful repositioning of the chain, he founded Massmart in 1990 to pursue an aggressive growth strategy in highvolume, low-gross margin, low-expense retailing and wholesaling. In 1996, he was appointed Executive Chairman of Massmart and from July 2003 CEO and Deputy Chairman of the Board. At the end of June 2007 he relinquished his executive role to become non-executive Chairman. His role as architect and leader of Massmart has been widely recognised with numerous awards including that of the Ernst & Young South African Entrepreneur of the Year in Mark J Lamberti (61) BCom, MBA (Wits), PPL (Harvard) Mark currently serves as Chief Executive Offi cer of Transaction Capital (Pty) Limited and a director and executive committee member of Business Leadership South Africa. His commitment to education has led to his involvement as a benefactor, director or adviser to a number of educational institutions, including the Wits Business School where he is an Honorary Professor. Deputy Chairman of the Board and Lead Independent Director, Chairman of the Audit and Risk Committee and member of the Remuneration and Nominations Committee Appointed 1 February Chris has, over the years, been a director of over 20 stock exchange-listed companies. He is currently CEO of Sabvest Limited (JSE), Chairman of Metrofi le Holdings Limited and a director of Datatec Limited (JSE/AIM), Net1 UEPS Technologies Inc (Nasdaq/JSE) and Brait S.A. (Luxembourg/JSE). He is also Chairman of the Alternative Equity Partners Fund and a director of a number of unlisted companies locally and internationally. He is a former Chairman of the South African State Theatre and former Deputy Chairman of both the inaugural National Arts Council of South Africa and the founding board of Business & Arts South Africa. Chris Seabrooke (58) BCom, BAcc, MBA, FCMA

22 20 Massmart at a Glance Non-executive Directors continued Walmart Stores Inc. s Senior Vice-President Finance & Treasurer Jeffrey Davis (48) BS Accounting (Pennsylvania State University), EMBA (University of Pittsburgh) Appointed 20 June Jeffrey Davis is Walmart Stores Inc. s Senior Vice- President Finance & Treasurer and has responsibility for treasury operations, capital markets, investor relations and risk management. Jeffrey was previously Senior Vice President of Finance and Strategy, Operations, for Walmart U.S. He joined Walmart in 2006 as Vice President of Finance for the Walmart U.S. health and wellness merchandise unit. Previously, he served as Chief Financial Offi cer for Lakeland Tours, LLC, where he led its acquisition growth strategy and was responsible for all accounting, fi nancial reporting, treasury and capital structuring, and strategic planning functions. Prior to that, Jeffrey was Chief Financial Offi cer for McKesson General Medical and he held a number of fi nancial leadership roles at the Hillman Co, a private investment holding company. He also spent four years at KPMG Peat Marwick as an audit supervisor. Member of the Audit and Risk Committee Dr Nolulamo ( Lulu ) Gwagwa (52) MSc (KZN), MSc (LSE), PhD (UCL) Appointed 1 November Lulu is Chief Operating Offi cer of Lereko Investments (Pty) Limited. She was Deputy Director General in the National Department of Public Works, responsible for establishing the national public works programme, and completed a fi ve-year term as the CEO of the Independent Development Trust. She has served on various Government commissions, is the CEO of Lereko, and is a non-executive director of FirstRand Limited, the Ethics Institute of South Africa and Sun International Limited. Chairperson of the Social and Ethics Committee and member of the Audit and Risk Committee Phumzile Langeni (37) BCom (Natal) Appointed 25 August Phumzile is the Executive Chairperson of Afropulse Group (Pty) Limited, a women-led investment, investor relations and corporate advisory house. She is a stock broker by training and was previously the economic adviser to the Minister of Minerals and Energy, and an executive director of dual-listed junior platinum miner, Anooraq Resources. Phumzile is the non-executive chairman of Astrapak Limited, a non-executive director of Imperial Holdings Limited, Peermont Global (Pty) Limited, the Mineworkers Investment Company (Pty) Limited, Primedia (Pty) Limited, Transaction Capital (Pty) Limited and a member of the Port Regulator.

23 Massmart Annual Report President and Chief Executive Officer of Walmart International and a member of the Remuneration and Nominations Committee Appointed 20 June Doug McMillon is the president and chief executive offi cer of Walmart International. In 1984, Doug began his career with the company as a summer associate in a Walmart Distribution Center. In 1990, while pursuing his MBA, he rejoined the company in a Tulsa, Okla., Walmart store. Most of Doug s 20-year career has been in merchandising in the Walmart U.S. division, primarily in food, apparel and general merchandise. He has also held various merchandising positions at Sam s Club and Walmart International in addition to holding leadership roles in all three operating segments of the company. From 2006 to February 2009, Doug served as President and Chief Executive Offi cer of Sam s Club, an operating segment of Walmart, with sales of more than $46 billion during his tenure. He currently serves on the board of directors of the U.S. China Business Council, the executive committee and board of directors for Students in Free Enterprise (SIFE), the Dean s Advisory Board for the Walton College of Business at the University of Arkansas and the board for Crystal Bridges, an American art museum. Doug has also been recognised as a Young Global Leader by the World Economic Forum. C Douglas McMillon (44) BSc Business Administration (University of Arkansas), MBA (University of Tulsa) Senior Vice President of International Business Development for Walmart International and a member of the Social and Ethics Committee Appointed 20 June John Peter (JP) Suarez is the Senior Vice President of International Business Development for Walmart International. JP is responsible for leading Walmart s international merger and acquisition activities, international real estate and construction activities, and global format development efforts. Prior to being named to his current position in 2011, JP was Senior Vice President and General Counsel for Walmart International. He joined the company in 2004 as Vice President and General Counsel for Sam s Club. His previous experience includes serving as the United States EPA Assistant Administrator for Enforcement and Compliance, acting as a federal and state prosecutor, and working as Chief Enforcement Offi cer over New Jersey s gaming industry. JP Suarez (47) BA (Hons) (Tufts University)

24 22 Massmart at a Glance Executive Committee Grant Pattison (40) Chief Executive Offi cer Guy Hayward (46) Chief Financial Offi cer Retail Director Masscash Jay Currie (37) BSc (Natal) Following a period managing Mala Mala Game Reserve and founding a small IT solutions provider, Jay joined Business Connexion as a Network Engineer before taking a position with Massdiscounters as IT Technical Manager in November He was appointed to the Massdiscounters Board in 2002 as IT Director. In addition to his IT responsibilities, he assumed board responsibility for the supply chain of that company in 2003 and was appointed to the Massmart Executive Committee as Group Commercial Executive in Effective June 2009 Jay has been appointed as Retail Director Masscash where he is responsible for the Cambridge Food business. He remains a member of the Massmart Executive Committee. Massmart Chief Integration Officer and Senior Vice President, Walmart U.S. Don joined Walmart in 1999 as District Manager for the Private Fleet Division and was promoted to Vice President Private Fleet Operations in He has served in a variety of leadership roles in logistics and store operations including Regional Vice President, Logistics Vice President, Store Operations Regional General Manager and Senior Vice President/Divisional President. Before Walmart, Don worked with Schneider National Carriers. Don Frieson (53) Bachelor s Degree in Operations Management (University of Tennessee)

25 Massmart Annual Report Group Corporate Affairs Executive and member of the Sustainability and Transformation Committee Brian s work experience includes executive positions at Masstores (Pty) Limited, an associate partner at Andersen Consulting (now Accenture) and Marketing Director at CNA. He joined Massmart as Group Projects Executive in September 2004 and was appointed Group Corporate Affairs Executive in September Brian joined the Massmart Executive Committee in July Brian Leroni (47) BA (Wits), MPhil (Stellenbosch) Group Human Capital Executive, Chairperson of the HR Forum and member of the Sustainability and Transformation Committee Prior to joining Massdiscounters Pearl worked for Telkom and Old Mutual and for Umgeni Water as General Manager: Corporate Services. Prior to assuming responsibility for Human Capital on the Massmart Executive Committee from August 2007, Pearl was Director of Human Resources at Massdiscounters. She brings broad experience in managing and developing human capital to the Group. Pearl Maphoshe (43) BA (Hons), HDipEd (Durban-Westville), MA (London) Divisional Chief Executive of New Formats Joe joined Makro in He worked for the Checkers Group from 1978 to 1988 after which he returned to Makro as Merchandise Director. He was appointed Managing Director of Makro in 1993, Divisional Chief Executive of Makro in 1999, Divisional Chief Executive of Massbuild in 2005 and Divisional Chief Executive of New Formats in February Joe has 40 years of mass merchant, general merchandise and FMCG experience. Gareth ( Joe ) Owens (62)

26 24 Massmart at a Glance Executive Committee continued Divisional Chief Executive of Massdiscounters and Chairman of the Cellular Forum Jan Potgieter (42) BCompt (Hons), CTA (Free State), CA(SA) Jan s early career was spent in fi nancial roles in various industries until becoming a business manager at Clover SA for three years. He then spent seven years at SA Breweries in senior fi nancial roles, before joining the Massmart Group as Financial Director of Massdiscounters in In April 2007, he was appointed Chief Executive of Massdiscounters and a member of the Massmart Executive Committee. Massmart General Counsel & Chief Compliance Officer Michael Spivey (47) BSc (University of Arkansas), Master s in Law in International Banking and Finance (Boston University), Juris Doctorate (JD) Mike began his Walmart career stocking shelves and pushing shopping carts at Store #1 in Rogers, Ark. while he was in high school. In 2003, he re-joined the company and has since advised multiple segments of the company in legal and compliance roles. Prior to joining Walmart, he served in senior legal and business development roles with the Export-Import Bank of the United States, served as a legal adviser to the Hungarian Foreign Trade Bank in Budapest and was an associate with the international law fi rm of Arent, Fox, Kintner, Plotkin and Kahn. Group Commercial Executive and Chairman of the TIP and Operations Forums Llewellyn Steeneveldt (42) BSc Eng (Phys Met), GDE (Industrial), MBA Llewellyn graduated from the University of the Witwatersrand in 1991 as a Physical Metallurgist. After seven years with Tongaat-Hulett group and three years with the Industrial Development Corporation, Llewellyn joined Massmart as Business Analyst in He has since held various positions within the Group, including Executive Assistant to the CEO and Managing Director of Builders Express. Llewellyn was appointed Group Commercial Executive and joined the Massmart Executive Committee in July 2009.

27 Massmart Annual Report Divisional Chief Executive of Masswarehouse, member of the Risk Committee and Chairman of the General Merchandise Forum After qualifying as a Chartered Accountant in 1989, Kevin consulted at both the Strategy Group (Deloitte) and Gemini Consulting. He joined UPD as Group Operations and Systems Director in 1995 and became Group Chief Executive Offi cer in Kevin joined Massmart as Divisional Chief Executive responsible for Makro and as a member of the Massmart Executive Committee in Kevin Vyvyan-Day (46) BCom, BAcc (Wits), CA(SA) Divisional Chief Executive of Massbuild and Chairman of the Supply Chain Forum Llewellyn spent thirteen years in the banking industry where he held senior positions in a number of specialist fi nancial institutions before joining ABSA. In June 2003, Llewellyn joined Super Group, a JSE-listed supply chain and logistics company where his last position was Divisional MD responsible for the group s African operations. He joined Massmart in November 2008 as Divisional Chief Executive for Builders Warehouse, later becoming responsible for the whole division, and was appointed to the Massmart Executive Committee upon joining. Llewellyn Walters (47) BA, LLB (Wits) Divisional Chief Executive of Masscash and Chairman of the Food and Liquor Forum After graduating from Natal University with a BCom degree and qualifying with his CA(SA) in 1978, Robin spent six years in retailing and wholesaling at WG Brown before founding CCW in In 1998, he sold a controlling interest in CCW to Massmart and was appointed to the Massmart Executive Committee. He led the acquisition and integration of Browns and Weirs, and has spearheaded the growth of the Division to become South Africa s leading food wholesaler. Robin Wright (55) BCom (Natal), CA(SA)

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30 NEW ERA FOR MASSMART AS A SUBSIDIARY OF THE WORLD S LARGEST RETAILER MARK LAMBERTI CHAIRMAN MASSMART GROUP INTO THE NEXT PHASE OF ITS SPECTACULAR GROWTH PATH REPORTS TO STAKEHOLDERS GUY HAYWARD CHIEF FINANCIAL OFFICER GRANT PATTISON CHIEF EXECUTIVE OFFICER ACQUIRED 51% OF MASSMART S ISSUED SHARES ON A FULLY-DILUTED BASIS REPORT TO STAKEHOLDERS R Chairman's letter to Stakeholders 29 R Chief Executive Offi cer's review 34 R Chief Financial Offi cer's review 41

31 Massmart Annual Report Chairman s letter to Stakeholders This report is on behalf of the past and present Boards of the Company, at the start of a new era for Massmart as a subsidiary of the world s largest retailer. Most of the events that led to this transition have been widely publicised, with your company attracting more headlines over the past year than over the previous twenty. Sadly, little of this was related to our primary objective of good shop keeping, and the commentary surrounding the change of Massmart s ownership contained varying degrees of accuracy and emotion, refl ective more of narrow self-interests than those of broader society. The catalyst was an initial non-binding offer by Walmart to acquire the entire issued share capital of Massmart for R148 per share. At an historic price earnings ratio of 26, this placed a value of R31 billion on your company and represented a 19.2% premium to the then share price, thought by some to be infl ated by speculation. In due course Walmart made a binding offer to purchase 51% of the company at the same price per share. The end of an era Consistent with their fi duciary record and stakeholder orientation, the members of the previous Board deliberated at length on the strategic, commercial and societal merits of the transaction and concluded that control by Walmart would enhance the growth and prospects of Massmart with substantial benefi ts for all stakeholders. Shareholders would receive a fair price for 51% of their shareholdings and also benefi t in their remaining shareholdings from future participation in the Walmart-enhanced performance of the Company. Management would deepen their expertise in the art and science of retailing. Staff would be presented with new career prospects arising from faster growth and Walmart s support of the Broad Based Black Economic Empowerment initiatives that resulted in Massmart being a Level 3 contributor with the highest Employment Equity score of all listed retailers. Suppliers would benefi t from participation in leading edge distribution practices and the potential to access Walmart s international supply chain. And South African consumers would benefi t from lower prices, on more products, in more locations. In short the transaction would enhance the sustainability of the Company. Mark J Lamberti Chairman UP BY 9.8% 75.9 BBBEE SCORE 2010: 66.1 Following a unanimous recommendation by the Board, ninety seven per cent of shareholders voted in favour of the transaction. The regulatory approval process, delayed to ensure full participation by all dissenting parties, ended on 31 May 2011, when the Competition Tribunal approved the transaction after an exhaustive and thorough evaluation process. This concluded the largest

32 30 Reports to Stakeholders Chairman s letter to Stakeholders continued investment in South Africa by an American company, the 10th largest corporate transaction in South Africa over the past decade, and the fi fth largest acquisition by Walmart. The investment in Massmart by the largest retailer in the world is indicative of the growing signifi cance of Africa for global companies, and an extraordinary vote of confi dence in the government, private sector and consumers of South Africa. It is also a vindication of over two decades of strategic positioning and operational implementation by almost 30,000 Massmart people, led in recent times by a cohesive management team who Walmart insisted must remain, under the direction of a Board who with an average tenure of over ten years, delivered an enviable record of service to all stakeholders. BOARD RETIREES R Dods Band R Kuseni Dlamini R Jim Hodkinson R Nigel Matthews R Peter Maw R Dawn Mokhobo R Michael Rubin Gratitude It is common cause, and my experience, that competent individuals do not necessarily make an effective board. The Massmart Board members that brought the Company to this juncture were individually competent and collectively excellent, and it is fi tting that I pay tribute to those whose departure was volunteered in its reconstitution. R Michael Rubin joined Makro in 1989 as Development Director, served as an executive director on the Massmart Board from its inception and became a non-executive director in I relied heavily on his advice in the repositioning of Makro and the early acquisitions, and store location and design decisions that resulted in the creation of Massmart and its growth thereafter. Michael is a contrarian with an impeccable ethic, who always forced us to think more deeply about retail, fi nancial and social issues. R Nigel Matthews joined the Board in 2001 and served with extraordinary diligence as Chairman of the Audit and Risk Committees. His savvy corporate wisdom could always be relied on, and the cordial relationship he developed with the fi nance community, internal auditors and external auditors belied a steely commitment to the establishment and maintenance of a robust control environment and impeccable governance. R Dawn Mokhobo joined the Board in 2002 and served on the Remuneration and Nominations Committee, and the Sustainability and Transformation Committee, where her experience and humanity found full expression mainly in support of the Group s internal constituencies. R Peter Maw joined the Board in 2003, bringing his formidable fi nancial and corporate fi nance expertise to bear through astute questions and his membership of the Audit, Risk, Strategy and Investment Committees. R Dods Brand joined the Board in 2003, enriching the Board s deliberations with principled insight and a perspective borne from his experience as Chief Executive of a JSE-listed retail group. R Jim Hodkinson joined the Board in The quietest member of the Board but a consummate shopkeeper whose experience and reputation as Chief Executive and Chairman of B&Q plc added inestimable value in the stores, and in developing access to international retailers and trends.

33 Massmart Annual Report R Kuseni Dlamini joined the Board in 2006, bringing a keen independent mind to bear on all debate, particularly though his Chairmanship of the Remuneration and Nominations Committee, where the tensions around executive remuneration were always confronted thoughtfully. On behalf of all associated with Massmart, I thank them for over 70 years of collective service and for their part in making your company Walmart s preferred target. We wish them every good fortune in the years ahead performance The strategic, operational, fi nancial and societal performance of Massmart in the year to June 2011 is described in detail throughout this report. From the Board s view point the following matters warrant emphasis. Performance Sales grew 11.6% to R53,0 billion and pre-tax profi ts before transaction costs grew 10.3% to R2,1 billion. Headline earnings per share fell 23.6% to cents per share, depressed by R408.8 million of costs directly associated with the Walmart transaction. Headline earnings per share adjusted for these costs increased by 10.0%. Notwithstanding a R1,2 billion capital investment programme, your company continues to render high returns on sales, equity and capital employed of 3.8%, 33.7% and 47.2% respectively. READ MORE REPORT TO STAKEHOLDERS More detail on the fi nancial performance can be found in Chief Financial Offi cer s report on page 41. These high Level metrics were the result of continued investment in strategic initiatives and sound operational management in a recovering low interest rate, low infl ation consumer economy. A demanding strategic agenda Massmart has always been driven by a rolling three year strategic agenda, which aims to enhance the competitive advantage and positioning of the Group and its parts. The breadth and complexity of the initiatives arising from this thinking has increased each year, concomitant with the increase in Massmart s resources and capabilities. In a year when organic growth and everyday trading was challenging, and the Walmart transaction exciting but potentially diversionary, the progress with a multitude of strategic initiatives was impressive. Acquisitions and a necessary disposal; the thrust into retail food in three Divisions; the development of new stores, formats, categories and private labels; the rebranding of stores; and the enhancement of the regional distribution capability; were underpinned by a continued investment in the development of people and the pillars of sustainability. As a result, by year end, your company comprised: 313 stores; trading under ten brands; totalling 1,280,936 square metres; selling almost 501,000 SKUs in General Merchandise. Home Improvement, Food and Liquor; supported by regional

34 32 Reports to Stakeholders Chairman s letter to Stakeholders continued distribution centres of 89,711 square metres; employing over 30,495 people (over 26,500 employed in the prior year), in 13 sub-saharan countries. POWERED BY READ MORE CORPORATE GOVERNANCE More detail on the Board can be found in R The Board 159 R Board process and evaluation 160 R Board and committee attendance 162 R Board committee 163 Managing the change of ownership A change of ownership is typically disruptive to a business. This has not been our experience. While management of the transaction and the regulatory developments required Grant Pattison (Chief Executive Offi cer) and Guy Hayward (Chief Financial Offi cer) to totally redirect their efforts, the vast majority of the organisation remained focussed on managing the implementation of the strategic agenda, delivering value to customers and producing the results contained in this report. This was a refl ection both of the depth and calibre of divisional and functional leadership, and of the excitement and confi dence with which all Massmart people view the new ownership. The relationship with Walmart and the Sam M. Walton College of Business has been cultivated over 20 years and many of our executives and senior managers have experienced the humble warmth and hospitality personifi ed by Walmart associates. With few exceptions there is an alignment of philosophies, values and culture, and contrary to the trepidation normally prevalent in the acquired organisation, the dominant sentiment in Massmart today, is an urgency to extract value from Walmart s expertise and resources. Leaders invariably determine the success of organisational change and Grant, ably assisted by Guy, must take credit not only for concluding the transaction but also for inspiring the enthusiasm with which the Company is embracing a demanding integration agenda. He did this while handling a wide range of new and unpredictable developments with sound judgement and a cool demeanour that belied the gravity and complexity of the issues we were facing. In consequence, your company is stretched but not stressed. Reconstitution of the Board The Board was reconstituted on 20 June 2011, when Walmart s control, direction and oversight were given effect through: R the resignation of the seven directors acknowledged above R Chief Executive Offi cer Grant Pattison and Chief Financial Offi cer Guy Hayward retaining their positions as executive directors R Christopher Seabrooke retaining his position as Deputy Chairman and lead independent non-executive director R Dr. Lulu Gwagwa and Ms. Phumzile Langeni retaining their positions as independent non-executive directors R the appointment of: Doug McMillon, President and Chief Executive Offi cer of Walmart International; JP Suarez, Walmart International Senior Vice President of International Business Development; and Jeffrey Davis, Walmart International s Senior Vice-President Finance & Treasury.

35 Massmart Annual Report It was a singular honour to be asked by Walmart Chief Executive Michael Duke to remain on as the independent non-executive Chairperson of Massmart. I accepted the appointment mindful that it may one day entail the leadership of a board divided on what is in the best interests of the Company, the controlling shareholder and the minority shareholders. If and when this occurs, I am confi dent that the Board will ensure that the best interests of the company prevail. Moving forward Since its inception Massmart has experienced numerous forms of ownership. While past shareholders have always acted in the best interests of the Company, none have possessed the expertise or capabilities to enhance Massmart s strategic or competitive stance in the distribution of consumer goods to the mass market. This is no longer the case. THE BOARD COMPRISES: R Two Executive Directors R Four Independent Non-executive Directors R Three Non-executive Directors Walmart s ownership is the catalyst for new avenues of effi ciency, productivity and growth in pursuit of lower prices to more customers in more places. Notwithstanding the current global economic challenges, Massmart powered by Walmart s scale, capabilities and experience, is poised to accelerate its high return expansion on the sub-continent. We look forward to a year of stimulating learning for all involved. Mark J. Lamberti Chairman 5 October 2011

36 34 Reports to Stakeholders Chief Executive Officer s review The June 2011 financial year will be forever imprinted on our minds, and marks the transition of the Massmart Group into the next phase of its spectacular growth path from being a strong regional player to being part of a leading global retail company. Massmart began the fi nancial year owned by a spread of Institutional Investors, and ended the year as a Walmart subsidiary. This brings a great deal of change from all dimensions but also brings opportunity to the Group in the years ahead. Walmart's entry into Africa signals the increasing confi dence that the global market has in Africa, South Africa, South African retailers and most signifi cantly, Massmart. Grant Pattison Chief Executive Offi cer Whilst the demands of completing the transaction were signifi cant, the Group managed to operate in a disciplined manner and continued to implement its ambitious growth strategy. Operating disciplines were tightly managed and any mistakes made were identifi ed and responded to with a sense of urgency. Our main trading brands of Game, Makro, Builders Warehouse, Cambridge Foods and Saverite are in good health. Their business models, social relevance and competitive advantage remain strong and all have signifi cant growth plans in place. The environment within which we operate remains challenging and complex, but managing that complexity is both stimulating and rewarding. Financial performance Pre-transaction cost operating profi ts increased by 10.3%, just below the increase in sales of 11.6%, which was a reasonable performance given the economic environment that prevailed during the 2011 fi nancial year. At a Divisional level, Massdiscounters and Massbuild had strong performances each growing profi ts above 20%; Makro a more tempered 9.3% profi t growth; and Masscash a disappointing 20.1% profi t decline. This trading pattern and profi t performance was typical of the low infl ation, low interest rate environment in South Africa. For the 52 weeks to 26 June 2011, sales increased by 11.6% (comparable sales by 5.2%), Trading Profi t increased by 6.4%, Operating Profi t before Transaction costs increased by 10.3% and Headline Earnings before Transaction costs increased by 10.0%.

37 Massmart Annual Report The Walmart transaction costs signifi cantly affected Earnings, with Earnings and Earnings per Share down 22.5% and 23.6% respectively. Stock is up by 10.7% compared to the sales increase of 11.6%, showing an improvement in stock effi ciencies. Walmart transaction We were delighted with the 31 May 2011 Tribunal approval of the acquisition of Massmart by Walmart. Included with the approval were four conditions, three of which Massmart had volunteered. The conditions we offered the Tribunal were, in a sense, intuitive as they represented our natural intentions to contribute positively to the environment within which we operate, and our desire to fi nd solutions with parties with whom we disagree. During the course of a social dialogue, these conditions had been offered to the Opposing Parties involved in the merger approval process, but had been rejected. Subsequently, SACCAWU, Massmart s major representative union, lodged an appeal against the Competition Tribunal ruling and three Departments of Government lodged a review of the Tribunal process. The hearing for both has been set down on 20 and 21 October We have begun to manage the implementation of the Tribunal s conditions, the two most visible being the offer of re-employment of the 503 retrenched Massdiscounters colleagues and the R100 million Supplier Development Fund. Work has begun on both. We have appointed an executive to manage the Supplier Development Fund, Mncane Mthunzi, who joined us on 1 September Legally, implementation of the transaction is not delayed by any appeal or review, and so Integration workstreams commenced in July The 12-person Integration expatriate team is in place, and the Integration process has got off to a successful start. Integration is a disciplined process where 155 different potential projects (toolkits) are being evaluated, approved, implemented, measured and monitored by combined teams from both Massmart and Walmart. It is expected that the Integration process will last between 18 months and three years. It is worth noting that within the controversy generated by aspects of the transaction, we rarely disagreed with the objectives of some of the opposition, but did at times disagree on how to achieve those objectives. We remain open to partnering with anyone in the best interests of customers in the markets in which we trade, on an equal and mutually respectful basis. Perhaps the most under-reported aspect of the Walmart transaction, is that members of Massmart s Thuthukani Empowerment Trust for employees, 86% of whom are black and 41% of whom are women, had their shareholdings in Massmart valued at R840 million, 51% of which was realised in cash and the balance freed up to be realised at the 9,000 individual employees' discretion. Although this share scheme was criticised in some quarters at its inception in October 2006, this is perhaps one of the best examples of BBBEE in action, and one of which Massmart shareholders can be very proud.

38 36 Reports to Stakeholders Chief Executive Officer s review continued Group infl ation -1.3% Food and Liquor 1.6% Home Improvement 0.7% General Merchandise -7.8% Environment The Group performance suggests that the South African consumer is in reasonable shape, in an environment which is enabling them to invest their savings from low non-durable goods infl ation into durable goods spending. In addition, the negative infl ation in durable goods has encouraged consumers to either buy more durable goods, or to upgrade to higher quality durable goods. Market data suggests that Builders Warehouse and Massdiscounters materially increased their market shares. This however, suggests that our sales growth rates are not refl ective of higher consumer spending levels and that the health and confi dence of the South African consumer may be weaker than it appears. The semi-durable goods sector, which we barely participate in, has performed well, although market shares may have moved between players. Meaningful interpretation of the current state of the South African retail market will have to wait until the national data for July and August 2011 is released, which will give us an accurate reading for the fi rst time in several months, during which time the prior year base was affected by the timing of Easter moving and the signifi cance of the 2010 Soccer World Cup. The African markets outside of South Africa have begun to recover from the global fi nancial crisis, and despite high infl ation, consumers appear to be increasing spending on durable goods. READ MORE OPERATIONAL REVIEW More detail on the operational performance can be found in R Massdiscounters divisional review 82 R Masswarehouse divisional review 93 R Massbuild divisional review 103 R Masscash divisional review 113 Divisional operating review Massdiscounters. Sales increased by 9.6% (and by 3.7% on a comparable basis). Sales defl ation was -7.3%. Given the low comparable sales growth, this Division s profi t performance was remarkable and was achieved through effective gross margin and expense management. Even more impressive is that the African business struggled due to Rand currency strength and weak local economies, and therefore Game SA performed even better than the overall Division. Although still small, DionWired had another spectacular performance, and is changing the market within which it operates as it expands. During the year, some historic milestones were reached. The 70,000m 2 Johannesburg Regional Distribution Centre (RDC) was opened and, despite some commissioning challenges, ended the year operating smoothly. Four Game Foodco stores were opened successfully, a concept fi rst contemplated in January The R500 million overstock position evident after the 2010 festive period was also dealt with well and we commenced the 2012 fi nancial year in a satisfactory inventory position. This year the Division s focus will be on building and executing the Foodco rollout strategy, building the fi nal KwaZulu-Natal RDC, and Integration. Masswarehouse: Sales increased by 10.6% (and by 6.9% on a comparable basis). Sales defl ation was -0.4%. General Merchandise was the best performing category increasing sales by 14.2% with Food and Liquor sales recovering in the second half to reach growth of 8.9%.

39 Massmart Annual Report Margins and overheads were well controlled. Given that a new Makro store was opened during this fi nancial year, with the associated higher than average costs and pre-opening costs of R14.0 million, the Division did well to grow profi ts to the extent it did. The two stores comprising Makro Zimbabwe were sold. As a consequence, we reported transaction-related losses, partly resulting from the procedural delays, and the total amount of R38.6 million was excluded from headline earnings. The Division s focus is on new stores, building the Fresh and retail offering, and Integration. The new supply chain executive role is developing a Supply Chain and Africa Strategy, both of which are progressing well. Massbuild: Sales increased by 14.2% (and by 7.2% on a comparable basis). Sales infl ation was 0.8%. Very pleasingly, trading profi ts increased by 21.0% (off a prior year profi t increase of 27.0%). By the end of the third quarter, we were on track for an even better performance but were hampered by the sales weakness of the last quarter of the 2011 fi nancial year. The good start to sales growth in the 2012 fi nancial year indicates that perhaps the World Cup effect was larger in Massbuild than anticipated but we have no compelling explanation for this. Builders Warehouse continues to perform the best. Builders Express did well in its comparable stores but saw weaker sales in the acquired stores this was primarily due to poor stock and system conversion problems. Builders Trade Depot sales remained weak, but stable. We are implementing a Project Complete strategy in Builders Trade Depot, which is working, and will be well positioned when growth returns to the building contractor market. At a Divisional level, the integration is complete and all three formats are running off a single Divisional Head Offi ce. Analysis is underway to consider having a single IT system across the Division. The Division s focus is to complete Builders Trade Depot's repositioning, build a pipeline of new stores able to serve smaller markets, expand into Southern Africa and Integration. Masscash: Sales increased by 12.7% (and by 4.1% on a comparable basis). Sales infl ation was 2.1%. Trading profi t decreased by 20.1%. The year was diffi cult because of fi rst defl ation and then low food infl ation, compounded by a competitive market. Not assisting this were several own goals, some of which were probably avoidable. From a trading perspective, sales were reasonable given the low infl ation, but margins were tight as competitors traded hard and targeted our store locations. In context though, we confronted and implemented some diffi cult decisions. These include converting the Gauteng and Free State retail stores to Cambridge Foods branding; completing the roll-out of the new wholesale IT systems; selling the loss-making Saverite corporate stores and installing a Gauteng DC for the Retail business. While each decision was correct, they increased expenses and hurt profi ts.

40 38 Reports to Stakeholders Chief Executive Officer s review continued The Division s focus will be on growth in both our Saverite franchises and Cambridge Foods stores, and enhancing our supply chain capacity as we expand. READ MORE CORPORATE ACCOUNTABILITY More detail can be found in Corporate Accountability Report page 125 Corporate accountability review In the 2011 Corporate Accountability Report I expressed concern that our accountability agenda had become cluttered and this could impact negatively on implementation quality. I also indicated that we needed to improve our understanding of how retailers can optimise their practical corporate accountability impact. As a result, we made three improvements: 1. We expanded the corporate accountability team by appointing two group corporate sustainability project managers (including an ecologist) and a researcher. They are tasked with identifying, sharing and tracking implementation of accountability best practice across our group. ACCOUNTABILITY THEME 1 ACCOUNTABILITY THEME 2 ACCOUNTABILITY THEME 3 2. We initiated a study to gain insight into stakeholder views about how we could improve our impact. The study revealed fi rm stakeholder opinions that we should: R establish clearer relevance of sustainability projects within the retail industry, social discourse and public policy contexts; R improve communicability of our sustainability commitment by focusing on three accountability themes; R avoid a one size fi ts all approach by differentiating each division s focus based on retail format, merchandise proposition and commercial model. It became clear that the pivotal role retailers occupy in the supply chain creates high stakeholder expectations that we use our supplier convening power and unparalleled consumer access to improve accountability in the supply chain. The result is a reframing of our accountability focus around three themes: R enabling sustainable supply and consumerism; R minimising our group environmental footprint; and R championing social equality initiatives. 3. Finally, we utilised our access to Walmart by identifying opportunities to leverage their sustainability expertise. These opportunities are numerous and include areas such as sustainable agriculture, packaging rationalisation, eco-label advocacy, consumer empowerment and energy effi ciency. Through this process we did not lose sight of the need to ensure continuity of our established sustainability commitments. We were delighted to achieve a Level 3 BBBEE contributor status and be ranked the most empowered retailer in the 2011 Top Empowerment Companies Survey. This included being rated 7th of all JSE-listed companies for Employment Equity representation. (Having said this, it s likely that our 2011/12 BBBEE score will be lower, refl ecting a dilution in the Thuthukani staff shareholding and the implementation of revised Enterprise Development best practice guidelines.) We have also been focused on developing format-specifi c energy intensity benchmarks that are sensitive to opportunities to improve energy effi ciency in

41 Massmart Annual Report our old and new stores. One energy effi ciency highlight for us was the launch of Makro Vaal, which is 25% more energy effi cient than similar sized older stores and which serves as a model for future Makro stores. I was pleased to see that the Massmart human resource community s efforts to improve enrolment of HIV-positive staff on our Impilo treatment programme have begun to bear fruit. A total of 87% of HIV-positive staff are now enrolled, and although this is still 13% below our 100% enrolment target, it s signifi cantly better than two years ago. A new objective will be to concentrate on improving our testing penetration rate to at least 70% of staff. We re confi dent that we now have a better-resourced and more structured corporate accountability approach. When combined with input from Walmart, we anticipate that our efforts will be more impactful than in the past. This is not to say that there won t be diffi culties and disappointments. There will be, but we believe that we are even better equipped to deal with these as they arise. Vision for growth 2014 Due to the distraction of the Walmart transaction, we followed an abbreviated strategy process this year and focussed on preparations for Integration. I believe the fundamental strategy remains sound and valid. The Strategic Action Plan remains focussed as: R Leadership and Transformation development R Grow core business (comparable stores) R Customer-focussed Trading R Supply Chain Development R Private Label Development R Financial Services R Retail Food (Cambridge Foods, Saverite, Foodco, Makro Food Retail) R New Categories R Organic growth in SA and Africa R Sustainability (Governance, Climate Change, BBBEE, CSI) R Integration The fi nal point of Integration is obviously new, otherwise the Strategic agenda remains unchanged, but will be enhanced by Walmart's ownership. Prospects Massmart s total sales increased by 14.7% for the fi rst 14 weeks to 2 October 2011, with product infl ation averaging 0.7%. Comparable sales increased by 8.0% for the same period. PROSPECTS 14 weeks to 2 October 2011 Total stores 14.7% Comparable sales 8.0% With the fi rst quarter's sales indicating a return to stability with growth in all categories and Divisions, the fi nancial year ahead looks to be solid. Management will have to balance operating discipline with the investment in growth and the speed of Integration. We will also have to balance the sometimes divergent interests of different stakeholders.

42 40 Reports to Stakeholders Chief Executive Officer s review continued Appreciation In addition to the usual thanks to all Massmart colleagues, we would also like to thank Massmart Board members, old and new, our advisors, our Walmart colleagues, our suppliers, and our shareholders, old and new, for their advice and support over a very signifi cant period in Massmart s life. Over the past year, we have engaged more than usual with Regulators, Government, Union leadership, Industry and NGOs. We have appreciated the constructive engagement and were also appreciative of the general support we enjoyed. At times we have disagreed, but in those disagreements we always learnt and, where necessary, changed our views. We thank you for your input. To our customers, the most sincere thanks. You can rely on the fact that the entire Massmart supply chain will be focusing our attention on helping you save money, so that you can live better. GM PATTISON Chief Executive Officer 5 October 2011

43 Massmart Annual Report Chief Financial Officer s review The Walmart transaction became effective on 20 June 2011 at which time it acquired 51% of Massmart s issued shares, on a fully-diluted basis, for a cash consideration of R148 per share. It is important that we improve the quality and relevance of Massmart s formal reporting to our stakeholders. In doing so, we ensure that our technical accounting disclosure remains of the highest standard, while also endeavouring to keep our explanations clear and simple despite many accounting standards becoming increasingly complex and technical. Our efforts have been recognised in the South African Ernst & Young Excellence in Corporate Reporting Awards where Massmart has received an Excellent rating for the past six years and has been in the top fi ve companies since Key issues R Diffi culty interpreting sales growth during the six months to June 2011 due to the Easter and the World Cup base-effect R Continued low product sales infl ation R Effective cost control R Inventory levels normalised by June 2011 R Highest ever capital expenditure levels Guy Hayward Chief Financial Offi cer Financial impact of Walmart transaction The Walmart transaction became effective on 20 June 2011 at which time it acquired 51% of Massmart's issued shares, on a fully-diluted basis, for a cash consideration of R148 per share. The legal conditions imposed by the Competition Tribunal in granting its approval are discussed in the CEO review. There were two main fi nancial consequences of this transaction, being Transaction costs of R408.8 million and the effects of the vesting and purchase by Walmart of the Massmart share options held by share trust participants and benefi ciaries. Total Transaction costs of R408.8 million included total advisers fees and expenses of R238.7 million, the establishment of the R100.0 million Supplier Development Fund (required by the Competition Tribunal) and R70.1 million in accelerated IFRS 2 charges. The latter two amounts are non-cash and a portion of all three cost categories may not be tax-deductible. Given the once-off nature of these costs, where relevant, references in this CFO review and in this report to profi t, profi tability, earnings and balance sheet returns are calculated after reversing these costs.

44 42 Reports to Stakeholders Chief Financial Officer s review continued With regard to the effects of the vesting and purchase by Walmart of the Massmart share options, at the end of June 2011 the Group s share premium increased by a net cash amount of R481.6 million as 51% of all vested and unvested share options held by trust participants and benefi ciaries (including our general staff scheme, Thuthukani) were converted into ordinary shares and then acquired by Walmart. Issued shares therefore increased by 12.4 million or 6.1% to million shares. These additional shares had a limited impact on the weighted-average number of shares due to the transaction occurring in late June In addition, cash proceeds were received from Walmart on 20 June 2011 but at 26 June 2011, the Group s actual year-end date, had not yet been paid to share trust participants and benefi ciaries. As the share trusts are consolidated with the Group, the net cash proceeds of R1,093.6 million are shown as Restricted cash held on behalf of scheme participants, with an equal amount included as a Scheme participant liability. This cash was paid to benefi ciaries shortly after the fi nancial year-end. Acquisitions In comparison to previous years, acquisition activity was minimal with six stores acquired, being an ex-mica store in Johannesburg North that was converted to a Builders Express, four stores now forming part of CBW and one store now forming part of the Cambridge brand. In aggregate, seven businesses representing these six stores and one property, were acquired for a cash consideration of R171.0 million, which was fi nanced using short- and medium-term debt facilities, and gave rise to goodwill of R185.0 million. Disposals The only business disposal during the June 2011 fi nancial year was the sale of the two Makro stores in Zimbabwe. The agreement to sell these stores was signed in November 2010 and was fi nalised in late February The loss on sale of R38.6 million represents trading losses funded by Massmart incurred before the decision to sell and then during the extended period until eventual disposal. READ MORE GROUP FINANCIAL STATEMENTS More detail on the accounting policies can be found in note 1 on page 214 The fi nancial results for Makro Zimbabwe were deconsolidated since 2007 as Massmart could not be said to be controlling the day-to-day management of that business following legislative changes in that country. Control is defi ned as the power to govern the fi nancial and operating policies of the entity so as to obtain benefi ts from its activities. Over the period, the fi nancial effect of this exclusion was minimal. Accounting policies There were no signifi cant changes in accounting policies during the year. Financial targets The Group has medium-term fi nancial targets or measures that we believe represent optimal performance levels within the income statement, balance sheet, or the combination of both. Certain of these targets are stretch targets

45 Massmart Annual Report that will only be achieved in the medium term. In addition, these targets are also through-the-cycle targets, meaning that during a strongly negative or positive economic environment, we may under- or over-perform against those targets. These target ratios are shown below: Medium-term target ratios Definition ROE > 35% Return on equity (ROE) is the ratio of headline earnings to average ordinary shareholders equity Gearing < 30% Gearing is the ratio of average long-term interestbearing debt to average ordinary shareholders equity Dividend cover of x 1.7 Dividend cover represents the ratio of headline earnings to dividends paid to ordinary shareholders DEFINITIONS THROUGH-THE-CYCLE The fi nancial targets are intended to apply in a benign to positive economic environment, i.e. one representing the average growth rate of an economic cycle. Return on equity (ROE) Massmart is committed to delivering superior returns to shareholders over the longer term. The Group s medium-term targets are to exceed a 35% return on average ordinary shareholders equity (ROE). The decline in the Group s profi tability (measured by ROS) during the economic recession in 2009 and 2010 was the main cause of the decline in the Group s return on shareholders equity. This was also affected by the Group s ongoing investment in new stores and new businesses which increased the size of the balance sheet. As the Group s profi tability improves, and as the new stores and business begin to trade optimally, the ROE will improve to higher levels. In 2011, despite the improved profi tability, the signifi cant investment in capital assets caused the ROE to remain at similar levels to Progress to date Massmart s current return on average shareholders equity is 33.7% (2010: 34.9%). The Divisions are responsible for delivering operational returns, being their returns to their net working capital and non-current assets excluding goodwill and trademarks. 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 (specifi cally goodwill arising from acquisitions), as well as setting the Group s gearing levels that will infl uence returns to shareholders and the overall risk profi le. Depending upon the purchase price, retail and wholesale acquisitions tend to generate signifi cant accounting goodwill owing to the relatively low net asset values of these business models. FORMULA RETURN ON EQUITY (ROE) Return on equity before transaction costs Headline earnings before transaction costs RETURN ON EQUITY BEFORE TRANSACTION COSTS (%) The Divisions are recapitalised annually by Massmart with non-interest-bearing shareholders funds that are equivalent to the book value of long-term assets in each Division. Each Division must therefore fund its net working capital position through cash or interest-bearing debt, depending upon 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. This policy has not been rigidly applied in Masscash owing to minority

46 44 Reports to Stakeholders Chief Financial Officer s review continued shareholders in that business, although interest income from one year to the next is generally comparable. Rm Gearing 39.9% 17.9% Average interest-bearing debt for the year 1, Average capital and reserves 3, ,262.2 Average interest-bearing debt is calculated by grossing up the net interest paid of R107.2 million (2010: R46.7 million) by the average interest rate of 7.2% (2010: 8.0%). Gearing Massmart prefers some gearing, up to a maximum of 30%, in order to leverage the return on shareholders equity but without introducing excessive fi nancial risk to the Group. Given the Group s high cash generation and our historical preference for leasing rather than owning our stores, it is diffi cult to permanently or meaningfully gear (i.e. maintain a net interest-bearing debt position) the Group over the long term. It should be noted here however, that our stores lease obligations represent a signifi cant form of permanent gearing (these lease obligations currently represent a discounted present value of approximately R5.5 billion (2010: R4.6 billion). Note that these gearing fi gures exclude any capitalised lease obligations. From 2008, the Group decided to rather own than lease certain of its larger stand-alone store formats, specifi cally Makro and Builders Warehouse stores, and this will add incrementally to the Group s gearing. This change does not however, represent a major fi nancial shift as all it will be doing is converting a fi xed long-term lease commitment, which is recorded off-balance sheet, to an on-balance sheet asset and liability. As regards fi nancing any acquisitions, depending on the target company s cash profi le and cash generation ability, this gearing ratio may be increased, but probably to no higher than 50%. As the period-end balance sheet tends to be unrepresentative of the Group s average net cash or debt position during the year (including higher cash balances that are paid to creditors after month-end), the Group s gearing levels are best calculated using the net interest paid (or received) for the fi nancial period. For most of the second half of the June 2011 fi nancial year, the Group funded Massdiscounters signifi cant over-stocked position which caused average gearing to reach 39%. This over-stocked position has been resolved and the Group s current average gearing levels are approximately 20%. Progress to date the Group s average gearing was 39.0% (2010: 17.9%) for the financial year. Dividend cover Massmart's current dividend policy is to pay total annual cash distributions representing a x1.7 dividend cover ratio, unless circumstances dictate otherwise. The reference point for the calculation is headline earnings, which includes the effect of the Thuthukani IFRS 2 charge and associated dividend. No adjustment is made to the dividend calculation for the unrealised or noncash portion of any foreign exchange translation gain or loss, unless these fi gures become material. This ratio is not a target because it is already being achieved but is disclosed to give shareholders clarity on future dividend levels. The Board believes that this dividend cover ratio is appropriate given the Group s current and forecast cash generation, planned capital expenditure and gearing levels. This fi nancial year however, the Board resolved to maintain the dividend at the same level as 2010, despite this dividend policy, marginally higher headline earnings and the impact of the Transaction costs.

47 Massmart Annual Report The Board has no desire to build up cash reserves and so will, where practical, reduce dividend cover and/or may execute a share buyback depending upon the current share price and our view of its valuation in order to return surplus cash to shareholders. Historical actual dividend cover ratios: Dividend cover x1.59* x1.46 x1.55 x1.70 x1.70 x2.00 x2.00 x2.00 * This was calculated using headline earnings before Transaction costs (taxed) The 2006 Black Economic Empowerment staff equity issue Massmart's Black Economic Empowerment (BEE) staff equity issue became effective from October Full details on this BEE staff equity issue were published in the June 2006 shareholders circular but the main fi nancial points are repeated below: R Equity representing 10% of the Massmart ordinary issued shares, predilution, or 9.1% post-dilution, was issued. R There were two categories of participant, being general staff and scarce skills, and separate trusts were formed for both. R Although the underlying instrument is effectively an option with a strike price of R49.98, the actual legal instruments are two classes of preference shares. The reason preference shares were used was to give the participants voting rights and, in one case, a right to dividends as explained below. R The fi rst category, A preference shares, was a once-off issue to the Thuthukani Empowerment Trust, for the benefi t of all 14,500 permanent employees in the Group at that time. These shares have voting rights equal to those of ordinary shares and have a right to dividends on the following basis: 25% of the ordinary dividend in year one, 50% of the ordinary dividend in year two, 75% of the ordinary dividend in year three, and 100% of the ordinary dividend in year four (2010) and thereafter. These A preference shares are converted into Massmart ordinary shares, for the direct use or benefi t of each benefi ciary, in three equal annual tranches commencing on 1 October Although the third and fi nal tranche was intended for October 2012, a specifi c consequence of the Walmart transaction was that the restriction on this vesting was lifted with effect from June 2011 and so participants have been free to vest and sell Massmart shares. R The second category, B preference shares, was issued to the Black Scarce Skills Trust for the benefi t of current and future black managers in the Group and so there will be ongoing issues from this trust. These shares have voting rights but do not attract dividends. These shares can convert into Massmart ordinary shares, for the direct use or benefi t of each benefi ciary, in four equal annual tranches commencing from the end of the second year of the issue date. STORE PROGRESS Opening balance Game stores opened...9 Pretoria CBD (Gauteng) Woodlands Boulevard (Gauteng) Clearwater (Gauteng) Vosloorus (Gauteng) Lilongwe (Malawi) Bayside, Blaauwberg (Western Cape) Polokwane Mall of the North (Limpopo) Brits (North West Province) Jubilee Mall, Hammanskraal (Gauteng) DionWired stores opened.2 Amanzimtoti (KZN) Polokwane Mall of the North (Limpopo) Makro store opened...1 Makro Vaal (Gauteng) Builders Warehouse stores opened...3 Riverhorse (KZN) Woodlands (Gauteng) Witbank (Mpumalanga) Builders Express stores opened...2 Kenilworth (Western Cape) Willowbridge (Western Cape) Builders Express store acquired...1 Cedar Square, Fourways (Gauteng) Builders Trade Depot store closed...(1) Port Elizabeth (Eastern Cape) CBW stores acquired...4 JD s Vosloorus, Gauteng Savemore, Thembisa, Gauteng Liquorland express, Diepkloof, Gauteng Rahme Guys, City Deep, Gauteng Cambridge stores opened.3 Randburg, Gauteng Devilliers, Hillbrow, Gauteng Bara Hotel, Diepkloof, Gauteng Cambridge store acquired.1 Nongoma, KZN TOTAL STORES IN

48 46 Reports to Stakeholders Chief Financial Officer s review continued At October 2006, the total IFRS 2 Share-based Payment charge arising from this BEE staff issue was R373 million. In terms of IFRS 2, this amount must be amortised over the life of the scheme, being six years, commencing from October The current year s charge was R64.7 million (2010: R69.7 million). The acceleration IFRS 2 Share-based Payment charge as a result of the Walmart Transaction totalled R22.8 million (included in the R408.8 million Walmart Transaction costs). South African tax legislation does not allow any tax deduction associated with this non-cash charge. Using the total IFRS 2 charge of R373 million at October 2006 relative to the Group s market capitalisation at the same date, suggests that the total dilution to ordinary shareholders of this transaction will only be 3.3%. This total, however, does not take into account forfeitures by employees which will reduce the dilution effect. READ MORE GROUP FINANCIAL STATEMENTS More detail on the consolidated income statement and related notes can be found in R Income statement 209 R Other income (note 4) 230 R Net fi nance costs (note 9) 235 R Taxation (note 10) 236 R Headline earnings (note 12) 238 READ MORE OPERATIONAL REVIEW More detail on the operational performance can be found in R Massdiscounters divisional review 82 R Masswarehouse divisional review 93 R Massbuild divisional review 103 R Masscash divisional review 113 Income statement Rm Rm % change Sales 52, , Gross profi t 9, , Gross margin 18.3% 17.9% Other income Expenses (7,676.7) (6,640.3) (15.6) Operating expenses as a % of sales 14.5% 14.0% Trading profi t 2, , Trading profit as a % of sales 4.1% 4.3% Foreign exchange loss (72.3) (87.7) Operating profi t before Transaction costs 2, , Transaction costs (408.8) Loss on disposal of Makro Zimbabwe (38.6) Operating profi t 1, ,866.7 (13.7) Operating profit as a % of sales 3.0% 3.9% Finance costs (140.4) (92.6) (51.6) Finance income (27.7) Net fi nance costs (107.2) (46.7) (129.6) Profi t before taxation 1, ,820.0 (17.4) Profit before taxation as a % of sales 2.8% 3.8% Taxation (585.3) (608.2) 3.8 Profit for the year ,211.8 (24.2) Headline earnings: Including Transaction costs ,138.6 (22.5) Excluding Transaction costs 1, , Headline earnings per share (cents): Including Transaction costs (23.6) Excluding Transaction costs

49 Massmart Annual Report Sales The Group s average product selling price infl ation rate for the 2011 fi nancial year was -1.3%, i.e. defl ation, which is lower than the 0.4% defl ation recorded in Infl ation/defl ation for each of the Group s major product categories is shown in the table alongside. As noted previously, changes in product infl ation beyond an approximate range of 5.0% 8.0% are usually linked to signifi cant movement in the US$/Rand exchange rate. The strength of the Rand exchange rate in 2010 and 2011 therefore partly caused defl ation in Food and General Merchandise. Looking ahead to 2011/12, inflationary pressure will be felt across all Massmart's product categories as South African core cost inflation remains at 5.0% 8.0% and, provided the currency remains stable, these cost pressures inevitably feed into product prices. Should the current Rand weakness continue however, product inflation, particularly in Food, will increase towards 8% 10%. Group infl ation -1.3% Food and Liquor 1.6% Home Improvement 0.7% General Merchandise -7.8% Total Group sales of R52.95 billion increased by 11.6% over Comparable stores sales growth was 5.2% while non-comparable stores including acquisitions added 6.4%. With the Group s average product infl ation of -1.3%, this comparable sales growth represents volume growth of 6.5%. Sales growth in the second half of the 2011 fi nancial year slowed as the 2010 World Cup moved into the base. Subsequent to June 2011, sales growth has returned to 6% 8% levels. During the 2011 fi nancial year, the Group opened 20 new stores, closed one store, and acquired six stores, thereby increasing its trading area by an unweighted 6.0% to 1,280,936m². Gross profit The Group s gross margin of 18.26% is above the prior year s 17.90% due to higher gross margins in Massdiscounters, Makro and Massbuild. Group gross margin is returning to pre-economic crisis levels, specifi cally the 18.42% recorded in Higher gross margins in 2011 were achieved as these three Divisions gained market share to the detriment of independent competitors still battling the effects of the grudging economic recovery. The Group s gross margin is dependent upon the sales mix across the Divisions and the required 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. Gross profi t includes rebates and other forms of income earned from suppliers as well as ongoing revenue from sales of cellular products and airtime. Other income Other income of R139.4 million (2010: R99.6 million) comprises royalties and franchise fees from in-store third parties, property rentals, investment income excluding interest, and sundry third party management and administration DEFINITIONS COMPARABLE SALES Comparable sales are sales fi gures quoted for stores that have traded, and will trade, for all 12 months of both the current and prior years. These stores sales would therefore exclude new store openings or closings in the current and prior years UNWEIGHTED New space has not been proportionately adjusted if the store was only open for part of the fi nancial year.

50 48 Reports to Stakeholders Chief Financial Officer s review continued fees. In 2011, it included R11.5 million being the fi rst-time accrual of our profi t share in the RCS business unit that offers consumer credit to Massdiscounters' customers. INSIGHT EXPENSES Employment and occupancy costs together represent 70.7% of the Group s total expenses. Expenses Rm Rm % change Depreciation and amortisation (476.3) (382.8) (24.4) Impairment of assets (10.0) (3.7) (170.3) Employment costs (3,766.3) (3,352.9) (12.3) Occupancy costs (1,664.7) (1,415.1) (17.6) Other operating costs (1,759.4) (1,485.8) (18.4) Total expenses (7,676.7) (6,640.3) (15.6) UP BY 12.3% R3,766.3m EMPLOYMENT COSTS 2010: R3,352.9m UP BY 17.6% R1,664.7m OCCUPANCY COSTS 2010: R1,415.1m Total expenses represent 14.50% of sales, a decline in this ratio compared to the prior year s 13.99% of sales. Although total expenses increased by 15.6%, comparable expenses increased by only 5.4% demonstrating the Divisions ability to control costs. The major expense categories and signifi cant expenses included in total expenses are discussed in more detail below. Employment costs, the Group s single largest cost category at 49.1% of total expenses, are 12.3% higher than the prior year. On a comparable basis, these costs increased by only 4.7%. Included in employment costs are IFRS 2 Sharebased Payments charges of R110.7 million (2010: R149.4 million) which arise from shares and options issued to benefi ciaries of the Massmart Employee Share Trust, the Thuthukani BEE Staff Scheme and Black Scarce Skills Trust. The Group employed 4.3% more employees (on a full-time equivalent basis or FTE) compared to 2010, increasing as we opened new stores and from acquisitions. The infl exibility of South African organised labour requires that new stores should be opened with fewer employees as improved business practices and processes are implemented. For the forthcoming fi nancial year, the Group s salary increases are between 5.0% and 7.0% and the wage increases, which have all been fi nalised, are in a range of 7.0% and 8.0%. Occupancy costs, the Group s second biggest operating cost at 21.7% of total expenses, increased by 17.6%. On a comparable basis, these costs increased by 4.2%. The new Massdiscounters Johannesburg Regional Distribution Centre (RDC) opened in July 2010 and added additional lease charges of R45 million (or 3%) to the increase in the 2011 occupancy costs. Property lease costs comprise only 69% of total occupancy costs, the balance comprises ancillary property costs including municipal rates and services which continue to increase in excess of national South African infl ation levels. Expressed as a percentage of sales, occupancy costs, at 3.1%, are higher than the prior year equivalent of 3.0%. As Makro embarks on its aggressive new store roll-out, this Group ratio may deteriorate slightly as the new Makro stores usually take about two years to reach full trading potential.

51 Massmart Annual Report The lease-smoothing accounting policy applicable to operating leases (thereby affecting all store leases) has the effect of keeping comparable-store lease charges broadly equal from one year to the next, and so any increase in property lease costs between the years would be from new stores. Another effect of this accounting policy is that annual lease escalations no longer increase the Group s lease charge. Adjusting for the non-cash lease-smoothing adjustment in both years shows that annual cash occupancy costs increased by 19.1% while total trading space increased by 6.0%. Depreciation and amortisation is the Group s third largest cost category and represents 6.2% of total expenses. Owing to the accelerated capital investment in new stores, the depreciation and amortisation charge increased by 24.4% which is well ahead of sales growth, and will continue to increase ahead of sales growth due to the Group s capital expansion programme. UP BY 24.4% R476.3m DEPRECIATION AND AMORTISATION 2010: R382.8m Most Divisions refurbish their stores on a regular basis, resulting in steadily higher depreciation charges. The three major cost categories described above together represent 77.0% of the Group s total expenses. Other operating costs represent every other item of expense in the Group, including: insurance, bad debts, travel, professional fees, advertising and marketing, stationery and consumables. Combined, this category represents the most manageable, or variable, costs and so while total costs in this category increased by 18.4%, comparable costs increased by only 8.2% due to intense management focus. It is unlikely that this level of costcontainment will be sustained and so inevitably this category will increase at a level approximating national infl ation rates. Other significant items As noted in the summarised income statement above, included in operating profi t are net unrealised and realised losses on foreign currency transactions and translations of R72.3 million (2010: net loss of R87.7 million). During the 2011 fi nancial year, the translation of Massdiscounters African balance sheets accounted for R58.7 million of this (2010: R64.2 million loss) and there was a net translation loss from other foreign monetary balances of R13.6 million (2010: R23.5 million gain). Both these accounting adjustments show that the South African Rand strengthened, on average, against other currencies during the 2011 fi nancial year. Should the Rand weaken against these currencies, it is likely that the Group will report foreign exchange translation gains. When a new store is opened, large once-off or exceptional operating costs can be incurred in preparing the store (including temporary staff, marketing initiatives, special promotions, signage, amongst others). These costs are referred to as store pre-opening costs and in 2011 amounted to R58.6 million (2010: R35.9 million) which included R14.0 million for the new Makro store opened in October With three new Makro stores opening during the 2012 fi nancial year, these pre-opening costs will increase by approximately the same amount per new Makro store. READ MORE GROUP FINANCIAL STATEMENTS More detail is provided in note 7 on page 232 and note 39 on page 276 on the nature of the Group s foreign currency exposure, particularly with regard to Massdiscounters African stores.

52 50 Reports to Stakeholders Chief Financial Officer s review continued UP BY 7.6% R2,182.9m TRADING PROFIT 2010: R2,027.8m Trading and operating profit Group trading profi t, which is shown before accounting for the foreign currency translation movements and the Transaction costs, grew by 7.6% which is just below sales growth of 11.6%. This is a good trading performance given the Group s product defl ation, the tough African environment and intense competition in our domestic market. Expressed as a percentage of sales, Group trading profi t before interest and tax deteriorated slightly from 4.3% to 4.1%. Group operating profi t, which includes the foreign currency translation movements but excludes the Transaction costs, was 10.3% above the prior year. The Group s 2011 fi nancial performance has been covered in detail above, but can broadly be summarised as: R Total sales growth boosted by new stores and acquisitions during the year; R Good comparable sales growth achieved despite product defl ation; R Higher gross margins in Massdiscounters, Makro and Massbuild; R Effective comparable cost control; and R Consequently, two Divisions, being Massdiscounters and Massbuild, improved operating profi t margins and adjusting for the pre-opening costs of the new Vaal store, Makro would have increased its operating profi t margin. Net finance costs As noted above, due in particular to the signifi cant over-stocked position in Massdiscounters for much of 2011, average Group gearing was higher than 2010, this despite slightly lower commercial interest rates. TAXATION CALCULATION South African corporate taxation 28% in % Secondary Tax on Companies +4.6% in % IFRS % in % Other 1.5% in % Overall tax rate 33.4% in % TOTAL TAX CHARGE R608.2m in 2010 R585.3m Using net interest paid as a proxy, the Group s average net gearing for the 2010 fi nancial year was 39.9% (2010: 17.9%). Taking into account anticipated capital expenditure and excluding any unforeseen developments or new initiatives, the Group will remain net geared for the foreseeable future. Taxation The total tax charge represents an overall tax rate of 38.9% (2010: 33.4%), but the current year s fi gure is distorted by the effect of the non-deductible portion of the Transaction costs discussed above. Adjusting for these reduces the Group tax rate to a more representative 32.6%. The slightly improved tax rate is partly caused by the increased profi tability reducing the effect of nondeductible charges. For several years, two factors have caused the Group s tax rate to be higher than the standard South African corporate rate, the fi rst is the charge from the Secondary Tax on Companies (STC) payable on net dividends paid, and the second is the effect of signifi cant non-deductible expenses, specifi cally the IFRS 2 charge. In the current year, STC added 5.6% (2010: 4.6%) to the tax rate while the non-deductible IFRS 2 charge had a reduced but nonetheless adverse effect of 2.1% (2010: 2.3%). Excluding the impact of STC and IFRS 2, we expect Massmart s future effective tax rate to be at or near the South African corporate rate of 28%, although higher tax rates in certain foreign jurisdictions may marginally increase this.

53 Massmart Annual Report Massmart is unconcerned at any specifi c 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, could impact future tax charges. Extending this uncertainty is that SARS can reopen any tax assessment within three years of issuing such assessment. Headline earnings Headline earnings, before Transaction costs, of R1,252.7 million (2010: R1,138.6 million) are 10.0% above the prior year. Including Transaction costs however, reduces headline earnings to R881.9 million which are 22.5% below the prior year. The more representative fi gure is 10.0% which better refl ects the Group s actual trading performance in Headline earnings per share (HEPS), before Transaction costs, of cents is 8.5% higher than the 2010 HEPS of cents. Including Transaction costs however, reduces HEPS to cents which is 23.6% below the prior year. After adjusting for the potential future conversion of 11.2 million shares (2010: 9.07 million shares), the diluted HEPS before Transaction costs is cents (2010: cents). Under the calculation required by IFRS, the number of potentially dilutive shares was increased due to the signifi cantly higher weighted-average Massmart share price during this fi nancial year but was reduced by Walmart acquiring 51% of all unvested Massmart share options. Statement of financial position Rm Rm Assets Non-current assets 5, ,974.9 Current assets 11, ,314.5 Total assets 17, ,289.4 Equity and liabilities Capital and reserves 3, ,469.7 Minority interest Total equity 4, ,591.8 Non-current liabilities 1, Current liabilities 11, ,802.3 Total equity and liabilities 17, ,289.4 This review covers the consolidated balance sheet and the related notes. HEADLINE EARNINGS (cents) READ MORE GROUP FINANCIAL STATEMENTS More detail on the consolidated balance sheet and related notes can be found in R Statement of fi nancial position 211 R Property, plant and equipment (note 13) 240 R Goodwill (note 14) 243 R Other intangibles (note 15) 244 R Investments (note 16) 245 R Other fi nancial assets (note 17) 247 R Deferred taxation (note 18) 248 R Inventories (note 19) 249 R Trade, other receivables and prepayments (note 20) 250 R Minority interest (note 23) 256 R Non-current liabilities (note 24) 256 R Non-current provisions (note 25) 257 R Trade and other payables (note 26) 258 R Provisions (note 27) 259 R Other current liabilities (note 28) 259

54 52 Reports to Stakeholders Chief Financial Officer s review continued Non-current assets Rm Rm Non-current assets 5, ,974.9 Property, plant and equipment 2, ,055.2 Goodwill 2, ,875.0 Other intangibles Investments Other fi nancial assets Deferred taxation Property, plant and equipment and goodwill together represent 81.5% (2010: 79.0%) of the Group s total non-current assets. CAPITAL EXPENDITURE AND DEPRECIATION (Rm) Replacement Expansion Depreciation CAPITAL EXPENDITURE, ACQUISITIONS, AND BUYBACKS (Rm) Total Capex Acquisitions Share buybacks Massmart continually refurbishes older stores and is building new stores, and so during 2011 expenditure of R1,042.4 million (2010: R520.1 million) was spent on property, plant and equipment. Of this, R249.6 million (2010: R191.6 million) was replacement capital expenditure, while the balance of R792.8 million (2010: R328.5 million) was invested in new capital assets, including new stores and the new RDC. Acquisitions added a further R82.2 million (2010: R205.8 million) to Group property, plant and equipment. Goodwill increased by R174.4 million, refl ecting the goodwill arising from this year s acquisitions (R185.0 million) less a minor impairment of R10.0 million. Under IFRS all goodwill must be tested annually against the value of the business units with which it is associated and, if overstated, that goodwill must be impaired. Other than as noted earlier, no goodwill impairment was necessary this year or in the prior year. Other intangibles primarily represent computer software that IFRS requires to be disclosed in this category. In terms of IFRS the depreciation charge arising from this asset category is classifi ed as an amortisation charge. Capital expenditure for 2012 is budgeted to be R1.6 billion and is higher than previous levels due to the three new Makro stores and the Massdiscounters Foodco conversions and new stores. In total, about 27 new stores will be opened during the 2012 fi nancial year, representing new space growth of about 9.0%. Investments and other financial assets Investments comprise mainly a R250.0 million (2010: R223.6 million) participation in an international treasury, shipping and trading business unit, revalued to refl ect the foreign-denominated net assets within that business unit. The R70.6 million (2010: R60.8 million) shown as a bare dominium revaluation represents the Group s share of the estimated market value of the right to acquire a portion of the bare dominiums in certain Makro stores in Other fi nancial assets of R137.9 million (2010: R270.3 million) include executive and employee loans of R92.5 million (2010: R216.1 million) owed

55 Massmart Annual Report by participants in the Massmart employee share purchase trust that attract zero percent interest. This loan amount reduces as employees sell their shares and repay the associated loans and increases where executives elect to own Massmart shares, funded with these loans, rather than options issued by the trust. As a result of Walmart acquiring 51% of the unvested shares, executives were required to settle the loans associated with those shares hence the reduction of the amounts due in this category. The fi nance lease deposit of R45.3 million (2010: R51.1 million) is related to the fi nancing of the Makro Strubens Valley store originally built in Deferred tax The deferred tax 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 benefi ts are utilised. Current assets Rm Rm Current assets 11, ,314.5 Inventories 6, ,601.5 Trade, other receivables and prepayments 2, ,322.6 Taxation Cash and bank balances 1, ,368.3 Restricted cash held on behalf of Massmart Employee Share Trusts benefi ciaries 1,093.6 Net inventories represent approximately 52.3 days sales (on historic sales basis), an improvement on the prior year s fi gure of 52.5 days. The prior year fi gure was higher than normal as a result of the 2010 World Cup boosting sales and therefore requiring higher inventory levels in Massdiscounters, particularly Game South Africa, Makro General Merchandise and Builders Warehouse. In general, Massdiscounters, being a retail discounter with 113 stores, with several stores in Africa with longer supply-chains, has the highest inventory levels and its sales days in inventory are almost double those for Massmart s wholesale businesses (Makro and Masscash). Builders Warehouse also has higher inventory days than the Group average given the broader and deeper merchandise range in its stores. General Merchandise net inventory of R2,694.1 million (2010: R2,468.5 million) represents about 44% of total Group inventory, while Food net inventory at R1,862.3 million (2010: R1,647.6 million) is the second largest Group inventory category but with the fastest stock-turns. This inventory category has increased by 13% due to the Cambridge expansion. Home Improvement net inventory levels have increased from the new stores in that Division and higher sales growth. INVENTORY DAYS

56 54 Reports to Stakeholders Chief Financial Officer s review continued Total trade and other receivables and prepayments, net of provisions, is 10.3% higher than the prior year and is below sales growth. Included here are net trade accounts receivable of R1,273.4 million (2010: R1,216.2 million), which increased by only 2.8% as the businesses focused on keeping debtors within their terms. Although trade credit is offered to certain customers in Massbuild and in Masscash, it is well controlled, is insured with a credit risk insurer, and is kept within the Group s parameters. The improved situation is also refl ected in steady allowances for doubtful debts at year-end, which increased marginally from 4.4% of total trade receivables to 4.5% at June For more detail, refer also to the commentary on credit risk in the Financial risks section in note 39 on page 276. Non-current liabilities Rm Rm Non-current liabilities 1, Non-current liabilities: Interest-bearing Interest-free Non-current provisions Deferred taxation Major items included in the total of R1,205.2 million (2010: R895.3 million) are medium-term bank loans, capitalised fi nance leases, the operating lease liability arising from the lease-smoothing adjustment, non-current provisions and deferred tax. The interest-bearing liabilities included in this category are medium-term bank loans and this balance increased during the fi nancial year as a new R500 million three-year amortising loan was raised. Interest is fi xed on this loan at 8.1%. A further three-year fi xed term loan of R500 million was secured during the second half of the previous fi nancial year, also repayable quarterly over three years. The loan bears interest of 9.8%. Two fi ve-year amortising loans of R250 million each which were raised during the 2006 fi nancial year to fi nance the Massbuild acquisitions were paid-down during Capitalised fi nance lease balances are R58.5 million (2010: R76.7 million). The largest balance in non-current non-interest-bearing liabilities is the total operating lease liability of R414.3 million (2010: R422.8 million) arising from the lease-smoothing accounting policy and which will be released over the remaining period of the Group s operating leases. Included in non-current provisions is the long-term provision of R66.0 million (2010: R58.3 million) arising from the actuarial valuation of the Group s potential liability, unfunded, arising from post-retirement medical aid contributions owed to current and future retirees. With effect from 1999, post-

57 Massmart Annual Report retirement medical aid benefi ts were no longer offered to new employees joining the Group. The R100 million Supplier Development Fund raised as part of the Competition Tribunal s approval of the Walmart transaction is included here. Annually, Massmart must report to the Tribunal about our expenditure and achievements under this condition. The deferred tax liability arises primarily from prepayments and property, plant and equipment. Current liabilities Rm Rm Current liabilities 11, ,802.3 Trade and other payables 9, ,194.3 Massmart Employee Share Trusts' benefi ciaries liability 1,093.6 Provisions Taxation Other current liabilities Bank overdrafts Included in the total trade and other payables fi gure are trade payables of R7,553.9 million (2010: R7,329.0 million) representing approximately 56 days of cost of sales (using the historic basis), which is lower than the prior year s fi gure of 60 days. The lower fi gure is however, more representative of the Group s supplier terms. The higher prior year fi gure was caused by the disproportionately high General Merchandise inventory levels around the 2010 World Cup. As noted earlier, owing to payments to creditors being made shortly after each month-end, the Group trade payables balances at year-end are not representative of the average during the remaining fi nancial period. The amount by which year-end trade payables are overstated in comparison to the average cannot be accurately calculated but is approximately R1.6 billion. The current taxation liability refl ects the Group s liability for provisional corporate tax payments that are generally payable within a few days of the fi nancial year-end. Major items in other current liabilities include R294.9 million (2010: R217.9 million) being the short-term portion of the medium-term loans noted above. Cash flow statement The Group s cash fl ow generated from operations was adversely impacted by the normalisation of the extent of supplier funding, noted above. This is unlikely to occur again and so the usual cash release from working capital can be expected. INSIGHT CASH FLOW ANALYSIS Working capital movements can be volatile. Depending upon creditor payment cycles the extent of the movement tends to be overstated at month- and year-end and so is generally not indicative of the intrayear average. Trading represents Operating cash before working capital movements.

58 56 Reports to Stakeholders Chief Financial Officer s review continued Cash flow from operating activities Rm Rm Cash flow from operating activities Operating cash including cash-effect of Transaction costs 2, ,346.8 Working capital movements (625.4) Cash generated from operations 1, Interest received Interest paid (140.4) (92.6) Investment income Taxation paid (645.1) (552.8) Dividends paid (822.5) (822.4) Net cash inflow from operating activities ,253.6 READ MORE GROUP FINANCIAL STATEMENTS More detail on the consolidated cash fl ow can be found in note 38 on page 274 CASH GENERATED FROM OPERATIONS BEFORE TRANSACTION COSTS (Rm) Operating cash before working capital movements is below the prior year fi gure but includes the cash-effect of the Transaction costs. Adjusting for this increases the amount to R2,503 million which is 6.6% ahead of the prior year. Despite profi t before taxation being 17.4% below the prior year, Cash taxation paid is 16.6% higher than 2010 due to timing differences on certain provisional tax payments at the fi nancial year-end. The total cash dividend paid is almost identical to the prior year fi gure due as there was negligible movement in issued shares during the year. The impact on issued shares from the Walmart transaction will affect dividends paid in the 2012 fi nancial year and beyond. Cash flow from investing and financing activities Rm Rm Cash flow from investing activities Investment to maintain operations (345.4) (284.0) Investment to expand operations (843.0) (346.1) Proceeds on disposal of property, plant and equipment Proceeds on disposal of assets classifi ed as held for sale 15.0 Investment in subsidiaries (171.0) (369.9) Disposal of subsidiary 26.9 Other investing activities 21.3 (163.8) Net cash outflow from investing activities (1,297.9) (1,130.7) Cash flow from financing activities Net cash outflow from financing activities Net decrease in cash and cash equivalents (569.1) Foreign exchange movements 2.6 (30.9) Cash and cash equivalents at the beginning of the year 1, ,025.1 Cash and cash equivalents at the end of the year ,310.9

59 Massmart Annual Report Total capital expenditure (replacement and expansion) was R1,188.4 million, a signifi cant increase on the prior year s total of R630.1 million. Investment in new stores caused this increase, particularly as we were able to acquire and pay for the land for one of the new Makro stores to be opened during The Investment in subsidiaries has been described in more detail in the Acquisitions paragraph on page 42. Financial risks Liquidity risk Liquidity risk is considered low owing to the Group s conservative funding structure and its high cash generation. Massmart s liquidity requirements are continually assessed through the Group s cash management and treasury function. READ MORE GROUP FINANCIAL STATEMENTS More detail on fi nancial risks and sensitivity analyses can be found in note 39 on page 276 The Group has total banking facilities, incorporating overnight, short- and medium-term borrowings, letters of credit, forward exchange contracts and electronic fund transfers, of R9,700.3 million (2010: R4,266.5 million). As at June 2011, total interest-bearing debt amounted to R1.0 billion (2010: R0.7 billion). As the Group begins to build inventory levels for the festive season, net interestbearing debt will increase up to a maximum of approximately R2.0 billion in October/November, but will reduce rapidly as Christmas trading accelerates with commensurately higher cash proceeds. Interest risk Interest rate exposure is actively monitored owing to the Group s signifi cant intra-month cash movements and the seasonal changes in its net funding profi le during the fi nancial year. As noted above, interest rates on the two medium-term bank loans are fi xed at 8.1% and 9.8% respectively. The remaining interestbearing funding is done through overnight facilities at fl oating interest rates. Of the Group s total fi nancial liabilities of R12.3 billion, 85.2% or R10.5 billion is represented by non-interest-bearing trade and other payables funding. Credit risk Credit is available to wholesale customers at Makro, Massbuild and Masscash, and is adequately controlled by using appropriately trained personnel, applying credit granting criteria, continual monitoring and the use of software tools. A portion of the trade debtors book in Masscash is insured and a further portion is secured through general notarial bonds, pledges and other forms of security. Similarly, the trade debtors books in Builders Warehouse and Trade Depot are also insured. Currency risk Where possible and practical, currency risk in the Group is actively managed. All foreign-denominated trading liabilities are covered by matching forwardexchange contracts. At fi nancial year-end, there were open forward exchange contracts totalling R446.3 million (2010: R699.9 million) of which 99.1% (2010: 99.5%) were US Dollar liabilities.

60 58 Reports to Stakeholders Chief Financial Officer s review continued The sensitivity of the Group to this exposure is shown in note 39 on page 276. In brief, if the Rand strengthened by 5% from the year-end rate of R6.95/US Dollar, there would be a R3.8 million charge, while a 5% weakening would give rise to a R3.8 million gain (2010 equivalent fi gures were R6.7 million). Foreign-denominated assets are not covered by forward exchange contracts, as these are permanent assets held for the long term. The Group s exposure to the African currencies has been explained in note 7 on page 232 and further detail on the sensitivity analysis can be found in note 39 on page 276. READ MORE GROUP FINANCIAL STATEMENTS The detailed technical review can be found in note 2 on page 225 Technical review The appropriate accounting policies, supported by sound and prudent management judgement and estimates, have been consistently applied. The Group s accounting policies are governed by IFRS and the AC 500 series as issued by the Accounting Practices Board. Guidance has been obtained from IFRICs and circulars effective on 5 October Owing to the nature and volume of Exposure Drafts (EDs), no review has been provided except for the lease exposure draft specifi cally discussed in note 2 on page 225. The Group believes that accounting standards set the minimum requirement for fi nancial reporting. The fi nancial statements in this annual report have been prepared with the aim of exposing the reader to a very detailed view of the numbers, using a simplifi ed approach, in the hope of facilitating a deeper and informed understanding of the business. INSIGHT THE INTERNATIONAL INTEGRATED REPORTING COMMITTEE, IIRC The International Integrated Reporting Committee, IIRC, is a powerful, international cross section of leaders from the corporate, investment, accounting, securities, regulatory, academic and standardsetting sectors as well as civil society. The IIRC is chaired by Sir Michael Peat, Principal Private Secretary to TRH The Prince of Wales and The Duchess of Cornwall. Professor Mervyn King, Chairman of the Global Reporting Initiative is Deputy Chair. Integrated reporting We are closely monitoring the progress with integrated reporting both from an international perspective and with regard to South Africa s King III. Until the fi nal recommendations by the International Integrated Reporting Committee (IIRC) have been used, we will not change the format of our report but do believe that this 2011 annual report has addressed almost all the headings and information considered by King III and the discussion paper issued by IIRC.

61 Massmart Annual Report XBRL XBRL is becoming a standard means of communicating information between businesses and on the internet. It provides major benefi ts in the preparation, analysis and communication of business information. It offers cost savings, greater effi ciency and improved accuracy and reliability to all those involved in supplying or using fi nancial data. In South Africa, the development and drive for adoption is done by XBRL SA, a not-for-profi t organisation. Members include large corporate organisations, audit fi rms, regulators and accounting software vendors. The main purpose of this organisation is to create awareness within the South African market, while the members contribute to the development of taxonomies relevant specifi cally to South African reporting requirements (JSE Listings Requirements, Companies Act Fourth Schedule disclosure requirements, etc). Reasons for the slow acceptance in South Africa are that too few people have XBRL experience, software companies are not promoting XBRL and regulators cannot receive information in XBRL format. Given the worldwide growth of XBRL over the past decade, the growing acceptance of IFRS and increased globalisation of business, it is inevitable that South Africa will follow. It is expected that the road to adoption of XBRL in South Africa will be started with a voluntary fi ling programme and later, companies will be mandated to use XBRL as a format for fi ling purposes. DEFINITIONS XBRL extensible Business Reporting Language XBRL is a language for the electronic communication of business and fi nancial data which may revolutionise business reporting around the world. INSIGHT TAXONOMIES Dictionaries used by XBRL. They defi ne the specifi c tags for individual items of data (such as profi t ). Different taxonomies will be required for different fi nancial reporting purposes. XBRL SA requires their own fi nancial reporting taxonomies to refl ect the South African local accounting regulations. 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 fi nancial year. See page 207 for more detail. Appreciation As always, I would like to acknowledge and pay tribute to the high-quality performances and signifi cant efforts invested by my Finance colleagues and their teams at the Massmart Divisions and the Massmart corporate offi ce. The 2011 fi nancial year was a once-in-a-lifetime experience for many of us as the Group s fi nance communities dealt with the extensive Walmart due diligence investigation and then the uncertainty that naturally follows any similar corporate action, but all the while delivering superbly on the ongoing demands of their Divisions and the Group. Guy Hayward Chief Financial Officer 5 October 2011

62

63

64 2000 TEN YEAR LISTED ON THE JSE 2006 TRANSACTION ANNOUNCED REVIEW WALMART FOUNDED IN SA BEE GENERAL STAFF % ACQUISITION TEN YEAR REVIEW R Defi nitions and formulas 63 R Massmart since R Ten-year review 66

65 Massmart Annual Report Definitions and formulas Employment costs Includes the IFRS 2 Share-based Payment expense. Other operating costs Includes the foreign exchange gains and losses. Net finance costs Interest received less interest paid EBITDA Earnings before interest, taxation, depreciation, amortisation and asset impairments. Trading profit before interest and taxation Earnings before interest, taxation, asset impairments, the BEE IFRS 2 charge and foreign exchange movements. Comparable sales Sales fi gures quoted for stores that have traded, and will trade, for all 12 months of the current and prior year. 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, offi ce space and receiving areas. Sales per store (R000) Sales Number of stores Sales for Shield, CellShack, Saverite, Kawena and Kangela are excluded as they do not have stores. Sales per FTE (R000) Sales FTEs Sales per trading m 2 (R000) Sales Trading m 2 Sales for Shield, CellShack, Saverite, Kawena and Kangela are excluded as they do not have stores. Net asset turn Sales Net assets The Group defi nes net assets as capital reserves and interest-bearing long-term liabilities. Gross margin (%) Gross profi t Sales Operating margin (%) Operating profi t Sales Trading profit before interest and taxation margin (%) Trading profi t before interest and taxation Sales EBITDA margin (%) EBITDA Sales Effective tax rate (%) Taxation Profi t before tax Note 10 on page 236 of the fi nancial section holds further information. 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 profi t before asset impairments Average of opening and closing capital employed balances The Group defi nes capital employed as capital and reserves and interest-bearing long-term liabilities. Debt: Equity (%) Debt Capital and reserves Debt comprises non-current interestbearing liabilities. Cash earnings cover Operating cash fl ow 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 year Current ratio Current assets Current liabilities Quick ratio Current assets excluding inventory Current liabilities Inventory days Inventory Total cost of sales Inventory turn Total cost of sales Inventory Payable days Trade payables Total cost of sales Asset turn Sales Total assets Total liabilities to total equity Current and non-current liabilities Total equity 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 Distribution to shareholders. 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 Operating cash flow per share Net cash fl ow from operations Weighted average number of shares in issue Net cash fl ow from operations is after working capital movements, and excludes exceptional items and dividends paid. Net asset value per share Capital and reserves Total number of shares in issue Dividend cover Headline earnings per share Interim and fi nal dividend per share

66 64 Ten-year Review Massmart annual sales and corporate activity through the years Massmart founded R Makro was the founding entity of Massmart with 6 stores R Acquired 14 CCW stores on 1 June 1998 R Acquired 20 Dion stores on 31 May R8.9bn 1990 R1bn 1991 R1.2bn 1992 R1.5bn 1993 R2.7bn 1994 R3.3bn 1995 R3.5bn 1996 R4.1bn 1997 R4.8bn 1998 R5.8bn R Acquired 378 Shield members on 1 March 1992 R Acquired 26 Game stores on 1 July 1998

67 Massmart Annual Report R Acquired 3 De La Rey stores on 1 June 2005 R Acquired 14 Servistar stores on 1 June 2005 R Acquired 34 Federated Timbers stores on 1 June 2005 R Acquired 6 Cambridge Food stores in December 2008 R Acquired 3 Buildrite stores in June 2009 R Acquisition of 13 businesses in Masscash and Massbuild 2011 R53.0bn 2010 R47.5bn 2009 R43.1bn R Massmart listed on 4 July 2000 on the JSE Limited 2006 R30.0bn 2007 R34.8bn 2008 R39.8bn R Walmart 51% acquisition became effective on 20 June 2011 R Acquisition of six businesses in Masscash and Massbuild 2005 R25.4bn 2000 R10.4bn 2001 R11.6bn 2002 R16.7bn 2003 R20.4bn 2004 R23.8bn R Acquired 22 Brown and Weirs stores on 1 July 2001 R Acquired Furnex on 1 January 2002 R In June 2002 Wooltru unbundled its 41% shareholding in Massmart R SHV s 31% shareholding in Massmart sold to local and international investors in January 2004 R Acquired 5 Builders Warehouse stores on 28 February 2003 R BEE general staff transaction announced R Disposal of Furnex on 28 February 2006 R Acquired 6 Jumbo stores on 1 April 2001

68 66 Ten-year Review Income statement in Rands as at 26 June 2011 Nine-year growth % ** * Income statement (Rm) Continuing operations: Sales , , , ,958.3 Cost of sales (43,281.8) 38,955.9 (35,351.0) (31,781.7) Gross profi t , , , ,176.6 Other income Depreciation and amortisation costs (476.3) (382.8) (343.1) (297.8) Impairment of assets (10.0) (3.7) (1.6) (4.7) Employment costs (3,766.3) (3,352.9) (2,965.8) (2,723.1) Occupancy costs (1,664.7) (1,415.1) (1,170.4) (952.3) Foreign exchange (loss)/profi t (72.3) (87.7) (78.4) 62.5 Other operating costs (1,759.4) (1,485.8) (1,370.9) (1,427.3) Operating profi t before Transaction costs , , , ,993.1 Transaction costs (408.8) Loss on disposal of Makro Zimbabwe (38.6) Operating profi t 1, , , ,993.1 Net fi nance costs (107.2) (46.7) (48.6) (59.7) Exceptional items Profi t before tax , , , ,933.4 Taxation (585.3) (608.2) (620.4) (632.8) Profi t for the year from continuing operations , , ,300.6 Discontinued operation: Profi t/(loss) for the year Loss on disposal Profit for the year , , ,300.6 Attributable to: Equity holders of the parent , , ,256.6 Preference shareholders Minority interest Profit for the year , , ,300.6 Trading profi t before Transaction costs, interest and taxation , , , ,002.4 EBITDA before Transaction costs , , , ,295.6 Headline earnings , , ,261.9 Headline earnings before Transaction costs , , , ,261.9 Share-based payment expense excluding acceleration charge Massmart Holdings Limited Employee Share Trust Massmart Thuthukani Empowerment Trust Massmart Black Scarce Skills Trust Total Annual growth (%) Total sales Comparable sales Estimated Group sales (defl ation)/infl ation (%) (1.3) (0.4) Trading profi t 7.6 (3.3) Profi t before tax (17.4) (4.3) (1.6) 18.7 Definitions/explanations to the ratios and terms above can be found on page 63. * 2008 was a 53-week period. For comparative purposes, the adjusted pro forma 52-week period has been used where appropriate. ** Foreign exchange movements relating to the cost of stock have been reallocated from Foreign exchange loss to Cost of sales in June 2010 (R76.6 million), in line with the Group s accounting policy. Water and electricity charges have been reallocated from Other operating costs to Occupancy costs in June 2010 (R88.4 million) in line with the Group s accounting policy."

69 Massmart Annual Report , , , , , ,709.2 (28,435.7) (24,650.0) (21,202.0) (20,183.2) (17,319.5) (14,112.1) 6, , , , , , (240.9) (202.9) (157.5) (133.5) (107.8) (106.2) (26.3) (5.4) (74.6) (49.5) (39.7) (2,449.8) (2,079.0) (1,656.7) (1,416.6) (1,168.5) (1,017.2) (846.0) (740.5) (644.0) (563.7) (408.8) (366.0) (41.4) (31.7) (28.0) 3.4 (1,251.3) (1,108.0) (891.4) (716.1) (671.0) (641.2) 1, , , , (44.4) (32.2) (20.2) (7.2) (50.4) (14.1) , , (554.8) (444.6) (307.5) (253.9) (215.2) (164.4) 1, (82.1) (1.8) 1, SALES (Rbn) HEADLINE EARNINGS BEFORE TRANSACTION COSTS (Rm) , , , , , , , , , , , , , , (2.2) (1.2) TRADING PROFIT BEFORE TRANSACTION COSTS, INTEREST AND TAXATION (Rm) , , , , ,182.9

70 68 Ten-year Review Statement of financial position and statement of cash flows in Rands as at 26 June 2011 Nine-year growth % * Statement of financial position (Rm) Assets Non-current assets , , , ,840.5 Current assets , , ,060.4 Inventory , , , ,758.6 Restricted cash held on behalf of Massmart Employee Share Trusts benefi ciaries ,093.6 Total assets , , , ,900.9 Equity and liabilities Total equity , , , ,766.5 Non-current liabilities , ,015.9 Trade and other payables , , , ,380.0 Current liabilities , , , ,118.5 Massmart Employee Share Trusts benefi ciaries liability ,093.6 Total equity and liabilities , , , ,900.9 Statement of cash flows (Rm) Operating cash including cash-effect of Transaction costs , , , ,394.9 Working capital movements (625.4) (73.2) Cash generated from operations , , , ,321.7 Net interest paid (107.2) (46.7) (48.6) (64.1) Investment income Dividends received Taxation paid (645.1) (552.8) (700.3) (668.1) Dividends paid (822.5) (822.4) (867.4) (709.9) Net cash flow from operating activities , Investment to maintain operations (345.4) (284.0) (354.5) (268.3) Investment to expand operations (843.0) (346.1) (340.1) (309.6) Other (109.5) (500.6) (2.8) (320.3) Net cash flow from investing activities 23.3 (1,297.9) (1,130.7) (697.4) (898.2) Net cash flow from financing activities (160.7) (222.7) Net increase/(decrease) in cash and cash equivalents (569.1) (191.4) Foreign exchange losses taken to FCTR 2.6 (30.9) (27.3) 4.6 Cash and cash equivalents for the period (566.5) (186.8) Cash and cash equivalents at the beginning of the period 1, , , ,208.7 Cash and cash equivalents at the end of the period , , ,021.9 Definitions/explanations to the ratios and terms above can be found on page 63. * 2008 was a 53-week period. For comparative purposes, the adjusted pro forma 52-week period has been used where appropriate. ** The opening cash flow in 2005 does not agree to the closing cash flow in 2004 due to the results being restated for IFRS from The difference relates to Makro Zimbabwe being consolidated as a result of IFRS.

71 Massmart Annual Report , , , , , , , , , , , , , , , , , ,981.9 TOTAL ASSETS (Rbn) 10, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , CASH GENERATED FROM OPERATIONS (Rm) 1, , , , (28.3) (63.6) , , , , (44.4) (32.7) (22.0) (5.5) (50.4) (14.1) (531.6) (487.4) (337.5) (124.2) (77.5) (90.9) (565.1) (402.8) (416.4) (218.7) (166.6) (90.7) (152.9) (178.5) (256.1) (136.3) (83.6) (76.3) (317.9) (184.1) (157.6) (263.3) (216.6) (73.1) (220.0) (96.9) (696.8) (35.7) (208.8) (47.2) (690.8) (459.5) (1,110.5) (435.3) (509.0) (196.6) (288.4) (22.6) (39.8) 30.8 (233.9) (166.1) (626.8) (1.5) (4.2) (10.5) 7.9 (167.6) (621.4) , , , , ,639.4 RETURN ON CAPITAL EMPLOYED (%) , ,026.2** , , ,

72 70 Ten-year Review Stores and productivity measures in Rands as at 26 June 2011 Ratios/indicators Operating statistics Nine-year growth % * Depreciation and amortisation costs as a % of sales (0.9) (0.8) (0.8) (0.8) Impairment costs as a % of sales Employment costs as a % of sales (7.1) (7.1) (6.9) (7.0) Occupancy costs as a % of sales (3.1) (3.0) (2.7) (2.4) Total expenses as a % of sales (14.6) (14.2) (13.8) (13.7) Number of stores by chain Game Dion DionWired Massdiscounters Makro Masswarehouse Builders Warehouse Builders Trade Depot Builders Express Massbuild Wholesale cash and carry Retail cash and carry Masscash Total number of stores FTE (full-time equivalents) ,729 26,585 24,518 24,308 Trading space (m 2 ) ,280,936 1,179,466 1,087,459 1,047,539 Sales per store (R000) 158, , , ,167 Sales per FTE (R000) 1,910 1,785 1,759 1,603 Sales per trading m 2 (R000) Definitions/explanations to the ratios and terms above can be found on page 63. * 2008 was a 53-week period. For comparative purposes, the adjusted pro forma 52-week period has been used where appropriate. ** Includes the two Makro Zimbabwe stores from 2005, the date from which the results have been consolidated due to IFRS, and excludes them from 2007, the date from which the results have been deconsolidated.

73 Massmart Annual Report TOTAL NUMBER OF STORES (0.7) (0.7) (0.6) (0.6) (0.5) (0.6) (0.1) (0.3) (0.2) (0.2) (7.0) (6.9) (6.5) (6.0) (5.7) (6.1) (2.4) (2.5) (2.5) (2.4) (2.0) (2.2) (14.0) (13.7) (13.1) (12.3) (11.9) (13.0) TRADING SPACE (000m 2 ) ** ,048 1,087 1,179 1,281 SALES PER TRADING m 2 (R000) ,436 22,412 20,277 17,565 16,763 14, , , , , , , , , , , , ,881 1,422 1,337 1,421 1,354 1,216 1,

74 72 Ten-year Review Returns, profitability and share information in Rands as at 26 June 2011 Nine-year growth % * Productivity ratios Net asset turn Gross margin (%) Operating margin before Transaction costs (%) Trading profi t before Transaction costs, interest and taxation margin (%) EBITDA margin (%) Effective tax rate (%) Profitability and gearing ratios Return on average shareholders' equity before Transaction costs (%) Return on capital employed (%) Debt: Equity (%) Cash earnings cover Solvency and liquidity ratios Net cash to total equity (%) Current ratio Quick ratio Inventory days days Inventory turn Payable days days Asset turn Total liabilities to total equity Per share performance (cents) Headline earnings before Transaction costs Diluted headline earnings before Transaction costs Attributable earnings Dividends/distribution Cash generated from operations before working capital movements , , , ,203.5 Operating cash fl ow , Net asset value , , , ,359.8 Dividend cover Stock exchange information Shares in issue (millions) Weighted average number of shares (millions) Diluted weighted average number of shares (millions) Shares traded (millions) Percentage of shares traded (%) Earnings yield (%) Dividends yield (%) Market capitalisation (Rm) 28, Share price South African (cents): High 15, Low 11, Closing 13, Definitions/explanations to the ratios and terms above can be found on page 63. * 2008 was a 53-week period. For comparative purposes, the adjusted pro forma 52-week period has been used where appropriate.

75 Massmart Annual Report OPERATING MARGIN BEFORE TRANSACTION COSTS (%) RETURN ON EQUITY BEFORE TRANSACTION COSTS (%) MARKET CAPITALISATION (Rbn) ,

76 74 Ten-year Review Income statement, statement of financial position and statement of cash flows in US Dollars as at 26 June 2011 Income statement ($m) Continuing operations: Nine-year growth % * Sales , , , ,329.5 Cost of sales (6,148.0) (5,119.0) (3,906.2) (4,347.7) Gross profi t , , Other income and expenses (1,144.5) (871.1) (643.9) (709.1) Operating profi t Finance costs (15.2) (6.1) (5.4) (8.2) Exceptional items Profi t before tax Taxation (83.1) (79.9) (68.6) (86.6) Profi t for the year from continuing operations Discontinued operation: Profi t/(loss) for the year Loss on disposal Profit for the year Attributable to: Equity holders of the parent Preference shareholders Minority interest Profit for the year Headline earnings before Transaction costs Statement of financial position ($m) Total equity Net cash Total assets , , , ,495.1 Inventories Trade and other payables , , Statement of cash flows ($m) Cash generated from operations Net cash fl ow from operating activities Net cash fl ow from investing activities 28.5 (184.4) (148.6) (77.1) (122.9) Exchange rates (Rand/US$) At year-end Average for the year Definitions/explanations to the ratios and terms above can be found on page 63. * 2008 was a 53-week period. For comparative purposes, the adjusted pro forma 52-week period has been used where appropriate.

77 Massmart Annual Report , , , , , ,643.0 (3,938.5) (3,839.6) (3,414.2) (2,950.8) (1,911.6) (1,387.6) SALES ($bn) (650.8) (620.8) (513.2) (413.5) (259.6) (206.3) (6.1) (5.0) (3.3) (1.1) (5.6) (1.4) (76.8) (69.3) (49.5) (37.1) (23.8) (16.2) TOTAL ASSETS ($bn) 0.6 (13.2) (0.3) CASH GENERATED FROM OPERATIONS ($m) , , , , (95.7) (71.6) (178.8) (63.6) (56.2) (19.3)

78 76 Ten-year Review Profitability and share performance in US Dollars as at 26 June 2011 Ratios/indicators Profitability and gearing ratios Nine-year growth % * Return on average shareholders' equity before Transaction costs (%) Return on capital employed (%) Debt: Equity (%) Liquidity ratios Current ratio Inventory days Per share performance (cents) Headline earnings before Transaction costs Diluted headline earnings before Transaction costs Attributable earnings Dividends/distribution Cash generated from operations before working capital movements Operating cash fl ow Net asset value Dividend cover Stock exchange information Market capitalisation ($m) 4, Exchange rates (Rand/US$) At year-end Average for the year Definitions/explanations to the ratios and terms above can be found on page 63. * 2008 was a 53-week period. For comparative purposes, the adjusted pro forma 52-week period has been used where appropriate. Technical clarification: 1. These amounts exclude amounts relating to the discontinued operation (Furnex). 2. These amounts have not been restated for IFRS. 3. These amounts have not been restated for IFRS or for SAICA's reinterpretation of IAS 17, Leases.

79 Massmart Annual Report RETURN ON EQUITY BEFORE TRANSACTION COSTS(%) RETURN ON CAPITAL EMPLOYED (%) , , , ,

80

81

82 13 27 DION MASSDISCOUNTERS STORES WIRED BUILDERS WAREHOUSE BUILDERS EXPRESS BUILDERS TRADE DEPOT OPERATIONAL REVIEW MASSCASH CBW JUMBO CAMBRIDGE 81 STORES 6 STORES STORES STORES 13 GAME STORES MASSBUILD STORES STORES MASSWAREHOUSE MAKRO STORES PROUDLY AFRICAN 18 OPERATIONAL REVIEW R Massdiscounters divisional review 82 R Masswarehouse divisional review 93 R Massbuild divisional review 103 R Masscash divisional review 113 R Channel and Shared Services review 120

83 DionWired, Polokwane

84 82 Operational Review Massdiscounters divisional review HIGHLIGHTS R Achieved double-digit sales growth R Successfully launched Foodco offering R Two RDCs operational with fi nal RDC being developed R First retailer to achieve a BBBEE score of over 80% R 20 Dion stores acquired 31 May 1993 R Dion stores rebranded to Game stores in 2000 R Launched greenfi eld DionWired concept stores in 2006 R Now 13 stores R Operating in SA R General merchandise R LSM 8 10 R 26 stores acquired 1 July 1998 R Now 100 stores R Operating in SA, Botswana, Ghana, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Tanzania, Uganda, Zambia R General merchandise and FMCG R LSM 5 10 Although South African consumer demand was muted, Massdiscounters outperformed by posting double-digit sales growth. Game SA continued to drive the Division s performance with an exceptional performance that saw sales growth of 10.9% with sales deflation of 7.3% which implies real growth of 18.2%. The diffi cult environment resulted in a slowdown in sales growth during the fi nancial year which was exacerbated by the high 2010 sales base created by our 40th birthday and the Soccer World Cup promotions. With consumers carefully managing their spending and debt exposure, they became more promotionally driven in their purchasing decisions undertaking pre-purchase research and carefully planning their purchases. We continue to deliver unbeatable value on the most wanted items and introduced more customers to our private label products. In this market, customers respond well to the value in our bundle deals where, for example, we sold a TV together with a digital decoder or a computer with a printer and we endeavour to remain top of mind among our target consumers. In order to increase our value-offering to our Game customers, we introduced a differentiated food offering, Foodco, which provides a narrow, but relevant assortment of items. Commencing this year, we now have Foodco in four of our Game stores. Despite project complexities and timeline pressures at the pilot sites in our N1 City and Canal Walk stores in Cape Town sales in the opening month at both stores exceeded expectations and we now plan to roll out Foodco where the space allows us to do so. Liquor stores under the LiquorMart brand will be co-located with Foodco stores and we successfully piloted LiquorMart stores at both N1 City and Canal Walk and will continue to roll these out alongside our Foodco offering. The growth in private label sales shows how consumers have responded to our house brands. Our private label penetration increased to 13.4% of total sales with Logik now being the second biggest brand sold in our stores. Simple Choice is now the fi fth largest brand in Game securing two places in the top fi ve brands for our house brands. At DionWired, we continued to focus on the brand s unique market positioning and target market of LSM 8 10 even as we entered new territories and

85 Massmart Annual Report smaller markets such as Nelspruit and Polokwane. Our approach has been on delivering better value to our selected target market and increasing market share rather than expanding our target customer market. The Massdiscounters brands Massdiscounters now operates two retail formats: Game and DionWired. Game is a discount retailer of general merchandise and predominantly non-perishable groceries for home, leisure and business use operating throughout South Africa and in 13 major cities in sub-saharan Africa. During the past fi nancial year we opened nine new Game stores, bringing its footprint to 100 stores and opened two new DionWired stores which sell middle- to upper-end electronics and appliances through 13 stores across South Africa. Game At Game our positioning offers customers the widest range of branded products at the best price for a given set of product specifi cations. Customers are presented with a wide range to choose from and are assured of the best value product for that price. The Game business model is promotionally-driven with fi ve million promotional leafl ets distributed each week. By working closely with our suppliers and benchmarking ourselves against competitors we are able to offer our customers well-priced products representing great value. Commencing in November 2010, four Game stores now also provide a food offering under the Foodco sub-brand and this will be rolled out at the rate of about 15 stores annually. STORE PROGRESS MASSDISCOUNTERS Game Opening balance...91 Stores opened...9 Pretoria CBD (Gauteng) 1 Woodlands Blvd (Gauteng) 1 Clearwater (Gauteng) 1 Vosloorus (Gauteng) 1 Lilongwe (Malawi) 1 Bayside, Blaauwberg (Western Cape) 1 Polokwane Mall of the North (Limpopo) 1 Brits (North West Province) 1 Jubilee Mall, Hammanskraal (Gauteng) 1 TOTAL STORES IN DionWired Opening balance...11 Stores opened...2 Amanzimtoti (KZN) 1 Polokwane Mall of the North (Limpopo) 1 TOTAL STORES IN STORE DISTRIBUTION Game DionWired

86 84 Operational Review Game, N1 City MASSDISCOUNTERS FINANCIAL PERFORMANCE week 52 week 52 week Sales Rm 13, , ,206.0 Trading profi t before interest 3 Rm Trading profit before interest as % sales % Net fi nance income Rm Trading profi t before taxation 3 Rm Trading profit before taxation as % sales % Operating profi t before taxation Rm Operating profit before taxation as % sales % Inventories Rm 2, , ,856.0 Inventory days days Net capital expenditure 1 Rm Cash fl ow from operating activities Rm Number of stores Trading area m 2 387, , ,687 Average trading area per store m 2 3,430 3,485 3,674 Number of employees 8,445 8,876 9,469 Sales per store R , , ,495 Sales per m 2 R Sales per employee R000 1,579 1,371 1, Net capital expenditure is defined as capital expenditure less disposal proceeds. 2. The ratios have been calculated using year-end balance sheet figures. 3. Trading profit is earnings before asset impairments, BEE transaction IFRS 2 charges and foreign exchange movements. 4. Definitions/explanations to the ratios and terms above can be found on page 63.

87 Massmart Annual Report DionWired DionWired creates an easy, interesting and interactive shopping experience offering the latest in home entertainment, computing, video and digital photographic equipment and appliances. DionWired sells complete technological solutions demonstrating in-store the interconnectivity of the latest innovations and products. The IT experts manning our in-store service centre are on hand to offer the best advice and onsite repairs and services. Although our products are well priced, DionWired is not a discounter. Our main proposition is to offer the widest range of the world s biggest and best upmarket brands such as Apple, Smeg, Miele, Marantz, Jamo and Onkyo to the South African middle- and higher-end consumer. The concept has proved to be exceptionally successful and during the year under review, we expanded our operations, establishing a national footprint. We also subtly repositioned the brand to appeal to an appropriate customer segment and differentiate in a busy market place. Operating environment The South African retail sector showed real growth for every month of the 2011 fi nancial year after contracting in 2009 and remaining fl at during This was enabled by the macro-economic forces of record low interest rates and low national infl ation. While retail businesses driven by consumer credit performed ahead of the market over the festive period, the lack of cash in the hands of consumers remained a concern for Massdiscounters. The ratio of debt to disposable income reached an all-time high of 82% during the previous fi nancial year and although this ratio has now decreased to 78%, this suggests that the South African middle-income consumer may still be heavily burdened by debt. DionWired, Polokwane Higher than normal levels of product defl ation experienced by the durable goods market due to technology improvements and the strengthening of the Rand/ Dollar exchange rate impacted some categories like fl at screen televisions which showed defl ation of approximately 50% and laptops 30%. Traditionally Game has been known as a general discounter, but our format renewal with the introduction of Foodco has pushed the brand towards a multi-category format. We expect the rollout of Foodco to all our stores to take six years to complete with 15 new Foodco formats being completed each year. In the short term, our dominance in general merchandise implies that most consumers will continue to view Game as a general discounter. The Foodco proposition is centred on making food shopping easy through pre-packaging, store layout and signage with limited in-store service and a high proportion of private label. With the Foodco rollout we introduced our own Foodco private brand into the new fresh categories. Customers showed a willingness to buy Foodco-branded perishables and we have already extended the Foodco brand with the introduction of Foodco Basics, an entry-level product range.

88 86 Operational Review Massdiscounters divisional review At Game we continue to broaden and enhance our offering in hi-tech and multimedia to better service the upper LSM customers who currently seek value and have been migrating towards Game. In addition, we focused on the sports and outdoor categories and began rebuilding our strength in these areas. Housewares also showed positive growth. We are opening Game stores in rural areas across South Africa using a rural store concept which is differentiated from our urban mall-based stores. In these outlying areas the balance between food and general merchandise is likely to be different as well as our advertising strategy and available stock. DionWired invested in a new world-class store design aimed at facilitating customers purchasing and decision-making through unique pre-retailing and interactive product displays. Together with this new design, a smaller store was made possible resulting not only in lower capital and operational costs, but a superior new customer experience. The new store design and footprint now enables DionWired to expand into targeted locations faster. GROUP CONTRIBUTION Sales (25%) DionWired focused on extending its offering of premium and exclusive brands, clearly positioning itself as the market-leading appliance and electronics store in SA. Financial performance Massdiscounters reported total sales of R13.3 billion representing growth of 9,6%. Comparable sales growth was 3.7% and sales infl ation of 7.3% defl ation was recorded. By containing comparable store expense growth at 1.6%, we were able to deliver profi t before tax, excluding foreign exchange movements, of R789.5 million representing growth of 15.5% on the prior year. Massdiscounters Masswarehouse Massbuild Masscash Massdiscounters Masswarehouse Massbuild Masscash Trading profit before tax (34%) % % On the back of 20.0% profi t growth in 2010, Game SA performed exceptionally well again delivering further profi t growth of 24.6% in Softer sales performance in the second half of the 2011 fi nancial year compared with the previous half was primarily due to the high base created by the success of our 40th birthday campaign and the World Cup. The strength of the Rand compared with those currencies of the African countries continued to negatively impact our performance in Africa by pushing up imported product prices on the African stores shelves and resulting in us reporting lower Rand sales and profi ts from those countries. While sales from Africa contracted 23.0% in Rand terms in 2010, this year sales growth recovered to a positive 1.0% and we believe this points to the bottoming-out of our Africa segment. African sales growth in own currency was positive with double-digit sales growth of 11.4% for the year while trading profi ts declined 12.4% in Rand terms and 3.8% in own currency. In both Namibia and Botswana, markets not affected by exchange rate fl uctuations, returns and profi tability improved over the fi nancial period. DionWired achieved sales growth of 18.3% with sales defl ation of 19.9% therefore achieving real growth of 38.2%.

89 Massmart Annual Report Improving efficiencies Improving supply chain management through our three regional distribution centres (RDCs) is a key strategic initiative for Massdiscounters over the next three to fi ve years. This will improve overall business effi ciencies, reduce costs and improve stockholding for the benefi t of our customers. The Cape Town RDC performed well and now services 21 stores. The July 2010 opening of the 70,000m 2 RDC in Gauteng was a major achievement for Massdiscounters and it now has 52 stores linked to it including all eight Africa road-bound stores. More stores will be linked to the Gauteng RDC during the next year taking the total to 73 stores by the end of The building of a new 45,000m 2 RDC site in Riverhorse, Durban, is underway and this fi nal RDC will become operational during the 2012 calendar year. To increase space productivity, space planning was deployed across the business improving the visibility of out-of-stock items. This enabled us to increase sales through better proportional merchandising and stock management. We also put in place processes to manage vacancies, improve access control, schedule fl exi-time employees and manage overtime, resulting in labour effi ciencies with comparable store salary costs declining. The addition of a Process and Systems Optimisation team was a major step forward in the way we manage our business IT systems. The team will work with divisional heads and establish a roadmap to determine demand for new IT systems and ensure that synergies across divisions are achieved. A risk and compliance manager, senior support analyst and regional IT manager were appointed and will enhance on-site systems service to our stores and RDCs. In line with our Best of Suite IT strategy, a JDA Demand and Forecasting tool will be implemented and promotions planning and optimisation rolled out. In addition, enterprise planning as well as price and markdown optimisation modules will be implemented over the next three years. Investing in our human resources The success of our transformation strategy is measured on the progress in our skills development, training and employment equity. We made exciting progress on our BBBEE score recording over 80% for the fi rst time and being the fi rst retailer to achieve this. We use innovative recruitment methods to assess candidates potential with regard to their experience and this has facilitated the employment of previously disadvantaged individuals. Our strategy is bearing fruit, with 55% of senior managers, 84% of middle managers and 94% of junior managers being black. The recruitment, development and retention of staff with scarce skills remains a challenge. Our Retail Academy provides assessments and training to develop our leadership pipeline. The emphasis during the past year was on supervisory learnerships at NQF Level 4 and this was rolled out to four regions. Massdiscounters also Game, N1 City

90 88 Operational Review Massdiscounters divisional review continued participated in Wholesale and Retail SETA-funded learnerships which address scarce skills. Of the total 128 employees registered on learnerships, more than 98% were black. The huge increase in learnerships is due to the SETA offering funding for projects to address scarce skills shortages and give unemployed graduates workplace experience. In addition, various skills programmes were offered to staff to fast-track their learning and address skills gaps. These include modules such as time management and fi nance for non-fi nancial managers. Massdiscounters again partnered the Wholesale and Retail SETA, Aboutlearning, and South African Disability Trust to provide another phase of learnerships for persons with disabilities. Of the 12 learners who successfully completed the learnership, eight were employed at our Gauteng stores. We plan to train another 44 disabled learners in KwaZulu-Natal, Free State as well as the Western and Eastern Cape. To improve communication across the business, we engaged with the entire business to develop a set of values which will form the foundation of Massdiscounters corporate culture. Investing in our community Supporting projects that improve the education of disadvantaged children remains a priority for Massdiscounters. Through our Tools to Teach project we have been a committed partner to Rally to Read, an annual event where volunteers deliver purpose-built units containing teaching materials, books and educational supplies to teachers in rural schools around the country. Each stationery box contains enough basic stationery for a class of 50 and each year Game has added more value to the packs. The kits are estimated to cost around R1,000 each. Game donated R1.1 million in stationery kits to schools during the year under review. Game also supports the AmaLunchbox project with the Department of Education to strengthen the national School Nutrition Programme. This involves the distribution of mobile kitchens built inside converted shipping containers. This year we invested in another 25 kitchens worth R80,000 each bringing the total sponsored to 70. These kitchens will provide 13.7 million meals per year to hungry learners. One of the ways we raise funds for the AmaLunchbox project is through our Gift Wrap service during the December festive period, with Game shoppers raising R780,000 through this initiative. In 2009 we launched Tools to Play with the handover of custom-built units packed with educational toys to disadvantaged communities in KwaZulu- Natal. We donated 70 units worth more than R15,000 each packed with 60 educational toys and puzzles focused on early childhood development. We also supported the Game Vodacom Wheelchair Project which provides wheelchairs to hundreds of disabled schoolchildren. We donated R1 million in wheelchairs for 400 children around the country, bringing the total number of wheelchairs donated to date to 5,000, with a value of R10.5 million. Game and DionWired also raised R1.2 million for the National Council for Persons with Disabilities in South Africa by selling Casual Day stickers at stores.

91 Massmart Annual Report Through our Smile initiative, staff members who volunteer their services with a registered charity can apply for R5,000 worth of Game products to donate to the charity and, through this, donated R18,500 on behalf of our employees to worthy causes. As we have done for many years, in 2011 Game entered 40 teams made up of 200 swimmers in the Midmar Mile Company Relay. Game donates R1,000 for each swimmer who completes the race to the Midmar Mile charity bringing this year s donation to R200,000. We have sponsored eight top-performing learners from Umlazi Comtech School on full bursaries for the past fi ve years. This year, six of the learners will complete Grade 12. Those who achieve an 80% average in Grade 12 may also receive a bursary to attend a tertiary institution to study a degree of their choice. We spent R88,000 on this initiative. DionWired upgraded the learning environment of more than 100 blind and partially-sighted learners from Filadelfi a Secondary School. We sponsored the school with state-of-the-art computer equipment and specialised software to the value of R80,000 to help these learners. Learners at 10 special-needs schools around the country received hi-tech Smart Boards that revolutionise special-needs education from DionWired. Our R350,000 investment also provided a massive pre-loaded resource library enabling teachers to tap into a wealth of lessons that have been created using special software tailor-made for children with learning disabilities. Our Foodco stores each have a relationship with a local non-profi t organisation and food that has reached its sell-by date is made available for donation under careful supervision. All food types excluding meat are considered. A total of R630,000 worth of food products was donated. To celebrate Game s 40th birthday in 2010, Game committed to planting indigenous trees as part of a green initiative. Working with the Wildlands Conservation Trust, more than 13,000 trees to the value of R322,000 were planted in more than 48 disadvantaged schools in rural locations across KwaZulu-Natal. Investing in our environment We continued to drive energy effi ciencies at our stores and warehouses with a particular focus on using the latest technologies in our lighting and cooling systems. The majority of cathode ray tube TV screens have been replaced with energy-effi cient LCD screens and our Gauteng RDC operates with motion detectors that operate the lighting, reducing our energy consumption. Our three RDCs will use waste management service providers, reducing emissions and consolidating waste. As consumers become more aware of their choices and their impact on the environment, we aim to launch an energy-wise initiative in the major appliance category during We also began showing the environmental specifi cations of products in our advertising pamphlets so that consumers can make more informed choices.

92 90 Operational Review DionWired, Polokwane Opportunities in Africa Our strategy is to grow our footprint in Africa by investing in new countries and extending our store base in countries in which we already operate. We plan to open another seven stores on the continent in the next three years. In Nigeria, two new Game stores will be opened in Enugu and Kano and we are working on another fi ve potential store sites. The fi rst of three stores in Luanda, Angola, should be fi nalised in the next fi nancial year and we will also look at increasing our store presence in Zambia, Mozambique and Ghana. Other markets on our radar include the Democratic Republic of Congo, Senegal and Cameroon. We will introduce Foodco offerings in the coming fi nancial year into our Game stores in Maputo, Mozambique, Lusaka and Zambia. The African countries in which we trade felt the lingering effects of the global downturn during the reporting period and in particular, the reduction in donor funding. Many of our customers experienced the impact of rising infl ation especially in food and electricity. Exchange rate fl uctuations and in particular the strength of the Rand over the past two years has made pricing in African markets expensive. Over the last two years the basket of African currencies we are exposed to weakened by 40% against the Rand. This affected the volume of goods sold especially high-ticket items which became very expensive. However, we maintained our margins by focusing on expenses. We continue to support local suppliers where appropriate and commenced a process of import replacement into African countries. Risks and rewards Through Massmart we engaged in various forums and workshops around the implementation of the Consumer Protection Act (CPA). Massdiscounters is well prepared, having set up a process to ensure that CPA-related customer queries or complaints are quickly addressed and resolved. All affected store employees and management have been trained on the effect of the legislation.

93 Massmart Annual Report The CPA affected the way we buy and engage with our vendors, both locally and internationally, and has placed more administrative onus on the business in terms of the management of our Private Brands. We also established a quality control offi ce within our merchandise division and activated an electronically controlled and managed supplier management process. Changes in the area of duties and excise payment impacted our pricing of merchandise in our African stores with Malawi being particularly affected. There was also a growing trend for African countries to introduce local quality standards on imported products. Our business remains susceptible to foreign exchange rate fl uctuations and we manage this by regularly repatriating cash, undertaking currency sensitivity analyses and maintaining optimal funding and management of the foreign operations balance sheets. Logistics continues to be a challenge on the continent with port congestion and bureaucratic clearing processes affecting planning and in-stock rates. However, we regularly monitor and re-evaluate our stock availability and pricing to manage this risk. Future outlook With surging infl ationary pressures in the areas of commodities, fuel and utilities, job losses as well as increased industrial action set to negatively affect the South African economy, the likely outlook for retail is one of muted singledigit growth into Next year, 10 new Game stores will open in South Africa, two new stores will begin trading in Nigeria and fi ve new DionWired stores will open in South Africa. We expect our aggressive growth strategy to take market share and deliver our low-cost, low-margin, high-volume business model to more customers in a highly competitive retail sector. At DionWired our revamped stores and focus on customer service as well as after-sales guarantees will position the brand on a national basis. At Game we will continue to seek out and introduce the world s leading consumer brands alongside our aggressive roll-out of Private Label to ensure that we offer the range of products required to retain and grow our customers. MASSDISCOUNTERS DIRECTORATE Grant Pattison Chairman Jan Potgieter Chief Executive Don Frieson Non-executive Director Richard Fuller Store Operations Director Ann Hansen Financial Director John Hart IT Director and Logistics Director Guy Hayward Non-executive Director Richard Millson Marketing Director Rogany Ramiah Human Resources Director Mike Spivey Non-executive Director Llewellyn Steeneveldt Non-executive Director Mark Turner Africa Director Tyrone Vieira Merchandise Director Ilan Zwarenstein Non-executive Director

94 Makro, Vaal

95 Massmart Annual Report Masswarehouse divisional review Masswarehouse achieved record results in a difficult trading year with four stores generating sales of more than R1 billion each. Makro s food division achieved turnover of more than R5 billion for the first time and our Liquor Division also achieved record turnover of more than R2 billion maintaining its position as one of South Africa s leading liquor retailers. HIGHLIGHTS R Makro s Food Division achieves turnover of more than R5 billion for the fi rst time R New Vaal store opened R Introduction of fresh produce into the Makro offering R Strengthening skills and capacity in fresh supply chain R Conditional offer to acquire Fruitspot R Sold two Makro Zimbabwe stores Our business model remains based on the warehouse club format primarily focused on branded consumer goods including food, liquor and general merchandise, targeting resellers, commercial end-users and the consumer. Private label brands underwent an extreme makeover during the past year which saw some non-value peripheral brands being discontinued. We have embarked on an aggressive new store development plan over the next three years. R Now 14 stores in South Africa R Food, liquor, general merchandise R Liquor and general merchandise LSM 6-10 and Food LSM 2-6 Given developments in that country, our two stores in Zimbabwe were sold during the year. The results of these stores had been deconsolidated from our fi nancial statements for several years. The Makro formula The Makro model is unusual in that it sells General Merchandise to retail customers while much of its Food and Liquor is sold to wholesale customers. This blend gives the brand a robustness that enables it to trade comfortably through most economic cycles. The big-box warehouse club format with our no-frills approach keeps costs down and provides the platform for our high-volume, low-margin sales offering of quality branded merchandise. Our customer database created by Makro store cards used at the point of purchase helps us to keep track of the spending patterns of our 1.5 million active members and we communicate regularly with them through targeted promotional material. Our value proposition Makro s offerings are tailormade to fi t a variety of customer needs across all our merchandising categories.

96 94 Operational Review Masswarehouse divisional review continued Our food offering caters to wholesale shoppers ranging from informal traders and grocery store owners to hoteliers, restaurateurs, offi ces and schools. Wholesalers account for up to 80% of Makro s food sales and most shop during the week for the convenience of our wide range of good-value, quality consumables. At weekends, our focus shifts to promoting good buys for retail food and grocery shoppers who can achieve substantial savings on their monthly household basket compared with other mass retail outlets. Our liquor offering also caters to both the retailer and wholesale customer. Our liquor outlets, immediately adjacent to our 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 our share of the market. At the same time we have maintained a strong presence of beer and budget brands for liquor wholesalers looking for good value. MASSWAREHOUSE FINANCIAL PERFORMANCE week 52 week 52 week Sales Rm 12, , ,102.4 Trading profi t before interest 3 Rm Trading profit before interest as % sales % Net fi nance income Rm Trading profi t before taxation 3 Rm Trading profit before taxation as % sales % Operating profi t before taxation Rm Operating profit before taxation as % sales % Inventories Rm 1, , ,159.2 Inventory days days Net capital expenditure 1 Rm Cash fl ow from operating activities Rm (7.3) Number of stores Trading area m 2 128, , ,859 Average trading area per store m 2 9,173 9,093 9,066 Number of employees 2,877 2,644 2,805 Sales per store R , , ,031 Sales per m 2 R Sales per employee R000 4,422 4,350 3, Net capital expenditure is defined as capital expenditure less disposal proceeds. 2. The ratios have been calculated using year-end balance sheet figures. 3. Trading profit is earnings before asset impairments, BEE transaction IFRS 2 charges and foreign exchange movements. 4. The above results exclude Makro Zimbabwe. Details can be found in note 8 on page Definitions/explanations to the ratios and terms above can be found on page 63.

97 Massmart Annual Report During the fi nancial period we introduced a fresh fruit and vegetable offering in one of our stores, the new Vaal store. This is in support of Makro s strategy to be a complete one-stop shop servicing different customer segments. This will now be rolled out to all new Makro stores and retrofi tted to existing stores based on store requirements. Our general merchandise offering caters almost entirely to the retail customer, but does attract some commercial buyers in areas like offi ce furniture and stationery. We offer high-quality well-priced merchandise from all major durable brands and are often market leaders with innovative offerings and aggressive promotions. Our operating environment Makro is a predominantly cash-focused business and consumers spending power is therefore integral to our performance. For much of the fi nancial period under review, with consumer spending under pressure and a post-world Cup spending hangover, there was a discernible shift in consumers spending behaviour towards promotional items. Unit sales of promotion items grew by 18.7% compared with non-promotional unit sales growth of 6.7%. STORE PROGRESS MASSWAREHOUSE Makro Opening balance...13 Store opened...1 Makro Vaal (Gauteng) 1 TOTAL STORES IN Consistent defl ation in most categories of general merchandise was due to the strong Rand and product defl ation and varied from the mid-20% in categories such as Hi-tech, Multimedia and Interactive to an average defl ation of 5.0% across other general merchandise categories. At the same time, there was low infl ation in the food and liquor categories. The only category to show positive infl ation during the year was clothing which was largely driven by increases in cotton prices. STORE DISTRIBUTION Makro

98 96 Operational Review Makro, Vaal This defl ation meant that Makro had to grow unit sales at extraordinary levels to maintain the same levels of nominal sales as the previous fi nancial year, let alone demonstrate growth. Despite this, we managed to deliver a solid trading performance reporting sales growth of 10.6% on the previous year. During the year, a new store was opened in the Vaal bringing the total number of Makro stores in South Africa to 14. As part of the new store s design, some notable changes and innovations were implemented to enhance the customer s shopping experience. These included positioning the interactive department as part of the multimedia, hi-tech and photographic department and providing a one-stop customer experience by including a fresh food offering. More retailoriented toiletries and textiles areas were also installed and will be rolled out to all new Makro stores and retro-fi tted to existing stores where possible. The introduction of fresh produce in our Vaal store was an exciting development in the evolution of Makro and we plan to roll out the concept to existing stores and all new stores will have a full fresh offering. This strategy will help Makro gain profi table share in the Fresh category while also driving up customers basket sizes. To support the drive to deliver fresh produce, Makro has a conditional offer to acquire fruit and vegetable distributor and wholesaler Fruit Spot, providing an important link in our fresh solution supply chain. Financial performance A solid trading performance was refl ected in sales for the year totalling R12.7 billion up 10.6% over the previous year. Comparable sales growth was 6.9% and sales infl ation was measured at defl ation of 0.4%. Although gross margin grew more slowly than sales, operating income grew 11.0% to R2.2 billion through improved control over shrinkage, stock ageing and rebates receivable. General merchandise was the fastest-growing category with sales up 14.2% on the previous year while liquor grew 9.4% and food 8.9%. Capital expenditure for the year amounted to R189 million up from R144 million spent in The increase included R78 million for the new Makro Vaal store.

99 Massmart Annual Report The networking capital cycle improved by 5.0% as stock days forward cover reduced by 16.5% compared with the previous year. Trading profi t before tax increased from R743 million to R803 million, but this included new store pre-opening expenses of R14 million. Improving efficiencies Makro s robust growth can be attributed to its low-cost, low-margin, highvolume business and we retain a relentless focus on improving effi ciencies to achieve this. We managed to keep comparable expense growth to only 5.6% over the year. Makro implemented signifi cant application enhancements to its information technology (IT) systems focused on supporting our supply chain strategy. The Green-Light Receiving functionality now enables stores to receive stock from the Makro Regional Distribution Centre (RDC) automatically with minimal user intervention. At the same time, functionality was improved to improve time effi ciencies at different phases of the receiving process. We continued with our systems upgrade strategy by re-implementing the SAP Customer Retention Management application used to recruit, manage and communicate with our customer base. As part of this process, customer-centric processes were introduced to specifi cally manage the customer repairs process and communication with customers as well as to record interactions with customers at our customer contact centres in the stores. GROUP CONTRIBUTION Sales (24%) In order to drive effi ciencies and support the group s sustainability drive, we also embarked on a process to virtualise the store-based IT server infrastructure. The key objectives of the project were to reduce the number of servers at store level, make better use of available server processing capabilities, deploy the latest virtualisation technology and reduce our overall carbon footprint. As part of this project, we implemented handheld scanners equipped with Bluetooth functionality to facilitate the scanning of products at the point of sale, improving the accuracy and processing time of invoices. As part of the hardware replacement strategy, Makro continued with its drive to refresh point-of-sale hardware devices at stores. This will enable us to take advantage of new available hardware technology and to enhance our customers experience at the point of sale by reducing downtime in stores. Makro continues to make progress with the rollout and implementation of the SAP Forecasting and Replenishment module and functionality across more supplier and product categories with the aim of signifi cantly reducing stockholding in stores while improving service levels. Investing in Africa Customer demand will drive our expansion into new markets and categories particularly on the African continent. Our strategy is to create scale through regional supply chains, access appropriate potential markets and gain secure sites to enable the regional rollout of stores. Consideration of local infrastructure, Massdiscounters Masswarehouse Massbuild Masscash Massdiscounters Masswarehouse Massbuild Masscash Trading profit before tax (34%) % %

100 98 Operational Review Masswarehouse divisional review continued population size and potential spend remain important criteria as we look to expand Makro s African footprint. Investing in our human resources Our transformation plan focuses on four areas: recruitment and selection from designated groups; training and development of Black employees; affi rmative action to source and identify talent; and employing people with disabilities. Diversity training for both management and employees is a key component of our transformation strategy. Our BBBEE score improved to 73.8% this year (2010: 71.3%) making us a Level 3 contributor. More than 70% of our staff members are black and more than 30% are black women. Makro ensures the development of a strong pipeline of talent across all management levels by offering our staff market-related remuneration, providing rewarding incentive schemes and world-class training and development opportunities. Although our remuneration packages for employment equity candidates at top and senior management may be above market-related salary packages, a major challenge remains the retention of senior management from these designated groups. In total, 18% of our senior managers and 22% of top management are black, compared with 77% at skilled technical level and 53% of professionally skilled staff. Our retention strategy at senior management level is linked to exposure to Massmart shares which vest over set timeframes. Makro believes in empowering employees through educational opportunities and has sponsored 48 employees to study in tertiary institutions through our bursary programme. In addition, a total of 4,436 employees undertook various training courses last year. This included 161 black employees who were included in fast-track skills development programmes and 497 participants who enrolled in learnerships. We also employed 63 people with disabilities and 32 employees with a hearing disability were enrolled in Adult Education and Training learnerships. Through our Impilo Wellness and Careways support programme, voluntary HIV and Aids counselling and testing was provided to 1,743 members of our staff. We now support 64 staff on antiretroviral treatment. Makro prides itself on its open lines of communication and encourages feedback from all levels of staff. We communicate with our staff through a variety of channels including newsletters and executive communication sessions. Members of executive management visit all stores monthly where they interact with management and staff. Formal reviews with each of the merchandise divisions at head offi ce level are also held. The CEO conducts six monthly briefi ngs of larger groups and certain milestones are celebrated throughout the year like long service awards. Senior executives gather on an annual basis for discussions and briefi ngs on developments in Makro and the greater Massmart Group.

101 Massmart Annual Report Investing in our community Each Makro store sponsors CSI initiatives that help the communities situated close by. At a divisional level, Makro supports the Excellence in Schools programme through the respective provincial governments for schools that improve their academic performance. We donated R800,000 each to the Departments of Education in Gauteng, KwaZulu-Natal and Western Cape as well as R200,000 to The Tomorrow Trust which assists orphaned and vulnerable children to pass their school exams and pursue further educational opportunities. A further R500,000 was provided to the Izzi Trust which seeks to provide fi nancially-disadvantaged children with access to betterquality education. Makro continues to sponsor 500 meals a day through the African Children s Feeding Scheme which reaches children in poor communities in Soweto. We also support the Starfi sh Foundation and Impilo, a home for orphaned and vulnerable children affected by HIV and Aids. During the reporting period we made more than R62 million in early payments to black-owned suppliers to help them better manage their cash fl ow. Approximately 4.5% of our total procurement spend is on blackowned businesses. We also continue to provide training, cover marketing expenses and provide discounts to various customer Banner Groups. These members meet to select products for upcoming specials and members Makro cards are loaded with details of the promotional prices. SMS alerts are sent to them when their discounts have been activated. We believe that we have helped many small entrepreneurs grow their businesses in this way. Investing in our environment Our new Vaal store was designed and all future Makro stores will be designed to deliver signifi cant energy savings. These include making use of natural lighting for the trading fl oor and with motion detectors activating overhead lighting in the offi ces. An energy-effi cient refrigeration plant installed at Vaal not only consumes half the energy used by traditional refrigeration processes, but also uses technology to reclaim all heat generated by the refrigeration units to heat up hot water geysers. The Vaal store will serve as a blueprint for other stores and also uses higheffi ciency glass doors on the freezers and automated sliding doors to reduce the energy needed to keep products cold by 70%. These initiatives saved approximately 165,800 Kwh per month at our Vaal store. The recycling of dry waste initiative is gaining momentum and generated income for the division of R1.5 million (2010: R1.1 million). Makro, Vaal In conjunction with IT company Fujitsu, the Makro E-waste container hubs at all Makro sites continue to be widely used by the public. The containers allow customers to safely dispose of their electronic waste such as laptops, desktops, printers, monitors and cellphones. These are then reused, recycled

102 100 Operational Review Makro, Vaal or deployed, preventing hundreds of kilograms of electronic waste ending up in the country s landfi lls. We were also the fi rst retailer in South Africa to embark on a programme with Eskom where rebates were offered to customers who exchanged their old electric cooking appliances for gas cookers. We offer three recycled stationery brands under the brands Remarkable, Renewed and Recycled. These are presented in stationery departments as part of our Eco-wise offering. In addition, the number of environmentallyfriendly products under suppliers own labels continue to grow. Wherever possible, our merchants are requested to support products that are green like ensuring that the wood used is from sustainable forests and is certifi ed by the Forest Stewardship Council (FSC). Approximately 90% of our offi ce furniture range is now sourced from FSC-approved factories. Makro, Vaal All our promotional broadsheets include energy-effi cient products including solar lighting and we have listed an effi cient alternative for every make of lightbulb category. Almost all new products listed in the past year in appliances have an A energy-effi ciency rating. The shift from cathode-ray television sets to LCD and LED television sets has also enabled consumers to use more energy-effi cient products in their homes. All paint sold at Makro is now leadfree and new environmentally-friendly solvents from Plascon have been listed at our stores. Most of our multinational suppliers now also use recycled inner packaging for their products. Risks and rewards Economic recovery is far from certain in the coming fi nancial year and we will continue to drive our low-cost, high-volume strategy by leveraging supply chain effi ciencies to support aggressive growth. A working committee was formed to ensure the introduction of processes and controls to enable us to comply with the Consumer Protection Act (CPA). Organisation-wide training took place to enable staff members to cope with the requirements of the legislation. The committee continues to ensure compliance

103 Massmart Annual Report in our marketing and acts as a channel for tracking and facilitating the resolution of customer complaints under the CPA. In addition, regional supplier workshops were held and product specifi cation documents and test reports have been requested from all Makro suppliers for uploading on Massmart s centralised CPA website. To ensure control and improve on current standards, service contracts have been initiated with independent specialists to perform audits on food safety and handling and occupational health and safety audits. Each Makro site s Occupational Health and Safety performance will be audited bi-annually and food safety reviews are conducted each quarter. In order to address the issues associated with the selling of TV licences and linking a TV licence to the sale of a specifi c television, a new integrated solution was implemented in conjunction with the South African Broadcasting Corporation (SABC) to enable the reconciliation of TV licences with televisions sold and to minimise any potential fi nancial penalties Makro may incur. Because Makro has relatively few stores situated in less accessible locations compared with mall-based retailers, we rely on price leadership to differentiate us from competitors. Our comparatively higher volumes per store allow us to use our buying power and pass on cost savings to our customers. Cost control therefore remains an important focus for the business. We continue to work within the legal and regulatory frameworks to source land in strategic locations at appropriate prices for future development which may include interested and affected parties where we face town planning obstacles. We anticipate that real labour costs will continue to rise and we will need to manage our labour costs carefully. The issue of using temporary workers was separated out of the 2011 union wage negotiations and will be addressed in the next fi nancial year. Future outlook Makro continues to look for opportunities to expand its national footprint. We have secured sites for new stores in Polokwane, Nelspruit and Milnerton and plan to open these during the 2012 fi nancial year. We are in discussions with developers in other areas including Durban North, Cape Town and Bloemfontein as well as exploring potential opportunities in Africa. One of our main effi ciency drives is to recover and entrench our wholesale advantage by taking control of our own inbound and internal supply chain rather than being dependent on supplier-managed supply chains. We expect increasing infl ation in food categories over the coming year and anticipate that consumer spending will remain under pressure. As a result, we will continue to focus on remaining relevant to all our customers by ensuring that our offering remains appealing in all aspects; that we include new and innovative merchandise; provide easy-to-navigate stores and readily accessible stock; employ informed and professional sales staff; and guarantee a customercentric ethos. MASSWAREHOUSE DIRECTORATE Grant Pattison Chairman Kevin Vyvyan-Day Chief Executive Bruce Cayzer Food Director Norman Drieselmann Financial Director Don Frieson Non-executive Director Guy Hayward Non-executive Director Garry Hendry Liquor Director Doug Jones Commercial Director Derick Kalan General Merchandise Director Gert Lourens Operations Director Chris Nezar Marketing Director Pieter Schoeman IT Director Mike Spivey Non-executive Director Llewellyn Steeneveldt Non-executive Director Donovan Wright HR Director Ilan Zwarenstein Non-executive Director

104 Builders Warehouse, Witbank

105 Massmart Annual Report Massbuild divisional review Despite the subdued growth in new residential homes and low consumer confidence levels, Massbuild reported double-digit sales and profit growth over the period under review. The difficult market caused a number of independent hardware stores to close and Massbuild continued to gain market share. Our three brands, Builders Warehouse, Builders Express and Builders Trade Depot delivered good growth under a new centralised operating structure. Massbuild continues to focus on providing a wide range of relevant and wellpriced stock to our customers in the DIY, hardware and construction markets, helping to attract a wide customer base across the income groups. Our marketing strategy, which builds on the strength of each of the Massbuild brands, kept brand awareness high in our customers minds. We also focused on providing outstanding customer service, a strategy which has built loyalty among customers. A survey by independent researchers Living Facts showed that Massbuild improved in all areas of customer service. As part of a broader customer relationship management strategy, Massbuild launched a private label branded revolving credit card powered by RCS which enables us to offer customers up to R15,000 credit enabling us to attract more customers. A trade card which enables us to recognise individual customers and actively manage their portfolios is also in the pipeline. To differentiate from competitors, we introduced a range of major appliances into one of our Builders Warehouse stores in Gauteng on a pilot basis. The success of this project has provided the impetus to repeat this strategy in more stores in the coming year. Under the new centralised structure, we were able to ensure that Builders Warehouse s merchandising strategy of ensuring that customers have access to a choice of good, better or best stock was also rolled out in Builders Express and Builders Trade Depot. Other benefi ts of the centralised structure include cost savings and an opportunity to co-brand each business under the Massbuild umbrella brand. Massbuild opened new Builders Warehouse stores in Emalahleni in Witbank and Woodlands in Pretoria as well as our fi rst Builders Warehouse store in Durban, at Riverhouse. In Cape Town, the smaller-store format of Builders HIGHLIGHTS R Double-digit sales and profi t growth achieved in diffi cult trading environment R Two Builders Warehouse stores achieved turnover of more than R300 million for the fi rst time R Massbuild s roof truss business grew 300% R Five Builders Warehouse stores acquired in February 2003 R Three De La Rey stores acquired in June 2005, rebranded to Builders Warehouse R Now 27 stores R Operating in SA R Home improvement supplies/tools/ building materials R LSM 5 10 R 14 Servistar stores acquired in June 2005, rebranded to Builders Express R Now 24 stores R Operating in SA R Home improvement suppliers/ tools/building materials R LSM 5 10 R 34 Federated Timbers stores acquired in June 2005, rebranded to Builders Trade Depot R Now 30 stores R Operating in SA, Mozambique R Building materials/tools R LSM 4 8

106 104 Operational Review Massbuild divisional review continued Express, which fi ts neatly into busy trading areas, has proved a successful expansion strategy and we opened two Builders Express stores in Willowbridge and Kenilworth. Builders Express stores in the South Coast Mall and Gateway in Durban were revamped and the recently acquired store at Cedar Square, Johannesburg, was re-launched under the Builders Express brand. The Builders Trade Depot store in Port Elizabeth, including all staff and most customers, was incorporated into the Builders Warehouse Port Elizabeth store, to provide an improved shopping experience, in a more suitable location, for our customers. Massbuild focused on re-energising its roof truss business, centralising operations and regionalising the manufacturing and selling of trusses. By using our widespread store base to sell trusses and spread the cost of the manufacturing plant, we were able to grow our truss business more than 300% since re-entering this market. MASSBUILD FINANCIAL PERFORMANCE week 52 week 52 week Sales Rm 7, , ,604.6 Trading profi t before interest 3 Rm Trading profit before interest as % sales % Net fi nance income Rm Trading profi t before taxation 3 Rm Trading profit before taxation as % sales % Operating profi t before taxation Rm Operating profit before taxation as % sales % Inventories Rm 1, Inventory days days Net capital expenditure 1 Rm Cash fl ow from operating activities Rm (13.0) Number of stores Trading area m 2 412, , ,589 Average trading area per store m 2 5,099 5,061 5,036 Number of employees 6,834 6,409 6,074 Sales per store R000 86,697 80,495 78,938 Sales per m 2 R Sales per employee R000 1, Net capital expenditure is defined as capital expenditure less disposal proceeds. 2. The ratios have been calculated using year-end balance sheet figures. 3. Trading profit is earnings before asset impairments, BEE transaction IFRS 2 charges and foreign exchange movements. 4. Definitions/explanations to the ratios and terms above can be found on page 63.

107 Massmart Annual Report The Massbuild brands Massbuild operates three complementary brands: Builders Warehouse, which operates large home improvement stores in major urban areas; Builders Express, a chain of smaller neighbourhood home improvement stores; and Builders Trade Depot, a chain of building contractor outlets located in industrial sites in peri-urban and urban areas. The management structures of Builders Warehouse, Builders Express and Builders Trade Depot are now integrated under a single executive team. In 2003, Massmart acquired fi ve Builders Warehouse stores operating in Johannesburg and Pretoria, then bought and rebranded three De La Rey stores in the Western Cape in 2005 and now operates 27 Builders Warehouse stores in seven provinces. Builders Warehouse follows the big-box or warehouse retail format, offering home owners, DIY enthusiasts and building and maintenance contractors a comprehensive range of competitively priced products under one roof with a large garden centre display and builders supplies yard. The brand is unique in that it is the only home improvement warehouse in the country. Builders Express was formed in 2005 when Massmart bought and rebranded 14 Servistar stores operating in the Eastern Cape and KwaZulu-Natal. Massbuild now operates 24 home and garden Builders Express stores in four provinces that cater to home owners and provide a fi ller strategy for the Group. They are situated in convenient locations with aesthetically pleasing displays, customerfriendly store layout and offering personalised service and advice. Builders Trade Depot was created when 34 Federated Timber stores were acquired and rebranded in Seven smaller stores have since been closed and after store conversions and acquisitions, Builders Trade Depot now operates 30 outlets catering mostly for medium- to large-sized contractors STORE PROGRESS MASSBUILD Builders Warehouse Opening balance...24 Stores opened...3 Riverhorse (KZN) 1 Woodlands (Gauteng) 1 Witbank (Mpumalanga) 1 TOTAL STORES IN Builders Express Opening balance...21 Stores opened...2 Kenilworth (Western Cape) 1 Willowbridge (Western Cape) 1 Store acquired...1 Cedar Square, Fourways (Gauteng) 1 TOTAL STORES IN Builders Trade Depot Opening balance...31 Store closed...(1) Port Elizabeth (Eastern Cape) (1) TOTAL STORES IN STORE DISTRIBUTION Builders Warehouse Builders Trade Depot Builders Express

108 106 Operational Review Massbuild divisional review Builders Express, Willowbridge and tradesmen engaged in building, maintenance and renovation projects. It also focuses on servicing the needs of construction entrepreneurs who need trade credit, telephonic ordering and want bulk goods delivered from lowcost outlets. Our 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 new 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, including Mastercraft hand tools and Builders Pride, have become household names with our customers assured of stringent quality control and best supplier practices. During the year private label contributed more than 8.6% to our total sales and drove margin growth, a trend which we expect to continue. In both the residential and commercial property markets, Builders Trade Depot s value proposition to customers 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 Trade Depot, Ballito Our operating environment Housing prices continued to stagnate during the 2011 fi nancial year and with banks reticent to grant new credit, the residential alterations and additions market remained muted. In the rental market, home owners undertook minimal maintenance and there was a reluctance to invest in home improvement projects. Although higher LSM customers were less affected by the diffi cult economic conditions than the lower end of the market, many upper-end consumers appear to have changed their shopping habits and seek value for money from their purchases.

109 Massmart Annual Report However, there was real growth in the low-cost building contractor market. Massbuild successfully assisted contractors to fulfi l government contracts, particularly in the low-cost housing market and the Group is ideally positioned to help small black contractors grow their businesses. A six-month moratorium by the Department of Public Works which covers all tenders issued by municipalities continues to negatively affect small contractors, many of whom rely on these government contracts to survive. Financial performance The Division reported total sales of R7.3 billion, representing growth of 14.2%. Comparable sales increased by 7.2% and annual sales infl ation was estimated at 0.8%. Trading profi t before interest and taxation of R315.1 million was 21.0% higher than the previous year. The sales growth and improvements in working capital management assisted in trading profi t before taxation of R354.7 million being 21.6% above the previous year. This effective working capital management ensured that, despite 14.2% sales growth, total stock at year-end increased by only 10.7% from R909.1 million to R1.0 billion. GROUP CONTRIBUTION Capital expenditure of R162.1 million was higher than the previous year (R145.9 million) and came from the fi ve new stores and refurbishing existing stores. Improving efficiencies Planning of our new 30,000m 2 Distribution Centre in Midrand is scheduled for November The R200 million project will improve operational effi ciency and enable us to better manage the entire supply chain. The business is steadily seeing the benefi ts of the centralised head offi ce structure and the allocation of executive resources to Massbuild s respective businesses. We have worked hard to ensure that the skills base is spread throughout the Group with senior resources such as merchandise and supply chain directors now appointed to oversee all Massbuild brands. Massdiscounters Masswarehouse Massbuild Masscash Sales (14%) % We started rolling out auto-replenishment technology employed at Builders Warehouse to Builders Express and then to Builders Trade Depot. Although the three brands are at different levels of implementation in terms of systems and processes, the aim is to provide our customers with a similar merchandise experience no matter where they shop. The consistency of technology will have a positive impact on stock profi les, cash fl ow management and on-shelf availability of stock across the Group. Such systems also free up management time and allow store managers to spend more time with customers. In the year ahead, we will be implementing an advanced SAP Forecasting and Replenishment tool across the business. Cost increases were contained at below infl ation levels and we managed to decrease the rates of stock shrinkage and scrapping to less than 1.0% in line with world-class standards. Massdiscounters Masswarehouse Massbuild Masscash Trading profit before tax (15%) %

110 108 Operational Review Massbuild divisional review continued Investing in our human resources We endeavour to apply the same standards and effi ciencies to all three brands. Based on staff feedback, we launched a new "values formula outlining the main pillars of the Massbuild culture. These included values such as ethics, honesty and respect for the individual which were depicted by easy-tounderstand iconography. The values formula was launched to the business using industrial theatre. Through our Think Big campaign we invited staff to come up with innovative ideas such as new product suggestions or ways of operating. A panel decides the winning suggestion on a monthly basis. The winning staff member is awarded a cash prize. Massbuild has launched a monthly employees newsletter and we continue to meet staff on a monthly basis. Quarterly birthday breakfasts also allow staff members to interact with senior management at head offi ce. These interactions provide accessible channels for staff to generate new ideas and provide feedback to management on how to improve our business. We continue to encourage our staff to be tested for cholesterol, HIV, diabetes and high blood pressure through our Impilo programme. Impilo visits were arranged for all 81 stores and more than 4,280 staff members underwent voluntary HIV testing and 35 employees are on confi dential antiretroviral treatment. Massbuild remains committed to the development and training of our staff. During the past year a total of 18,000 days of training was undertaken, not only meeting current training and development needs, but ensuring succession planning and meeting new store staff requirements internally. A total of 5,192 permanent employees underwent training of which 84.7% were from designated groups. Courses ranged from a basic fi ve-day induction programme for all staff through to specialist technical skills training and a suite of management and leadership development programmes for junior and senior management. Our business depends on staff having excellent product knowledge as a basis for giving good customer service. In-house subject matter experts and suppliers are used to train employees. We also established the fi rst of our in-house training academies. These focused on electrical, power tools and plumbing selling skills. To ensure a pipeline of future business leaders, management and leadership development is also a key focus area of Massbuild s education programme. Our senior staff attended various development programmes run by Massmart s Corporate University. In addition, 362 staff members from junior nonsupervisory to senior management attended fi nancial management training and 209 managers attended an Interaction Management course, our primary leadership training for all managers. Massbuild also runs a small Adult-based Education and Training programme in Pretoria and trained 29 employees on handling their own personal fi nances and planning for their fi nancial future. A BusinesswisePlus programme not only

111 Massmart Annual Report trained 82 junior staff on understanding the main profi t drivers for our business, but also gave them insight into running their own business. Massbuild continues to place an emphasis on health and safety training. A total of 1,454 employees attended various courses including gas handling safety, fi rst aid, fi re-fi ghting, handling hazardous chemicals and racking and stacking. In terms of transformation of our business, the percentage of black employees (African, coloured, Indian) reached 21.5% (2010: 16.9%) at senior management, 52.8% at middle management and 68.2% at junior management. While representation at junior management is adequate, middle and senior management levels remain areas for further improvement. Training and development of previously disadvantaged staff is prioritised to ensure that they are well placed to be considered for career opportunities. Supervisory Development Learnership programmes have been implemented as a vehicle for a structured approach to supervisory level advancement. We continued to improve our performance on the BBBEE scorecard and now have points which secures our position as a Level 5 contributor. We continue to work with our suppliers to improve their BEE credentials, driving transformation into our supply chain. Investing in our community Massbuild provides support to a range of corporate social investment initiatives which focus mainly on youth development as well as feeding schemes. Our staff members are also actively involved in CSI programmes through our Staff Volunteer Programme. Worthy causes are identifi ed within a 20km radius of our stores. Last year Massbuild s CSI budget was distributed as follows: Education and Community Development (65.0%); Staff Volunteer Programme (15.0%); Environmental and conservation projects (15.0%); and welfare and ad-hoc projects (5.0%). Builders Warehouse sponsored vegetable tunnels and donated 105 tunnels to disadvantaged schools across the country. These enable schools to grow vegetables such as spinach and tomatoes and assist them to feed less privileged children. The project forms part of the Massmart feeding scheme project. We also supported the Lapdesk programme which provides lap desks to mainly rural schools lacking desks and formal infrastructure. Massbuild donated 5,652 lap desks to disadvantaged schools across the country. Massbuild also helped build a school in Cosmo City outside Johannesburg and provided building materials and cash donations for the project. As part of our drive to support enterprise development, Builders Warehouse continued its support of the Hot Dog Café and The Coffee Stops concepts where we sponsored ambitious, talented but unemployed youngsters to start their own businesses. This year one Coffee Stop and two Hot Dog Café franchises were opened, bringing the total to eight Coffee Stops and 24 Hot Dog Café franchises operating at selected Builders Warehouse stores. Builders Trade Depot, Soweto Truss Plant

112 110 Operational Review Massbuild divisional review continued Investing in our environment A major achievement over the past year was the development of an auditable carbon footprint. Across Massbuild s operations, we are now able to measure electricity consumption and have met our target of reducing this by 10.0% over the period. Two of our Johannesburg stores, North Riding and Strubens Valley, are being researched for alternatives in an attempt to take them off the grid partially or completely. Technologies being investigated are photovoltaic panels as well as wind generators. Our new stores are built with energy effi ciency as a key consideration. They utilise the latest technology in terms of design, including clear roofi ng panels that maximise natural light without affecting the ambient temperature of the store. Each Builders Warehouse store is also fi tted with rooftop water tanks to harvest rain-water which we use to water plants in our garden centres. Massbuild has worked closely with Eskom to set up an exchange programme to enable customers to swap their old light-bulbs for energy-effi cient CFLs. There is also a strong drive to promote solar power and water-saving products in our stores. Through our Eco-wise range we help to empower our customers to better manage their water and electricity usage. We provide a complete environmentally aware offering from solar geysers to rooftop water tanks for rain-water harvesting. Massbuild implemented a waste management programme across its stores to promote recycling. The waste management policy has been standardised nationally and reporting is accurate, consistent and auditable. Massbuild also reduces waste by using sorters trained in waste management who ensure that our stores recycle as much material as possible. Nationally our stores provide collection bins for fl uorescent tubes, CFL s rechargeable and standard batteries. The disposal of the non-recyclables is also auditable and in line with waste management legislation. The Group has implemented green procurement guidelines for its merchandise. All listed suppliers are given the opportunity to join the Ecowise programme and selected suppliers have been approached to be private brand suppliers of Eco-wise products. In total we support 300 products that are endorsed as environmentally friendly including paint, wood, lightbulbs and panel heaters. The number of environmentally friendly products continues to increase in our business each year and these product lines are promoted in our monthly catalogues with environmental benefi ts highlighted to customers. Opportunities in Africa Economic growth, boosted by the development of the tourism industry as well as the natural resources sector has driven growth in many African home improvement, DIY and building contractor markets. Hardware as a format has much potential with cement and construction materials making up a higher percentage of the customer s basket in most African countries than in South Africa.

113 Massmart Annual Report In Mozambique, Massbuild completed the buyout of minority shareholders in Kangela cementing its acquisition of 51.0% of the hardware chain. We have 13 Kangela stores in Mozambique and, in addition, we will seek to acquire land in attractive locations in Maputo, Tete and Vilancoulos to roll out more stores in future. We have also begun developing our fi rst Builders Warehouse format in Maputo and we are hopeful of positive developments to have a store up and trading in Our fi rst Builders Warehouse in Botswana will shortly open in Gaborone and once this is bedded down, we will look to expand to other centres such as Maun and Francistown. Risks and rewards High but declining consumer debt levels, stagnant housing prices and little or no government infrastructure spending remain the biggest challenges to our business over the coming fi nancial year. However, as our stores continue to offer value for money, great customer service and a range of products that meet consumers needs, Massbuild is positioned to continue to take market share in this competitive sector. As we seek to increase our footprint nationally, fi nding new sites for our stores remains a challenge. Massbuild has developed a project management process that reduces the time taken between procuring suitable sites and opening the new stores to prevent this impacting our expansion plans. Massbuild anticipated the introduction of the Consumer Protection Act for some time and has had a returns policy in place for many years. The effect of the legislation was therefore negligible. Unfortunately, there was an increase in the number of armed robberies at our stores. We have installed drop-safes in all our stores as well as barricaded cash offi ces in our Builders Express Stores. All staff are provided with counselling and training. Future outlook Sales growth will be challenging as consumer spending remains under pressure and household debt levels high. Massbuild will continue to focus on winning market share from competitors and increasing customer spend across the three Massbuild brands. The current economic environment has not diminished our plans to increase our footprint across South and Southern Africa and future capital expenditure will be focused on new store openings as well as refurbishments. Opportunities lie in adapting existing store formats to suit smaller towns throughout the country. The Builders Express format with its smaller retail frontend could be combined with Builders Warehouse successful builders yard to provide a suitable way to give customers the complete shopping experience of the larger big-box stores, but on a smaller scale. The Walmart investment presents an opportunity for Massbuild to share its knowledge and experience with this global retailer and for us to learn key supply chain management skills. As noted above, Africa presents a major growth opportunity for the Group. MASSBUILD DIRECTORATE Grant Pattison Chairman Llewellyn Walters Chief Executive Madeline Chalmers Supply Chain Director Thashmi Doorasamy HR Director Don Frieson Non-executive Director Neville Hatfield Merchandise Director Guy Hayward Non-executive Director Chris Lourens Operations Director Alex Rymaszewski Store Development Director Mike Spivey Non-executive Director Andre Steyn Director (Builders Express) Andries Strydom Director (Builders Trade Depot) Chris Tugman IT Director Simon White Financial Director Ilan Zwarenstein Non-executive Director

114 Cambridge Foods, Bara Hotel

115 Massmart Annual Report Masscash divisional review Masscash delivered good sales growth in a very difficult market. Increasing food inflation and the impact of job losses within its key consumer markets made for a challenging operating environment. In addition, management attention was required to focus on implementing the new in-store IT system in the Wholesale Division and aggressively expanding the Cambridge retail footprint. After spending R260 million on new acquisitions and refurbishments in our Retail Division, turnover almost doubled from R1.8 billion to R3.1 billion. Notable retail acquisitions included buying controlling interests in Savemore and JDs Supermarkets and also acquiring a further 25% in Thaba Wholesalers, all in support of our aggressive growth strategy. In addition, we opened two new retail stores in Gauteng and one in Nongoma, KwaZulu-Natal. We also rebranded six existing stores under the Cambridge Food brand with the balance of our retail stores scheduled to be rebranded by the end of the next fi nancial year. We are in the process of acquiring the 16-store Rhino Group which trades in KwaZulu-Natal and the Eastern Cape and this acquisition remains subject to Competition Authority approval. The Masscash brands Masscash consists of wholesale food and cosmetics businesses as well as retail food outlets both of which target the lower LSM groups. Our Wholesale Division consists of CBW Holdings, Shield and Jumbo Cash & Carry as well as a number of independent wholesalers operating under their own brands while our Retail Division is being consolidated under the Cambridge banner. CBW wholesales food, liquor, groceries and cosmetics in bulk to independent general dealers, government feeding schemes, franchise members, small traders and hawkers in peri-urban and rural areas within Southern Africa. Jumbo sells mainly cosmetics, toiletries and hair-care products to individual customers and independent general dealers. Shield is a voluntary buying association that buys products in bulk on behalf of 456 members who own wholesale or retail food businesses in South Africa, Botswana, Namibia and Swaziland. HIGHLIGHTS R Cambridge retail format becoming a single, national identity R New Cambridge stores performing well R Wholesale division-wide IT system roll-out complete R Private label sales growth of 25% R 14 CCW stores acquired in June 1998 R 22 Brown and Weirs stores acquired in July 2010 R Two chains combined under CBW format from July 2001 R Now 81 stores R Operating in SA, Botswana, Lesotho, Mozambique, Namibia, Swaziland R Food/liquor/groceries/ethnic cosmetics R LSM 2 6 R Six Jumbo stores acquired in April 2001 R Now six stores R Operating in SA R Food/groceries/ethnic cosmetics R LSM 2 6 R Now 18 stores R Operating in SA R LSM 2 5 R 378 members acquired 1 March 1992 R Now 605 members and 661 outlets R Operating in SA, Botswana, Lesotho, Namibia, Swaziland R Food/groceries R LSM 2 6

116 114 Operational Review Masscash divisional review continued We offer wholesale customers with more formal operations the ability to trade under national retail brands such as Saverite, Multisave, Powersave and Liquorland. Our marketing team offers wide-ranging support to these supermarkets and bottle stores assisting owners with marketing initiatives such as designing of leafl ets, signage and implementing national television and radio advertising campaigns. On the retail side, we are consolidating our retail outlets under the Cambridge brand. Fresh service departments, consisting of an on-site bakery, butchery and fresh fruit and vegetable offering form an important component of our Cambridge retail offering. MASSCASH FINANCIAL PERFORMANCE week 52 week 52 week Sales Rm 19, , ,215.7 Trading profi t before interest 3 Rm Trading profit before interest as % sales % Net fi nance income Rm Trading profi t before taxation 3 Rm Trading profit before taxation as % sales % Operating profi t before taxation Rm Operating profit before taxation as % sales % Inventories Rm 1, , ,077.6 Inventory days days Net capital expenditure 1 Rm Cash fl ow from operating activities Rm Number of stores Trading area m 2 351, , ,324 Average trading area per store m 2 3,352 3,311 3,422 Number of employees 9,276 8,395 5,931 Sales per store R , , ,047 Sales per m 2 R Sales per employee R000 2,116 2,075 2, Net capital expenditure is defined as capital expenditure less disposal proceeds. 2. The ratios have been calculated using year-end balance sheet figures. 3. Trading profit is earnings before asset impairments, BEE transaction IFRS 2 charges and foreign exchange movements. 4. Shield is shown as average sales to each independently owned outlet (ie this represents only a portion of the outlet's sales). 5. Definitions/explanations to the ratios and terms above can be found on page 63.

117 Massmart Annual Report Our value proposition All our stores apply the philosophy of supplying the right range of products at competitive prices to low- and middle-income customers. We keep costs down by employing a no-frills cash and carry warehouse format coupled with basic distribution centres that supply our private label products and general merchandise ranges. Our private label food brands, Econo, Heritage and Cambridge, offer our customers exceptional value and the assurance of stringent quality and safety controls. Our retail stores are well located, close to high traffi c commuter nodes and offer the best quality and affordable prices. Operating environment The loss of approximately one million jobs during the 2009 economic recession continued to affect our customer base. This, coupled with low sales infl ation of 2.1% and expense infl ation of 7.0%, resulted in a decline in the Wholesale Division s profi tability. Many of our customers rely on social grants to fund their purchases and government s increased expenditure on grants from 3.2% of South Africa s Gross Domestic Product to 3.5% was therefore welcomed. We face increased competition in our wholesale market with the major retail chains continuing to target the lower LSM sector aggressively. The Saverite brand has grown to 80 members purchasing R350 million through our wholesale channel. We plan to grow this to 200 members over the next three years. Our retail offering made good progress bolstered by the decision to bring all retail stores under the Cambridge brand. The contemporary design appeals to STORE DISTRIBUTION CBW Jumbo Cambridge STORE PROGRESS MASSCASH CBW Opening balance...77 Stores acquired...4 JDs, Vosloorus, Gauteng 1 Savemore, Thembisa, Gauteng 1 Liquorland Express, Diepkloof, Gauteng 1 Rahme Guys, City Deep, Gauteng 1 TOTAL STORES IN Jumbo Opening balance...6 No store movement during the current year TOTAL STORES IN Cambridge Opening balance...14 Stores opened...3 Cambridge Randburg, Randburg, Gauteng 1 Cambridge Devilliers, Hillbrow, Gauteng 1 Cambridge Bara Hotel, Diepkloof, Gauteng 1 Store acquired...1 Cambridge Nongoma, Nongoma, KZN 1 TOTAL STORES IN

118 116 Operational review Jumbo, Crown Mines our customers and was fi rst rolled out to all new stores and then to older stores. The refurbishment programme is now 60% complete. This includes JDs and Savemore with rebranding of all remaining stores scheduled to be completed during the next fi nancial year. The retail division plans to open a dedicated dry grocery distribution centre in Gauteng which will service the Cambridge stores in the region while a central meat processing plant will be opened in KwaZulu-Natal. Both facilities will improve operating effi ciencies as well as ensure a more consistent level of quality and stock availability in our stores. Our Private Label programme reported 25% sales growth and private brands outgrew national brands by 11.7%. We launched 54 new Private Label products with Econo, Heritage and Cambridge accounting for sales of R1 billion. By sales, the Econo brand is now the largest Private Label brand within the Massmart Group. Financial performance The division reported total sales of R19.6 billion representing a growth of 12.7%. Comparable sales growth was 4.1% and our annual sales infl ation was 2.1%. Acquisitions during the year accounted for the signifi cantly higher total compared with comparable sales growth. The low comparable sales growth coupled with cost growth associated with the aggressive investment in structure and capacity in the Retail Division caused trading profi t before interest and taxation of R374.8 million to be 20.1% lower than the previous year. Net interest received declined due to lower average interest rates and funding tactically higher stock levels for part of the fi nancial year. Debtors remain well controlled while stock levels increased by 19.1% to R1.6 billion representing 30 days cover. Total capital expenditure of R259.3 million for the year was signifi cantly higher than the previous year s R98.3 million mainly as a result of the acquisitions and refurbishments discussed above.

119 Massmart Annual Report Improving efficiencies Masscash serves its customers through low-cost stores located in areas which are easily accessible. Our low-cost mindset is essential for maintaining competitive pricing ultimately resulting in superior net margins. The store-by-store rollout of our new Arch point-of-sale IT system to our wholesale stores was successfully completed before the year-end peak trading period. All 80 wholesale stores now operate off one central stock fi le ensuring that information passed through to our data warehouse and fi nancial reporting systems is consistent and reliable. With this foundation now in place, we will work on developing an IT system solution for our Saverite franchise that enables our franchisees to use an easy and effective buying process from both the Shield buying group and our cash and carry stores. The IT Division s focus will be to systematically upgrade our Cambridge food stores to the Arch point of sale platform. The KwaZulu-Natal region will be completed during the new fi nancial year. Investing in our human resources In support of Massmart s Impilo programme, we launched the Masscash HIV and Aids programme. Many of our stores are in rural areas where the rates of HIV are high and the number of HIV-positive Masscash employees on an HIV management programme increased from 233 to 487. We offered voluntary counselling and testing services to our 5,660 employees of whom 49% chose to be tested. We continued to invest signifi cant resources in up-skilling and training our staff. Employees attended courses ranging from soft skills development to diversity awareness and health and safety. Adult Basic Education and Training remains an ongoing offering for our employees and we granted 267 learnerships to black staff members. We have adopted a multi-faceted approach to transforming our business including aligning our training interventions with succession planning and talent management. Masscash achieved a Level 5 BBBEE score of 65% independently audited by Empowerdex. Finding appropriate equity candidates for senior management positions remains a challenge with 24.1% of our senior managers and 41.5% of professionals and middle-managers being black. Masscash employs 63 people with disabilities. We continue to run a successful mentoring programme and four previously disadvantaged graduates have been successfully promoted to more challenging roles. Our Business Processing team has been transformed with all analysts being black as well as the majority of the support team. GROUP CONTRIBUTION Massdiscounters Masswarehouse Massbuild Masscash Sales (37%) Trading profit before tax (17%) % We have an ownership mentality in our national, regional and store-level leadership teams, all of whom are empowered to trade and are incentivised through profi t shares. Minority equity partners who have sold a majority share in their businesses to Masscash are accommodated and continue to operate within them thus retaining important entrepreneurial talent in the business. Massdiscounters Masswarehouse Massbuild Masscash %

120 118 Operational Review Cambridge Foods, Bara Hotel We also extend credit facilities to black wholesale customers on attractive terms and continue to assist the development of small- and medium-sized black business through various banner groups who are given preferential pricing and special promotions to assist their trading. Investing in our communities Masscash supports projects that focus on building food security and improve educational outcomes for disadvantaged students. Thousands of children continue to receive a balanced meal at container kitchens sponsored by Masscash. During the reporting period, we donated 19 kitchens to schools throughout the country adding to the 33 already in place. Each container costs about R67,000 to convert and a Masscash store then "adopts" a container and provides food on an ongoing basis for volunteers to prepare and distribute to hungry schoolchildren. Masscash donated a library to the Mpumelelo School in Ivory Park near Johannesburg as well as R250,000 to the Wildlands Trust in support of their Treepreneur project which provides food in exchange for indigenous trees to reforest areas and create carbon credits. Staff members continue to volunteer their time on several charitable projects. Opportunities in Africa For several years Masscash has had a presence in Namibia and Botswana and, as a fi rst step into Portuguese-speaking Africa, we acquired the Kawena group of stores in Mozambique. We intend to use this as a base

121 Massmart Annual Report to develop a wholesale and retail footprint in the rest of the country. Our operations in Botswana experienced another diffi cult year as the political and economic situation in neighbouring Zimbabwe normalised and cross-border demand decreased. Masscash intends to expand into other African countries once we have bedded down our existing operations. Risks and rewards Continued high unemployment, low infl ation in commodities and increased competition from retailers penetrating the lower LSM groups continue to pose challenges for Masscash. We are confi dent that the Masscash cash and carry format, underpinned by a low-cost philosophy, will continue to play a signifi cant role in the South African food supply chain. Service departments and perishable categories account for an increasingly large part of our customers grocery baskets. This presents an opportunity for us to grow in these areas and build a business that differentiates itself from existing national players. Cambridge as a single, powerful national retail brand will also have a competitive edge over other operators. Uncertainty around liquor legislation continues with many of our stores battling to get licence applications processed. Periodic outbursts of xenophobia remain a concern as many of our customers are foreign nationals. Future outlook The LSM 2 6 market remains highly fragmented but Masscash is well positioned to offer new retail formats and expand our current footprint to better supply food, cosmetics, liquor, cigarettes and cellular phones to lower-end consumers. Future growth will focus on building our Retail Division, expanding the wholesale range to include meat as well as fruit and vegetables, growing the franchise and Banner Group formats, as well as expanding into Africa. Our strategy is to open 10 Cambridge stores each year, in addition to the Rhino acquisition, as we seek to grow our footprint nationally and into the continent. MASSCASH DIRECTORATE Grant Pattison Chairman Robin Wright Chief Executive Jane Bruyns HR Director Jay Currie Retail Director Neville Dunn Operations Director Don Frieson Non-executive Director Guy Hayward Non-executive Director Dino Holmes Financial Director Jumbo, Crown Mines Pearl Maphoshe Non-executive Director Mike Marshall Business Systems and Process Director Mike Spivey Non-executive Director Llewellyn Steeneveldt Non-executive Director Ilan Zwarenstein Non-executive Director

122 120 Operational Review Channel and Shared Services Review We believe that the value of the Massmart Group should be greater than the sum of its parts. This philosophy underpins Massmart s approach to collaboration across the Divisions which is facilitated and implemented by our Channel and Shared Services functions. CHANNEL FORUMS MASSMART HOLDINGS DIVISION SHARED SERVICES Channel The Channel function provides a secure and structured place for our Divisions to share information and collaborate in a way that we believe will materially benefi t the Group. This is done primarily by organising forums, in specifi c areas of competence and interest, which bring together the best and most senior skills in the Group in each functional area. These forums are chaired by members of the Group Executive Committee and consist of both trading and functional forums. Each forum is tasked with performing four key functions, outlined below. The fi rst, and most important, is identifying common opportunities across Divisions where the capability and resources of the Group can be leveraged to increase profi ts or reduce costs across some or all Divisions in a way that could not be entirely achieved by any Division acting independently. This can take the form, for example, of sharing Private Label products, collaborating on product sourcing, supplier negotiations to reduce the cost per unit from shared vendors, or building shared supplier relationships. Secondly, forums are also used to reach agreement on common standards that are important for Divisions to adhere to. In addition to this, forums assign and monitor Group representation on external standards and industry bodies and engage government in legislative processes relevant to our industry. Thirdly, forums perform a peer review function to improve performance. Massmart Divisions assess each other for adherence to agreed Group standards and operating norms, and ensure appropriate measures are adopted to mitigate against risks material to the Group. Lastly, forums function as a place to share internal and externally sourced learning. Divisional level data is gathered, analysed and benchmarked at Group level, then presented and debated at the various forums, and experiences across Divisions that will materially advantage the Group are shared. Processes piloted in one Division can be rolled out in another, reducing execution risk. External learning takes the form of presentations from conferences, visiting other local and international retail sites, gathering market share data meaningful in tracking Divisional category performance against competitors and monitoring competitor activity through supplier and from market intelligence. Regular presentations to forums outside experts keep Group and Divisional executives up to date with the latest developments in our industry and operating environment. Trading forums The Massmart Group s trading forums consist of the Food, Liquor, General Merchandise and Cellular Forums. During the year, Massmart s trading forums continued their focus on internal product category and joint strategic supplier reviews. With the enactment of the Consumer Protection Act (April 2011) and

123 Massmart Annual Report the Regulation of Interception of Communications Act (June 2010) the forums remained focused on legislative compliance as well as the adoption of key standards such as GFSI in regard to food safety. In March 2011, vendor conferences were conducted in the key South African metropolitan areas with the primary objective of addressing these critical stakeholders about the potential impact on Massmart's procurement following the acquisition of Massmart by Walmart. All sessions were well attended and feedback was extremely positive. Functional forums Our functional forums are the Technology, Information and Process (TIP), Operations, Finance, Supply Chain and Human Resources Forums. These focus on the management of skills and the procurement of resources and services required to support key Group-wide activities. The Supply Chain Forum commenced activity during the year. Its establishment refl ects the demands by the Divisions for access to common terminology, and shared practices and skills set to design, develop, build and manage large regional supply chain infrastructures. The HR Forum continued its focus on training and development, and talent management. The Massmart Corporate University continues to deliver outstanding programmes such as the Executive Development Programme, Leadership Development Programme, Graduate Development Programme, and various Functional Skills Training programmes. The TIP Forum continued to deliver on well executed, peer reviewed IT projects throughout the year. A key initiative was the implementation of business continuity processes simultaneously across the Group. The Operations Forum focused primarily on collaboration in respect of energy saving projects and continues to focus on environmentally sustainable practices. Shared services The Shared Services teams provide services to the Divisions that can be provided more effi ciently in aggregate rather than as Divisions may be able to source individually. These services are requested by the Channel forums (described above) and are ultimately accountable to these forums for their performance. These services must respond to divisional needs and be of higher value measured as quality, cost and benefi t than can be sourced externally or generated inside the Division. A Shared Services team s relationship with the Divisions is one of a service provider that must strive for excellence and become the best among competitors. The Divisions are their customers and their reason for existing. Shared Services currently includes: Supplier Liaison and Administration; International Commerce; Employee Benefi ts and Shared Private Label management. The Supplier Liaison and Administration team achieves savings by negotiating supplier contracts at Group level. The International Commerce team handles the treasury and logistics aspects of importing products directly to be sold across our Divisions. Employee Benefi ts aggregate the employee retirement and medical funds to achieve lower per unit costs and possible greater benefi ts from scale. The Shared Private Label team manages various brands that are private or exclusive to Massmart and shared across trading Divisions. TRADING FORUMS CONTINUED TO CONSOLIDATE MEANINGFUL COMMERCIAL OBJECTIVES SUCH AS: R Joint strategic supplier reviews R Internal product category reviews R Collaboration in respect of environmentally sustainable practices TRADING FORUMS CONSIST OF: R Food R Liquor R General Merchandise R Cellular FUNCTIONAL FORUMS FOCUS ON THE MANAGEMENT OF SKILLS AND THE PROCUREMENT OF RESOURCES AND SERVICES REQUIRED TO SUPPORT KEY GROUP-WIDE ACTIVITIES: R Technology, Information and Process (TIP) R Operations R Finance R Supply Chain R Human Resources THE SHARED SERVICES TEAMS PROVIDE SERVICES TO THE DIVISIONS THAT CAN BE PROVIDED MORE EFFICIENTLY AS A GROUP THAN DIVISIONS CAN SOURCE INDIVIDUALLY: R Supplier contract negotiation and administration R International Commerce R Employee Benefi ts R Shared Private Label management

124

125

126 THE HIGHEST OF 12.3 EMPLOYMENT EQUITY SCORE ALL LISTED RETAILERS 0.18 CORPORATE ACCOUNTABILITY REPORT TONNES/(GIA)M % ESTIMATED SCOPE 2 EMISSIONS INTENSITY B-BBEE OF PROFIT AFTER TAXATION IN CSI INITIATIVES ESTIMATED EMPLOYEES WITH MEDICAL BENEFITS RIGOROUS STAKEHOLDER ENGAGEMENT LEVEL % SCORE CORPORATE ACCOUNTABILITY R Introduction 125 R Engaging with Stakeholders 126 R Defi ning sustainability priorities 128 R Stakeholder engagement feedback 130 R Massmart s progress update 139 R Massmart s accountability by the numbers 146 R Additional readings 152

127 Massmart Annual Report Introduction In line with the integrated reporting requirements described in the King III Report on Corporate Governance, Massmart s 2011 Corporate Accountability Report represents a departure from the content, style and format of previous reports. We have progressed from our initial approach of reporting corporate accountability solely in terms of Human Capital, Black Economic Empowerment, Environment, African Operations and Corporate Social Investment scorecards. Now we place our emphasis on providing a clear line of sight through the chain of events that starts with the stakeholder engagement process which enables us to define the risks and opportunities that result in the definition of context-specific corporate accountability objectives. In addition, we continue to report significant statistical trends via themed scorecards. Our overall approach is reflected in the structure of our report, which comprises the following sections: R Engaging with Stakeholders R Defi ning sustainability priorities R Stakeholder engagement feedback R Massmart s progress update R Massmart s accountability by the numbers R Additional reading list ETHICAL COMMITMENT TO ALL STAKEHOLDERS STAKEHOLDER ENGAGEMENT CORPORATE ACCOUNTABILITY COMMITMENT Informed by integrated risk/opportunity assessment OPTIMAL CUSTOMER VALUE Highest value to cost ratio proposition EFFICIENT SUPPLIER CHANNEL Lowest cost route to market COMMERCIAL SUCCESS Market leadership and superior total returns Massmart's corporate accountability proposition is to achieve commercial success by adopting a mass distribution business model that proactively incorporates the input of our stakeholders to effectively integrate commerciality and accountability.

128 126 Corporate accountability Engaging with Stakeholders Our stakeholder engagement process represents the first and most important ongoing part of the corporate accountability journey. Not only does stakeholder engagement assist in providing unique insight into the expectations of our stakeholders, but through such a process we also gain a better perspective on important public discourse themes and the role that we, as retailers can play in addressing these issues. WE CONDUCTED DESKTOP REVIEWS AND INTERACTED WITH INDEPENDENT INTERNAL AND EXTERNAL SUBJECT-MATTER EXPERTS WE ENGAGED INDEPENDENT MEDIA RESEARCHERS TO REVIEW ISSUES TACKLED BY LEADING MEDIA ORGANISATIONS WE CONSOLIDATED IDENTIFIED ISSUES INTO A STAKEHOLDER VALIDATION FRAMEWORK Massmart conducted internal web-based research to identify broad public policies, understand commentator expectations of corporations and establish the relevance of the identifi ed issues to the retail industry. We have also engaged on an ongoing basis with independent subject-matter experts so as to remain up to date with their accountability expectations. During , this process was supplemented by various submissions made during the Massmart-Walmart Competition Commission investigation and during the Massmart-Walmart Competition Tribunal hearings. Massmart engaged Media Tenor, an independent media research consultancy, to research leading media sources. These sources included the Mail & Guardian, City Press, New Age, Business Report and Financial Mail. Our brief to the media researchers was for them to identify and validate media commentary and associated themes relating to the topics identifi ed during the desktop study. Based on the issues identifi ed through the desktop study and media review, a list of accountability priorities was developed. This list included the following topics (in no particular order): food security, water security, energy security, job security, service delivery, corruption, waste management and product safety. These topics formed the core content for our next step, a series of stakeholder validation workshops.

129 Massmart Annual Report In order to obtain maximum benefit from our interactions with stakeholders, we have re-launched and implemented a more structured and rigorous stakeholder engagement process. Given that this is the first time that we have embarked on this process, we have taken the decision to provide a detailed description of the steps involved in, and issues identified by, stakeholder engagement. In future, stakeholder engagement highlights will be presented in brief in the accountability report and a detailed description of the process will be made available on Massmart s Group Updates webpage. WE VALIDATED THE RELEVANCE OF THE IDENTIFIED PRIORITIES WITH INTERNAL AND EXTERNAL STAKEHOLDERS WE CONDUCTED A HIGH-LEVEL WALMART ACCOUNTABILITY OPPORTUNITY ASSESSMENT WE REVIEWED AND CONTEXTUALISED OUR ENGAGEMENT PROCESS OUTPUT We conducted validation workshops with internal and external subject-matter experts and commentators. Participants included academics, members of civil society, suppliers, and functional representatives from within our Group. The purpose of the workshops was to explore and prioritise the previously identifi ed issues, to improve understanding of stakeholder expectations, to provide opportunity to add previously unidentifi ed perspectives and critically evaluate the relevance of our existing accountability objectives. An important consideration associated with the Massmart- Walmart merger was and is the access that it provides to Walmart s Intellectual Property in the area of corporate accountability. We took this opportunity to identify, at a very high level, opportunities to leverage Walmart s expertise. Initial areas of interest have included sustainable agriculture, operational energy efficiency, alternative energy generation, packaging rationalisation, improving product labelling, eliminating laundry detergent phosphates and improving the affordabillity of environmentally responsible products. This fi nal step involved consolidating feedback from all previous steps in the process with the intention of fi nessing our corporate accountability focus. As a result of this process we defi ned three broad sustainability themes and associated objectives. (These are discussed on page 139.)

130 128 Corporate accountability Defining sustainability priorities Issues identified by desktop study and media review, prioritised by stakeholders and ranked in order of ascending priority. STAKEHOLDER ENGAGEMENT Massmart engaged with suppliers and internal and external stakeholders through a series of stakeholder workshops ops and ad hoc meetings. WORKSHOP PARTICIPANTS Eskom Tiger Brands Pioneer Foods BUSINESSES Snackworks ORGANISATIONS SAB Miller Food Safety Manager Simba PROFESSIONALS Human Resources Manager Internal Audit Operations Forum Manager IT Executive ANALYSE, CONTEXTUALISE AND INCORPORATE output into revised group accountability commitment INDIVIDUALLY RE-FORMULATE relevance of Massmart s declared accountability objectives DEBATE AND CHALLENGE relevance of Massmart s declared accountability objectives ISSUES IDENTIFIED during the desktop study and media review, prioritised by stakeholders and ranked in order of ascending priority. LOWEST PRIORITY BBBEE HEALTH CARE, HIV AND AIDS

131 Massmart Annual Report Massmart s suppliers who responded to our surveys We had 813 unique supplier companies respond to an environmental survey conducted at our CPA conferences in OTHER STAKEHOLDERS Siyakhana Initiative Competition Commission Raizcorp South African Commercial Catering and Allied Workers Southern African Food Lab Packaging Association South Africa (PACSA) Business Against Crime (BAC) Business Leadership South Africa Consumer Goods Council of South Africa (CGCSA) Department of Basic Education Economic Development Department SME Forum Empowerment SA National Business Institute (NBI) Endangered Wildlife Trust (EWT) South African Institute for Race Relations (SAIRR) World Wildlife Fund (WWF) University of Pretoria UNIVERSITIES University of South Africa University of the Witwatersrand WORKSHOP PROCESS The workshop process was designed specifically to help identify and prioritise key issues of national concern. IDENTIFY AND INTEGRATE new participant-specific accountability priorities PRIORITISE issues based on significance to participants PRESENT AND DEBATE accountability issues identified by desktop study and media review HIGHEST PRIORITY PRIORITISED ISSUES

132 130 Corporate accountability Stakeholder engagement feedback A wide variety of issues were identified, investigated and debated during our stakeholder engagement process. These issues included the Walmart effect, South Africa s Consumer Protection Act, product safety, Broad-based Black Economic Empowerment (BBBEE), rural poverty, the marginalisation of unemployed youth, labour rights, unsustainable consumption, local manufacturing competitiveness, biodiversity systems, the crisis in education, energy security, crime and corruption, waste management, HIV and AIDS, water security, job security, food security and many others. We were humbled by the intensity of the various stakeholders participation and the manner in which they freely shared with us their ideas, perspectives and expectations. It became clear during the engagement process that the central role that retailers occupy in the supply chain leads to high expectations among stakeholders, who recognise that our supplier convening power and access to consumers provides a powerful opportunity to influence supplier and customer behaviour. This section provides an extract of some of the issues and feedback that most attracted our attention during the process.

133 Massmart Annual Report JOB SECURITY Media discourse Job security was top of mind for organised labour and government and this topic received moderate media visibility. In the latter part of 2010, media focus on business and employment issues increased significantly, as government released its New Growth Path Strategy and began reinforcing the need for job creation. The themes covered that resonate in Massmart s context are job creation, job protection, casualisation and general job security issues. Job creation as a specific theme receives very high media coverage. The intensity with which these themes were covered in the media is indicated in the chart below Massmart specific stakeholder engagement comments: JOB PROTECTION AND WORKFORCE CASUALISATION 175 JOB SECURITY 362 JOB CREATION 569 A general view was expressed that, given the fragility of non-permanent employment, retailers should explore innovative opportunities to integrate non-permanent staff into the permanent workforce without compromising scheduling fl exibility. It was suggested that this may, among other things, help improve customer service. Our staff expressed initial concern about the potential impact of the Walmart transaction on their job security, a concern that was negated by our response that the transaction would not result in job losses. NUMBER OF STATEMENTS IN THE MEDIA Perspective Business-relevant coverage included the Department of Labour s proposed amendments to further tighten the Labour Relations Act and the associated limitations that would be placed on the use of labour brokers. Stakeholders suggested that Massmart provide a public commitment regarding the number of jobs (ie. 15,000) that would be created by the merged entity. It was also suggested that the Company consider commissioning an independent longitudinal study to understand the impact of Walmart s entry into South Africa. Based on the official strict definition, approximately 25% of South Africa s population is currently unemployed. The broader definition, used by the South African Institute of Race Relations (SAIRR), which includes numbers for discouraged work-seekers, estimates the percentage of unemployed to be higher at 32.4%. Unemployment in South Africa has risen by approximately 26% between 1994 and Of those who are unemployed, more than half are youths between the ages of 15 and 34 years old. A key aspect within the retail industry is our reliance on non-permanent employees. These employees supplement permanent staff numbers to help retailers meet peak trading activity demand, particularly over weekends.

134 132 Corporate accountability Stakeholder engagement feedback continued ENERGY SECURITY Media discourse Energy security received high media visibility and was strongly reported during the first half of 2011 when Eskom was emphasising the thin reserve margin between supply and demand. Media coverage centred on the potential job and production losses which could occur in the mining industry in the event of extended load-shedding. The themes covered in the media that resonated most for Massmart were energy security in general, alternative energy products, energy efficiency of operations and energy efficient products. The intensity with which these themes were covered in the media is indicated in the chart below Massmart-specific stakeholder engagement comments Stakeholders raised concerns about the impact of electricity tariffs on the cost of retail goods, particularly food. Stakeholders want Massmart to play an assertive role in reducing electricity consumption across the supply chain by reducing its own consumption, as well as encouraging its suppliers to likewise improve their energy efficiency. Stakeholders revealed a strong sentiment that retailers have an obligation to advocate to their customers that they should adopt more energy-efficient appliances and discussed the need to improve the affordability of energy-efficient consumer products. It was suggested that this could be a focus area for Walmart. As a merchandise risk that should be closely monitored, the issue of government intervention in terms of specifying minimum energy efficiency standards for consumer products was also raised. ENERGY SECURITY IN GENERAL 1,597 Business-relevant coverage in the media included commentary about the cost impact of higher tariffs, the effect of outages on productivity and contingency plans to limit the associated negative impacts. ALTERNATIVE ENERGY PRODUCTS 657 ENERGY EFFICIENCY OF PRODUCTS 49 ENERGY EFFICIENCY OF OPERATIONS 152 NUMBER OF STATEMENTS IN THE MEDIA Perspective The absence of sufficient electricity-generating capacity has been and continues to be a constraint on the South African economy's ability to accommodate a growth rate high enough to achieve government s goal of creating 500,000 new jobs per annum. As the national electricity utility battles to meet demand, insufficient supply has already resulted in rolling power outages that disrupt economic activity. The crisis has led to a 25% annual increase in electricity tariffs every year for three years ( ) for the purpose of funding a programme to build new generating capacity. In addition, the energy crisis has created greater awareness among industry and households that energy efficiency must be improved and efforts made to reduce electricity consumption. Despite these initiatives, South Africa s energy supply remains vulnerable, with an energy generation reserve margin of 12%, compared to a desired reserve margin of 15%.

135 Massmart Annual Report FOOD SECURITY Media discourse Surprisingly, food security received very low media visibility, although it was identified in our research as the highest priority for non-governmental organisations (NGOs). The themes covered that resonate in our context were food security in general, producer security, price security and, at the lowest level, nutritional security. The intensity with which these themes were covered in the media is indicated in the chart below NUMBER OF STATEMENTS IN THE MEDIA FOOD PRICE SECURITY 10 FOOD PRODUCTION SECURITY 44 FOOD SECURITY IN GENERAL 147 Perspective Business-relevant coverage focused on calls to the food industry to reduce prices of basic foods and promote nutritional awareness among consumers. Massmart-specific stakeholder engagement comments Stakeholders believe that one of the biggest contributions Massmart can make would be to assemble major food suppliers and identify opportunities for reducing food supply-chain costs and improving the user-friendliness of nutritional labelling. It was felt that Massmart, in the context of its fresh food strategy, had a good opportunity to invest in developing the local producer base, particularly amongst emerging farmers. Suppliers suggested working together to fi nd opportunities to rationalise food packaging so as to reduce costs. They asked if there were any opportunities whereby Walmart best practice could be deployed to improve supply-chain effi ciencies for mutual benefi t. Although South Africa is an exporter of agricultural commodities and the Constitution entrenches the right to adequate nutrition, it is estimated that approximately 14% of the population is vulnerable to food insecurity. In recent years, rapidly rising fuel, energy and food prices have made it difficult for average South Africans to meet basic household needs. This has been exacerbated by incidences of price collusion among major food manufacturers. NGOs express the view that producers, agri-processors and retailers should work together to reduce costs and wastage within the food supply chain, without undermining competition.

136 134 Corporate accountability Stakeholder engagement feedback continued WATER SECURITY Media discourse Water security received moderate media attention and relatively consistent coverage. Water security coverage followed a similar trend to that of energy security (albeit at a slower pace) and this could prove indicative of a looming crisis. Media reports indicate that 84% of South Africa's freshwater systems are threatened. The themes covered that resonate in Massmart s context are water security in general, phosphates in laundry detergents, waterefficient products and rainwater harvesting. Massmart specific stakeholder engagement comments The point was made that Massmart needs to be more cognisant of the risk posed by water scarcity on food production, particularly in the context of our strategy to grow our fresh produce proposition. Environmentalists recommended that we respond by establishing a supply chain based on the principles of sustainable agriculture. In general, stakeholders were pleased to learn about, and commented favourably on, the water harvesting project we have implemented in Builders Warehouse stores. Stakeholders asked, in the context of our relatively modest water consumption, to prioritise initiatives to promote waterwise products to consumers and advocate water conservation to high level waterconsumption suppliers. It was proposed that we use rainwater in store harvesting installations to promote customer awareness as well as increase prominence of waterwise products, such as aerated shower heads, dual fl ush toilets and drip irrigation. It was noted that Walmart had eliminated phosphates from detergents in the United States, and that there is an opportunity for Massmart to replicate this in a private-public partnership in South Africa. The intensity with which these themes were covered in the media is indicated in the chart below RAINWATER HARVESTING 17 WATER SECURITY IN GENERAL 1,010 Business-relevant coverage included the strong opinion that business has an important role to play in fi nding a sustainable solution to water insecurity. One area of specifi c relevance related to a Department of Water Affairs report on water quality that detailed the detrimental impact of phosphates commonly found in fertilisers and laundry detergents. WATER POLLUTION FROM PHOSPHATES IN LAUNDRY DETERGENTS 345 WATER EFFICIENCY OF PRODUCTS 42 NUMBER OF STATEMENTS IN THE MEDIA Perspective South Africa s average rainfall of 450mm p/a is approximately half that of the global average (860mm p/a). South Africa is therefore considered to be one of the 30 driest countries in the world. It is predicted that climate change will make South Africa both hotter and drier and that globally, water demand will outstrip supply by as much as 40% in Each year South Africans utilise approximately 97% of the country s total annual water supply. Unless water conservation is prioritised, water shortages could have a negative impact on the country s economic growth and social stability as households, industry and the agriculture sector compete for scarce supply.

137 Massmart Annual Report CORRUPTION Media discourse Corruption within the political context received high visibility in the media, although business-related coverage of corruption was low. Interest in corruption peaked when debate around the Protection of Information Bill intensified amid widespread fears that the Bill could be abused to cover up information on corruption and to criminalise whistleblowers. It is worth noting that this media discussion was initiated and perpetuated principally by researchers and unions, with little input originating from corporates. The themes covered that are relevant to our context, however, are the cost of corruption to consumers and the cost of corruption to business. The intensity with which these themes were covered is indicated in the chart below Massmart-specific stakeholder engagement comments CORRUPTION IN GENERAL 326 CORRUPTION COST TO CONSUMERS 79 CORRUPTION COST TO BUSINESS 23 Suppliers discussed with us the risk associated with collusion between delivery personnel and receiving staff at the back doors of retail outlets and the impact this has on shrinkage. Not all stakeholders were aware of the Massmart Ethics line and felt that it should be promoted more extensively to external stakeholders. Reassuringly, there is, however, a general view that Massmart is perceived to be a very ethical company. NUMBER OF STATEMENTS IN THE MEDIA Business-relevant coverage included the high cost of white-collar crime, armed and violent crime in retail centres and the Competition Authority s focus on price and market collusion. Stakeholders expressed their belief that corporate South Africa should adopt a more outspoken stance on corruption and devote more resources to supporting institutions with a mandate to combat corruption. Suppliers and staff referenced Walmart s renowned approach to combating corruption, including their no-gift policy, and suggested that Massmart adopt these anti-corruption practices. Perspective Corruption is damaging to all aspects of society. It adversely affects job security, food security, business infrastructure, healthcare and economic growth. The Council for the Advancement of the South African Constitution believes that approximately 25% of South Africa s GDP is lost to corruption annually and that corruption increases the cost of goods by as much as 20%. A 2007 PriceWaterhouseCoopers study revealed that 72% of companies in South Africa reported that they had been the victims of economic crime, in comparison with 43% of companies globally. In addition, on a scale from 0 (highly corrupt) to 10 (highly clean) South Africa scored 4.5 in Transparency International s 2010 Corruption Perceptions Index.

138 136 Corporate accountability Stakeholder engagement feedback continued WASTE MANAGEMENT Media discourse The topic of waste management had high media visibility and generally received a consistent level of coverage in the press. The themes covered that resonate in Massmart s context are waste management in general, recycling and re-use and hazardous post-consumer waste. Interestingly, packaging rationalisation was a relatively neglected area of media focus. Massmart-specific stakeholder engagement comments During 2010 and 2011 there was a shared perspective that consumers and legislators have become more sensitive to packaging waste associated with Fast Moving Consumer Goods (FMCG). It is expected that consumers and legislators will look to suppliers and retailers for solutions. Stakeholders felt that those who respond lethargically to this challenge could face reputational damage, while proactive efforts to offer consumers convenient, responsible waste disposal options might benefi t from favourable customer perceptions. Stakeholders commented favourably about Makro s e-waste customer take-back programme and suggested that Massmart identify further opportunities to offer post-consumer waste take-back and recycling schemes to customers. Suppliers expressed interest in improving environmental attributes of product packaging, such as reducing packaging and improving recyclability, especially if this resulted in opportunities to achieve cost effi ciencies. Considerable interest was expressed in Walmart s acknowledged expertise in this area. Numerous civil society participants said they felt that FMCG were generally over-packaged. Our suppliers and staff indicated that we are not fully realising the opportunities that exist in terms of reducing and recycling secondary packaging waste in our stores. The intensity with which these themes were covered in the media is indicated in the chart below: WASTE MANAGEMENT IN GENERAL 1,335 Business-relevant coverage included discussion about the National Waste Management Act and its requirement that industry players collaborate to develop sector-specifi c waste management plans that are cognisant of waste generated throughout the supply chain, including post-consumer waste. RECYCLING AND RE-USE 618 PACKAGING RATIONALISATION 12 HAZARDOUS POST-CONSUMER WASTE 50 NUMBER OF STATEMENTS IN THE MEDIA Perspective South Africans generate in excess of 42 million cubic tons of waste per annum. Altogether 95% of urban waste is deposited on land, either in open trenches or in one of the approximately 1,200 landfill sites operated mainly by local authorities. Industry experts have warned that South Africa is rapidly running out of landfill space. This has prompted the government to adopt a waste minimisation approach that places the onus on manufacturers and retailers to reduce the waste sent to landfill. E-waste in particular is an area of growing environmental concern, as many electronic products contain potentially hazardous components. E-waste generation in Africa is expected to increase by as much as 400% by The government s Polokwane Declaration has set clear goals regarding waste generation and disposal. The most prominent among these is the goal of zero waste to landfill by 2020.

139 Massmart Annual Report EDUCATION Media discourse The issue of education was addressed a great deal in the media and featured prominently on the government s communication agenda. Within our particular context, the education themes covered that resonated most in our context were tertiary education, the education system, development of schools and further education and training. The intensity with which these themes were covered is indicated in the chart below. TERTIARY EDUCATION 1,809 NUMBER OF STATEMENTS IN THE MEDIA EDUCATION SYSTEM 831 EDUCATION IN GENERAL 2,472 FURTHER EDUCATION & TRAINING 483 BUILDING / DEVELOPMENT OF SCHOOLS 739 Business-relevant coverage was characterised by strong debate relating to the quality of school-leavers and graduates and the link between education and job creation. Massmart-specific stakeholder engagement comments For Massmart, vocational training is the most relevant way to address the risk associated with skills shortages in the areas of merchandise planning, buying and store management. Both civil society and government stakeholders have expressed their conviction that there is an opportunity for organisations to better co-ordinate their CSI activities so as to increase benefi ciary impact. Stakeholders would like us to invoke convening power with suppliers to work toward this goal. Suppliers also suggested that we explore more opportunities for joint skills development and skills sharing with our supply chain partners. Perspective Improving basic education was foremost among the government s ten 2010 development goals. Despite this focus, the Development Bank of Southern Africa education expert, Graeme Bloch (2009), believes that between 60% and 80% of South African schools are currently dysfunctional. The results of the 2011 Annual National Assessment (ANA) indicate that basic literacy and numeracy skills among Grade 3 and Grade 6 pupils are alarmingly underdeveloped. Better education would play a critical role in addressing many of the socioeconomic issues that hamper South Africa s growth. Improved education systems would undoubtedly pave the way for more adequately meeting the economy s demand for skills and achievement of globally competitive productivity standards. In this context, stakeholders indicated that corporate South Africa should prioritise in-house vocational training and corporate social investment in education.

140 138 Corporate accountability Stakeholder engagement feedback continued HEALTH CARE, HIV AND AIDS Media discourse HIV and AIDS had low media visibility which peaked in December around World Aids Day. It was largely reported as a social issue to be dealt with by the government and did not feature as a particularly visible mainstream business issue. The themes covered that resonate in our context are HIV and AIDS programmes in the workplace, anti-retroviral usage, impact of HIV and AIDS and testing for HIV and AIDS. Massmart-specific stakeholder engagement comments Stakeholders were generally complimentary about Massmart s extensive Highly Active Antiretroviral Therapy (HAART) and pre-haart programmes. Civil society representatives and Massmart human resources practitioners raised the point that we need to find ways to extend HIV and AIDS support to non-permanent employees. It was also felt that we should implement innovative workplace programmes to destigmatise HIV and AIDS in order to increase the level of voluntary testing penetration. Massmart merchants suggested working more closely with suppliers to improve labelling associated with the efficacy of immune boosters used by HIV-positive consumers. The view was expressed that this is an area that is under-regulated and that there is an opportunity here for Massmart to adopt a leadership role. There was considerable discussion about the need for corporates to support organisations that care for children orphaned by HIV and AIDS. The intensity with which these themes were covered in the media is indicated in the chart below HIV AND AIDS GOVERNMENT POLICY 9 IMPACT OF AIDS 23 Business-relevant coverage was related to the negative impact of HIV and AIDS on the Agriculture, Construction, Mining and Automobile industries. We were surprised by the low coverage devoted to HIV testing within the work environment given government s strong drive for people to know their status. TESTING FOR HIV AND AIDS 10 SOCIAL/POLITICAL WILL TO CONFRONT PROBLEM 28 ARV USAGE 29 INSURANCE 13 HIV AND AIDS PROGRAMMES AT THE WORKPLACE 29 NUMBER OF STATEMENTS IN THE MEDIA Perspective In South Africa, approximately 11% of the population is HIV-positive with roughly 18% of people between the ages of 15 and 49 infected with the disease. It is estimated that, in total, 5.7 million South Africans are HIV-positive. Of this number, roughly 330,000 are children under the age of 14. In addition, South Africa is home to approximately 3.4 million orphans, and according to some accounts, more than half of them are believed to have been orphaned as a result of AIDS. It is generally accepted that HIV and AIDS has impacted upon South Africa s socioeconomic growth and development. Specific business impacts include lower productivity levels which are attributable to higher absenteeism and the loss of workforce skills and experience. Civil society has generally encouraged corporate South Africa to implement workplace prevention and treatment programmes and to contribute to initiatives that provide care and support within local communities.

141 Massmart Annual Report Massmart's progress update A key aspect of the feedback we received from our stakeholders, particularly our employees, was the view that we have not been sufficiently clear and concise in communicating our corporate accountability commitment in a way that is both "memorable" and easy to understand. We realise that we have communicated a myriad of individual interventions and that we should be communicating our intentions with greater clarity. As a result, we have begun classifying various accountability interventions under the umbrella of three broad accountability themes. These are to: ACCOUNTABILITY THEME 1 ACCOUNTABILITY THEME 2 ACCOUNTABILITY THEME 3 Put simply, these themes relate to Massmart s operations, products and people. Although all our Divisions subscribe to these broad themes we acknowledge that as a multi-format retail organisation our Divisions have differences in their structures and retail propositions. This has meant that our Divisions are unable to participate equally in the interventions associated with each theme. We are now distinguishing between shared Group and discretionary Division-specific accountability interventions, which we anticipate will be implemented according to five-year cycles. We have applied our best efforts to incorporate the perspectives raised by stakeholders into our current sustainability priorities based upon an assessment covering issue materiality, commerciality and social relevance. Those stakeholder perspectives that have still to be incorporated will be subject to ongoing review and discussion with stakeholders. Finally, it is clear that there are significant opportunities in the short-to-medium term to align more closely with Walmart s sustainability objectives and best practice which will lead to further evolution of our corporate accountability commitment. A project to do this has been initiated in the context of the Massmart-Walmart integration programme.

142 140 Corporate accountability ACCOUNTABILITY THEME 1 During our stakeholder engagement we realised the full extent of the high expectations that civil society, government and customers place on retailers because of the position we occupy as the link between suppliers and consumers in the supply chain. We are perceived to have significant supplier-convening power, which creates opportunities to encourage suppliers to act responsibly in sourcing, manufacturing and distributing their products. Equally, we are seen to have direct and credible face-to-face access to consumers, which presents opportunities to influence their buying decisions. With this in mind and, as a part of the world s largest retailer, with access to its industry-leading approach to supply-chain advocacy, we are confident that we can promote the adoption of more sustainable practices across our supply chain. SUSTAINABLE AGRICULTURE Opportunity to leverage Walmart best practice Objective TO SUPPORT AND INTEGRATE EMERGING FARMERS INTO MASSMART S NEW FRESH PRODUCE SUPPLY CHAIN Commentary Massmart is increasing the Group s fresh food retail proposition through a variety of initiatives that include expanding our Cambridge Food chain, implementing Foodco stores in Game and introducing fresh food into our Makro stores. Developing a local supply base makes good commercial sense and is also good for food-producer security. This presents a good opportunity to develop a sustainable farming initiative that provides local farmers with support and that also integrates them into the retail fresh food supply chain. Walmart has extensive sustainable agriculture expertise and funds from the Massmart-Walmart Supplier Development Fund have been earmarked to support this initiative. We are currently reviewing Walmart best practice and meeting with players to understand how best to approach this project. We hope to ultimately identify emerging farmers to participate. CONSUMER E-WASTE RECYCLING Objective TO IMPLEMENT POST- CONSUMER E-WASTE RECYCLING SCHEMES IN MAJOR METROPOLITAN AREAS Commentary Government has identified e-waste as a priority waste stream. Massmart has a significant hi-tech proposition that generated sales in excess of R1 billion** in the year ending June It is therefore intuitive to provide facilities that allow for the responsible disposal of e-waste. We achieve this through e-waste recycling schemes that have been implemented at all Makro stores and that have resulted in the collection of 214 tons of e-waste since their implementation in 2008

143 Massmart Annual Report POST-CONSUMER WASTE RECYCLING* Objective TO IMPLEMENT REGIONALLY BASED POST-CONSUMER WASTE RECYCLING SCHEMES IN OUR STORES Commentary The successful implementation of Makro s customer e-waste recycling programme resulted in the identifi cation of similar opportunities in other post-consumer waste areas. Builders Warehouse has implemented a scheme to take CFL light globes, non-recyclable batteries, rechargeable batteries and fl uorescent tubes in all Builders Warehouse and Builders Express stores. Makro has received customer requests for glass recycling bins at their liquor stores and Game has initiated a study to explore demand for small appliance recycling. PRIMARY PACKAGING RATIONALISATION* Objective TO PARTNER WITH WILLING SUPPLIERS TO IDENTIFY AND IMPLEMENT OPPORTUNITIES TO REDUCE PRIMARY PACKAGING Opportunity to leverage Walmart best practice Commentary Each year Walmart hosts a packaging conference that facilitates exchange of information between packaging companies and Walmart suppliers. This is intended to identify opportunities for reducing and improving the environmental attributes of product packaging. An important aspect of this is Walmart s experience that these objectives can result in cost savings in the supply chain. Massmart has aspired to implement a packaging rationalisation programme since 2009 but has been unable to access suitable local expertise. We are enthusiastic about opportunities that the Walmart merger presents to leverage Walmart s packaging expertise and we have initiated discussions to get started. Our initial focus is likely to be on private label products. ECO-LABEL ADVOCACY Objective TO PROMOTE ADOPTION BY SUPPLIERS OF INDEPENDENTLY VERIFIED ECO-LABELS, SUCH AS MARINE STEWARDSHIP COUNCIL (MSC), FORESTRY STEWARDSHIP COUNCIL (FSC), AND ENERGY STAR (OR THEIR EQUIVALENTS) Opportunity to leverage Walmart best practice Commentary Irresponsible raw materials sourcing and manufacturing practices can cause extensive damage to the environment, including deforestation and depletion of marine resources. One way to counter this is through independent verification that certifies supplier procurement, manufacturing and distribution practices. Previous Massmart attempts to introduce ecolabels to suppliers have been relatively unstructured and have delivered mixed results. We have therefore appointed a fulltime ecologist who has been tasked with developing a commercially viable approach to ecolabel advocacy to suppliers. A short-term priority is to ensure that major appliances in our stores display an energy-efficiency rating.

144 142 Corporate accountability SUPPLIER ADVOCACY* Objective TO EXCHANGE KNOWLEDGE WITH WILLING SUPPLIERS TO FACILITATE HIGHER ENVIRONMENTAL AND HUMAN RIGHTS STANDARDS IN THE RETAIL SUPPLY CHAIN Commentary One technique to advocate more responsible practice is to ask suppliers to disclose their environmental and human rights activities. Massmart has been surveying and profiling the environmental practices of major suppliers since In 2011, a total of 350 suppliers were asked to participate in the Group s environmental survey, although only 112 responded. We continue to supplement the survey process with random site visits to selected suppliers. Various suppliers who participated in the 2010 survey round have indicated a willingness to collaborate with Massmart to improve their environmental credentials. In response, we have undertaken to develop follow-on quick start educational workshops aimed at teaching practical steps to improve environmental performance in the supply chain. The objective of the workshops is to contribute to improving sourcing and manufacturing practices as well as the environmental attributes of consumer products. Our aim is to maintain active environmental profiles for our top 500 suppliers by unit volume and to expose all willing suppliers to quick start environmental workshops. CONSUMER EMPOWERMENT Objective TO EMPOWER CONSUMERS TO MAKE RESPONSIBLE CONSUMER CHOICES MORE FREQUENTLY Opportunity to leverage Walmart best practice Commentary Price competitiveness and access to accurate information are two important levers for assisting consumers in making responsible purchasing decisions. Massmart has responded by launching the Eco-wise environmental awareness programme, a current priority that involves the development of an Eco-wise consumer website, which is nearing completion for launch in the fourth quarter of In addition, we have increased the frequency and scope of product promotions that feature environmentally responsible merchandise options. Most importantly we are working on price democratisation and information transparency to promote responsible consumer behaviour. These are areas in which Walmart has considerable expertise, including partnerships with a consortium of universities, suppliers and NGOs to develop a product information database that will provide the framework for the development of a consumer-facing index tool for shoppers. The aim of this tool is to offer consumers easy-to-understand labelling information that assists them in making sustainable product choices. Consequently, Massmart has prioritised consumer empowerment as a key area for knowledge exchange with Walmart. * Denotes mandatory Group-wide accountability interventions ** Hi Tech figure for Makro.

145 Massmart Annual Report ACCOUNTABILITY THEME 2 South Africa faces a number of significant environmental challenges. Due to the country s reliance on coal-fired power stations, South Africa is the largest emitter of greenhouse gases on the continent and the 13th largest CO 2 emitter in the world. Africa is a chronically water-stressed continent and existing water resources are almost fully utilised. Despite the promulgation of the National Environmental Management Waste Act in 2008, South Africa still faces significant waste management challenges, including widespread illegal dumping, inadequate landfill space and a general lack of waste management data. With this in mind, we appreciate how pressing the need is to minimise the environmental footprint of our operations. Consequently, we are working to improve energy efficiency, reduce water use and minimise the volume of waste to landfill. ENERGY EFFICIENCY* Mandatory for new stores Objective TO IMPROVE ENERGY EFFICIENCY IN LINE WITH FORMAT-SPECIFIC ENERGY INTENSITY BENCHMARK RANGES Commentary Opportunity to leverage Walmart best practice Energy security and significantly increased energy tariffs continue to be a national priority. Massmart has developed energy intensity benchmarks for all Group formats that distinguish between legacy and new store energy efficiency opportunities. These benchmarks recognise that our different retail formats have different energy requirements and that more can be achieved by designing new energy efficient stores versus retrofitting legacy stores. Massbuild and Massdiscounters have achieved 10.0% and 3.0% energy intensity savings respectively based on their original 2008 baseline energy consumption. Energy intensity savings have been achieved through a number of interventions, including improved in-store consumption tracking, conversion to energy efficient lighting and refrigeration systems and the installation of lighting strips and skylights to reduce in-store lighting requirements. Makro, which has historically operated energy efficient stores, has taken the next step by designing and building stores that optimise natural lighting and reclaim heat from refrigeration systems to heat the store. These and other innovations have led to a 25.0% reduction in energy consumption (based on an annualised comparison between the new Makro Vaal store and a similar-sized legacy store). SECONDARY PACKAGING RECYCLING* Sometimes inhibited by a lack of infrastructure in outlying areas Objective TO RECYCLE SECONDARY PACKAGING (SPECIFICALLY BOARD AND PLASTIC WASTE) THAT IS GENERATED IN STORES AND DISTRIBUTION CENTRES Opportunity to leverage Walmart best practice Commentary Massmart currently has approximately 172 active board and plastic waste recycling sites at store level. These vary in sophistication and effectiveness. An initial high-level recommendation based on Walmart store visits has highlighted an opportunity to cost-effectively improve store recycling activities. We are currently reviewing Walmart s recycling practices and meeting with recycling service providers to scope and verify the opportunity. This will serve as input to the development of a Massmart recycling standard. We would ideally like to achieve a situation of zero secondary packaging plastic and board waste to landfill.

146 144 Corporate accountability WATER EFFICIENCY Rainwater harvesting Objective TO HARVEST RAINWATER TO SUPPLEMENT NURSERIES (AT BUILDERS WAREHOUSE) AND LANDSCAPING IRRIGATION REQUIREMENTS Commentary This objective is most relevant for standalone stores, as opposed to stores located in shopping malls. All standalone stores have been assigned a rainwater harvesting index based on a 2009 study conducted by an independent consultant. All Builders Warehouse and Builders Express stores have installed rainwater harvesting solutions to supplement irrigation requirements for in-store nurseries. We estimate that 3,240 kilolitres was harvested in this way during the 2010 calendar year. Makro is currently using the Builders Warehouse solution as a reference for assessing the merits of using rainwater harvesting to supplement its landscaping irrigation needs. We aspire to supplement 40.0% of nursery and landscaping irrigation needs in this way. ACCOUNTABILITY THEME 3 In the context of the unsustainably high level of social inequality in South Africa and Africa which is characterised by factors that include unequal access to housing, sanitation, food, education, economic opportunities and healthcare, the benefits associated with social development are clear. An empowered, healthy, well-skilled and productive population will contribute to a cohesive and stable society that is geared to prosper socially and economically. EMPLOYEE HEALTHCARE BENEFITS* Objective TO INCREASE PERMANENT EMPLOYEES ACCESS TO AFFORDABLE SUBSIDISED PRIVATE MEDICAL BENEFITS Commentary Approximately 41.9% of permanent employees have access to private medical benefits. This is a 16.0% improvement on the situation when this objective was launched in Massmart has now implemented four different subsidised health benefits options in the space of four years to increase staff uptake. In addition, we continue with our in-store wellness testing programme for early detection of high cholesterol, high blood pressure, unsafe blood sugar levels and obesity. Our goal is to achieve a minimum of 60.0% medical benefits coverage among permanent employees. We are closely monitoring the proposed National Health Insurance scheme which will impact upon this objective. SOCIOECONOMIC IMPACT OF THE MASSMART-WALMART MERGER* Objective TO COMMISSION AN ACADEMIC STUDY OF THE SOCIOECONOMIC IMPACT OF WALMART S ENTRY INTO SOUTH AFRICA Commentary There has been robust debate about the potential impact of Walmart s entry into South Africa. Walmart have asked Massmart to commission research to understand the impact on areas defined by academic researchers that are likely to include job creation, consumer prices, local manufacturing, local farming and export development.

147 Massmart Annual Report EMPLOYEE HIV AND AIDS BENEFITS* Objective TO COMBAT THE RATE OF INFECTION AMONGST EMPLOYEES AND TO PROVIDE ALL HIV-POSITIVE PERMANENT EMPLOYEES AND THEIR SPOUSES WITH FREE ACCESS TO PRE-HAART AND HAART PROGRAMMES Commentary The infection rate among employees has remained stable, at 5.6%, lower than the national average (11.0%). We have improved testing penetration, with Voluntary Counselling and Testing (VCT) increasing from 3,180 in 2009/2010 to 8,153 for 2010/2011. This constitutes a 156.4% increase in penetration. A total of 87.0% of all HIV-positive staff have enrolled on the Impilo treatment programme, representing good progress in our initiative to ensure that all HIV-positive permanent employees receive treatment. However, this process continues to be hampered by the stigma which surrounds the virus. To facilitate greater treatment uptake, Massmart has extended its treatment hotline operating hours to enable employees to seek help and treatment advice after hours. We would like 100% of HIV-positive permanent staff to enrol for treatment and we aspire to achieve a 70.0% voluntary testing penetration rate. BROAD-BASED BLACK ECONOMIC EMPOWERMENT* Objective TO ACHIEVE AND MAINTAIN LEVEL 4 BBBEE CONTRIBUTOR STATUS Commentary Massmart achieved level-3 BBBEE contributor status in the 2011 BBBEE verification process, with a score of 75.9%. This was, according to the 2011 FM Top Empowerment Companies Survey, the highest score in the retail industry. In addition, we were pleased to be ranked 7th of all JSE-listed companies on Employment Equity in the same survey. Many employees will, however, consider the R430.6 million paid out by the Thuthukani Staff Empowerment scheme when the Walmart transaction was completed as one of the most significant BBBEE milestones achieved by the Group. Going forward, we expect the dilution of staff share ownership and changes to Enterprise Development scoring criteria to impact negatively on our BBBEE score. SOCIOECONOMIC DEVELOPMENT* Objective TO INVEST A MINIMUM OF 1% PROFIT AFTER TAX (PAT) IN EDUCATION- FOCUSED SOCIAL DEVELOPMENT INITIATIVES THAT BENEFIT THE POOREST OF THE POOR Commentary Massmart invested R24,4 million, equating to 2.0% PAT, in Corporate Social Investment (CSI) initiatives during the period, exceeding the minimum investment guideline by 1.0%. CSI spending is decentralised to the operating divisions that supported projects that included early childhood development, teacher support, sustainable food production at schools, implementation of school container kitchens to enable hygienic food preparation and support for established feeding schemes. Massmart continues to encourage the divisions to adopt central guidelines that will see a minimum of 85.0% of CSI support being allocated, in partnership with the Basic Education Department, to nutrition (container kitchens and vegetable tunnels) and English literacy at quintile 1 primary schools. The Group s decentralised model means that this initiative is progressing more slowly than we would like. * Denotes mandatory Group-wide accountability interventions

148 146 Corporate accountability Massmart s accountability by the numbers Five years ago Massmart developed four accountability scorecards that became the core of our accountability reporting. In 2009 we added a fifth scorecard covering our African Operations following input received from the Benchmarks Foundation, an NGO that focuses on corporate practice in Africa. These scorecards, which are covered in this section, provide data describing BBBEE, Human Capital, Environmental, Corporate Social Investment and African Operations accountability performance over a four-year period and with reference to comparative industry practice. Data gathering and consolidation accuracy can prove challenging in areas such as water consumption and greenhouse gas emissions, so it is important to disclose that there could be up to a 15% margin for error in these areas. The estimated margin for error is also indicated in the comments associated with each scorecard. Comparative data is provided for context and represents the best available performance data as reported by other South African retailers. Looking forward we have taken the decision, following recent stakeholder engagement feedback about product safety and related issues, to introduce another scorecard in 2012 that will cover Group performance with reference to the Consumer Protection Act (CPA). We anticipate that this scorecard will cover aspects such as product recalls, National Consumer Commission (NCC) complaints and supplier compliance to the ethical, quality and safety requirements set out by Massmart. Since the enforcement of the CPA on 1 April 2011 Massmart has initiated 31 product recalls and responded to three NCC complaints.

149 Massmart Annual Report Human Capital Performance Indicators NON-PERMANENTS (%) COMPARATIVE Because non-permanents are regarded as a vulnerable employee category, the comparative is based on lowest % in the retail industry. UNIONISED STAFF (%) COMPARATIVE Massmart views % unionised staff as an indicator of commitment to freedom of association. BLACK MANAGEMENT AS A % OF ALL MANAGEMENT AND PROFESSIONALS COMPARATIVE ESTIMATED % EMPLOYEES WITH MEDICAL BENEFITS ESTIMATED STAFF TURNOVER (%) AVERAGE MINIMUM WAGE (R) 2, ,555 2,139 2,040 2,159 ESTIMATED PER CAPITA TRAINING INVESTMENT (R) 1,879 1,574 1,261 1, ESTIMATED HIV PREVALENCE (%) COMPARATIVE COMPARATIVE COMPARATIVE COMPARATIVE COMPARATIVE Our goal is to achieve a minimum of 60% medical benefi ts coverage among permanent employees. Notes Comparative data represents the best available performance disclosed by South African retailers, except for: R Employees with medical benefi ts sourced from 2010 South African General Household survey; R HIV prevalence which represents published national prevalence rate; and R Average minimum wage sourced from Sectoral Determination for Wholesale and Retail Sector. R Non-permanents and Unionised Staff sourced from Massmart s 2009/2010 Sustainability Report. HIV fi gure has remained constant despite a 156% increase in the number of HIV tests carried out during the reporting period. Human capital data measurements and assumptions Human capital data is based on Group and Divisional payroll data. HIV prevalence data is based on Right to Care VCT testing figures. Data is internally audited prior to publication. Estimated figures include the percentage of staff with medical benefits, HIV prevalence, staff turnover and per capita training investment.

150 148 Corporate accountability BBBEE Performance Indicators OWNERSHIP (%) MANAGEMENT CONTROL (%) COMPARATIVE COMPARATIVE As a result of the early vesting and staff shareholder payments made by Walmart, employee voting rights have decreased by 4.1%. As at 30 June 2011, black permanent employees exercised voting rights through 1.9% of Massmart equity. EMPLOYMENT EQUITY (%) SKILLS DEVELOPMENT (%) COMPARATIVE COMPARATIVE Massmart s 2011 score of 12.3% is the highest of all listed retailers and seventh best of all listed companies. PREFERENTIAL PROCUREMENT (%) ENTERPRISE DEVELOPMENT (%) COMPARATIVE COMPARATIVE SOCIO-ECONOMIC DEVELOPMENT (%) COMPARATIVE Massmart invested 2.0% PAT in socio-economic initiatives, 1.0% higher than scorecard target. BBBEE SCORE (%) COMPARATIVE Massmart s 2011 score of 75.9% is the highest of all listed retailers. BBBEE data measurements and assumptions Massmart s BBBEE figures are calculated externally by Empowerdex Economic Empowerment Rating Agency. These figures are based on actual staff numbers (not estimates) and are believed to be 100% accurate at the time at which they were published. BBBEE scores are calculated retrospectively, therefore the data reported is based on the scorecard compiled in February 2011 for the period ended June Notes R Comparative data represents the best performance in the retail sector as published in the FM Top Empowerment Companies Survey R (%) indicates percentage score achieved on the BBBEE scorecard. R An updated scorecard for the period ended June 2011 will be published on the Massmart website in November 2011.

151 Massmart Annual Report CSI Performance Indicators TOTAL GROUP CSI SPEND AS A % OF PROFIT AFTER TAX (PAT) COMPARATIVE We invested 2% of profi t after taxation in CSI initiatives compared to a BBBEE guideline of 1% PAT. TOTAL GROUP CSI SPEND INCLUDING SUPPLIER AND STAFF CONTRIBUTIONS Rm TOTAL GROUP CSI SPEND EXCLUDING SUPPLIER AND STAFF CONTRIBUTIONS Rm TOTAL INVESTMENT IN FEEDING SCHEMES Rm TOTAL INVESTMENT IN ICON PROJECTS Rm TOTAL INVESTMENT IN DISCRETIONARY PROJECTS Rm Icon projects will continue to be phased out and replaced with investment in fl agship initiatives in the areas of sustainable food production, hygienic food preparation and English literacy projects. Although specifi c CSI investment guidelines have been issued, reducing discretionary spend remains a slow process due to long-term commitments with existing benefi ciaries and resistance from the Group s Divisions. CSI data measurements and assumptions CSI data is based on actual Group expenditure figures which have been internally audited. CSI figures are believed to be 100% accurate at time of publication. Notes R Investment in feeding projects includes spend on container kitchens, vegetable tunnels, NGO and government feeding schemes and Gauteng Foodbank contributions. R Investment in icon projects includes spend on Game Stores tools-to-play early childhood development kits, Makro Excellence in Education school gift voucher awards and the Massmart bursary scheme. R Investment in discretionary projects includes donations to Starfi sh Foundation, Tomorrow Trust, Vodacom Wheelchair Fund, Business Against Crime and others

152 150 Corporate accountability Africa Operations Performance Indicators LOCAL EMPLOYEES AS A % OF TOTAL (AFRICA) HEAD COUNT LOCAL MANAGEMENT AS A % OF TOTAL MANAGEMENT LOCAL EXECUTIVE STORE MANAGERS AS A % OF TOTAL EXECUTIVE STORE MANAGERS PRODUCTIVITY LOST TO MALARIA AS A % OF TOTAL WORK DAYS UNKNOWN UNKNOWN LOCAL PROCUREMENT AS A % OF TOTAL PROCUREMENT Local procurement has improved. However, the Group s 2009 target of 25% local procurement by 2011 has not been achieved. CORPORATE SOCIAL INVESTMENT (Rm) CUSTOMER SATISFACTION INDEX (%) PENALTIES FOR LEGAL NON-COMPLIANCE PURCHASED ELECTRICITY CONSUMPTION KWH/m Penalties accrued for the reporting period came to R10,721. Penalties related to the late submission of tax returns and fi nes received as a result of incorrect paperwork at border crossings. Africa operations data measurements and assumptions Africa Operations information is limited to data from the Group s Massdiscounters division. Local management as a percentage of total management is based on all employees whose job titles contain the word manager. The calculation of local executive store managers as a percentage of total executive store managers was based on store manager and store manager designated job titles. Energy consumption figures are based on total spend on energy and have a 10%-15% margin of error. Data is internally audited prior to publication. Purchased electricity consumption for our Africa Operations remains highly inaccurate. This is largely due to the absence of in-store electricity meters. Notes R HIV testing has been carried out in Africa, however, insuffi cient tests have been conducted to calculate a reliable prevalence percentage. We realise that HIV and AIDS is a signifi cant concern in Africa and we hope to expand voluntary HIV and AIDS testing in our Africa Operations in the future.

153 Massmart Annual Report Climate Change and Environmental Performance Indicators ESTIMATED GROUP WATER CONSUMPTION (KL/m 2 ) COMPARATIVE ESTIMATED ANNUALISED PURCHASED ENERGY CONSUMPTION INTENSITY(KWH/(GLA)m 2 ) COMPARATIVE ESTIMATED GROUP SCOPE 1 EMISSIONS INTENSITY (TONNES/Rm) COMPARATIVE ESTIMATED GROUP SCOPE 1 EMISSIONS INTENSITY (TONNES/(GLA)m 2 ) COMPARATIVE ESTIMATED SCOPE 2 EMISSIONS INTENSITY (TONNES/Rm) ESTIMATED SCOPE 2 EMISSIONS INTENSITY (TONNES/(GLA)m 2 ) COMPARATIVE COMPARATIVE Water usage has been derived with reference to the cost of water consumed. Water consumption has increased. Although causal factors have not been confi rmed, we hypothesise that this is the result of more accurate reporting rather than a signifi cant change in the volume of water used by the Group. Due to more accurate energy data and the analysis of Group energy consumption, Scope 2 emissions data has been restated. Furthermore, energy intensity has been calculated on the basis of Gross Lettable Area (GLA). Scope 1 emissions comprise direct emissions from company owned vehicles, generators and refrigerant gases. Scope 1 emissions intensity has increased marginally. This is due to increased companyowned vehicles and refrigerant gas emissions. Better energy effi ciency in stores and more accurate energy consumption data has resulted in a reduction in Scope 2 emissions intensity. No data available for this year Climate change data measurements and assumptions Scope 1 and 2 emissions fi gures are calculated externally by Global Carbon Exchange consultants. Scope 1 emissions relate to direct emissions resulting from Company owned vehicle, generator use and refrigerant gas emissions. Massmart trend data is not available for Scope /2009 emissions since this information has historically been reported by calendar rather than fi nancial year. Scope 2 figures are based on divisional electricity consumption figures. Energy consumption data is annualised and normalised (outlying data is excluded). Consequently, the margin for error on reported data is considered to be between 10%-15%. Gross Lettable Area (GLA) is used to calculate per m 2 intensity fi gures. GLA covers the total functional uses area for commercial purposes such as retail shop, office, etc. inside the building excluding all common areas, car parking and service areas. Electricity consumption and Scope 2 emissions figures relate to South African operations only. Electricity consumption figures from the Group s Africa Operations are excluded due to data inaccuracy and difficulties associated with determining what percentage of the electricity supply comes from renewable sources. 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 2010/2011 of 858,89 c/kl.

154 152 Corporate accountability Additional readings This Corporate Accountability report is intended to provide an overview, rather than an exhaustive account, of the Group s accountability process, focus and achievements. For further information, we recommend that you refer to the additional website-based: GRI GROUP emag GRI III questions and answers ( Group Updates ( E-magazines ( GRI 2011 GRI III Questions and Answers A series of Questions & Answers derived from the Global Reporting Initiative III that describes Massmart s performance with reference to this standard. emag Walmart Best Practice Overview An e-magazine that describes a selection of Walmart s global social investment, sourcing, packaging, environmental and related accountability credentials. GROUP Makro partners with Fujitsu on e-waste disposal programme Makro runs an e-waste disposal project at all its stores in partnerships with Fujitsu-Siemens. This Group Update describes the e-waste situation in South Africa and Makro s response. GROUP Profiling supplier environmental awareness what have we learned? A Group Update that summarises the highlights of Massmart s most recent supplier environmental survey. The survey covers manufacturing practices and environmental product and packaging attributes of manufactured merchandise. GROUP Eco-wise brand update The Eco-wise brand was launched in 2008 to promote consumer awareness about more environmentally friendly merchandise options. This Group Update summarises the progress that has ben made in this regard. GROUP Builders Warehouse encourages recycling In a drive to offer customers in-store recycling options, Builders Warehouse has implemented recycling bins in all its stores. This Group Update describes the initial pilot project. emag Making saving the planet and saving money easier Massmart encourages our chains to promote environmentally responsible products. This is a summary of some recent product promotions aligned to this objective. GROUP Massmart measures its 2011 energy efficiency A Group Update that offers a detailed account of the pitfalls, challenges and achievements involved in measuring energy efficiency. Data integrity remains a challenge. GROUP Massbuild installs rainwater-harvesting tanks to grow plants in its nurseries South Africa is one of the 30 driest countries in the world. This Group Update describes Builders Warehouse s project to harvest rainwater to supplement water requirements in their in-store nurseries.

155 Massmart Annual Report GROUP Environmental attributes in the new Makro Vaal store The Makro Vaal store serves as the model for future Makro stores, three of which are currently in the construction phase. This Group Update describes steps taken to ensure that these stores use less water and electricity. GROUP Massmart winning the fight against HIV and AIDS In 2005 Massmart made free anti-retroviral treatment available to all permanent staff members and their spouses. This supplemented the Group s alreadyestablished Voluntary Counselling and Testing (VCT) programme. A Group Update describes the status of the fight against HIV and AIDS at Massmart. emag Massmart encourages early detection of priority illnesses A Group Update that provides a brief synopsis of the actions that Massmart is taking to increase employee access to private health benefits and to provide in-store testing to detect priority illnesses, such as diabetes and raised cholesterol levels. GROUP Massmart s approach to CSI is evolving In order to improve the combined impact of Massmart s CSI projects, we are trying to align the spending of all Group Divisions. This Group Update describes our CSI vision and the underpinning rationale. emag The impact of CSI What we achieved in 2010/2011 A round-up covering examples of the CSI work of Massmart s four Divisions, including implementation of container kitchens and vegetable tunnels at primary schools. This does not represent an exhaustive list and is complemented by the Group updates available on our website. GROUP Reaping the benefits of share ownership Thuthukani pays out The Thuthukani staff empowerment scheme was launched in 2006, when permanent staff members were issued equity at R This Group Update quantifies benefits paid to Thuthukani staff culminating in the purchase of 51% of Massmart equity at R148, when Walmart partnered with Massmart.

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158 AUDIT & RISK CORPORATE GOVERNANCE KING III 4 MEETINGS 3 BOARD IN THE YEAR MEMBERS SOCIAL &ETHICS COMMITTEE 2 MEETINGS IN THE YEAR MEMBERS COMMITTEE 3 BOARD FORMS THE BACKBONE OF MASSMART'S CORPORATE GOVERNANCE FRAMEWORK REMUNERATION & NOMINATIONS COMMITTEE 2 MEETINGS 3 BOARD IN THE YEAR MEMBERS CORPORATE GOVERNANCE R Corporate governance 157 R Audit and Risk Committee 166 R Risk 178 R Remuneration of directors and executives 169 R Compliance, transparency and accountability 185 R Investor relations 188 R King III question and answer 190

159 Massmart Annual Report Corporate governance 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. The primary South African corporate governance framework is the King III Report on Corporate Governance, which forms the backbone of Massmart s own corporate governance framework. In addition Massmart applies high ethical standards which are considered essential for any governance framework to operate in. 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. For the 2011 fi nancial year, apart from the exceptions outlined immediately below, the Board confi rms that the Group complied with the Code of Corporate Practices and Conduct as set out in the King III Report. Exceptions to King III R The King III Report states that the chairman of the Board should be an independent non-executive director. Mark Lamberti was appointed nonexecutive Chairman in July 2007 and, as he was previously the CEO of Massmart, he could not be considered independent until June The Board is therefore satisfi ed that Mark Lamberti should now be considered an independent director. Recognising however that some may differ with this view, Chris Seabrooke, the non-executive Deputy Chairman, maintains his role as the Group s Lead Independent Director. In addition, to ensure good governance, and as recommended by King III, the chairmanship of two of the three Board Committees is held by independent directors. R Following the Walmart transaction, the reconstituted Board does not have a majority of independent non-executive directors as required by King III. In mitigation, the majority of the non-executive directors are independent, as are the Chairman and Deputy Chairman.

160 158 Corporate Governance Corporate governance continued R The King III Report requires that the salaries of the three most highlypaid employees who are not executive directors should be disclosed. Due to their specialised retail skills, the highly competitive South African retail environment and the employees value to Massmart, the Board does not wish to disclose this information for each of the individuals but has instead disclosed the total salaries of the three employees concerned on page 183. None of the employees earns a higher salary than either of the executive directors. R The Board does not believe that directors should earn attendance fees in addition to a base fee. Many directors add signifi cant value to the Group outside of the formal Board and Committee meetings, sometimes greater value than they might do within the confi nes of a formal meeting. In addition, the directors have a record of high attendance at Board and Committee meetings. R The Board does not ask the shareholders for non-binding approval for the Group s remuneration policies. The rationale and basis for the Group s executive remuneration policy is carefully considered by the Remuneration and Nominations Committee and is documented in the annual reports. Shareholders with concerns at this policy should contact the Chairman of the Board, who is also Chairman of the Committee. R The head of the Group s Internal Audit function, the Chief Audit Executive (CAE), does not report solely to the Audit Committee. Instead, the CAE reports administratively to the CFO but functionally to the Audit Committee. The Committee believes that the CFO respects and encourages the independence of the CAE and his department, and that the CAE, in turn, is able to maintain his independence despite his administrative reporting-line to the CFO. R 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. R Contrary to the recommendations in the King III Report, the Board is unable to remove directors without shareholder approval, except where a director retires by rotation. The Board believes that all directors, but particularly nonexecutive directors, represent the Company s shareholders and so it should be the shareholder body that fi nally approves a director s appointment or dismissal from the Board. R The King III Report requires that the Company s sustainability report be audited by an independent external professional. Massmart s sustainability report has not been audited but verifi cation of the key sustainability metrics on page 7 have been obtained through agreed-upon procedures performed by Massmart Internal Audit Services. A copy of the agreed-upon procedures report is available at the registered offi ces of the Company. R The Chairman of the Remuneration and Nominations Committee is also Chairman of the Board. Impact of the Walmart transaction The acquisition by Walmart of 51% of Massmart became effective on 20 June Several changes to the composition of the Board and the Committees were then implemented. These had been described in earlier communication to shareholders, including the shareholders circular covering the approval of the transaction.

161 Massmart Annual Report The changes are described below: R Messrs Dods Brand, Kuseni Dlamini, Jim Hodkinson, Nigel Matthews, Peter Maw, Michael Rubin and Ms Dawn Mokhobo resigned from the Board. R Messrs Doug McMillon, Jeffrey Davis and JP Suarez who joined the Board are the Walmart appointees. R The executive directors, Messrs Grant Pattison and Guy Hayward, remained on as CEO and CFO respectively, and non-executive directors Messrs Mark Lamberti and Chris Seabrooke and Ms Phumzile Langeni and Dr Lulu Gwagwa also remained on the Board. R The composition of the Board Committees was amended and these are noted in the respective sections below. Finally, during the year, some aspects of the Board s usual corporate governance processes were interrupted or suspended as a result of the demands of the Walmart transaction which required ad hoc Board meetings and, given its signifi cance to the Group, often dominated the agenda of quarterly Board meetings. Specifi cally, the May 2011 Board meeting was cancelled, although the usual papers were circulated, and the annual Board and Committee self-assessment processes were skipped given the intended changes to the composition of both the Board and those Committees. The Board The Board of Massmart is responsible for directing the Group towards the achievement of the Massmart vision and mission. The Board is therefore accountable for the development and execution of the Group s strategy, operating performance and fi nancial 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 the Chief Executive Offi cer, 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, or terms of reference, that is formally signed off by the Board. Annually in November the Committees and Board review, and amend if necessary, the respective charters to ensure their relevance. THE BOARD COMPRISES: R Two Executive Directors R Four Independent Non-executive Directors R Three Non-executive Directors The role of all directors is to bring independent judgement and experience to the Board s deliberations and decisions. With effect from June 2011, the Board comprises two executive directors, four independent non-executive directors and three non-executive directors. Annually, the Remuneration and Nominations 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: R Whether the director had been employed in an executive capacity in the Group in the previous three years;

162 160 Corporate Governance Corporate governance continued READ MORE MASSMART AT A GLANCE Biographical details of each Board member can be found on pages 18 to 21 R 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; R Whether the director is a representative of a major shareholder; and R Whether the proportion of that director s shareholding in Massmart (if any) or director s fees represented a material part (10% or more) of their wealth or income. In addition to the above, the Committee considers whether the director is independent in character and judgement and whether there are circumstances which are likely to affect, or could appear to affect, the director s judgement. Having considered the circumstances of each non-executive, the Committee believes that with effect from June 2011, four of the non-executive directors can be considered independent while the three Walmart appointees are not considered independent. Finally, the Committee believes that none of the four non-executive directors, or entities associated with or controlled by him/her, owns shares in Massmart which, relative to his/her personal wealth or income, are suffi ciently material to affect his/her independence. The Company Secretary, Mr Ilan Zwarenstein, CA (SA), assists the Board in fulfi lling its functions and is empowered by the Board to perform his duties. The Company Secretary, directly or indirectly: R Assists the Chairman, CEO and CFO with induction of new directors; R Assists the Board with director orientation, development and education; R Ensures that the Group complies with all legislation applicable/relevant to Massmart; R Monitors the legal and regulatory environment and communicates new legislation and any changes to existing legislation relevant to the Board and the Divisions; and R Provides the Board with a central source of guidance and assistance. All directors retire by rotation every three years and, unless requested by the Board to serve a further term, retiring directors are not proposed for reelection by the shareholders. In addition, shareholders must ratify the initial appointment of each director at the fi rst annual general meeting following that director s appointment. As a result of the requirement that all directors face compulsory retirement after three years or following their initial appointment to the Board, at the 23 November 2011 annual general meeting the following directors retire by rotation but all offer themselves for re-election: Messrs Jeffrey Davis, Doug McMillon, Grant Pattison, Chris Seabrooke and JP Suarez. 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 Governance Authorities (described below). In addition, the Board has delegated certain specifi c responsibilities to

163 Massmart Annual Report three Board Committees, described more fully below. These Committees assist the Board and directors in discharging their duties and responsibilities under King III and the Governance Authorities. 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 or Divisional Board meetings. The Massmart Governance Authorities describe the specifi c levels of authority and required approvals for all major decisions at both Group and Divisional level. It clarifi es 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 the Walmart position on the decision. 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. During this fi nancial year no director felt it necessary to seek such advice. They also have direct, unfettered access to the Group s external auditors, professional advisors and to the advice and services of the Company Secretary. Directors have unrestricted access to any executive, manager or employee in the Group. Annually in September, the Remuneration and Nominations Committee facilitates a comprehensive formal performance evaluation of the CEO, comprising a self-evaluation, 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. As noted elsewhere, there was no CEO assessment during At the same time, all Board members complete a detailed Board selfassessment, covering the composition, duties, responsibilities, process and effectiveness of the Board. Similarly, all Board Committee members complete detailed self-assessments covering the same aspects of their committees. The results of these assessments are collated by the Company Secretary and sent in summarised form to the respective Board and Committee Chairpersons for a formal written response. The summarised results together with the Chairpersons written responses are included in the Board papers at the November meeting. As noted elsewhere, no self-assessments were performed during Finally, all Board members formally assess the Chairman s performance and the Deputy Chairman provides the feedback. These assessments are approached in a constructive manner and provide valuable input that enhances the effectiveness of the Chairman, the Board and its Committees. As noted elsewhere, none of these assessments were performed during 2011.

164 162 Corporate Governance Board and Committee attendance Status/Position Board AGM Audit and Risk Remuneration and Nominations Social and Ethics BOARD MEMBERS MJ Lamberti Independent Non-executive 4/4 C 1/1 2/4 i 1/3 c CS Seabrooke Independent Non-executive 3/4 1/1 4/4 2/3 MD Brand 1 Independent Non-executive 3/3 0/1 2/2 JA Davis 2 Non-executive 1/1 KD Dlamini 1 Independent Non-executive 1/3 0/1 1/2 NN Gwagwa Independent Non-executive 4/4 0/1 GRC Hayward Executive 4/4 1/1 4/4 i 3/3 i JC Hodkinson 1 Independent Non-executive 3/3 0/1 P Langeni Independent Non-executive 4/4 0/1 3/4 2/2 c IN Matthews 1 Independent Non-executive 3/3 1/1 4/4 c 2/2 P Maw 1 Independent Non-executive 3/3 0/1 4/4 CD McMillon 2 Non-executive 1/1 1/1 DNM Mokhobo 1 Independent Non-executive 3/3 1/1 2/2 GM Pattison Executive 4/4 1/1 3/4 i 2/3 i MJ Rubin 1 Independent Non-executive 3/3 0/1 JP Suarez 2 Non-executive 1/1 MANAGEMENT N Gray Chief Audit Executive 3/4 i B Leroni Corporate Affairs Executive 2/2 i P Maphoshe Human Capital Executive 2/2 i EXTERNAL Prof D de Jongh Independent permanent invitee 2/2 READ MORE CORPORATE GOVERNANCE Greater detail on each Committee s terms of reference, activities and meetings held during the fi nancial year are shown on page 163 C Chairperson of Committee i Invitee 1 Resigned from the Board on 20 June Appointed to the Board on 20 June 2011

165 Massmart Annual Report Board Committees Composition Scheduled meetings Further reading Responsibility AUDIT AND RISK COMMITTEE Chris Seabrooke Lulu Gwagwa Phumzile Langeni Four times during the year. More information on the activities and responsibility of the Audit and Risk Committee can be found on page 166. CORPORATE GOVERNANCE R Overseeing the effectiveness of the Group s internal control system. R Reviewing the scope and effectiveness of the external and internal audit functions. R Ensuring that adequate accounting records have been maintained. R Ensuring the appropriate accounting policies have been adopted and consistently applied. R Reviewing and reporting on compliance with the King III Report. R Testing that the Group s goingconcern assertion remains appropriate. R Overseeing the quality and integrity of the annual fi nancial statements. R To oversee the Group s risk management programme as contemplated in King III. REMUNERATION AND NOMINATIONS COMMITTEE Mark Lamberti Chris Seabrooke Doug McMillon Three times during the year. More information on the activities and responsibility of the Remuneration and Nominations Committee can be found on page 178. CORPORATE GOVERNANCE R Designing, monitoring and communicating the Group s remuneration policies. R Considering and approving executive remuneration including short- and long-term incentives. R The assessment, recruitment and nomination of new non-executive directors. SOCIAL AND ETHICS COMMITTEE Phumzile Langeni Grant Pattison JP Suarez Twice during the year. More information on the activities and responsibility of the Social and Ethics Committee can be found on page 165. CORPORATE GOVERNANCE R Assist the Group with its responsibility towards sustainability with respect to practices that are consistent with good corporate citizenship. R Assess the Company s standing in terms of the United Nations Global Compact Principles. R Consider the Company s standing with regards to the OECD recommendations concerning corruption, the contribution to development within our communities, labour and employment, and the environment and health and public safety.

166 164 Corporate Governance Executive Committee Composition Scheduled meetings FURTHER READING Responsibility Grant Pattison (CEO) Guy Hayward (CFO) Jay Currie (Retail Director Masscash) Don Frieson (Massmart Chief Integration Offi cer and Senior Vice-President, Walmart U.S.) Brian Leroni (Group Corporate Affairs Executive) Pearl Maphoshe (Group Human Capital Executive) Joe Owens (New Formats Chief Executive) Jan Potgieter (Massdiscounters Chief Executive) Mike Spivey (Massmart General Counsel & Chief Compliance Offi cer) Llewellyn Steeneveldt (Group Commercial Executive) Kevin Vyvyan-Day (Masswarehouse Chief Executive) Llewellyn Walters (Massbuild Chief Executive) Robin Wright (Masscash Chief Executive) Monthly MASSMART AT A GLANCE Biographical details of each Executive Committee member can be found on pages 18 to 21. R Deliberates and takes decisions or makes recommendations on all matters affecting Group strategy and operations, including risk management, and executive and senior management succession. The Massmart Executive Committee is the most senior executive decisionmaking body in the Group. The Committee is chaired by the Chief Executive Offi cer (Grant Pattison) and comprises the Chief Financial Offi cer (Guy Hayward), Group Human Capital Executive (Pearl Maphoshe), Retail Director Masscash (Jay Currie), Group Corporate Affairs Executive (Brian Leroni), the four Divisional Chief Executives (Jan Potgieter, Kevin Vyvyan-Day, Llewellyn Walters and Robin Wright), the Chief Executive of the New Formats Division (Joe Owens) and the Group Commercial Executive (Llewellyn Steeneveldt). Following the Walmart transaction, the Committee was bolstered by a General Counsel (Mike Spivey) and an Integration Executive (Don Frieson). The Committee deliberates, takes decisions or makes recommendations on all matters of strategy and operations. Within the parameters described by the Board-approved Governance Authorities, the decisions or recommendations are sometimes referred to the Board or its relevant Committee for fi nal approval, while in other cases the power to take decisions is delegated to Divisional Boards or Executive Committees. The Executive Committee has specifi c responsibility, inter alia, for: R Monitoring and measuring the structures, trends and performance of markets and competition; R Strategic planning; R Defi ning, confi guring, fi nancing and structuring the Group s portfolio of assets; R Shaping and approving the competitive strategies, operating plans and budgets of the Divisions and functional departments; R Measuring, monitoring and taking proactive corrective action on Divisional performance;

167 Massmart Annual Report R Ensuring adequate risk management, controls, governance, and compliance throughout the Group; and R Shaping and approving succession plans and senior executive management appointments. Social and Ethics Committee Previously called the Sustainability Committee, this Committee has been renamed and now includes in its terms of reference the requirements of the Companies Act, 2008, in regard to this type of committee. The Committee was reconstituted as a result of the Walmart transaction and now comprises Ms Phumzile Langeni (Chairperson) and Messrs Grant Pattison and JP Suarez. Ms Pearl Maphoshe (Group Human Capital Executive), Mr Brian Leroni (Group Corporate Affairs Executive) and an independent expert, Professor Derek de Jongh (Director: Centre for Responsible Leadership, The Facility of Economic and Management Sciences, University of Pretoria) are permanent invitees to this committee. READ MORE CORPORATE GOVERNANCE More information on the Social and Ethics Committee can be found on page 163 The role of the Committee broadly is to assist the Group with its responsibility towards sustainability with respect to practices that are consistent with good corporate citizenship. The Companies Act includes specifi c responsibilities including: the Company s standing in terms of the United Nations Global Compact Principles, the OECD recommendations concerning corruption, the contribution to development within our communities, labour and employment, and the environment and health and public safety. The Committee met twice during the fi nancial year with the objective of reviewing Massmart s Socially Responsible Investment Index, broad-based black economic empowerment, and sustainability reporting performance. Performance in each of these areas is measured with reference to the Johannesburg Stock Exchange s (JSE) Socially Responsible Investment Index criteria, the Department of Trade and Industry s (DTI) Broad-based Black Economic Empowerment (BBBEE) scorecard and the Global Reporting Initiative III guidelines. The Committee is satisfi ed with Massmart s sustainability performance and is particularly encouraged that the Group continues to exceed its interim BBBEE target and is now a Level 3 contributor. Further detail on the Group s sustainability practices can be found in the section titled Corporate Accountability on page 125.

168 166 Corporate Governance Audit and Risk Committee READ MORE CORPORATE GOVERNANCE More information on the Audit and Risk Committee can be found on page 163 Following the Walmart transaction, the reconstituted Audit and Risk Committee now comprises Mr Chris Seabrooke (Chairman), Ms Phumzile Langeni and Dr Lulu Gwagwa, all of whom are independent non-executive directors and who each have the requisite fi nancial and commercial skills and experience to contribute to the Committee s deliberations. The roles and responsibilities of the previously separate Risk and Audit Committees were combined with effect from June Makro CEO, Mr Kevin Vyvyan-Day, attends the Risk section of this Committee meeting as an invitee. Audit The Chief Executive Offi cer, the Chief Financial Offi cer, senior fi nancial executives of the Group and representatives from the external and internal auditors attend all meetings by invitation. The internal and external auditors have unfettered access to the Audit Committee and its members and both present formal reports to the Committee. The Chairman of the Committee meets quarterly with the Chief Audit Executive and at the start of every Committee meeting, the external auditors have a private audience with the Committee. In specifi c response to the requirements of the Companies Act, King III and in terms of its charter, the Committee can report as follows: R The Committee has reviewed the scope, quality, effectiveness, independence and objectivity of the external auditors and is satisfi ed with all of these areas. The audit fi rm Deloitte & Touche and audit partner Mr André Dennis will be proposed to the shareholders at the November 2011 annual general meeting to be the Group s auditor for the 2012 fi nancial year. R The Committee is satisfi ed that the internal fi nancial controls of the Divisions and Group operated effectively throughout the 2011 fi nancial year and can be relied upon. In addition, the Committee is satisfi ed with the Group s accounting policies and that these have been appropriately and consistently applied throughout the 2011 fi nancial year. R The Committee reviewed this integrated annual report and recommended it to the Board for approval. R The nature and extent of non-audit services provided by the external auditors is reviewed annually to ensure that fees for such services do not become so signifi cant as to call into question their independence of Massmart. The nature and extent of any future non-audit services have been defi ned and pre-approved, and the total fee associated with those non-audit services may not exceed 50% of the total audit fee without approval of the Committee. During the 2011 fi nancial year, non-audit services represented 29.3% of the audit fee. If it appears that this guideline will be exceeded on a consistent basis, non-audit services will be outsourced to alternative auditors. R No reportable irregularities were identifi ed and reported by the external auditors to the Committee. R 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.

169 Massmart Annual Report Annually the Committee considers whether it is meeting its duties and responsibilities as set out in the Committee charter and in meeting the requirements of the Companies Act. As part of the Audit section, the Committee receives reports on Group companies fi nancial performance, governance, and internal controls, adherence to accounting policies, compliance and areas of signifi cant risk, among others. The Committee also receives written reports by both the external and internal auditors which are accompanied by discussion with Committee members. After considering these reports, the Committee formally reports to the Board, twice each year, regarding the overall control framework and effectiveness of controls. Each of the four Divisions has a Financial Review Committee which meets twice a year before the fi nalisation and release of the Group s Interim and Preliminary fi nancial results respectively. These Committees effectively function as Divisional Audit Committees but not strictly in the manner required by the regulators or King III. The attendance at these meetings includes: the Divisional Chief Executive and Finance Director, key fi nance and accounting staff, members of Internal and External Audit, and Massmart Corporate Finance executives. Minutes from these meetings are included with the papers of the following Group Audit Committee meeting. Annually the Audit Committee reviews the Financial Review Committee minutes, external audit report and annual fi nancial statements to comply with the Companies Act as required of a holding company Audit Committee and its responsibilities in regard to all Company subsidiaries. The Group s interim reports are always subject to independent review by the external auditors. The Committee s report in accordance with section 94(7)(f) of the Companies Act, 2008, as amended, can be found in the Directors Report on page 205. Suitability of the Chief Financial Officer As required by the JSE, the Committee and Board have considered the skills, qualifi cations and performance of the Chief Financial Offi cer, Guy Hayward, and are unanimously satisfi ed of the continuing suitability for the position. His biographical details can be found on page 18. External audit During the fi nancial year, Deloitte & Touche were the external auditors for all Group companies, with the exception of: R Greenwoods Chartered Accountants who audit De La Rey 1001 Building Materials (Pty) Limited and Thabiletrade 22 (Pty) Limited; and R Ernst & Young who audit the Zimbabwean entities of Mercantile Investment Company (1971) (Pvt) Limited and the Dealsave Trust. During the year, Deloitte & Touche provided certain non-audit services, including tax reviews and advice, and reviews of information technology systems and applications. Total fees paid during the 2011 fi nancial year to Deloitte & Touche were R24.9 million, of which R7.3 million related to non-audit services. READ MORE GROUP FINANCIAL STATEMENTS The detailed Audit Committee report can be found on page 208 FEE TO EXTERNAL AUDITORS Rm % Audit services Non-audit services

170 168 Corporate Governance Audit and Risk Committee continued AUDIT COMMITTEE RESPONSIBILITIES: R Overseeing the effectiveness of the Group s governance, risk and internal control systems. R With regard to the external auditor, to nominate their appointment, to determine audit fees payable, to pre-determine fees and scope of non-audit services, and monitor their independence. R Reviewing the scope and effectiveness of the external and Internal Audit functions. R Ensuring that adequate accounting records have been maintained. R Ensuring the appropriate accounting policies have been adopted and consistently applied. R Reviewing and reporting on the application of the King III Report. R Testing that the Group s goingconcern assertion remains appropriate. R Overseeing the quality and integrity of the annual financial statements. R Ensuring that Internal Audit reports functionally to the Audit Committee, is considered independent, and applies King III and IIA standards. It approves Internal Audit s plan and ensures that Internal Audit has sufficient resource and skill to effectively perform its function. R Reviewing the adequacy and effectiveness of combined assurance, compliance and IT. R Receiving and reviewing the assurance assertion of Internal Audit and presenting this to the Board. Internal audit The Committee considers Massmart Internal Audit Services to be an independent, objective body providing assurance to the Group s governance, risk and control activities. Internal Audit comprises a dedicated team that, although managed from Massmart Corporate, is deployed Group-wide. The team is comprised of appropriately tertiary qualifi ed and experienced personnel, including internal audit and retail/wholesale professionals, to ensure the delivery of a relevant and high-quality risk-based audit service. Pleasingly, 90% of the audit team is African, Coloured or Indian. The responsibilities of Internal Audit are defi ned and governed by a charter approved by the Audit Committee and Board. Massmart Internal Audit Services has the unequivocal support of the Board and this Committee and has access to any part of or person in Massmart. All employees are expected to co-operate positively with Massmart Internal Audit Services. Massmart Internal Audit reviews the signifi cant business, strategic, governance, risk and controls across Massmart. Based on the internal audit results, an assessment is provided to the Committee on the level of assurance that can be placed on governance, control and risk management across the Group. A written assurance assertion is provided to the Committee annually which is then presented to the Board by the Audit and Risk Committee. To ensure independence, Massmart Internal Audit reports functionally to the Massmart Audit and Risk Committee. Massmart does not apply the King III recommendation that this Committee be responsible for the appointment, remuneration, performance/assessment and where necessary, dismissal of the Chief Audit Executive. This process is conducted jointly by the Committee and the CEO and CFO as this is deemed more effective. The Committee approves the annual Internal Audit plan and the Internal Audit budgets. The CAE has unrestricted access to anyone in the organisation, has frequent and independent discussions and updates with the Committee Chairman and Massmart executive directors. The CAE holds a senior executive position in the organisation and has an infl uential impact across the business strategically and operationally. The Board provides Massmart Internal Audit with the authority to attend any strategic session, Committee or Board meeting and to have unrestricted access to all information across the Group to assist with its determination of the types and levels of governance, control and risk that exist across Massmart. The Internal Audit team formally reports any material fi ndings and matters of signifi cance to the Divisional Boards on a quarterly basis and to the Audit and Risk Committee when it meets. The reports highlight whether actual or potential risks to business are being appropriately managed and controlled. Progress in addressing previous unsatisfactory audit fi ndings is monitored until Internal Audit reports the proper resolution of the problem area. Massmart Internal Audit applies a risk-based approach that aligns its audit methodology and audit universe to the internal and, where applicable, external risks facing Massmart. Every function and role across the Massmart Group is subject to Internal Audit review. The annual Internal Audit plan is determined

171 Massmart Annual Report through a continuous assessment and understanding of risks facing the Group. Where necessary, although infrequent, some audit tasks are outsourced to consultants with appropriate skills, for example, certain forensic work or highly specialised IT reviews. There is signifi cant Internal Audit involvement in Information Technology (IT) throughout the Group in order to ensure satisfactory IT governance and assurance. All new major IT systems in the Group require specifi c Massmart Internal Audit sign-off prior to implementation and all signifi cant IT projects are subject to Internal Audit review. The Internal Audit role is twofold: to assess the process and controls around large IT projects at signifi cant phases of these projects; and to assess the control environment within existing IT systems and the Group s general computer control environment. Internal Audit adopted the COBIT methodology for technology auditing several years ago. Massmart Internal Audit and External Audit s scope and work plans, and those of other assurance providers, are properly coordinated and when appropriate are relied upon in order to provide effi cient and effective assurance to the Committee and to reduce governance burden. Massmart Internal Audit has had a quality review and was found to generally conform (the standard required by the Internal Audit Institute and the highest standard possible). Combined assurance The Group applies a combined assurance model with a coordinated approach to all the Group s assurance activities. Under this approach, the Audit and Risk Committee has unfettered access to the Internal Auditors, External Auditors, all Group and Divisional executives, all and any documents and reports, and to any assurance providers. Annually, Internal Audit provides a written assurance assertion with regard to governance, control and risk management to the Committee. The Committee is satisfi ed that the internal fi nancial controls of the Group operated effectively throughout the 2011 fi nancial year and can be relied upon. Risk The Board recognises its responsibility to report a balanced and accurate assessment of the Group s fi nancial results and position, its business, operations and prospects. Aspects of how this is achieved are covered in the section below. Internal control framework Massmart maintains clear principles and procedures designed to achieve corporate accountability and control across the Group. These are codifi ed in the Massmart Governance Authorities that describe the specifi c levels of authority and the required approvals necessary for all major decisions at both Group and Divisional level. Through this framework, operational and fi nancial responsibility is formally and clearly delegated to the Divisional Boards. This is designed to maintain an appropriate control environment within the constraints of Board-approved strategies and budgets, while providing the necessary local autonomy for day-to-day operations. INTERNAL AUDIT: R Massmart Internal Audit Services is an objective body providing assurance concerning the Group s governance, risk and control activities. R Internal Audit has the unequivocal support of the Board and Audit and Risk Committee. R Internal Audit is considered independent and has been subjected to a quality review. R The Internal Audit team formally reports any material fi ndings at the Divisional Boards and the Audit and Risk Committee on a quarterly basis. R There is signifi cant Internal Audit involvement in Information Technology (IT) throughout the Group to ensure satisfactory IT governance and assurance. INSIGHT RISK MODEL The Board is responsible for the risk management programme that attempts to balance the risks and rewards in achieving the Group s objectives. On behalf of the Board, the Audit and Risk Committee oversees the Group s risk management programme. Responsibility for risk management and loss prevention however, rests with the Group and Divisional Executive Committees.

172 170 Corporate Governance AUDIT COMMITTEE TEST COMPLIANCE RISK MODEL The Board is responsible for the risk management programme that attempts to balance the risks and rewards in achieving the Group s objectives. On behalf of the Board, the Risk Committee oversees the Group s risk management programme which has a natural overlap with aspects of the Audit Committee s mandate. Responsibility for risk management and loss prevention however, rests with the Group and Divisional Executive Committees. BOARD OF DIRECTORS Responsible for risk/return of the business RISK COMMITTEE EXECUTIVE COMMITTEE STRATEGIC RISK OPERATIONAL RISK MASSDISCOUNTERS MASSWAREHOUSE MASSBUILD MASSCASH INTERNAL AUDIT TEST COMPLIANCE Risk and the audit and risk committee The Board considers risk management to be a key business discipline designed to balance risk and reward, and to protect the Group against risks and uncertainties that could threaten the achievement of our business objectives. The Board s risk strategy has been established through debate with the executive directors where the Group s risk tolerance has been considered and balanced against the drive towards the achievement of its strategies and objectives. The Committee is responsible to the Board for overseeing the Group s risk management programme. The day-today responsibility for risk management, including maintaining an appropriate loss prevention and internal control framework, remains with the executives of the Group and of each Division. The Committee s primary role is one of oversight and therefore it reviews and assesses the dynamic interventions, within the Group s available resources and skills, required in response to business-specifi c, industry-wide and general risks. The Committee tables a Group risk register, aggregated from those prepared by the Divisions and the Group Executive Committee, to the Board annually in August. The Committee considers there to be two categories of Group risk which can broadly be described as Operational risks and Strategic/Environmental risks: Operational risks by their nature can be immediately addressed or mitigated by local management actions. These risks which include in-store health, safety and security, compliance, fi re prevention and detection, IT systems and food safety, amongst others are therefore the direct responsibility of each Divisional Executive Committee where a Loss Prevention or Risk Offi cer has line-responsibility for overseeing these risks. Strategic/Environmental risks, in contrast, tend to be longer-term or more material in nature and can, in most cases, only be monitored, managed and partially mitigated through longer-term strategic or tactical business responses. These risks, which, for example, include executive talent retention and succession, transformation and supply chain, are the primary focus of the Group s Risk Management process.

173 Massmart Annual Report The Group risk register summarises the major risks facing the Group, taking into account the likelihood of occurrence, the potential impact and any mitigating factors or compensating controls. Together with the Audit and Risk Committee it oversees the maintaining of a sound system of governance, risk management and control with regard to operations, safeguarding assets, reliability of management reporting and compliance with laws and regulations. Litigation and legal In the normal course of business, Massmart is subject to various legal proceedings, actions and claims. These matters are subject to risks and uncertainties that cannot be reliably predicted. Apart from the matter below, the Board does not believe that there are any material pending or threatened legal actions. Following the South African Competition Tribunal s approval of the Walmart/Massmart merger in May 2011, certain unions and South African Government departments have fi led legal papers to appeal and review, respectively, the Tribunal s decision. This matter will be heard by the Competition Appeal Court on October While the outcome of this hearing is uncertain, Walmart and Massmart are confi dent about the strength of their legal position. In the unlikely event of an adverse ruling, whatever that may be, it is unclear what the impact, if any, will be on Massmart s fi nancial position. Information technology Protecting Massmart s electronic assets is increasingly complex as networks, systems and electronic data expand and, in some cases, are shared with third parties and business partnerships. Depending on the internet for communication brings additional risk. Ensuring proper system security, data integrity and business continuity is the responsibility of the Board, but is given effect by the Audit and Risk Committee, the Massmart Technology Information and Process Forum (TIP) and Massmart s formally contracted information technology business partners and providers and is independently reviewed by the external and internal auditors. Financial risk and appraisal Financial targets agreed in Group budgets and strategy processes are predicated on assumptions about the future that are uncertain and may prove incorrect or inaccurate. The monitoring and management of this risk is the responsibility of the Executive Committee. Monthly performance is measured and compared to the budget and prior year, and corrective or remedial action taken as appropriate. Despite extensive fi nancial, accounting and management controls and procedures, including reviews by internal and external auditors, there are risks arising from the Group s cash management and treasury operations, direct and indirect taxation, and employee or third-party fraud or economic crime. In addition to fi nancial reviews, Massmart has implemented voluntary processes that enable independent reviews of its corporate accountability performances. These include a biannual ethics review by the South African Institute of Ethics and an annual Socially Responsible Investment (SRI) Index review that is coordinated by the JSE. Massmart s risk landscape, split into strategic and operational risk, can be summarised as follows: STRATEGIC RISK BUSINESS MODEL R Non-adherence to business model or poor strategic execution R Insuffi cient progress with transformation HUMAN CAPITAL R Talent retention and succession ECONOMIC R Economic volatility GOVERNANCE/REGULATORY R Expected standards of sustainability conduct OPERATIONAL RISK OPERATING ENVIRONMENT R Supply chain R In-store health and safety R Reliance on IT systems GEO-POLITICAL/ECONOMIC R Complexity of the Group s African operations COMPETITIVE R Competitor attack on our major merchandise categories FINANCIAL R (covered in the Group Financial Statements on page 203) R Market risk (comprising interest rate risk, currency risk and other price risk) R Liquidity risk R Credit risk

174 172 Corporate Governance Group risk landscape Strategic risk RISK LANDSCAPE RISK DEFINITION Business model/ Strategic execution Non-adherence to business model or poor strategic execution Through non-adherence with, or poor implementation and execution of, our business model and/or strategy, the Group s longer-term fi nancial performance and competitive positioning could be severely compromised. The resultant fi nancial performance may be sub-optimal on either an absolute or relative basis. Business model/ Strategic execution Insufficient progress with Transformation There is the possibility of adverse or undue reputational exposure due to the Divisions or the Group not fulfi lling, or under-delivering, towards BBBEE requirements. In the broader national context, inadequate transformation at all levels by Massmart and other South African businesses will curb the country s longer-term growth potential and maintain the current, unacceptable and unsustainable levels of social and economic inequality. This issue includes insuffi cient Black representation at executive level at the Group and Divisions. Human capital Talent retention and succession This covers four broad issues being: the national scarcity of retail-specifi c skills; the challenge to develop and retain suffi cient business and leadership skills internally to ensure our longer-term competitiveness; a possible over-dependence on key leaders in the Group; and the need for an actively managed leadership succession pipeline.

175 Massmart Annual Report PROBABILITY LOW LOW HIGH POTENTIAL IMPACT Financial impact HIGH Business impact HIGH Financial impact MED Business impact HIGH Financial impact MED Business impact HIGH RISK 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 with the Board. A Division s strategies dictate management s operational tactics and priorities. The annual budget process is an output of these reviews. The Board-approved BBBEE strategy covering the elements of the Code of Good Practice has been implemented Group-wide and we continue to make good progress as measured by the improvement in the annual external BBBEE rating and currently have a Level 3 status. 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. A BBBEE staff share issue amounting to 10% of the pre-dilution shares of Massmart was implemented in 2006 and all permanent Massmart employees, not already participants in the current share trust, became benefi ciaries at that time. In 2008, the Group s fi ve Black non-executive directors each purchased 20,000 heavily discounted Massmart shares. R 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. R There are in-house education programmes prepared and presented in conjunction with local and international business schools that focus on developing our middle and junior executives. R Annual fi re-side chats are held with each executive in the Group, which are attended by that person s superior and a third executive. R The Group s remuneration policy, incorporating short- and longer-term incentives, is designed to reward signifi cant outperformance and provides an opportunity for staff to accumulate wealth and which may act as a retention mechanism.

176 174 Corporate Governance Group risk landscape Strategic risk continued RISK LANDSCAPE RISK DEFINITION Economic Governance/ Regulatory Economic volatility Expected standards of sustainability conduct This concern focuses on three potential impacts, the fi rst being the possible fi nancial impact on the Group and the second being the possible adverse effect on consumer expenditure of dramatic changes in key economic variables including infl ation, interest and exchange rates. The third concerns the adverse systemic socio-economic impact of the HIV and AIDS pandemic. With approximately 30% of the Group s merchandise being imported, directly and indirectly, any changes in the exchange rate will eventually affect the valuation of imported stock. Foreign currency fl uctuations in those African countries where Game operates stores affects the level of sales and earnings reported by those stores in South African currency, and results in potentially adverse translation differences affecting earnings. The valuation of stock imported into those countries from South Africa becomes infl ationary. Increases in interest rates will make South African corporate funding more expensive, with an adverse impact on profi tability. Higher cost infl ation may affect Group profi tability where these cost increases cannot be controlled or any additional productivity is not achieved. Consistently lower infl ation rates may make long-term property leases with higher fi xed escalation rates appear expensive and potentially affect profi tability. South African consumer behaviour appears to be more affected by sudden and large changes in economic variables, including exchange rates and local interest and infl ation rates, than by gradual changes in these variables. It follows that a sudden deterioration in one or several of these economic variables may dampen levels of consumer expenditure, thereby reducing Group sales growth and potentially Group or Divisional profi tability. There is a growing potential threat of signifi cant reputational risk associated with the failure to meet stakeholders increased expectations around Sustainability in its many forms. These expectations may be shaped by a variety of standards of conduct as encapsulated in codes such as Global Reporting Initiative, Global Compact, JSE Socially Responsible Investment (SRI) Index, Broad-based Black Economic Empowerment Codes of Good Practice, Marine Stewardship Council (MSC), Forestry Stewardship Council (FSC) and ISO certifi cation. Increasingly, the Group needs to comply with some or all of these standards.

177 Massmart Annual Report PROBABILITY HIGH POTENTIAL IMPACT Financial impact MED Business impact MED RISK MITIGATION All direct foreign exchange import liabilities are covered forward, providing certainty about the expected landed cost of merchandise and also providing a four- to six-month buffer against changing the cost of imported inventory should there be any sudden deterioration in the exchange rate. The value of inventory in the supply chain between manufacturer and retailer is generally actively managed lower by all participants. This reduces the extent of any imported inventory that is over- or under-valued following a sudden change in the exchange rate. Interest rates on the Group s medium-term debt have been fi xed to provide certainty as to the future cost of this funding, and this will keep the Group partially immune to any adverse increases in corporate borrowing rates. Where possible, property lease escalation rates are negotiated as low as possible, taking market conditions into account, and certain property leases are infl ation-linked, within a cap (maximum rate) and collar (minimum rate). Salary and wage increases are necessarily negotiated in the context of the South African socio-economic environment. Where a negotiated increase may be higher than is commercially desired or justifi able, productivity measures may be introduced to reduce the net cost of the higher wages. The Group continually explores means of keeping the net assets of Game s African operations to a minimum, thereby potentially reducing the translation effect of any currency movement. This includes repatriating cash profi ts as frequently as possible and settling cross-border liabilities timeously. LOW Financial impact MED Business impact MED The Group has implemented transparent stakeholder interactions with special interest groups which inform our view on stakeholder expectations and the management thereof. There is ongoing identifi cation, monitoring and adoption of relevant principles and standards of sustainability that are consistent with Massmart s core values and industry norms. Massmart is in the JSE SRI Index and it subscribes to MSC and FSC, inter alia.

178 176 Corporate Governance Group risk landscape Operational risk RISK LANDSCAPE RISK DEFINITION Operational Supply chain Supply chain describes all the business processes concerning the movement of inventory in the Group, and is not restricted to logistics but extends into IT systems and business processes around those systems. An effi cient and effective supply chain should ensure the lowest-cost movement, and holding, of inventory and the optimisation of in-store inventory levels for given levels of demand. An ineffective or ineffi cient supply chain may result in sub-optimal inventory management with duplication of costs and over- or under-stocking affecting holding costs or rates of sales. Operational In-store health and safety The Group s large warehouse format means that large and sometimes heavy quantities of inventory are moved, stored and stacked sometimes at great heights in our stores. Despite compliance with all relevant legislation, there remains the risk of injury or death to customers or employees should bulky items collapse, with the associated signifi cant reputational risk. Operational Geo-political/ Economic Reliance on IT systems Complexity of the Group s African operations With millions of transactions daily, the Group is dependent upon reliable, secure, effective and effi cient IT systems, including the management and storage of data and information. Major IT implementations or initiatives can distract management, be costly, destabilise other IT platforms and the business, and/or perform sub-optimally post-implementation. The Group may overly rely on one or more service providers. Secure and reliable connectivity with key transactional intermediaries including banks is critical. Finally, at a strategic level, there exists the potential for misalignment between business strategy and IT capability which can result in reduced operational effectiveness. This refers to the multiple levels of risk, and the associated complexity, of doing business in 14 countries across Africa, each with different regulatory, fi scal and customs environments. Political risk can become an issue. African currencies can be illiquid, making them vulnerable to any withdrawal of hard currencies. Bureaucracy and/or currency illiquidity can delay cash repatriations. Operational and logistical changes of managing the lengthy supply chain can become an issue too. Competitive Competitor attack on our major merchandise categories This refers to the potential adverse impact of a sustained attack by a major competitor (local or international) on one or more of the Group s major merchandise categories or formats.

179 Massmart Annual Report PROBABILITY LOW LOW LOW POTENTIAL IMPACT Financial impact HIGH Business impact MED Financial impact LOW Business impact HIGH Financial impact HIGH Business impact MED RISK MITIGATION Massdiscounters, Makro and Builders Warehouse have implemented IT software to automate the forecasting and replenishing (F&R) of inventory. Massdiscounters has about 75% of their sales by value being automatically replenished. This ratio is about 70% in Builders Warehouse and 20% in Makro. Massdiscounters now operates two substantial RDCs in Cape Town and Johannesburg respectively, and is building a third in Durban. These have been very effective in addressing supply chain concerns and have improved inventory shrinkage levels and in-stock service levels in the stores. Makro and Builders Warehouse are commissioning separate RDCs in Johannesburg. R Risk offi cers in each Division are responsible for monitoring and improving compliance. Executive awareness and scrutiny is high. There is formal communication with suppliers and logistics providers around specifi ed stacking protocols. R We continually use Massmart Internal Audit and third party service providers to review in-store health and safety procedures. R Warning signs in higher risk areas are on display. All the Group s IT development, hardware and software must be specifi cally approved and then monitored by the Group s Technology, Information and Processes Forum (TIP), representing all the Divisions IT executives, Massmart Internal Audit and, where appropriate, the external service providers. Divisional Boards must sign off all IT developments. Massmart Internal Audit has signifi cant IT expertise and independently assesses all IT developments and is part of the go-live decision on any project. External auditors review the IT general control environment in the major Divisions on an agreed rotation basis. MED MED Financial impact MED Business impact MED Financial impact MED Business impact MED R Careful pre-selection of countries for new stores with a thorough evaluation of customs, tax, exchange control and business legislation. Regular repatriation of cash. R Although there is a natural economic hedge in place because our SA operations supply the African stores, IFRS accounting standards have broken this hedge, resulting in increased volatility of reported foreign currency movements. Dedicated executives across several functions monitor and manage the African operations. R Keep supply chain as short as practical. R Develop relationships with key government and regulatory authorities in those countries. R Maintain a relevant and competitive product offering that offers affordable value to our customers. Invest in brand awareness and loyalty. R Manage low-cost effi cient operations. R Ensure suppliers believe that our stores and associated supply chain offer an ideal route to market. R Optimise our store locations, and ensure regular store refurbishments and format renewal.

180 178 Corporate Governance Remuneration of directors and executives READ MORE CORPORATE GOVERNANCE More information on the Remuneration and Nominations Committee can be found on page 163 Following the Walmart transaction, the Remuneration and Nominations Committee now comprises Messrs Mark Lamberti (Chairman), Doug McMillon and Chris Seabrooke. With the exception of Doug McMillon, all Committee members are independent non-executive directors. The CEO attends all Committee meetings by invitation. Massmart, through the Remuneration and Nominations Committee, implements remuneration policies that enable it to recruit, retain and motivate the executive talent needed to achieve superior performance. The Committee, with periodic advice from external executive remuneration consultants, ensures the provision of executive remuneration packages that are competitive with reference to other major South African retail companies, as well as other companies similar to Massmart in their size, spread and complexity. Our executive remuneration policy has three components, being: R The fi xed portion, specifi cally the monthly basic cash salary, and benefi ts including motor vehicles, retirement funding and medical aid; R The short-term or performance incentives, represented as multiples of basic monthly salary, and linked to the achievement of profi t growth and/or personal performance. If achieved, these incentives are paid annually; and R Long-term equity incentives under the Massmart Holdings Limited Employee Share Trust. The Committee considers and recommends to the trustees of the Massmart Holdings Limited Employee Share Trust any proposed shares or options that are granted in terms of the Share Trust rules. Annually the Committee reviews the Group s employee benefi t funds, specifi cally the in-house medical scheme and the provident and pension funds, considering their performance, fi nancial stability and the general principles governing the benefi t levels being applied. The Massmart remuneration policy strives for fi xed remuneration at the median to upper quartile of comparable positions. At least every two years the Committee receives a report prepared by independent remuneration consultants on the recent trends in, and the current levels of, short- and long-term executive remuneration in South Africa. In May 2011 the Committee received such a report prepared by 21st Century Business & Pay Solutions, an independent remuneration consultancy. As a result of this report, the remuneration of several executives and senior managers were adjusted. With regard to short-term or performance incentives, Massmart places particular emphasis on generous annual incentives for high performance for both executive directors and executive management. This policy, communicated to and understood by the Group s executives, codifi es a range of performance incentives linked to annual headline earnings per share growth for the Group in excess of average CPI (as reported by StatsSA) plus 5%, or growth in profi t before tax for each Division, as appropriate. Executives can earn an increasing multiple of their monthly basic salary depending upon the earnings growth exceeding CPI plus 5% or higher percentage increments. With effect from 2006, an element of the annual incentive bonus was linked to corporate accountability performance, specifi cally the achievement of BBBEE transformation targets

181 Massmart Annual Report approved by the Remuneration and Nominations Committee. This incentive can amount to an additional one to three months salary. The Committee also has the discretion to reward superior individual performance. Long-term equity incentive plans ensure the alignment of executive reward with shareholders interests, in particular the sustained creation of shareholder value. New issues of annual allocations of shares or options are only allowed when Massmart s growth in headline earnings per share in the prior year exceeds average CPI plus 5%, consequently there was no annual issue during the 2011 fi nancial year. The amount allocated is based upon a factor of the executive s total prior-year remuneration including incentive bonus. The Committee believes that participants in the employee share scheme should, on average, hold unvested shares or options representing value equivalent to approximately three times their annual remuneration. With effect from 2002, only members of the Executive Committee can elect to receive scheme shares, while all other participants receive options. Non-executive directors receive fees in the top quartile for their role as directors and for their roles on Board Committees. Non-executive directors fees paid in the current fi nancial year are detailed below: Chairman of the Board R R Deputy Chairman R R Directors R R Committee Chairmen R R Committee members R R Audit Committee (additional to above). For the additional meetings and responsibilities arising from the Companies Act relative to subsidiaries R The fees paid to the trustees of the Massmart Holdings Limited Employee Share Trust are R each and R for the Chairperson.

182 180 Corporate Governance Remuneration of directors and executives continued Directors' emoluments Services as directors of Massmart Holdings Limited Bonuses and performancerelated payments 1 Otherwise in connection with the affairs of Massmart Holdings Fringe benefit of interestfree loans used to Gains on exercise of share options and on shares purchased Retirement Salary and allowances Other benefits and related benefits Limited Subtotal finance shares 2 by directors Total R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 For the year ended June 2011 Executive directors Pattison, GM 3,738 3, ,280 3,829 77,947 90,056 Hayward, GRC 2,751 2, ,493 3,073 56,164 64,730 6,489 5, ,773 6, , ,786 Non-executive directors Lamberti, MJ Seabrooke, CS Brand, MD Davis JA Dlamini, KD Gwagwa, NN Hodkinson, JC Langeni, P Matthews, IN Maw, P McMillan, CD Suarez JP Mokhobo, DNM Rubin, MJ , ,183 5,183 Prescribed Officers Prescribed Offi cer A 3, ,185 48,425 Prescribed Offi cer B 5,229 1,413 22,108 28,750 Prescribed Offi cer C 5,690 1,533 21,401 28,624 Prescribed Offi cer D 2,866 1,960 19,086 23,912 Prescribed Offi cer E 5,828 14,531 20,359 Prescribed Offi cer F 4, ,522 18,622 Prescribed Offi cer G 2, ,016 12,995 Prescribed Offi cer H 2, ,391 12,389 Prescribed Offi cer I 2, ,564 11,881 Prescribed Offi cer J 2,510 5,267 7,777 37,776 6, , ,734 Total 5,143 6,489 5, ,732 13, , ,703 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.

183 Massmart Annual Report Services as directors of Massmart Holdings Limited Bonuses and performancerelated payments 1 Otherwise in connection with the affairs of Massmart Holdings Fringe benefit of interestfree loans used to Gains on exercise of share options and on shares purchased Retirement Salary and allowances Other benefits and related benefits Limited Subtotal finance shares 2 by directors Total R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 For the year ended June 2010 Executive directors Pattison, GM 3, ,659 4,513 9,172 Hayward, GRC 2, ,777 3,733 7,510 5,438 1, ,436 8,246 16,682 Non-executive directors Lamberti, MJ Seabrooke, CS Brand, MD Combi, ZL Dlamini, KD Gwagwa, NN Hodkinson, JC Langeni, P Matthews, IN Maw, P Mokhobo, DNM Rubin, MJ , ,201 5,201 Prescribed Officers Prescribed Offi cer A 4,245 2,168 12,972 19,385 Prescribed Offi cer B 3,950 2, ,836 Prescribed Offi cer C 3,950 1, ,640 Prescribed Offi cer D 3, ,136 6,630 Prescribed Offi cer E 5,457 5,457 Prescribed Offi cer F 4, ,520 Prescribed Offi cer G 3,236 1,240 4,476 Prescribed Offi cer H 1, ,263 3,693 Prescribed Offi cer I 2, ,534 Prescribed Offi cer J 2, ,534 37,498 8,652 20,349 66,500 Total 5,161 5,438 1, ,135 16,896 20,349 88,383 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 1 May 2010.

184 182 Corporate Governance Remuneration of directors and executives continued The comments on this page provide further background and context to the fi gures disclosed in this note, Directors emoluments and Interests of directors in the Company s Share Scheme. These notes can also be found in the Group fi nancial statements note 35 on page 268 and note 36 on page 271. GM Pattison Following a third party executive remuneration analysis which assessed positions of similar stature and complexity, the Remuneration and Nominations Committee awarded Grant a 23.8% increase to his salary and allowances for the 2011 fi nancial year, from R3.02 million to R3.74 million. In line with the Group s Short-term Executive Incentive Scheme which rewards executives based on growth in HEPS, he received six months salary as a bonus. In addition, the Committee awarded him a qualitative bonus of six months in recognition of his exceptional effort, leadership and effective communication with all aspects of the Walmart transaction. These bonuses totalled R3.67 million. During the 2011 fi nancial year, but before the commencement of the Closed Period caused by the Walmart transaction, Grant converted and sold 85,919 Massmart shares and options, realising a gain on exercise of share options of R5.5 million. Furthermore, as a result of Walmart acquiring 51% of the Massmart vested and unvested share options held by benefi ciaries of the Massmart Employee Share Trusts, Grant necessarily had to convert and sell 752,961 shares and options, realising a gain on exercise of share options of R72.4 million. Through the Share Scheme, Grant holds 723,418 Massmart shares and options of which 42,202 shares are held in the Pattison Family Trust, of which Grant is a benefi ciary. The average length of time that he has held these is 5.4 years and the average strike price is R51.84 per share. The Pattison Family Trust also directly owns 218,055 Massmart shares. GRC Hayward Following a third party executive remuneration analysis which assessed positions of similar stature and complexity, the Remuneration and Nominations Committee awarded Guy a 13.7% increase to his salary and allowances for the 2011 fi nancial year, from R2.42 million to R2.75 million. In line with the Group s Short-term Executive Incentive Scheme which rewards executives based on growth in HEPS, he received six months salary as a bonus. In addition, the Committee awarded a qualitative bonus of three months in recognition of his exceptional effort with regard to the Walmart transaction. These bonuses totalled R2.06 million. During the 2011 fi nancial year, but before the commencement of the Closed Period caused by the Walmart transaction, Guy converted and sold 175,000 Massmart shares and options, realising a gain on exercise of share options of R19.3 million. Furthermore, as a result of Walmart acquiring 51% of the Massmart vested and unvested share options held by benefi ciaries of the Massmart Employee Share Trusts, Guy necessarily had to convert and sell 410,747 shares and options, realising a gain on exercise of share options of R36.9 million.

185 Massmart Annual Report Through the Share Scheme, Guy holds 394,627 Massmart shares and options of which 19,912 shares are held in the Bluett-Hayward Trust, of which Guy is a benefi ciary. The average length of time that he has held these is 4.7 years and the average strike price is R58.20 per share. Guy also owns 36,517 Massmart shares directly. Top three executives salaries King III recommends that the salaries of the top three executives, excluding executive directors, should be disclosed. Due to their specialised retail skills, the highly competitive South African retail environment and the employees value to Massmart, the Board does not wish to disclose this information for each of the individuals but has instead disclosed the total salaries of the three employees concerned. None of the employees earns a higher salary than either of the executive directors. In the 2011 fi nancial year, the top three executives combined salaries (comprising basic salary, motor vehicles, medical aid and retirement benefi ts) were R9.6 million (2010: R8.8 million). Non-executive directors fees The Board s policy is to pay non-executive directors fees that are competitive but not in the top quartile. As noted at the beginning of this Corporate Governance section, attendance fees are not paid. Directors fees were not increased for the 2010 fi nancial year. The following fees and fee increases, for the 2012 fi nancial year were approved at a general meeting in September 2011: R Chairman R775,000 R Deputy chairman R555,000 R Non-executive directors R230,000 R Committee chairpersons R225,000 R Committee members R107,000

186 184 Corporate Governance Remuneration of directors and executives continued Interests of directors in the Company's share scheme Details of directors' shares and share options per director: Relevant date Subscription price (R) Number of Market shares/share price (R) options Gain on sale/exercise (R 000's) Expiry date Pattison, GM Balance at the beginning of the previous year 1,562,298 No shares were traded, exercised or granted in the prior period Balance at the beginning of the year 1,562,298 Shares traded 26 May ,87 121,93 (35,919) Shares traded 23 May ,13 148,00 (382,500) 35,904 Shares traded 24 May ,25 148,00 (28,052) 1,508 Shares traded 26 May ,86 148,00 (43,480) 3,264 Shares traded 27 May ,56 148,00 (43,929) 3,092 Options exercised 27 August ,95 121,93 (50,000) 5,549 Options exercised 27 August ,95 148,00 (51,000) 6,990 Options exercised 1 April ,91 148,00 (204,000) 21,640 New shares/options granted Balance at the end of the year 723,418 77,947 Comprising: 27 August ,95 49, August April ,91 196, March May ,13 367, May May ,25 26, May May ,86 41, May May ,56 42, May 2019 Hayward, GRC Balance at the beginning of the previous year 1,032,898 No shares were traded, exercised or granted in the current period Balance at the beginning of the year 1,032,898 Shares traded 10 March ,61 (8,643) Shares traded 26 May ,87 (43,881) Shares traded 1 April , (102,000) 10,820 Shares traded 23 May , (76,500) 7,180 Shares traded 24 May , (25,445) 1,362 Shares traded 1 April , (20,729) 1,680 Shares traded 26 May , (38,070) 2,860 Shares traded 27 May , (109,753) 7,728 Options exercised 13 November ,25 121,93 (100,000) 10,968 Options exercised 27 August ,95 121,93 (75,000) 8,324 Options exercised 27 August , (38,250) 5,242 New shares/options granted Balance at the end of the year 394,627 56, August ,95 36, August April ,91 98, March May ,13 73, May May ,25 24, May April ,91 19,912 1 April May ,86 36, May May ,56 105, May 2019

187 Massmart Annual Report Compliance, transparency and accountability Annual general meeting Attendance by all directors at Massmart s annual general meeting is strongly encouraged while attendance for Board Committee Chairpersons is compulsory. At the November 2010 Massmart annual general meeting the Chairpersons of the Remuneration and Nominations and Audit and Risk Committees were in attendance, as were the Board Chairman, CEO and CFO. In total, four nonexecutive directors attended the annual general meeting. The notice for any general meeting of shareholders includes an explanation of the reason for, and the effects of, any proposed special resolutions. The Company s transfer secretaries attend every general meeting of shareholders to assist with the recording of shareholders attendance and to tally the votes. The Chairman confi rms with the meeting that votes will be counted by way of poll, i.e. all votes are counted, rather than by way of a show of hands. INSIGHT ANNUAL GENERAL MEETING 08h30 Wednesday 23 November 2011 Massmart House 16 Peltier Drive Sunninghill Ext 6 Sandton Share buyback programme Annually the Group seeks, and obtains, the approval of the shareholders in general meeting to purchase Massmart shares. This authority valid until the following year s annual general meeting and subject to the Listings Requirements of the JSE allows the Group to purchase its own shares up to a maximum of 15% of the issued shares, at a price not greater than 10% above the preceding fi ve-day weighted average. Shareholders have been asked to renew this authority at the forthcoming November 2011 annual general meeting. During the year to June 2011, no Massmart shares were purchased on the open market by a Massmart subsidiary. The amount and timing of any future purchases will be determined by the Board and are dependent on the Board s view on the intrinsic value of Massmart shares, the ruling market price from time to time, the Group s cash position and future cash requirements, and prevailing market conditions. The Massmart Employee Share Trust acquires shares from time to time on the JSE open market to mitigate the dilution caused by the Company issuing new shares when options are exercised by participants. During the 2011 fi nancial year, the Massmart Employee Share Trust purchased 2.1 million shares for R274 million which were utilised to meet vesting share options. Share dealings No director, executive or employee may deal, directly or indirectly, in Massmart shares where that person may be aware of unpublished price-sensitive information. There are strict closed periods during which all directors, executives and employees are not allowed to deal in Massmart shares. The periods begin one month prior to the end of each reporting date (these reporting dates being December and June) and end on the public release of the Group s results. A closed period also applies from the date when Massmart issues a cautionary announcement. Following the fi rst cautionary announcement in September

188 186 Corporate Governance Compliance, transparency and accountability continued 2010 concerning the Walmart transaction, no executives were allowed to deal in Massmart shares until the transaction was closed in June In addition, all directors, executives and employees, and their associates as defi ned by the JSE, are not allowed to deal in Massmart shares in the fi nal hour of trading on the JSE. All share dealings by a director, executive or employee must be authorised by either the Chief Executive Offi cer or Chief Financial Offi cer. Any dealings by the Chief Executive Offi cer are authorised by the Chairman, and dealings by the Chief Financial Offi cer are authorised by the Chief Executive Offi cer. INSIGHT CONTACT THE MASSMART ETHICS LINE FreeCall SMS please call me to (R1 each) FreeFax massmart@ethics-line.com Do what is right, fair, honest and legal! Corporate ethics Massmart is committed to achieving the highest standards of ethical behaviour and continued its strong emphasis on promoting awareness of, and compliance with, Massmart s Code of Ethical Conduct. Massmart has an Ethics Hotline that is independently run by Deloitte Tip-Offs Anonymous. Deloitte Tip-Offs Anonymous has been certifi ed by the External Whistle-blowing Hotline Services Provider Standard E This Hotline can be used by all Massmart employees and suppliers to report any suspected unethical behaviour. Calls are investigated by the Divisional Ethics Offi cers and, where necessary, by the Massmart Internal Forensic Auditors. All calls are monitored by the Massmart Ethics Offi ce. The Group Ethics Forum meets twice a year where the call statistics and trends are discussed. The appointment of Ethics Offi cers in all Divisions, and the formulation and regular meetings of the Group Ethics Forum have ensured the continued focus on the consistent application of ethics practice and training within Massmart. Total calls and reports for the year under review were 8.2% higher than the previous year (see on page 187 alongside). During the 2011 fi nancial year, 53% of calls that were classifi ed as criminal/fraud were resolved resulting in disciplinary action, dismissals, resignations and/or charges laid against the relevant individuals. The balance of these calls were closed due to either insuffi cient information being supplied by the caller or that the allegations were found to be untrue. In March 2011, the 2004 Code of Ethical Conduct was revised. This was because an ethics survey that was conducted in 2009 indicated that not all employees understood how the principles align with Massmart s values and more information was needed on how to seek guidance and report unethical behavior. In addition to this, a new Whistle Blowing Policy was introduced to Massmart. This policy provides clarity to all Massmart employees and suppliers that they can raise breaches of the Massmart Code of Ethical Conduct without fear of victimisation, subsequent discrimination and disadvantage. The Massmart Ethics Offi ce continuously distributes ethics awareness communications throughout Massmart: R Regular communication on relevant topics is sent to all employees with access to an address and also for management to display on all notice boards. The following communication has been distributed: Confl ict of interest, Racism, Fraud, Bribery, Whistle blowing and Employee theft.

189 Massmart Annual Report R Ethics posters are situated in all stores and head offi ces. In 2011, the Massmart Ethics Offi ce released a new Values poster. The posters currently displayed are: Do what is right and What does ethics mean (available in four languages), Trust us, tell us and Our values. Massmart regularly communicates its ethical standards to suppliers and service providers, and attempts to ensure that they comply with these standards. This is achieved in the following ways, just to mention a few: suppliers and service providers are invited to make use of the Ethics Hotline, Massmart s formal trading agreements detail ethical practices that suppliers are expected to uphold, and supplier ethical cards are distributed with supplier communications. Compliance Monitoring and achieving legal and regulatory compliance across the Group has always been a fundamental tenet of our business model. King III however, requires that the compliance process should be more formal with clear responsibilities and reporting. To this end, the Finance Directors in each Division are now the Compliance Offi cers (and Risk Offi cers) and have been formally tasked with ensuring that their respective Divisions monitor and comply with all regulations and legislation. Compliance across the Group is exercised as follows: R The environment is monitored, formally and informally, via several sources including specifi cally-appointed service providers that review all proposed or impending legislation and regulations, as well as non-executive directors, and contacts with government bodies, supplier bodies, and consumer groups. R Depending upon where the response to the impending legislation can most effi ciently and effectively be addressed, the task would fall to one of the trading Forums (Food, Liquor, General Merchandise, Cellular) or functional Forums (TIP, Finance) or even the Group Exco. The members of these forums are also tasked with keeping their respective Divisions apprised of intentions to support the role of the Divisional Compliance Offi cers. R Ongoing compliance is monitored and tested through various means including Internal Audit, external audit and third-party service providers. Reports from these entities are presented to both the Risk and Audit Committees. MASSMART ETHICS LINE Total calls and reports July 99 August 118 September 96 October 96 November 130 December 99 January 114 February 108 March 174 April 92 May 98 June 121 Total 1,345 Anonymous calls 15.2% Increase in total calls and reports over last year 8.2% BREAKDOWN OF TOTAL CALLS (%) The Group Compliance Offi cer is an in-house legal resource at Massmart Corporate who is a qualifi ed lawyer and reports to the Company Secretary, and ultimately to the CFO. The impending legislation that may have a potentially material impact on the Group includes: R Payment Card Industry Data Security Standard (PCI); and R Protection of Personal Information Act (PPI Act). % Crime 16 HR 68 Other 16

190 188 Corporate Governance Investor relations We strive to provide useful and frequent disclosure to our shareholders, regardless of how uncomfortable this may be in periods of diffi culty or underperformance. Massmart reports formally to shareholders twice a year (in February and August) when its half-year and full-year results, together with a thorough executive overview, are announced and issued to shareholders and the media. On both occasions the Chief Executive Offi cer, Chief Financial Offi cer and certain Group executives give presentations to institutional investors, analysts and the media. Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Analyst presentation and preliminary announcement Final dividend declared Cape Town institutional investor roadshow Johannesburg institutional investor roadshow Final dividend paid United States institutional investor roadshow United Kingdom institutional investor roadshow Publication of Annual Report Annual General Meeting Financial half-year Analyst presentation and interim preliminary announcement Interim dividend declared Cape Town institutional investor roadshow Johannesburg institutional investor roadshow Interim dividend paid Financial year-end INSIGHT SENS SENS is a system provided by the JSE, which publishes company announcements and price-sensitive information. The key purpose of SENS is to ensure that this information is accessible to the investing community interested in trading on the JSE, as soon as it is vetted by the JSE Listings Division. Early in January and July, shortly after the conclusion of the half-year and fullyear trading periods, on release of the Annual Report and at the Group s annual general meeting in November, Massmart releases sales updates reporting on the Group s year-to-date sales performance. In addition, annually in May, the Group Chief Executive Offi cer and Chief Financial Offi cer 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 Chief Executive Offi cer and Chief Financial Offi cer together meet regularly with institutional shareholders and, in addition, are available for meetings or conference calls with analysts and any existing or prospective Massmart shareholder. Profi ts are distributed to our shareholders at interim and year-end by way of a cash dividend. The dividend is calculated based on a dividend cover of 1.7 on headline earnings unless circumstances dictate otherwise. Despite the slightly lower headline earnings and this policy, the Board has decided to maintain this year s dividend at the same level as last year. A further dividend is distributed

191 Massmart Annual Report to our Thuthukani shareholders, arising from the Massmart black economic empowerment transaction which came into effect in October The Thuthukani dividend is now 100% of the ordinary dividend. FOREIGN SHAREHOLDING DIVIDEND PAYMENT VS DIVIDEND COVER Payment (cents) Dividend cover (times) % UK, Europe and other 19.2 US 17.0 Walmart subsidiary: Main Street 830 (Pty) Ltd 53.2 South Africa 10.6 COMPANY SECRETARY I Zwarenstein, CA (SA) CONTACT DETAILS REGISTERED OFFICE Massmart House 16 Peltier Drive Sunninghill Ext 6 Sandton 2191 South Africa POSTAL ADDRESS Private Bag X4 Sunninghill 2157 South Africa TELEPHONE NUMBER + 27 (0) FACSIMILE NUMBER + 27 (0) WEBSITE INDICATORS COMPANY REGISTRATION NUMBER 1940/014066/06 (incorporated in South Africa) JSE SHARE CODE MSM ISIN ZAE DESIGN PARTNERS PUBLISHER ANNUAL REPORT Ince.motiv DESIGNER Studio Shelf PHOTOGRAPHER Gareth Gilmour CORPORATE PARTNERS TRANSFER SECRETARIES Computershare Investor Services (Pty) Limited 70 Marshall Street Johannesburg 2001 PRINCIPAL BANKERS Nedbank Group Limited ABSA Bank Limited The Standard Bank of South Africa Limited First National Bank (A division of FirstRand Bank Limited) Investec Bank Limited AUDITORS Deloitte & Touche CORPORATE LAW ADVISORS Edward Nathan Sonnenbergs Cliffe Dekker Hofmeyr LEAD SPONSOR Deutsche Securities READ MORE MASSMART AT A GLANCE More detail on our shares and shareholder information can be found on pages 8 and 9

192 190 Corporate Governance King III Question and Answer 1. Ethical leadership and corporate citizenship 1.1 The board should provide effective leadership based on an ethical foundation The Board is responsible for directing the Group towards the achievement of the Massmart vision and mission. It is therefore accountable for the development and execution of the Group s strategy, operating performance, fi nancial results, and values as well as being the custodian of the Group s corporate governance. The Board believes that the Massmart Group must act ethically and in a sustainable manner in the longer-term interests of all key stakeholders and of the natural environment in which the Group operates. These stakeholders are contemplated in the Massmart Vision and include customers, suppliers, employees, investors and the community. Massmart insists that all its business partners, specifi cally directors, employees and suppliers do business ethically and will not retain business partners that do not maintain the same standard of ethics as Massmart. 1.2 The board should ensure that the company is and is seen to be a responsible corporate citizen The Board considers the impact of the Group s operations on the societies within which it operates by pro-active measurement of the Group s impact on the environment (such as understanding our carbon footprint and energy consumption) and has active Corporate Social Responsibility programmes and policies based on pre-defi ned levels of expenditure. 1.3 The board should ensure that the company s ethics are managed effectively Since 2004, Massmart has had a Code of Ethical Practice in its desire to achieve the highest standards of ethical behaviour. This Code has been communicated widely throughout the Group and there are formally appointed and trained Ethics Offi cers at Group and Divisional level. The Group is an active member of the SA Institute of Ethics. During 2011 the Group s Ethics were relaunched to remind all that the businesses remain committed to ethical standards and behaviour. Annually, our suppliers are reminded by a letter from the CEO that any concerns in respect of ethical behaviour can be reported directly to him or to the Ethics Hotline. The Group uses an independently-operated Ethics Hotline to which any customer, employee or supplier may report alleged unethical behaviour. Posters communicating our ethical standards and the details of this Hotline are visible in almost every area of the Group s stores, offi ces and distribution centres. Included on page 187 is a summary of the number and nature of the ethics calls received by this independent operator over the past year. 2. Boards and directors 2.1 The board should act as the focal point for and custodian of corporate governance The Board has a charter setting out its roles and responsibilities, and key aspects of this are disclosed in the Annual Report. The Board has four quarterly Board meetings, an annual strategy day and will meet on an ad hoc basis if a situation demands it. Full details of the past year s Board and Committee meetings, and directors attendances threat, can be found on page The board should appreciate that strategy, risk, performance and sustainability are inseparable Annually the Group s Divisional executives each formally present their three-year strategies to the Board, both in writing and through presentation. These strategies must be aligned with the Boardapproved Vision and Mission for the Group and also address positive or negative effects of the Group on stakeholders, and all dimensions of the Vision must be addressed in formal Divisional strategies. The fi rst year of the strategy period represents the following year s budget Refer to principles elsewhere in King III that are already listed in this Question and Answer review The board and its directors should act in the best interests of the company Directors are encouraged to attend any Board or executive meeting within the Group s Divisions

193 Massmart Annual Report in an effort to understand better the business, its leadership and their skills and competence. At each Board meeting directors are required to confi rm in writing any changes to their interests that have been previously disclosed in detail to the Board. Directors interests were independently reviewed by Massmart Internal Audit during the 2011 fi nancial year. Directors are encouraged to take independent advice, at the Company s cost, for the proper execution of their duties and responsibilities. No directors availed themselves of this during the 2011 fi nancial year The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act The Board has developed various reporting metrics that are included in the quarterly Board meetings papers. Included in these metrics are liquidity and solvency ratios, cash fl ow analysis, details of bank facilities and reports on working capital performance. In addition, the Audit and Risk Committee considers the going concern assertion for the group at half- and fi nancial year-end. Happily, at no time has the Board had to consider business rescue proceedings for the Group or any Division within the Group The board should elect a chairman of the board who is an independent non-executive director. The CEO of the company should not also fulfil the role of chairman of the board Mark Lamberti was appointed as Massmart s non-executive Chairman in July 2007 and, as he was previously the Massmart CEO, he could not be considered independent until June The Board is satisfi ed that Mark Lamberti should now be considered an independent director. Recognising however, that some may differ with this view, Chris Seabrooke, the non-executive Deputy Chairman, maintains his role as the Group s Deputy Chairman and Lead Independent Director. In addition, to ensure good governance, and as recommended by King III, the Chairmanship of each of the three Board Committees is held by independent directors. Annually the Chairman s performance is formally assessed and the feedback is collated by the Deputy Chairman and discussed with the Chairman. The Board is responsible for its own composition, the appointment of the Chairman and the Chief Executive Offi cer (CEO), and for executive succession planning. Succession planning for the Chairman, non-executive directors and CEO is delegated to the Remuneration and Nominations Committee which considers these issues annually The board should appoint the chief executive officer and establish a framework for the delegation of authority. The Board is responsible for the appointment of the CEO. The framework for the delegation of authority is actioned through the Massmart Governance Authorities. These Governance Authorities describe the specifi c levels of authority and required approvals for all major decisions at both Group and Divisional level. It clarifi es 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. These authorities are evaluated and updated annually, where necessary, by the Board. The Board s authority and control is devolved sequentially through the Board sub-committees, Massmart Executive Committee, the Divisional Boards and the Divisional Executive Committees, as formally prescribed by the Governance Authorities The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent The Board comprises two executive directors, being the CEO and CFO, four independent nonexecutive directors and three non-executive directors (Walmart appointees). The majority of the non-executive directors are therefore independent. The Board assesses its effectiveness annually, taking various factors into account including: the requisite skills and experience required to direct the Group, as well as the Board s size, diversity and demographics.

194 192 Corporate Governance King III Question and Answer continued All directors retire by rotation every three years. Unless requested by the Board to serve a further term, retiring directors are not proposed for reelection by the shareholders. In considering whether to propose a director for re-election, the Board takes into account various factors, including skills mix, diversity and succession planning. This year the following directors retire by rotation: Messrs GM Pattison and CS Seabrooke. Newly appointed directors are required to resign and to offer themselves for re-election at the fi rst AGM following their initial appointment. At the forthcoming annual general meeting therefore, Messrs Jeff Davis, Doug McMillon and JP Suarez will resign and offer themselves for reelection Directors should be appointed through a formal process The Remuneration and Nominations Committee assists the Board with the assessment, recruitment and nomination of new directors. The Board must approve these appointments and Board members are invited to interview any potential appointees. The Committee thoroughly assesses potential new directors before appointment. Use may be made of third-party executive search agencies to provide such assurances The induction of and ongoing training and development of directors should be conducted through formal processes The Company Secretary is tasked with assisting the Board with induction of new directors and director orientation, development and education. This induction includes receiving copies of prior Board papers and the most recent Group strategy document, store visits with Group executives, and meetings with key executives, if necessary. Directors are encouraged to remain abreast of major governance and regulatory developments and where applicable, the Board will receive formal presentations and notes on key topics. The Company Secretary assists with ongoing director development and education, using materials from the Group s legal advisors and external auditors where necessary The board should be assisted by a competent, suitably qualified and experienced company secretary The Company Secretary, Mr Ilan Zwarenstein, is a qualifi ed chartered accountant and was previously an audit partner at Grant Thornton. He is formally empowered by the Board to fulfi l his duties and to assist the Board in fulfi lling its functions. Together with the Board and Committee Chairpersons, as appropriate, he ensures that: meetings are scheduled well in advance, meeting agendas are agreed beforehand and the appropriate papers are circulated timeously The evaluation of the board, its committees and the individual directors should be performed every year Annually all Board and Committee members complete detailed self-assessments covering the composition, duties, responsibilities, processes and effectiveness of the Committees. The results of these assessments are collated by the Company Secretary and sent in summarised form to the respective Committee Chairpersons for a formal written response. The summarised results together with the Chairpersons written responses are then included in the Board papers for review and discussion at the November Board meeting. Annually, the Board Chairman, Deputy Chairman and CEO assess the effort and contribution of each individual director, and where necessary provide verbal feedback to that director. Due to the personal nature of the fi ndings of these individual reviews, they are not included in the Annual Report. As noted elsewhere in the Corporate Governance section, due to the distraction of the Walmart transaction and the pending changes to Board and Committee membership and mandate, it was decided to postpone the annual review for the year ending June The board should delegate certain functions to well-structured committees but without abdicating its own responsibilities Each Board Committee s charter or term of reference specifi cally documents that Committee s scope, duties and responsibilities. Annually in November, each Committee s charter or term of reference is reviewed by the Committee and Board for relevance and completeness, and amended

195 Massmart Annual Report where necessary. These charters were updated to refl ect any requirements from the new Companies Act, Details regarding the duties and responsibilities of each Committee, and its composition, can be found on page 163. Following the acquisition by Walmart, the Board has three committees: the Audit and Risk Committee; the Remuneration and Nominations Committee and the Social and Ethics Committee. The Audit and Risk and the Remuneration and Nominations Committees comprise a majority of independent non-executive directors and all three committees are chaired by independent nonexecutive directors. Directors are encouraged to take independent professional advice, at Massmart s expense, in respect of the proper execution of their duties and responsibilities both as Board and Committee members A governance framework should be agreed between the group and its subsidiary boards This principle relates to listed subsidiaries only and is thus not applicable to Massmart subsidiaries, none of which are listed Companies should remunerate directors and executives fairly and responsibly The Remuneration and Nominations Committee implements remuneration policies that enable it to recruit, retain and motivate the executive talent needed to achieve superior business performance in the short and longer term. Included here are policies on employee benefi t funds, service contracts (there have been none in the Group since 2007), and retention and severance payments. These policies strive for fi xed remuneration at the median- to upper-quartile of comparable positions, but place particular emphasis on generous annual incentives for high growth and performance in order to motivate the executives. Finally, longerterm wealth creation aligned with the creation of shareholder value through the Group s market valuation is underpinned by the Group s employee share incentive plan. There has been very low executive turnover which suggests that the Group s remuneration policies are appropriate and effective. Non-executive directors fees are reviewed and established by the Committee. Directors attendance fees are not paid Companies should disclose the remuneration of each individual director and certain senior executives Details of individual directors remuneration are provided on pages 180 to 184 of this report, and explanations are provided for executive directors remuneration. In addition, details of executive remuneration policies are provided on page 178. Due to their specialised retail skills, the highly competitive South African retail environment and the specifi c employees value to Massmart, the Board has chosen not to disclose the remuneration of the most highly paid executives who are not directors. Instead, this information is disclosed in aggregate for the three executives concerned (see page 183). None of these executives earns a higher salary than either of the executive directors Shareholders should approve the company s remuneration policy The Board does not intend to ask the shareholders for non-binding approval for the Group s remuneration policies. The rationale and basis for the Group s executive remuneration policy is carefully considered by the Remuneration and Nominations Committee and is documented in the annual reports. Shareholders with concerns regarding this policy should contact the Chairman of either the Board or the Committee. Non-executive directors fees are however, tabled for approval at each annual general meeting. 3. Audit committees 3.1 The board should ensure that the company has an effective and independent audit committee The Audit and Risk Committee s charter was established by the Board and is annually reviewed and amended, if necessary, by both the Committee and the Board. The Committee s composition, duties and responsibilities are incorporated within the charter. The Committee meets at least three times a year and each meeting commences with an audience between only the Committee and the external

196 194 Corporate Governance King III Question and Answer continued auditors. The Committee Chairman meets quarterly with the Chief Audit Executive (CAE). Management is not present at these meetings. 3.2 Audit committee members should be suitably skilled and experienced independent nonexecutive directors The Committee comprises three independent non-executive directors, each of whom has the requisite fi nancial and commercial skills and experience to contribute to the Committee s deliberations. The Board elects the Audit and Risk Committee members, assisted where necessary by the Remuneration and Nominations Committee. Committee members regularly receive technical updates from the external auditors and legal advisors. With the prior approval of the Chairman, any Committee member may seek external professional advice, at the Company s expense, on any issue. 3.3 The audit committee should be chaired by an independent non-executive director Chris Seabrooke, an independent non-executive director, is Chairman of the Audit and Risk Committee. He attends the Company s annual general meeting (directors attendance at the AGM is shown on page 162). 3.4 The audit committee should oversee integrated reporting The Audit and Risk Committee reviews the interim and preliminary fi nancial results and associated announcements, and recommends these to the Board for approval. The Committee also reviews the integrated report which includes detailed reviews by the CEO, CFO and the four Divisional CEOs as well as a thorough review of sustainability issues. 3.5 The audit committee should ensure that a combined assurance model is applied to provide a co-ordinated approach to all assurance activities Through formal reports included in Committee papers and the attendance of all key executives involved with assurance, the Audit and Risk Committee is provided with a thorough review of the Group s assurance activities. These reports include the principles of combined assurance through reports from management, internal and external audit and these also note reliance that has been placed upon other assurance providers. Attendees at most Committee meetings include the CEO, CFO, CAE, and external audit representatives. 3.6 The audit committee should satisfy itself of the expertise, resources and experience of the company s finance function. Annually the Committee considers the suitability of the CFO and the Group s fi nance function, and its opinion is noted on page The audit committee should be responsible for overseeing the internal audit The Committee is responsible for overseeing the Internal Audit function, through a functional reporting relationship to the Audit Committee and specifi cally the Audit Committee Chairperson. For practical purposes and to maintain an excellent working relationship with management, the CAE reports administratively to the CFO. The Audit and Risk Committee, CAE, CFO and CEO believe that there is no confl ict as a result of this reporting relationship. The scope, fi ndings and opinions of Internal Audit are not interfered with and the CAE and the Audit and Risk Committee are satisfi ed with this. Although not used to date, the CAE has unfettered access to any non-executive director or the Chairman where issues of independence could be raised if necessary. Annually, the Committee approves the Internal Audit work plan, staffi ng, resources and operating budget, and thereafter monitors progress with the audit work plan and results which are reported upon at each Committee meeting. The Audit and Risk Committee, CEO, CFO and the CAE agree that the performance assessment of the CAE is appropriately managed with input where necessary from the Committee. The appointment or dismissal of the CAE will be mutually agreed between the Committee, the CEO and CFO. 3.8 The audit committee should be an integral component of the risk management process As noted in 3.5 above, given the width and depth of the information presented to the Committee, the Committee is an integral component of the Group s risk management process.

197 Massmart Annual Report As regards IT systems, on a cyclical basis the key general, security and application controls on the Group s major IT systems are reviewed by experts employed by the external or internal auditors. Massmart Internal Audit is intimately involved in assessing the IT control environment and the Group adopted the COBIT governance approach to IT several years ago. Senior Internal Audit personnel attend the Group s TIP Forum (see page168) where all major IT developments and projects are signed off. Massmart Audit is involved in auditing every signifi cant IT project in the Group. 3.9 The audit committee is responsible for recommending the appointment of the external auditor and overseeing the external audit process The Audit and Risk Committee is responsible for recommending the appointment of the external auditor to the shareholders at the AGM. Annually, the external auditor s engagement letter and audit fees, recommended by the CFO, are approved by the Committee. The external auditors regularly confi rm their independence, which opinion is considered by the Committee. The Committee has defi ned the nature and extent of non-audit services that may be provided by the external auditors, and has limited the total fees that may be paid for those services to less than 50% of the total normal audit fee The audit committee should report to the board and shareholders on how it has discharged its duties The Audit and Risk Committee Chairman reports regularly to the Board both in writing and verbally; and annually, prior to the release of the Group s preliminary results. The Committee s report to stakeholders is shown on page 29 and includes details on the role of the Committee, members attendances at meetings, and confi rmation of the control environment. 4. The governance of risk 4.1 The board should be responsible for the governance of risk The Board has mandated the Audit and Risk Committee, through its charter, to oversee the design, maintenance and reporting of a sound system of risk management and control with regard to all key aspects of the business and is reported on page The board should determine the levels of risk tolerance The Board does not explicitly determine levels of risk tolerance and/or risk appetite for the Group. Instead, these would effectively be reviewed, and assessed by the Board, on an ongoing basis through regular reports and fi nancial analysis and evaluation by the CEO and CFO, as well as the Audit and Risk Committee. Risk is an agenda item at the Board meeting and this is also cascaded through the Executive Committee and Divisional Boards. 4.3 The risk committee or audit committee should assist the board in carrying out its risk responsibilities The Audit and Risk Committee oversees the Group s risk management programme. There are three independent non-executive directors on the Committee, and in attendance are the Group CEO and CFO, the CAE, as well as a Divisional CEO. At the August meeting, the Committee considers the Group s risk landscape and annually it considers the Group s insurance arrangements together with the Group s insurance brokers. Annually in February an interim Group risk report is prepared by the CFO for the Committee. 4.4 The board should delegate to management the responsibility to design, implement and monitor the risk management plan Management is responsible for the design, implementation and monitoring of the risk management plan. As part of this, risk is an agenda item on all Divisional executive meetings and the quarterly Divisional Board meetings. The Group Risk Offi cer is the CFO and each Divisional Finance Director is the Risk Offi cer for that Division. 4.5 The board should ensure that risk assessments are performed on a continual basis Risks across the Group are monitored and reported to the Board directly through the Audit and Risk Committee, and indirectly through the reports of

198 196 Corporate Governance King III Question and Answer continued the CEO and CFO. Annually, the Audit and Risk Committee tables the Group Risk Report and Risk Register for review and confi rmation by the Board. 4.6 The board should ensure that frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks The Board is comfortable that the Group s risk management framework and processes are adequate but is aware that the nature and essence of risk being both uncertain and unpredictable means that in isolated cases this process may, with hindsight, appear to have been inadequate. 4.7 The board should ensure that management considers and implements appropriate risk responses Responded to in 4.5 and 4.6 above. 4.8 The board should ensure continual risk monitoring by management Responded to in 4.5 and 4.6 above. 4.9 The board should receive assurances regarding the effectiveness of the risk management process Responded to in 4.5 and 4.6 above The board should ensure that there are processes in place enabling complete, timely, relevant, accurate and accessible risk disclosure to stakeholders Massmart s risk management process, and the 10 key Group risks identifi ed by that process, is disclosed in the integrated report. 5. The governance of information technology 5.1 The board should be responsible for information technology (IT) governance The Board has delegated IT governance to management. Governance over signifi cant IT risks is formally overseen by the Technology, Information and Process (TIP) Forum, which is chaired by a member of the Group Executive Committee and attendees include all Divisional IT Directors and the CAE who attends to provide independent governance advice and input. The Group adopted the COBIT governance framework several years ago. Annually, the Chairman of the Group s TIP Forum gives a presentation to the Board of the major Group and Divisional IT initiatives, key service providers and risk areas. The external auditor reviews key computer controls and reports its fi ndings to the Audit and Risk Committee as does Internal Audit which uses the COBIT governance assessment methodology. 5.2 IT should be aligned with the performance and sustainability objectives of the company Each Division has an IT strategy that is aligned to its strategic and business objectives. 5.3 The board should delegate to management the responsibility for the implementation of an IT governance framework Management is responsible for the design, implementation and operation of the structures and processes required for IT governance. There is no Group Chief Information Offi cer but management has established the TIP Forum (see 5.1) which very effectively executes the IT governance mandate and these are reviewed by External and Internal Audit (also discussed in 5.1 above). 5.4 The board should monitor and evaluate significant IT investments and expenditure The TIP Forum is responsible for approving all major IT developments and projects, including the fi nancial investment and return. Those IT services that are outsourced relating mainly to networks, desk-top support and off-site data storage are regularly reviewed by both Internal and External Audit. The Divisional Boards approve project expenditure within their governance limits and only after recommendation by the TIP Forum for signifi cant projects. 5.5 IT should form an integral part of the company s risk management Management and the Board are fully alert to the vulnerability of the Group s operations to the proper functioning of all key IT equipment and processes. Formal disaster-recovery programmes are therefore in place for all Divisions and for all major IT functionalities. These programmes form part of a broader business continuity planning (BCP) framework that has matured in recent years.

199 Massmart Annual Report The board should ensure that information assets are managed effectively Management and the Board are cognisant that the storage, management, manipulation and confi dentiality of IT data is crucial. The TIP Forum is mandated to monitor and address these issues continually, effected by each Divisional IT leader and assurance is assessed by internal and external audit. 5.7 A risk committee and audit committee should assist the board in carrying out its IT responsibilities The Audit and Risk Committee plays an essential role in assisting the Board with its IT responsibilities. As noted elsewhere (see 3.8), the Committee receives regular and thorough exposure to the key control issues associated with this topic. 6. Compliance with laws, rules, codes and standards 6.1 The board should ensure that the company complies with applicable laws and considers adherence to non-binding rules, codes and standards The Group is committed to complying with all legislation, regulations and best practices relevant to our business, in every country where we conduct business. This is monitored through both prevention and detection approaches. Through regular interactions with corporate lawyers and key decision-makers in government and civil service, the Group attempts to keep abreast of all intended or promulgated legislation. The Group s Internal Audit department assesses signifi cant legal risks and the level of compliance as part of its regular procedures. The Group utilises local experts in non-south African countries to perform evaluations on relevant applicable legislation and compliance effectiveness. Most issues concerning compliance will be reported to the Audit and Risk Committee which will bring the more material issues to the Board s attention. Material breaches will also be reported by either the CEO or CFO. 6.2 The board and each individual director should have a working understanding of the effect of the applicable laws, rules, codes and standards on the company and its business Directors are encouraged to remain abreast of major governance and regulatory developments and where applicable, the Board will receive formal presentations and notes on key topics. New proposed legislation that may have onerous consequences for the Group will be brought to the Board s attention through the executives and/or external professionals. 6.3 Compliance risk should form an integral part of the company s risk management process As part of the Compliance function, the Divisional Finance Directors act as Compliance Offi cers for their Divisions and any material compliance issues will be reported through the Audit and Risk Committee. 6.4 The board should delegate to management the implementation of an effective compliance framework and processes The Board has delegated the implementation of an effective compliance framework and process to management. Not wishing to impose a potentially bureaucratic process on the workings of the Group, management followed a similar approach to the implementation of the Risk Management framework by incorporating the Compliance role within existing reporting and management structures. As noted elsewhere, the Group Compliance Offi cer is the Group Legal Manager and the Divisional Finance Directors are the Compliance Offi cers for their respective Divisions. 7. Internal audit 7.1 The board should ensure that there is an effective risk-based internal audit Massmart has a very effective Internal Audit department which performs invaluable work in providing assurance on all key aspects of the Group s risks, employees, operations and assets. The Internal Audit department applies a risk-based approach that aligns its audit methodology to the internal and external risks facing Massmart. Through formally documented risk assessments,

200 198 Corporate Governance King III Question and Answer continued thorough audit fi eld work and high-quality personnel, Internal Audit is able to provide a reliable opinion on the level of assurance that can be placed on the management of the Group s risk governance and control processes. Massmart Internal Audit provides the Audit and Risk Committee and the Board with an annual risk assurance assertion. The responsibilities of Internal Audit are defi ned and governed by a charter reviewed annually by the Audit and Risk Committee. The CAE regularly meets with the Audit and Risk Committee Chairman and with Massmart executives to discuss risks and challenges across the Group s operations and external environment. The Internal Audit department complies fully with the International Standards for the Professional Practice of Internal Auditing as promulgated by the Institute of Internal Auditors and has previously been independently reviewed. 7.2 Internal audit should follow a risk-based approach to its plan The Audit and Risk Committee and Board believe that Massmart Internal Audit is a very effective and independent, objective body providing assurance to all the key dimensions of the Group s risk, governance and control. The external auditors place reliance on many aspects of the department s audit coverage and Internal Audit places reliance on other assurance providers work once satisfi ed that their methods can be relied upon. 7.3 Internal audit should provide a written assessment of the effectiveness of the company s system of internal controls and risk management Internal Audit provides an annual assurance assertion to the Audit and Risk Committee and Board, which includes internal control, internal fi nancial control, governance, risk management and IT. 7.4 The audit committee should be responsible for overseeing internal audit To ensure independence, the CAE reports functionally to the Audit and Risk Committee and, only from an administrative perspective, to the CFO who encourages Internal Audit s independence and does not interfere with audit scope or opinion. The hiring and dismissal of the CAE is subject to fi nal approval by the Committee. The evaluation of the performance of the CAE includes the Committee s input. The Internal Audit department has the unequivocal support of the Board and Audit and Risk Committee and has unrestricted access to any part of, or person or committee, in Massmart. Internal Audit s annual audit plan and resource needs are pre-approved by the Committee. The CAE presents formal reports to the Audit and Risk Committee and attends all meetings by invitation. In addition, the Committee Chairman and CEO, separately, meet quarterly with the CAE. 7.5 Internal audit should be strategically positioned to achieve its objectives Internal Audit reports functionally to the Audit and Risk Committee and the CAE holds a senior executive position of infl uence within the organisation. Despite the Internal Audit department reporting administratively to the CFO, the Board and Committee are both satisfi ed that this crucial team functions in a wholly objective and independent manner. The CAE has many years operational, IT, Supply Chain and audit experience in Retail and leads a multi-functional team of appropriately qualifi ed employees. The CAE has a standing invitation to attend the Group and/or Divisional Executive Committee meetings, Board meetings or strategy sessions. 8. Governing stakeholder relationships 8.1 The board should appreciate that stakeholders perceptions affect a company s reputation The Board and management carefully monitor and measure Massmart s reputation and the perceptions of key stakeholder groupings. These key groupings are: customers, employees, suppliers, investors and the community. 8.2 The board should delegate to management to pro-actively deal with stakeholder relationships The key stakeholder groupings, being customers, employees, suppliers, investors and the community, are monitored, measured and

201 Massmart Annual Report reported upon in different ways. Some will be formal and structured, for example, customer intercept surveys, web-based employee surveys, or written supplier surveys, whilst others may rely on regular interactions with representatives from the various stakeholder groupings. The Group s policies as regards key stakeholder groupings are spelt out in the Sustainability section. In addition, the key results and fi ndings of interactions with these groupings are disclosed. Shareholders are welcome at Massmart s AGM but, in common with many other South African companies, attendance by those from outside of corporate sector representatives is almost nonexistent. 8.3 The Board should strive to achieve the appropriate balance between its various stakeholder groupings, in the best interests of the company The Board is alert to the inherent confl ict between the demands of the different stakeholder groupings, but believes that it is possible to achieve a position of sustainable compromise that balances the demands of all stakeholders. As noted above however, this requires regular monitoring and measurement to ensure its sustainability. 8.4 Companies should ensure the equitable treatment of shareholders The Board is careful to treat all Massmart ordinary shareholders equitably. The CEO and CFO meet periodically with major institutional shareholders at their request but this does not preclude any other shareholder requesting a meeting with the CEO or CFO. 8.5 Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence Subject to the rules and regulations of the JSE, all announcements and disclosures are distributed widely through the electronic media and posted to all shareholders unless they have elected not to receive these communications. The CEO and CFO endeavour to communicate in clear and uncomplicated language the strategies, operations and fi nancial results of the Group. The Board is not aware of any material requests under the Promotion of Access to Information Act that were either complied with or denied. In addition, our website includes a link to the Audit and Risk Committee should this be required. To date nothing has ever been brought to the Committee s attention through this mechanism. 8.6 The board should ensure that disputes are resolved as effectively, efficiently and expeditiously as possible The Board does not have a formal dispute resolution programme. Should any situation arise that may require formal dispute resolution the Board will consider alternatives which, failing intervention by either the Board Chairman or CEO, may include use of independent legal counsel or arbitration. 9. Integrated reporting and disclosure 9.1 The board should ensure the integrity of the company s integrated report The Board and the Audit and Risk Committee is careful to ensure that the Group s integrated report includes all key issues, is easy to read and understand, and addresses the legitimate concerns of key stakeholder groupings. The success of this approach has been recognised externally. The Massmart Annual Report has been rated Excellent for the last fi ve years in the annual Ernst & Young Corporate Reporting awards in South Africa. In addition, our 2006, 2007, 2008, 2009 and 2010 annual reports were rated 3rd, 4th, 9th, 4th and 4th overall in those respective years. 9.2 Sustainability reporting and disclosure should be integrated with the company s financial reporting The Massmart Board focuses closely on full and effective disclosure of all aspects of its strategies, operations and fi nancial performance, and ensures that all key successes and failures are usefully reported and commented upon. 9.3 Sustainability reporting and disclosure should be independently assured The Social and Ethics Committee has specifi c oversight on those sustainability areas covered in the integrated report but the entire report will be reviewed by the Audit and Risk Committee and recommended to the Board for approval.

202

203

204 R2.1 BILLION OPERATING PROFIT BEFORE TRANSACTION COSTS 616 cents SALES HEADLINE EARNINGS PER SHARE BEFORE TRANSACTION COSTS 386 cents GROUP FINANCIAL STATEMENTS DIVIDEND PER SHARE 33.7% RETURN ON EQUITY BEFORE TRANSACTION COSTS R53.0 BILLION INCREASED FROM R47.6 BILLION 2010 GROUP FINANCIAL STATEMENTS R Approval of the annual fi nancial statements 203 R Directors' report 205 R Income statement 209 R Statement of comprehensive income 210 R Statement of fi nancial position 211 R Statement of cash fl ows 212 R Statement of changes in equity 213 R Notes to the annual fi nancial statements 214

205 Massmart Annual Report Approval of the annual financial statements The annual fi nancial statements were approved by the Board of Directors on 5 October 2011 and signed on its behalf by: GM Pattison Chief Executive Officer GRC Hayward Chief Financial Officer The preparation of the Group s consolidated results was supervised by the Chief Financial Officer, Guy Hayward, BCom, CTA, CA(SA). Company secretary certificate I, Ilan Zwarenstein, the Company Secretary of Massmart Holdings Limited, certify that, to the best of my knowledge and belief, all returns required of a public company have, in respect of the year under review, been lodged with the Registrar of Companies and that all such returns are true, correct and up to date. Ilan Zwarenstein Company Secretary Annual compliance certificate for issuers with a primary listing on the JSE I, the undersigned, Guy Robert Charles Hayward, being duly authorised hereto, certify to the JSE Limited (the JSE) that Massmart Holdings Limited and its directors have, during the 12 months ended 31 December 2010, complied with all Listings Requirements and every disclosure requirement for continued listing on the JSE imposed by the JSE during that period. GRC Hayward Duly authorised hereto, for and on behalf of the Directors of the Company Independent auditor s report To the members of Massmart Holdings Limited We have audited the Group annual fi nancial statements and annual fi nancial statements of Massmart Holdings Limited, which comprise the consolidated and separate statement of fi nancial position as at 26 June 2011, and the consolidated and separate income statements, the consolidated and separate statements of comprehensive income, changes in equity and cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes and the directors report, as set out on pages 205 to 295. Directors responsibility for the financial statements The Company s directors are responsible for the preparation and fair presentation of these fi nancial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of fi nancial statements that are free from material misstatement, whether due to fraud or error.

206 204 Group Financial Statements Approval of the annual financial statements continued Auditor s responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these fi nancial statements present fairly, in all material respects, the consolidated and separate fi nancial position of Massmart Holdings Limited as at 26 June 2011, and of its consolidated and separate fi nancial performance and consolidated and separate cash fl ows for the period then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. Deloitte & Touche Registered Auditors Per AJ Dennis Partner 5 October 2011 Buildings 1 and 2, Deloitte Place The Woodlands Offi ce Park Woodlands Drive Sandton National Executive: GG Gelink Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit, DL Kennedy Risk Advisory and Legal Services, NB Kader Tax, L Geeringh Consulting, L Bam Corporate Finance, JK Mazzocco Human Resources, CR Beukman Finance, TJ Brown Chairman of the Board, MJ Comber Deputy Chairman of the Board. A full list of partners and directors is available on request. BBBEE rating: Level 2 contributor/aaa (certifi ed by Empowerdex) Member of Deloitte Touche Tohmatsu

207 Massmart Annual Report Directors report Directors responsibilities The Directors acknowledge responsibility for the preparation of the annual fi nancial statements, which, in their opinion, fairly present the results and cash fl ows for the fi nancial year and the state of affairs of Massmart Holdings Limited and its subsidiaries at the end of the fi nancial year. The external auditors are responsible for reporting on the fair presentation of these fi nancial statements. The Company and its subsidiaries have maintained adequate 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 Audit and Risk Committee of the Board reviews the fi nancial information presented and ensures that there has been adherence to International Financial Reporting Standards. Internal and external auditors of Group companies have unrestricted access to the Committee. MASSMART ADDRESS The Company s registered offi ce and postal address are as follows: Registered office Massmart House 16 Peltier Drive Sunninghill Ext 6 Sandton 2191 South Africa Postal address Private Bag X4 Sunninghill 2157 South Africa Group financial results The fi nancial results of the Group are set out in the income statement, statement of comprehensive income, the statement of cash fl ows and the statement of changes in equity. The fi nancial position of the Group is set out in the statement of fi nancial position. Dividend Massmart s current dividend policy is to declare and pay an interim and fi nal cash dividend representing a 1.7 times dividend cover unless circumstances dictate otherwise. For the 2011 fi nancial year, the Board has resolved to pay a fi nal dividend such that dividends for the year are maintained relative to the prior year, notwithstanding the lower cover, due to the strong cash position of the Group and growth prospects for the coming year. With regard to the fi nal distribution to shareholders, the Directors resolved to distribute to shareholders registered in the books of the Company on 16 September 2011, a fi nal cash dividend of 134 cents (2010: 134 cents) per share, bringing the total dividend for the year to 386 cents (2010: 386 cents) per share. A Thuthukani dividend equivalent to 100% of the Massmart ordinary dividend per share (134 cents) was paid to the Massmart Thuthukani Empowerment Trust on 19 September Alongside please fi nd the movement in ordinary and preference shares for the period under review. SHARES IN ISSUE Ordinary shares Closing balance June ,302,639 Converted preference shares* 192,865 Closing balance June ,495,504 New shares issued 6,331,173 Converted preference shares* 6,056,783 Closing balance June ,883,460 Preference shares* Closing balance June ,738,058 New shares issued 2,000,000 Converted to ordinary shares 192,865 Closing balance June ,545,193 Converted to ordinary shares 6,056,783 Closing balance June ,488,410 * The preference shares relate to Massmart's Thuthukani Empowerment Trust and Black Scarce Skills Trust.

208 206 Group Financial Statements Directors report continued Directorate and secretary The current directorate of the Company is shown on pages 18 to 21. Following the Walmart transaction, the Board of Massmart has been reconstituted with the resignation of Messrs Dods Brand, Kuseni Dlamini, Jim Hodkinson, Nigel Matthews, Peter Maw and Michael Rubin, and Ms Dawn Mokhobo. We thank them for their many years of service, leadership and counsel. Messrs Doug McMillon, Jeff Davis and JP Suarez are the Walmart-appointees to the Board. Grant Pattison and Guy Hayward remain on as CEO and CFO respectively. The Board now comprises nine directors of whom seven are non-executive and the majority of whom 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 Mr Ilan Zwarenstein, CA(SA), whose business and postal addresses are the same as that of the Company. In accordance with the provisions of the Company s Articles of Association, JA Davis, CD McMillon, GM Pattison, CS Seabrooke and JP Suarez will retire at the annual general meeting. Being eligible, JA Davis, CD McMillon, GM Pattison, CS Seabrooke and JP Suarez offer themselves for re-election. Interests of directors in the Company s shares At 26 June 2011, Directors owned ordinary shares in the Company, or options over ordinary shares in the Company, directly or indirectly, aggregated as to benefi cial and non-benefi cial ownership, as follows: SHARES OPTIONS SHARES OPTIONS Beneficial Beneficial Nonbeneficial Beneficial Nonbeneficial Beneficial Nonbeneficial Nonbeneficial Non-executive directors MJ Lamberti 245, ,000 CS Seabrooke 30,000 MD Brand* JA Davis KD Dlamini* 20,000 NN Gwagwa 9,800 20,000 JC Hodkinson* 8,000 P Langeni 9,800 20,000 IN Matthews* P Maw* CD McMillon DNM Mokhobo* 20,000 MJ Rubin 29,500 JP Suarez Executive directors GM Pattison 696, ,000 1,457, ,000 GRC Hayward 394,394 36, , ,000 * Resigned on 20 June 2011

209 Massmart Annual Report At the dates of reporting, the Directors holdings were as follows: Subsidiaries As at the date hereof, the following companies are principal subsidiaries of the Company: R Massbuild (Proprietary) Limited (previously Builders Trade Depot) 2004/035206/07 R Masscash Holdings (Proprietary) Limited 1997/014716/07 R Massmart International Holdings Limited (incorporated in Mauritius) C1/GBL R Massmart Management & Finance Company (Proprietary) Limited 1992/004084/07 R Masstores (Proprietary) Limited 1991/006805/07 Details of the Company s interests in material subsidiaries are set out in note 37 on page 273. Total net profi t after tax for all subsidiaries for the 2011 fi nancial year amounted to R1,004.4 million (2010: R1,291.8 million). Borrowing powers In terms of the Articles of Association, the Group has unlimited borrowing powers. At 26 June 2011, borrowings were R1.0 billion (2010: R0.7 billion). 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: R strong positive cash fl ows from trading R no recurring operating losses R well-controlled working capital and good quality inventory R approved short- and long-term fi nancing, with suffi cient additional short-term borrowing capacity if required R key executive management in place R there have been no material changes that may affect the Group in any of our customer, product or geographic markets; and R budgets to June 2012 refl ect a continuation of the above positive issues. Litigation Beneficial SHARES OPTIONS SHARES OPTIONS Beneficial Nonbeneficial Beneficial Nonbeneficial Beneficial Nonbeneficial Nonbeneficial Non-executive directors MJ Lamberti 245, ,000 CS Seabrooke JA Davis NN Gwagwa 9,800 20,000 P Langeni 9,800 20,000 CD McMillon 2,400 JP Suarez Executive directors GM Pattison 696, ,603 1,421, ,000 GRC Hayward 394, , ,898 75,000 Following the South African Competition Tribunal s approval of the Walmart/Massmart merger in June 2011, certain Unions and South African Government departments have fi led legal papers to appeal and review, respectively, the Tribunal s decision. This matter will be heard by the Competition Appeal Court on October Whilst the outcome of this hearing is uncertain, Walmart and Massmart are confi dent about the strength of our legal position.

210 208 Group Financial Statements Directors report continued In the unlikely event of an adverse ruling, whatever that may be, it is unclear what the impact, if any, will be on the Group s fi nancial position. Shareholders will be kept informed about all material developments in this regard. Audit Committee report The Audit and Risk Committee met four times during the year and the internal and external auditors presented formal reports to the Committee and attended 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: R The scope, independence and objectivity of the external auditors was reviewed. R The audit fi rm Deloitte & Touche, and audit partner André Dennis, are, in the Committee s opinion, independent of the Company, and have been proposed to the shareholders for approval to be the Group s auditor for the 2012 fi nancial year. R On an ongoing basis, the Committee reviews and approves the fees proposed by the external auditors. R The appointment of the external auditor complies with the Companies Act, as amended, and with all other legislation relating to the appointment of external auditors. R 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 signifi cant as to call into question their independence. R The nature and extent of future non-audit services have been defi ned and pre-approved. R No reportable irregularities were identifi ed and reported by the external auditors to the Committee. R The Committee is satisfi ed that the internal fi nancial controls of the Divisions and Group operated effectively throughout the 2011 fi nancial year and can be relied upon. In addition, the Committee is satisfi ed with the Group s accounting policies and that these have been appropriately and consistently applied throughout the 2011 fi nancial year. R The Committee reviewed this integrated annual report and recommended it to the Board for approval. R 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 fi nancial statements, or to any related matter. R 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. Nothing has come to the attention of the Audit and Risk Committee or Board arising out of the internal control selfassessment process, internal audits or external audits that causes the Committee or Board to believe that the Group s system of internal controls and risk management is not effective or that the internal fi nancial controls do not form a sound basis for the preparation of reliable fi nancial statements. Subsequent events There are no subsequent events other than two conditional acquisitions: Fruitspot and Rhino Cash & Carry, have been fi led with the Competition Commission whose fi ndings are expected to be issued in October On behalf of the Board Ilan Zwarenstein Company Secretary 5 October 2011

211 Massmart Annual Report Income statement for the year ended 26 June Notes Rm Rm Revenue 4 53, ,550.6 Sales 52, ,451.0 Cost of sales (43,281.8) (38,955.9)* Gross profi t 9, ,495.1 Other income Depreciation and amortisation (476.3) (382.8) Impairment of assets 5 (10.0) (3.7) Employment costs (3,766.3) (3,352.9) Occupancy costs (1,664.7) (1,415.1)* Foreign exchange loss 7 (72.3) (87.7)* Other operating costs (1,759.4) (1,485.8)* Operating profi t before Transaction costs 2, ,866.7 Transaction costs 6 (408.8) Loss on disposal of Makro Zimbabwe 8 (38.6) Operating profi t 6 1, ,866.7 Finance costs 9 (140.4) (92.6) Finance income Net fi nance costs (107.2) (46.7) Profi t before taxation 1, ,820.0 Taxation 10 (585.3) (608.2) Profit for the year ,211.8 Profi t attributable to: Owners of the parent ,129.9 Preference shareholders Non-controlling interests Profit for the year ,211.8 Earnings per share (cents) Basic EPS Diluted basic EPS Dividend/distribution per share (cents) Interim Final Total Headline earnings ,138.6 Headline earnings before Transaction costs (taxed) 12 1, ,138.6 Headline EPS (cents) Headline EPS before Transaction costs (taxed) (cents) Diluted headline EPS (cents) Diluted headline EPS before Transaction costs (taxed) (cents) * Foreign exchange movements relating to the cost of stock have been reallocated from Foreign exchange loss to Cost of sales in June 2010 (R76.6 million), in line with the Group s accounting policy. Water and electricity charges have been reallocated from Other operating costs to Occupancy costs in June 2010 (R88.4 million) in line with the Group s accounting policy. PROFIT WATERFALL 12,000 10,000 8,000 6,000 4,000 2,000 0 Gross profit Other income Depreciation and amortisation Impairment of assets Employment costs Occupancy costs Other operating costs Transaction costs Net finance costs Taxation Profit for the year

212 210 Group Financial Statements Statement of comprehensive income for the year ended 26 June Rm Rm Profit for the year ,211.8 Foreign currency translation reserve 2.6 (30.9) Revaluation of listed shares 0.1 Cash fl ow hedges (1.6) 11.8 Other comprehensive income for the year, net of tax 1.1 (19.1) Total comprehensive income for the year ,192.7 Total comprehensive income attributable to: Owners of the parent ,110.8 Preference shareholders Non-controlling interests Total comprehensive income for the year ,192.7

213 Massmart Annual Report Statement of financial position as at 26 June Notes Rm Rm Assets Non-current assets 5, ,974.9 Property, plant and equipment 13 2, ,055.2 Goodwill 14 2, ,875.0 Other intangibles Investments Other fi nancial assets Deferred taxation Current assets 11, ,314.5 Inventories 19 6, ,601.5 Trade, other receivables and prepayments 20 2, ,322.6 Taxation Cash and bank balances , ,368.3 Restricted cash held on behalf of Massmart Employee Share Trusts' benefi ciaries ,093.6 Total assets 17, ,289.4 Equity and liabilities Equity attributable to equity holders of the parent 3, ,469.7 Share capital Share premium Other reserves Retained profi t 2, ,861.1 Minority interest Total equity 4, ,591.8 Non-current liabilities 1, Non-current liabilities: Interest-bearing Interest-free Non-current provisions Deferred taxation Current liabilities 11, ,802.3 Trade and other payables 26 9, ,194.3 Massmart Employee Share Trusts' benefi ciaries liability ,093.6 Provisions Taxation Other current liabilities Bank overdrafts Total equity and liabilities 17, ,289.4

214 212 Group Financial Statements Statement of cash flows for the year ended 26 June Notes Rm Rm Cash flow from operating activities Operating cash before working capital movements , ,346.8 Working capital movements 38.2 (625.4) Cash generated from operations 1, ,639.4 Interest received Interest paid (140.4) (92.6) Investment income Dividends received Taxation paid 38.3 (645.1) (552.8) Dividends paid (822.5) (822.4) Net cash inflow from operating activities ,253.6 Cash flow from investing activities Investment to maintain operations 38.4 (345.4) (284.0) Investment to expand operations 38.5 (843.0) (346.1) Proceeds on disposal of property, plant and equipment Proceeds on disposal of assets classifi ed as held for sale Investment in subsidiaries 38.8 (171.0) (369.9) Disposal of subsidiary Other investing activities including minority interests acquired (163.8) Net cash outflow from investing activities (1,297.9) (1,130.7) Cash flow from financing activities Shares issued Increase in non-current liabilities Increase in current liabilities Net acquisition of treasury shares (140.2) (97.5) Net cash inflow from financing activities Net (decrease)/increase in cash and cash equivalents (569.1) Foreign exchange movements taken to statement of comprehensive income 2.6 (30.9) Cash and cash equivalents at the beginning of the year 1, ,025.1 Cash and cash equivalents at the end of the year ,310.9

215 Massmart Annual Report Statement of changes in equity for the year ended 26 June 2011 Equity attributable Share capital Share premium Other reserves* Sharebased payment reserve* Retained profit to equity holders of the parent Minority interests Total Rm Rm Rm Rm Rm Rm Rm Rm Balance as at June (60.6) , , ,096.7 Total comprehensive income (19.1) 1, , ,192.7 Dividends declared (note 11) (822.4) (822.4) (822.4) Net changes in minority interests (0.8) (0.8) Distribution to minorities (41.6) (41.6) Cost of acquiring minority interests (212.8) (212.8) (212.8) Minorities relating to acquisitions Release of financial liability raised on a business acquisition Share-based payment expense Share trust loss (97.5) (97.5) (97.5) Issue of share capital (net of costs) Treasury shares (acquired)/ realised (7.4) Balance as at June (44.1) , , ,591.8 Total comprehensive income Dividends declared (note 11) (822.4) (822.4) (822.4) Net changes in minority interests (40.5) (40.5) (1.0) (41.5) Distribution to minorities (27.5) (27.5) Cost of acquiring minority interests Minorities relating to acquisitions (16.8) (16.8) Release of financial liability raised on a business acquisition Share-based payment expense Share trust loss (140.2) (140.2) (140.2) Issue of share capital (net of costs) Treasury shares (acquired)/ realised (144.8) (24.5) (24.5) Balance as at June (245.1) , , ,181.7 *These reserves have been combined in the statement of financial position as other reserves.

216 214 Group Financial Statements Notes to the annual financial statements for the year ended 26 June Accounting policies Basis of accounting The fi nancial statements have been prepared on the historical cost basis, except for the revaluation of certain non-current assets and fi nancial instruments to fair value. The fi nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and in a manner required by the Companies Act of South Africa. The principal accounting policies adopted are set out below. These policies have been consistently applied for the period under review. Basis of consolidation The Group annual fi nancial statements incorporate the annual fi nancial statements of the Company (Massmart Holdings Limited) and the entities it controls. Control is achieved where the Company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities. The operating results of the subsidiaries are consolidated from the date on which effective control is transferred to the Group and up to the effective date of disposal. Separate disclosure is made of minority interests where the Group s investment is less than 100%. Minority interests consist of the amount of those interests at the date of the original business combination and the minority s share of changes in equity since the date of the combina tion. Losses applicable to the minority s interest in the subsidiary s equity are allocated against the interest of the Group, except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. All inter-company transactions and balances, income and expenses are eliminated in full on consolidation. Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. Business combinations READ MORE GROUP FINANCIAL STATEMENTS More detail on acquisitions within the financial year can be found in note 3 on page 229 The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree s identifi able assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for noncurrent assets (or disposal groups) that are classifi ed as held-for-sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to

217 Massmart Annual Report sell. The interest of minority shareholders in the acquiree is initially measured at the minority s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised. Segmental information The Group is organised into four divisions for operational and management purposes. Massmart reports its primary business segment information on this basis and on a secondary basis by signifi cant geographical region based on location of assets. Comparative figures When an accounting policy is altered, comparative fi gures are restated if required by the applicable accounting statement and where material. During the last fi nancial year, the accounting policy for borrowing costs was amended. The change had no impact on the fi nancial results of the Group and hence no restatements were required in the Group s fi nancials. Interests in associates An associate is an enterprise over which the Group has signifi cant infl uence, but that is neither a subsidiary nor an interest in a joint venture. Signifi cant infl uence is the power to participate in the fi nancial and operating policy decisions of the investee but is not control or joint control over those policies. The results, assets and liabilities of associates are incorporated in these fi nancial statements using the equity method of accounting, except when the investment is classifi ed as held-for-sale, in which case it is accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The carrying amount of such interests is reduced to recognise any decline, other than a temporary decline, in the value of individual investments. The carrying amount refl ects the Group s share of net assets of the associate and includes any goodwill on acquisition, less any impairment in the value of individual investments. READ MORE GROUP FINANCIAL STATEMENTS More detail on segmental reporting can be found in note 40 on page 290 READ MORE GROUP FINANCIAL STATEMENTS More detail on the associate company held in the prior period can be found in note 16 on page 245 Any excess of the cost of acquisition over the Group s share of the fair values of the identifi able net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any defi ciency of the cost of acquisition below the Group s share of the fair values of the identifi able net assets of the associate at the date of acquisition (ie discount on acquisition) is credited to profi t or loss in the period of acquisition. Where a Group enterprise transacts with an associate of the Massmart Group, unrealised profi ts and losses are eliminated to the extent of the Group s interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill Goodwill arising on consolidation of a subsidiary represents the excess of the cost of acquisition over the Group s interest in the net fair value of READ MORE GROUP FINANCIAL STATEMENTS More detail on goodwill and the Group s cash-generating units can be found in note 14 on page 243

218 216 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June 2011 the identifi able assets, liabilities and contingent liabilities of a subsidiary or jointly controlled entity at the date of acquisition. Any defi ciency of the cost of acquisition below the fair values of the identifi able net assets acquired (ie discount on acquisition) is credited to profi t or loss in the period of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group s cashgenerating units expected to benefi t from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated fi rst to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profi t or loss on disposal. The Group s policy for goodwill arising on the acquisition of an associate is described under Interests in associates above. Non-current assets held for sale Non-current assets and disposal groups are classifi ed as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classifi cation. Non-current assets (and disposal groups) classifi ed as held for sale are measured at the lower of the assets previous carrying amount and fair value less costs to sell. Property, plant and equipment READ MORE GROUP FINANCIAL STATEMENTS More detail on property, plant and equipment can be found in note 13 on page 240 Freehold land is shown at cost and is not depreciated. Property, plant and equipment is shown at cost less accumulated depreciation, and reduced by any accumulated impairment losses. Property cost includes professional fees. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. Where expenditure incurred on property, plant and equipment will lead to future economic benefi ts accruing to the Group, these costs are capitalised. Repairs and maintenance are expensed as and when incurred.

219 Massmart Annual Report Depreciation is charged so as to write off the cost of assets, other than land, over their estimated useful lives, using the straight-line method, on the following bases: R Buildings 50 years R Fixtures, fi ttings, plant, equipment and motor vehicles 4 to 15 years R Computer hardware 3 to 8 years R Leasehold improvements Shorter of lease period or useful life Useful life and residual value is reviewed annually and the prospective depreciation is adjusted accordingly. Assets held under fi nance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profi t or loss. Intangible assets Trademarks are measured initially at purchased cost. Intangible assets are shown at cost less accumulated amortisation, and reduced by any accumulated impairment losses. Amortisation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following bases: READ MORE GROUP FINANCIAL STATEMENTS More detail on intangible assets can be found in note 15 on page 244 R Trademarks R Computer software 10 years 3 to 8 years Useful life is reviewed annually and the prospective depreciation is adjusted accordingly. Impairment of tangible and intangible assets excluding goodwill At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identifi ed, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identifi ed. READ MORE GROUP FINANCIAL STATEMENTS More detail on impairment can be found in: R Note 5 Impairment of assets 230 R Note 13 Property, plant and equipment 240 R Note 15 Other intangibles 244 The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash fl ows are discounted to their present value using a discount rate that refl ects current market assessments of the time value of money and the risks specifi c to the asset.

220 218 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June 2011 If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cashgenerating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of an asset (cash-generating unit) is increased to the revised estimate of its recoverable amount. This is done so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profi t or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. READ MORE GROUP FINANCIAL STATEMENTS More detail on revenue can be found in note 4 on page 230 Revenue recognition Revenue of the Group comprises net sales, royalties and franchise fees, investment income, fi nance charges, property rentals, management and administration fees, commissions and fees, dividends and excludes valueadded tax. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales-related taxes. Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued o n a time basis, by reference to the principal outstanding and the interest rate applicable. Dividend income from investments is recognised when the shareholders rights to receive payment have been established. READ MORE GROUP FINANCIAL STATEMENTS More detail on finance leases can be found in: R Note 9 Net finance costs 235 R Note 17 Other financial assets 247 R Note 24 Non-current liabilities 256 More detail on operating leases can be found in: R Note 6 Operating profit 231 R Note 24 Non-current liabilities 256 R Note 26 Trade and other payables 258 R Note 32 Operating lease commitments 266 Other revenue is recognised on the accrual basis in accordance with the substance of the relevant agreements and measured at fair value of the consideration receivable. Leasing Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classifi ed as operating leases. Assets held under fi nance leases are capitalised at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor, net of fi nance charges, is included in the statement of fi nancial position as a fi nance lease obligation. Lease payments are apportioned between fi nance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profi t or loss. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

221 Massmart Annual Report Foreign currencies The individual fi nancial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (ie its functional currency). For the purpose of the consolidated fi nancial statements, the results and fi nancial position of each entity are expressed in the functional currency of the Group, and the presentation currency for the consolidated fi nancial statements. Transactions in currencies other than the Group reporting currency (South African Rands) are initially recorded at the rates of exchange prevailing on the dates of the transactions. In order to hedge its exposure to certain foreign exchange risks, the Group has a policy of covering forward all its foreign exchange liability transactions of a trading nature (see below for details of the Group s accounting policies in respect of such derivative fi nancial instruments). READ MORE GROUP FINANCIAL STATEMENTS More detail on foreign currencies can be found in: R Note 6 Operating profit 231 R Note 7 Foreign exchange gains and losses 232 R Note 22 Other reserves 253 At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement and retranslation of monetary items are included in profi t and loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profi t and loss for the period. However, where fair value adjustments of nonmonetary items are recognised directly in equity, exchange differences arising on the retranslation of these non-monetary items are also recognised directly in equity. On consolidation, the assets and liabilities of the Group s overseas operations (including comparatives) are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fl uctuate signifi cantly. Exchange differences arising, if any, are classifi ed as equity and transferred to the Group s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. The fi nancial statements (including comparatives) of foreign subsidiaries and associates that report in the currency of a hyperinfl ationary economy are restated in terms of the measuring unit current at the reporting date before they are translated into South African Rands. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Government grants Government grants for staff training costs are recognised in profi t or loss over the periods necessary to match them with the related costs and are deducted in

222 220 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June 2011 READ MORE GROUP FINANCIAL STATEMENTS More detail on retirement benefit costs can be found in note 30 on page 264 READ MORE GROUP FINANCIAL STATEMENTS More detail on post-retirement medical aid can be found in note 25 on page 257 READ MORE GROUP FINANCIAL STATEMENTS More detail on taxation can be found in: R Note 10 Taxation 236 R Note 18 Deferred taxation 248 reporting the related expense. Income is not recognised until there is reasonable assurance that the grants will be received. Retirement benefit costs Payments to defi ned contribution plans are charged as an expense as they fall due. There are no defi ned retirement benefi t plans in the Group. Post-retirement healthcare benefits Post-retirement healthcare benefi ts are provided by certain Group companies to qualifying employees and pensioners. The healthcare benefi t costs are determined through annual actuarial valuations by independent consulting actuaries using the projected unit credit method. Such gains or losses are recognised over the expected remaining working lives of the participating members. Adjustments are made annually through profi t or loss for provisions held for members who have already retired. Actuarial gains and losses are recognised in full in the period in which they occur. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. The tax charge payable is based on taxable profi t for the year. Taxable profi t differs from profi t as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date. Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amounts of assets and liabilities in the fi nancial statements and the corresponding tax bases used in the computation of taxable profi t. In general, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profi t will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities, which affects neither the tax profi t nor the accounting profi t at the time of the transaction. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that suffi cient taxable profi ts will be available to allow all or part of the asset to be recovered.

223 Massmart Annual Report Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Secondary Taxation on Companies (STC) is payable on net dividends paid and is recognised as a tax charge in profi t or loss in the year it is incurred. Any tax on capital gains is deferred if the proceeds of the sale of the assets are invested in similar assets, but the tax will ultimately become payable on sale of that similar asset. Inventories Inventories, which consist of merchandise, are valued at the lower of cost and net realisable value. Cost is calculated on the weighted-average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Financial instruments Financial assets and fi nancial liabilities are recognised on the Group s statement of fi nancial position when the Group becomes a party to the contractual provisions of the instrument. Financial assets are classifi ed into the following specifi ed categories: READ MORE GROUP FINANCIAL STATEMENTS More detail on inventories can be found in note 19 on page 249 READ MORE GROUP FINANCIAL STATEMENTS More detail on financial instruments can be found in note 39 on page 276 R Fair value through profi t or loss (FVTPL) These are held at fair value and any adjustments to fair value are taken to the income statement. Listed investments are carried at market value by reference to stock exchange quoted selling prices. R Loans and receivables These are held at amortised cost less any impairment losses recognised to refl ect irrecoverable amounts. R Held-to-maturity investments These are held at amortised cost less any impairment losses recognised to refl ect irrecoverable amounts. R Available-for-sale investments These are held at fair value and any adjustment to fair value is taken to equity. The classifi cation depends on the nature and purpose of the fi nancial assets and is determined at the time of initial recognition. Effective interest method This is a method of calculating the amortised cost of a fi nancial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the fi nancial asset or, where appropriate, a shorter period.

224 222 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June 2011 Income is recognised on an effective interest basis for debt instruments other than those fi nancial assets designated as at fair value through profi t or loss. Loans and receivables Trade receivables, loans and other receivables are measured initially at fair value, and are subsequently measured at amortised cost using the effective interest method. Appropriate allowances for estimated irrecoverable amounts are recognised in profi t and loss when there is objective evidence that the asset is impaired. Cash and cash equivalents Cash and cash equivalents are measured at fair value. For purposes of the statement of cash fl ows, cash and cash equivalents comprise cash on hand, deposits held on call with banks and investments in money-market instruments that are readily convertible to a known amount of cash and are subject to an insignifi cant risk of change in value, net of bank overdrafts. Investments READ MORE GROUP FINANCIAL STATEMENTS More detail on investments can be found in note 16 on page 245 Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs. At subsequent reporting dates, debt securities that the Group has the express intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest method, less any impairment loss recognised to refl ect irrecoverable amounts. An impairment loss is recognised in profi t or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investment s carrying amount and the present value of estimated future cash fl ows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. Investments other than held-to-maturity debt securities are classifi ed as either investments held-for-trading or as available-for-sale, and are subsequently measured at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in profi t or loss for the period. Unrealised gains and losses on available-for-sale investments are recognised directly in equity until the disposal or impairment of the relevant investment, at which time the cumulative gain or loss previously recognised in equity is included in the profi t or loss for the period. Impairment losses recognised in profi t or loss for equity investments classifi ed as available-for-sale are not subsequently

225 Massmart Annual Report reversed through profi t or loss. Impairment losses recognised in profi t or loss for debt instruments classifi ed as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss. Listed investments are carried at market value, which is calculated by reference to stock exchange quoted selling prices at the close of business on the reporting date. Financial liabilities and equity Financial liabilities are classifi ed according to the substance of the contractual arrangements entered into and the defi nitions of a fi nancial liability and an equity instrument. Debt instruments issued, which carry a right to convert to equity that is dependent on the outcome of uncertainties beyond the control of both the Group and the holder, are classifi ed as liabilities, except where conversion is certain. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Financial liabilities, other than derivative instruments, are recognised at amortised cost, comprising original debt less principal payments and amortisations. Financial liabilities include fi nance lease obligations, interest-bearing bank loans and overdrafts, and trade and other payables. The accounting policy for fi nance lease obligations is outlined on page 218. Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group s accounting policy for borrowing costs (see below). Trade payables Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method. Equity instruments Equity instruments are recorded as the proceeds received, net of direct issue costs. Derivative financial instruments and hedge accounting The Group s activities expose it primarily to the fi nancial risks of changes in foreign exchange rates and interest rates. The Group uses foreign exchange forward contracts to hedge its exposure to foreign currency fl uctuations relating to certain fi rm trading commitments. The use of fi nancial derivatives is governed by the Group s policies approved by the Board, which provide written principles on the use of fi nancial derivatives consistent with the Group s risk management strategy. The Group does not trade in derivative fi nancial instruments for speculative purposes.

226 224 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June 2011 Derivative fi nancial instruments are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. The effective portion of the changes in fair value of derivative fi nancial instruments that are designated and qualify as cash fl ow hedges are recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in profi t or loss. If the hedged fi rm commitment or forecast transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. Amounts deferred in equity are recognised in profi t or loss in the same period in which the hedged fi rm commitment affects profi t or loss. Changes in the fair value of derivative fi nancial instruments that do not qualify as cash fl ow hedges are recognised in profi t or loss as they arise. The hedge is de-designated as a cash fl ow hedge at the Shipped on Board date, and discontinued when the hedging instrument is sold, expired, terminated, exercised, or no longer qualifi es for hedge accounting. At the time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast transaction is recognised in profi t or loss. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profi t or loss for the period. READ MORE GROUP FINANCIAL STATEMENTS More detail on provisions can be found in note 25 and note 27 on pages 257, 259 READ MORE GROUP FINANCIAL STATEMENTS More detail on share-based payments can be found in note 22 on page 253 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that the Group will be required to settle that obligation. Provisions are measured at management s best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material. Share-based payments The Group issues equity-settled share-based payments to employees who are benefi ciaries of the various Group share schemes. Equity-settled share-based payments are measured at fair value (excluding the effect of non-marketbased vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group s estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. Fair value is measured by use of a Binomial model. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. Borrowing costs All borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. All other borrowing costs are recognised as an expense in the period in which they are incurred.

227 Massmart Annual Report Technical review International Financial Reporting Standards Massmart fi rst adopted International Financial Reporting Standards (IFRS) with effect from 1 July Subsequent amendments have been made to the standards, resulting in revised issue and version dates. All these amendments have been complied with in line with the transitional provisions of that standard. There has been no impact on the business, fi nancial or practical of any amendments become effective in the past fi nancial year. The Group is exposed to the following suite of standards: STANDARD STANDARD S NAME IFRSs Improvements to International Financial Reporting Standards IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 7 Statement of Cash Flows IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events After the Reporting Period IAS 11 Construction Contracts IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefi ts IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 24 Related Party Disclosures IAS 26 Accounting and Reporting by Retirement Benefi t Plans IAS 27 Consolidated and Separate Financial Statements IAS 28 Investments in Associates IAS 29 Financial Reporting in Hyperinfl ationary Economies IAS 31 Interests in Joint Ventures IAS 32 Financial Instruments: Presentation IAS 33 Earnings Per Share IAS 34 Interim Financial Reporting IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets IAS 39 Financial Instruments: Recognition and Measurement IAS 40 Investment Property

228 226 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Technical review continued STANDARD IAS 41 AC 500 AC 501 AC 502 AC 503 AC 504 STANDARD S NAME Agriculture Preface to South African Statements and Interpretations of Statements of Generally accepted Accounting Practice Accounting for Secondary Tax on Companies (STC) Substantively Enacted Tax Rates and Tax Laws Accounting For Black Economic Empowerment (BEE) Transactions The Limit on a Defi ned Benefi t Asset, Minimum Funding Requirements and Their Interaction in the South African Pension Fund Environment The Improvements to International Reporting Standards is a relatively new standard issued by the International Accounting Standards Board (IASB). This standard is due to be issued annually and is the IASB s project that provides them with a vehicle for making non-urgent but necessary amendments to IFRSs. Some amendments involve consequential amendments to other IFRSs. Massmart has adopted the standard issued in April There were no fi nancial or practical implications on the business. A new standard was issued in May 2010 that becomes effective for Massmart s 2012 fi nancial year-end. There were various other smaller amendments made to the standards which we feel are not material and thus have not listed them individually. IFRS 9 Financial Instruments was issued in January 2010 and again in December 2010, effective for year-ends beginning on or after 1 January 2013, which would mean the Group s 2014 fi nancial year. Early adoption is permitted, but the Group has elected not to do so. IFRS 9 is currently unfi nished, and the intention is for it to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. In its current format, there is no fi nancial impact on the Group s results. However, the biggest theoretical change for the Group is the change from the four classifi cations of fi nancial assets (being: fair value through profi t or loss, loans and receivables, held-to-maturity and available-for-sale) to two classifi cations (being: assets measured at fair value through profi t or loss and those measured at amortised cost). The standard does allow the entity to elect that certain equity investments be measured at fair value with value changes reported in other comprehensive income. The new standard enhances the ability of investors and other users of fi nancial information to understand the accounting of fi nancial assets and reduces its complexity. Four additional standards were issued but are not yet effective for the current period. They are listed below with a brief description of the amendment. These standards are all effective for year-ends beginning on or after 1 January 2013, which would mean the Group s 2014 fi nancial year. STANDARD STANDARD S NAME DETAIL OF AMENDMENT IFRS 10 Consolidated Financial Statements New standard that replaces the consolidation requirements in SIC-12 Consolidation Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. Standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated fi nancial statements of the parent company and provides additional guidance to assist in the determination of control where this is diffi cult to assess IFRS 11 Joint Arrangements New standard that deals with the accounting for joint arrangements and focuses on the rights and obligations of the arrangement, rather than its legal form. Standard requires a single method for accounting for interests in jointly controlled entities

229 Massmart Annual Report STANDARD STANDARD S NAME DETAIL OF AMENDMENT IFRS 12 IFRS 13 Disclosure of Interests in Other Entities Fair Value Measurement New and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles New guidance on fair value measurement and disclosure requirements The IASB issued an exposure draft in August 2010 containing various proposals to improve the fi nancial reporting of lease contracts, ED 288 Exposure Draft of an Amendment to Statements of Generally Accepted Accounting Practice Leases. The accounting treatment under the existing requirements depends on the classifi cation of a lease. Classifi cation as an operating lease results in the lessee not recording any assets or liabilities in the statement of fi nancial position under IFRS. This results in many investors having to adjust the fi nancial statements (using disclosures and other available information) to estimate the effects of lessees operating leases for the purpose of investment analysis. The proposals would result in a consistent approach to lease accounting for both lessees and lessors a right-of-use approach. Among other changes, this approach would result in the liability for payments arising under the lease contract and the right to use the underlying asset being included in the lessee s statement of fi nancial position, thus providing more complete and useful information to investors and other users of fi nancial statements. As part of the transition, we would remove the lease liability that currently sits in the statement of fi nancial position resulting from Circular 07/2005 Operating Leases that required us to smooth operating leases. We anticipate the exposure draft becoming a standard in approximately two to three years. We are currently unable to estimate accurately the fi nancial impact on the Group, although it will be material, as the change proposed has raised some concerns in the fi nancial community. Once these issues have been clarifi ed, we will indicate the fi nancial impact on the Group s results. Interpretations of Statements of Generally Accepted Accounting Practice The International Financial Reporting Interpretations Committee (IFRIC) is a committee of the International Accounting Standards Board (IASB) that assists the IASB in establishing and improving standards of fi nancial accounting and reporting for the benefi t of users, preparers and auditors of fi nancial statements. The role of the IFRIC is to provide timely guidance on newly identifi ed fi nancial reporting issues not specifi cally addressed in International Financial Reporting Standards (IFRSs) or issues where unsatisfactory or confl icting interpretations have developed, or seem likely to develop. It thus promotes the rigorous and uniform application of IFRSs. The following IFRIC s were issued or re-issued since the start of the fi nancial year, or earlier but became effective for the current fi nancial year. There is no impact on the Group from any of these IFRIC s, and they have only been included for completeness. IFRIC IFRIC 1 IFRIC 2 IFRIC 4 IFRIC 5 IFRIC 6 IFRIC 7 IFRIC 9 IFRIC 10 IFRIC 12 NAME Changes in Existing Decommissioning, Restoration and Similar Liabilities Members Shares in Co-operative Entities and Similar Instruments Determining Whether an Arrangement Contains a Lease Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds Liabilities Arising from Participating in a Specific Market Waste Electrical and Electronic Equipment Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies Re-assessment of Embedded Derivatives Interim Financial Reporting and Impairment Service Concession Arrangements

230 228 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Technical review continued IFRIC IFRIC 13 IFRIC 14 IFRIC 15 IFRIC 16 IFRIC 17 IFRIC 18 IFRIC 19 NAME Customer Loyalty Programmes IAS 19 The Limit an a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Amendment to IFRIC 14 Prepayments of a Minimum Funding Requirement Agreements for the Construction of Real Estate Hedges of Net Investment in a Foreign Operation Distributions of Non-cash Assets to Owners Transfer of Assets from Customers Extinguishing Financial Liabilities with Equity Instruments An IFRIC becomes inoperative and is withdrawn when an IFRS or other authoritative document issued by the IASB that overrides or confi rms a previously issued IFRIC becomes effective. Circulars A circular is issued by the Johannesburg Stock Exchange Limited (JSE) or The South African Institute of Chartered Accountants (SAICA) where guidance or clarifi cation is required on an identifi ed fi nancial reporting issue on a South African platform (as opposed to an IFRIC, discussed above, that operates on an international platform). This assistance is required to establish and improve standards of fi nancial accounting and reporting for the benefi t of users, preparers and auditors of fi nancial statements. It thus attempts to promote the rigorous and uniform application of the standards. The following circular was issued since the start of the 2011 fi nancial year. It has no impact on the Group, and has been included for completeness. CIRCULAR NAME DATE ISSUED IMPACT ON THE GROUP Circular 1/2011 Statement of Generally Accepted Accounting Practice; International Financial Reporting Standard for Small and Medium-sized Entities March 2011 This circular has no impact on the Group. Where a circular has an impact on the Group, the results of the Group would have to be adjusted retrospectively, as if the Group had always accounted for the circular correctly. Summary The Group s accounting policies are governed by IFRS and the AC 500 series as issued by the Accounting Practices Board and listed above. Guidance has been obtained from IFRIC s and circulars effective on 5 October 2011, also listed above. Due to the nature and volatility of Exposure Drafts (ED s), no review has been provided, except for the lease exposure draft specifi cally discussed above. The Group believes that accounting standards set the minimum requirement for fi nancial reporting. The fi nancial statements in this Annual Report have been prepared with the aim of exposing the reader to a very detailed view of the numbers, using a simplifi ed approach, in the hope of facilitating a deeper and informed understanding of the business.

231 Massmart Annual Report Acquisition of subsidiaries 3.1 Subsidiaries acquired Control Purchasing Principal Date of acquired division activity acquisition (%) 2011 JD s Cash and Carry Masscash Retail Cash and Carry 1 November Savemore Cash and Carry Masscash Retail Cash and Carry 15 November Rahme Guys Masscash Retail Cash and Carry 1 July Cambridge Nongome Masscash Retail Cash and Carry 1 July Liquorland Express Masscash Wholesale Cash and Carry 1 March Mica Cedar Square Massbuild Home improvement/hardware 1 September % of Kangela was acquired on 29 June 2009, the prior financial year, a further 49% was acquired on 1 June Mica Norwood Massbuild Home improvement/ hardware 15 September Mica South Coast Mall Massbuild Home improvement/hardware 15 September Mica Umhlanga Massbuild Home improvement/hardware 15 September Kangela Massbuild Home improvement/hardware 29 June Emsengeni Massbuild Home improvement/hardware 7 June Emsengeni Masscash Wholesale Cash and Carry 7 June Kawena Distributors Masscash Wholesale Cash and Carry 29 June Finro Masscash Wholesale Cash and Carry 5 October DF Scott Masscash Wholesale Cash and Carry 27 July Mikeva Masscash Wholesale Cash and Carry 20 July Piet Retief Liquors Masscash Wholesale Cash and Carry 1 October Manzini Masscash Wholesale Cash and Carry 10 May Trident Makopane Masscash Wholesale Cash and Carry 2 March Sunshine Masscash Retail Cash and Carry 29 June ,02 Astor Masscash Retail Cash and Carry 1 January MC Meat Distributors Masscash Distribution centre 1 December Cambridge Properties Corporate Property 31 March % of Cambridge Food was acquired in the June 2009 financial year, a further 49% was acquired on 31 March Analysis of assets and liabilities acquired The net asset value of the businesses acquired during the year was R46 million (2010: R188.9 million) on the date of acquisition. 3.3 Net cash outflow on acquisition Rm Rm Total purchase price (170.3) (379.3) Less: Cash and cash equivalents of subsidiary (0.7) 9.4 Net cash position for the Group (171.0) (369.9) R The net cash outfl ow as refl ected above can be found in note 38.8 on page 275.

232 230 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Acquisition of subsidiaries continued 3.4 Goodwill arising on acquisition R Goodwill arose in the business combinations because the cost of the combination included a control premium. In addition, the consideration paid for the combination effectively included amounts in relation to the benefi t of the expected synergies, revenue growth and future market development. These benefi ts are not recognised separately from goodwill as the future economic benefi ts arising from them cannot be reliably measured. R Goodwill was recognised in the current and prior year on all the acquisitions listed above. R Goodwill of R185.0 million (2010: R305.8 million), raised on the acquisitions refl ected above is recognised in note 14 on page Revenue Rm Rm Sales 52, ,451.0 Change in fair value of fi nancial assets carried at fair value through profi t or loss Instalment-sale fi nance charges Dividends from unlisted investments Royalties and franchise fees Management and administration fees Property rentals Commissions and fees Other , , Impairment of assets Notes Rm Rm Tangible assets Goodwill Intangible assets R The impairment of assets in the current year relates to the impairment of certain acquired goodwill in Masscash. R The impairment of assets in the prior year relates to the impairment of computer software in Builders Warehouse due to an IT upgrade and the impairment of fi xed assets in Game due to a fi re in the Benoni store.

233 Massmart Annual Report Operating profit Rm Rm Credits to operating profit include: Foreign exchange profi t Profi t on disposal of tangible and intangible assets Charges to operating profit include: Depreciation and amortisation (owned assets): Buildings Fixtures, fi ttings, plant and equipment Computer hardware Leasehold improvements Right of use 1.9 Motor vehicles Computer software Trademarks Depreciation and amortisation (leased assets): Buildings Fixtures, fi ttings, plant and equipment Computer equipment Motor vehicles Foreign exchange loss * Share-based payment expense Massmart Holdings Limited Employee Share Trust Massmart Thuthukani Empowerment Trust Massmart Black Scarce Skills Trust Operating lease charges 1, Land and buildings 1, Plant and equipment Computer equipment Motor vehicles Loss on disposal of tangible and intangible assets Walmart Transaction Costs Advisors fees Accelerated share-based payment charge 70.1 Supplier Development Fund Fees payable: Administrative and outsourcing services Consulting Auditors' remuneration: Current year fee Prior year underprovision 0.3 Tax advice and reviews Consulting and business reviews Contract assignments Other 0.4 * Foreign exchange movements relating to the cost of stock have been reallocated from Foreign exchange loss to Cost of sales in June 2010 (R76.6 million), in line with the Group s accounting policy.

234 232 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Foreign exchange gains and losses Rm Rm Foreign exchange loss arising from loans to African operations * (52.2) (83.1) Foreign exchange gain arising from ineffective hedges Foreign exchange loss arising from an investment in offshore trading structure (21.5) (6.8) Foreign exchange gain/(loss)arising from the translation of foreign creditors 0.9 (25.4) (72.3) (87.7) * Includes foreign exchange gain/(loss) arising from the translation of other small monetary loan balances as described in the explanation below. The Group was exposed to the following currencies for the period under review and their year-end exchange rates were: Spot rate Spot rate Spot rate Country Currency June 2009 June 2010 June 2011 United States US Dollar United Kingdom Pound Sterling European Union Euro Botswana Pula Malawi Malawian Kwacha Mauritius Rupee Mozambique New Metical Namibia Namibian Dollar Nigeria Naira Tanzania Tanzanian Shilling Uganda Uganda Shilling Zambia Zambian Kwacha Ghana New Cedi Source: Oanda Currency converter. Foreign exchange loss arising from loans to African operations In Massdiscounters, a loan is initially provided to African operations as start-up capital and then maintained as a working capital loan. This loan attracts foreign exchange gains/(losses) when it is translated into the functional currency of that entity at year-end. Where the operation holds other monetary balances not in its functional currency, that balance will also attract foreign exchange gains/(losses) when translated at year-end. These balances are not material and have been ignored in the explanation below:

235 Massmart Annual Report The graph below indicates the appreciation (rise in line) or depreciation (fall in line) of each currency to the Rand in the past year: AFRICAN CURRENCIES SPOT RATE RELATIVE TO THE RAND (BASED TO JUNE 2010) Pula Tanzanian Shilling June 2009 December 2009 June 2010 December 2010 June 2011 New Cedi Malawian Kwacha Rupee New Metical Namibian Dollar Naira Uganda Shilling Zambian Kwacha Where there is a depreciation of the African currency (alternatively, a strengthening in the Rand) the resulting impact is a foreign exchange loss on the loan. From the graph, it is evident that almost all the African currencies depreciated against the Rand by the end of the current year (only the Rupee and New Metical closed stronger against the Rand), which explains the translation exchange loss in the income statement. This pattern is consistent with the prior year. The African operations trade in their local currency, which for reporting purposes is also their functional currency. The foreign exchange gain/(loss) that arises when translating the foreign operation into Rands (the Group's presentation currency) is accounted for in the FCTR on the balance sheet. Further details on these translations can be found in note 22 on page 253. Foreign exchange gain arising from ineffective hedges The Group uses foreign exchange forward contracts to hedge its exposure to foreign currency fl uctuations relating to certain fi rm trading commitments. IAS 39 Financial Instruments: Recognition and Measurement defi nes the accounting treatment for cash fl ow hedges, which is also contained in our accounting policies.

236 234 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Foreign exchange gains and losses continued Extract from the Massmart accounting policies in note 1 on page 214: "The effective portion of the changes in fair value of derivative financial instruments that are designated and qualify as cash flow hedges are recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. If the hedged firm commitment or forecast transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. Amounts deferred in equity are recognised in profit or loss in the same period in which the hedged firm commitment affects profit or loss." This foreign exchange gain arises from the ineffective hedges being recognised in profi t or loss. The determination of an ineffective hedge is where the contract price moves outside of the range of 80% to 125% in relation to the underlying spot rate. Foreign exchange loss arising from an investment in offshore trading structure The Group's offshore trading structure is a US Dollar-denominated investment. The graph below shows that the Rand closed relatively stronger on the US Dollar in the current year, which gave rise to a foreign exchange loss on this investment. In the prior year, the Rand closed relatively fl at on the US Dollar, yet there was a foreign exchange gain arising from this investment. This was because during the year the Group realised a portion of their investment when the Rand was relatively weak against the US Dollar with the result being a foreign exchange gain for the Group. US DOLLAR SPOT RATE RELATIVE TO THE RAND 8,0000 7,9425 7,5519 7,6740 7,0000 6,7869 6,9508 6,0000 June 2009 December 2009 June 2010 December 2010 June 2011 Foreign exchange gain/(loss) arising from the translation of foreign creditors Foreign creditors resulting from foreign stock purchases are translated into functional currency at year-end and the exchange difference is accounted for in profi t or loss. As the bulk of foreign creditors are recorded in US Dollars, this exchange difference can be explained by the movement in the Rand against the US Dollar. However, as payments are made to creditors throughout the year that attract different rates of exchange, the entire exchange gain/(loss) cannot be linked to the closing Rand/US Dollar movement.

237 Massmart Annual Report Hyperinflation In the 2007 fi nancial year, the decision was made to prospectively deconsolidate the results of the Zimbabwean Makro operations. In terms of IAS 27 Consolidated and Separate Financial Statements, control is defi ned as 'the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its activities'. It is evident from the current social, political and economic develpoments within Zimbabwe that control does not exist. This has been evidenced through the forcing of retailers to sell goods at predetermined prices and the inablility of the Massmart Group to repatriate monies. It is Massmart's view that, throughout the 2010 fi nancial year, it did not have control over the Zimbabwean operations and, as such, the results remained deconsolidated. On deconsolidation in 2007, the investment in Makro Zimbabwe was refl ected as an 'available-for-sale' fi nancial asset. The fair value of this asset was determined to be zero and the adjustment taken to equity as a reserve. For the period under review the fair value was again assessed as zero and, as a result, there has been no fair value movement. Details can be found in note 16 on page 245. The agreement to sell Makro Zimbabwe was signed in November 2010 and was fi nalised in late February The loss on sale of R38.6 million represents costs relating to the disposal of the Makro Zimbabwe stores. 9. Net finance costs Rm Rm Finance costs Interest on bank overdrafts and loans Interest on obligations under fi nance leases Finance income Income from investments, receivables and bank accounts R Details on the loans and fi nance leases can be found in note 24 on page

238 236 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Taxation Rm Rm Current year South African normal taxation: Current taxation Deferred taxation (20.5) 51.6 Foreign taxation: Current taxation Deferred taxation (0.6) (18.2) Secondary taxation on companies Taxation effect of participation in export partnerships Total Prior year (over)/under provision: South African normal taxation: Current taxation (15.0) (16.7) Deferred taxation (5.5) (0.1) Foreign taxation: Current taxation (0.1) (4.8) Deferred taxation (impairment of deferred taxation assets) (20.4) (21.0) Taxation as refl ected in the Income Statement R Two companies in the Group participate in Trencor export partnerships. As the companies are liable for the tax effect of the participation, the amount is classifi ed as a taxation charge. Details on the export partnership can be found in note 16 on page % % The rate of taxation is reconciled as follows: Standard corporate taxation rate Exempt income (0.4) Disallowable expenditure Foreign income 0.9 (0.2) Prior year under-provision (including impairment) (1.4) (1.2) Secondary taxation on companies Other (4.5) (1.3) Effective rate

239 Massmart Annual Report Dividends paid to shareholders Rm Rm Final cash dividend No 21 (2010: No 19) Interim cash dividend No 22 (2010: No 20) Final Thuthukani preference share dividend No 8 (2010: No 6) Interim Thuthukani preference share dividend No 9 (2010: No 7) Total dividends paid R No 19 of cents declared on 26 August 2009 and paid on 21 September 2009 (R268.4 million). R No 20 of cents declared on 24 February 2010 and paid on 23 March 2010 (R507.4 million). R No 21 of cents declared on 25 August 2010 and paid on 20 September 2010 (R270.1 million). R No 22 of cents declared on 23 February 2011 and paid on 22 March 2011 (R514.0 million). R No 23 of cents declared on 24 August 2011 and paid on 19 September 2011 (R286.6 million)* R No 6 of cents declared on 26 August 2009 and paid on 21 September 2009 to the Massmart Thuthukani Empowerment Trust (R13.5 million). R No 7 of cents declared on 24 February 2010 and paid on 23 March 2010 to the Massmart Thuthukani Empowerment Trust (R33.1 million). R No 8 of cents declared on 25 August 2010 and paid on 20 September 2010 to the Massmart Thuthukani Empowerment Trust (R23.6 million). R No 9 of cents declared on 23 February 2011 and paid on 22 March 2011 to the Massmart Thuthukani Empowerment Trust (R38.3 million). R No 10 of cents declared on 24 August 2011 and paid on 19 September 2011 to the Massmart Thuthukani Empowerment Trust (R14.4 million).* * This amount is provisional as the shares in issue can only be fi nalised on the last day to register which is after the date of this Annual Report.

240 238 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Earnings per share Ordinary shares No of shares No of shares In issue 213,883, ,495,504 Weighted average 203,516, ,750,981 Diluted weighted average 214,683, ,816,898 Attributable and headline earnings per share The calculation of atttributable and headline earnings per share is based on the weighted average number of ordinary shares. The calculation is reconciled as follows: Pre-taxation Post-taxation Pre-taxation Post-taxation Rm Rm Cents/share Rm Rm Cents/share Profi t attributable to the equity holders of the parent , Adjustments after minorities: (Profi t)/loss on disposal of tangible assets (2.9) (1.7) (0.8) Loss on disposal of business Impairment of assets Headline earnings , Transaction Costs 408, Headline earnings before Transaction Costs 1, ,

241 Massmart Annual Report Rm Rm Cents/share Cents/share Diluted attributable and diluted headline earnings per share The calculation of diluted atttributable and diluted headline earnings per share is based on the weighted average number of ordinary shares. The calculation is reconciled as follows: Profi t attributable to the equity holders of the parent Adjustment for impact of issuing ordinary shares (21.4) (24.3) Diluted attributable earnings , Headline earnings , Adjustment for impact of issuing ordinary shares (22.5) (24.5) Diluted headline earnings , Diluted headline earnings before transaction costs 1, , Weighted average shares outstanding No of shares No of shares Weighted average shares outstanding for basic and headline earnings per share 203,516, ,750,981 Potentially dilutive ordinary shares resulting from outstanding options 11,166,830 9,065,917 Weighted average shares outstanding for diluted and diluted headline earnings per share 214,683, ,816,898 R Both the Thuthukani 'A' preference shares and the Black Scarce Skills 'B' preference shares are currently dilutive and have a small effect on diluted basic and diluted headline earnings per share.

242 240 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Property, plant and equipment Cost/carrying Accumulated value depreciation Net book value Rm Rm Rm 2011 Owned assets Freehold land and buildings Fixtures, fi ttings, plant and equipment 2, , ,407.3 Computer hardware Leasehold improvements Motor vehicles , , ,655.9 Capitalised leased assets Freehold land and buildings Fixtures, fi ttings, plant and equipment Computer hardware Motor vehicles Total 4, , , Owned assets Freehold land and buildings Fixtures, fi ttings, plant and equipment 2, , ,098.9 Computer hardware Leasehold improvements Motor vehicles , , ,979.4 Capitalised leased assets Freehold land and buildings Fixtures, fi ttings, plant and equipment Computer hardware Motor vehicles Total 3, , ,055.2 R A register of land and buildings as required by the Companies Act of South Africa is available for inspection by members at the registered offi ces of the companies in the Group. R Certain capitalised leased property, plant and equipment is encumbered as per note 24 on page 256.

243 Massmart Annual Report Opening net book value Additions Additions through acquisitions Disposals Depreciation Foreign exchange loss Impairment Closing net book value Rm Rm Rm Rm Rm Rm Rm Rm Reconciliation of property, plant and equipment: 2011 Owned assets Freehold land and buildings (10.7) Fixtures, fi ttings, plant and equipment 1, (13.9) (271.9) (1.8) 1,407.3 Computer hardware (1.5) (59.7) (0.1) Leasehold improvements (1.3) (36.6) (2.6) Motor vehicles (15.0) (18.7) (1.5) , , (31.7) (397.6) (6.0) 2,655.9 Capitalised leased assets Freehold land and buildings 38.3 (2.0) 36.3 Fixtures, fi ttings, plant and equipment 7.9 (3.0) 4.9 Computer hardware (6.7) 8.3 Motor vehicles (4.3) (10.5) (4.3) (22.2) 61.9 Total 2, , (36.0) (419.8) (6.0) 2,717.8

244 242 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Property, plant and equipment continued Opening net book value Additions Additions through acquisitions Disposals Depreciation Foreign exchange loss Impairment Closing net book value Rm Rm Rm Rm Rm Rm Rm Rm 2010 Owned assets Freehold land and buildings (5.5) (0.2) Fixtures, fi ttings, plant and equipment (3.4) (212.2) (4.3) (1.4) 1,098.9 Computer hardware (0.1) (51.7) (0.4) Leasehold improvements (3.8) (30.2) (14.4) Motor vehicles (1.4) (15.2) (0.7) , (8.7) (314.8) (20.0) (1.4) 1,979.4 Capitalised leased assets Freehold land and buildings 40.3 (2.0) 38.3 Fixtures, fi ttings, plant and equipment 10.7 (2.8) 7.9 Computer hardware (4.5) 12.6 Motor vehicles (1.3) (11.8) (1.3) (21.1) 75.8 Total 1, (10.0) (335.9) (20.0) (1.4) 2,055.2 R The Group has reviewed the residual values and useful lives of the assets. No material adjustment resulted from such review in the current period. R The following useful lives are used in the calculation of depreciation: Buildings 50 years Fixtures, fi ttings, plant and equipment 4 to 15 years Motor vehicles 4 to 10 years Computer hardware 3 to 8 years Leasehold improvements Shorter of lease period or useful life R There is no investment property in the Group and all assets are held at historical cost.

245 Massmart Annual Report Goodwill Rm Rm Reconciliation of goodwill: Balance at the beginning of the year 1, ,588.2 Additions through acquisitions Impairment (10.0) (0.7) Disposals (16.0) Exchange differences (0.6) (2.3) Balance at the end of the year 2, ,875.0 Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefi t from that business combination. Before recognition of impairment losses, the carrying amount of signifi cant goodwill had been allocated, as follows: Masscash Holdings (Pty) Ltd 1, Builders Warehouse (a division of Massbuild (Pty) Ltd) Builders Trade Depot (a division of Massbuild (Pty) Ltd) R The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. R When testing goodwill for impairment, the recoverable amounts of the CGUs are determined as the lower of value in use and fair value less costs to sell. The key assumptions for the value in use calculations are discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using rates that refl ect current market assumptions of the time value of money and the risks specifi c to the CGUs. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. R The Group prepares cash fl ow forecasts based on the CGUs' results for the next fi ve years. A terminal value is calculated based on a conservative growth rate of 3% (2010: 3%). This rate does not exceed the average long-term growth rate for the relevant markets. The valuation method applied is consistent with the prior period. R The rate used to discount the forecast cash fl ows is 10.5% (2010: 13.5%). R The impairment of goodwill in the current year relates to the impairment of certain acquired goodwill in Masscash. Goodwill of R0.7 million was impaired in the prior year on a generator business in the Massbuild division. R In 2011 the additions through acquisitions relate to the purchase of Mica Cedar Square. Kangela, JD s Cash and Carry, Savemore Cash and Carry, Rahme Guys, Cambridge Nongoma and Liquorland Express. Further details relating to these acquisitions can be found in note 3 on page 229. R In 2010 the additions through acquisitions relate to the purchase of Kangela and Kawena, Cambridge Properties, Sunshine, Finro, DF Scott, Mikeva, MC Meat, Astor, Piet Retief Liquors, Emsengeni, Manzini, Trident Makopane and three Mica stores. Further details relating to these acquisitions can be found in note 3 on page 229. R In the prior year, the contract business of CellShack was disposed of and the relative goodwill on that business was realised.

246 244 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Other intangibles Cost/carrying Accumulated Net book value amortisation value Rm Rm Rm 2011 Owned assets Computer software Right of use Trademarks Total Owned assets Computer software Trademarks Total Reconciliation of other Opening net book value Additions Additions through acquisitions Disposals Amortisation Foreign exchange loss Impairment Closing net book value intangible assets: Rm Rm Rm Rm Rm Rm Rm Rm 2011 Owned assets Computer software (1.5) (54.3) Right of use 37.8 (1.9) 35.9 Trademarks 2.2 (0.3) 1.9 Total (1.5) (56.5) Owned assets Computer software (0.8) (46.6) (0.2) (1.6) Trademarks 2.5 (0.3) 2.2 Total (0.8) (46.9) (0.2) (1.6) R The Group has reviewed the useful lives of the assets for reasonability. There were no material adjustments in the current period. R The following useful lives are used in the calculation of depreciation: Computer software 3 to 8 years Trademarks 10 years

247 Massmart Annual Report Investments Rm Rm Investment in associate Share of post-acquisition profi t, net of dividend received Amounts owing to associate On 11 October 2010, one of Massmart's subsidiaries acquired the remaining 66.7% shares in Clidet No 484 (Pty) Ltd and so this former associate has been consolidated accordingly. Purchase of 66.7% of Clidet No 484 (Pty) Ltd by a Massmart subsidiary (9.3) 2.8 Details of the Group's associate at date of purchase were as follows: Name of associate Clidet No 484 (Pty) Ltd Place of incorporation and operation South Africa Proportion of ownership interest 33,3% Proportion of voting power held 33,3% Principal activity Investment property 33,3% of the R100 share capital was purchased for R33. The fi nancial reporting date for Clidet No 484 (Pty) Ltd is 26 June. This investment falls into the corporate segment in terms of segmental reporting. Summarised fi nancial information in respect of the Group's associate is set out below: Total assets Total liabilities Net assets Group's share of associate's net assets Revenue Profi t for the year Group's share of associate's profi t for the year has been included in 'other operating costs' in the consolidated income statement Unlisted investments Fair value through profit or loss (FVTPL) Held for trading Bare dominium revaluation Other investments 7.9 Investment in offshore trading structure Total fi nancial assets classifi ed as held for trading Designated as at FVTPL Participation in insurance cell-captive on extended warranties Participation in insurance cell-captive on premium contributions Total fi nancial assets designated as at FVTPL Total fair value through profi t or loss (FVTPL) Loans and receivables Trencor export partnership Total loans and receivables Held-to-maturity investments carried at amortised cost Other investments Total held-to-maturity investments Total unlisted investments Listed investments Other investments Total investments

248 246 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Investments continued Rm Rm Reconciliation of fi nancial assets carried at fair value through profi t or loss (FVTPL): Opening balance Fair value adjustments taken to the income statement Other 7.9 Foreign exchange adjustment taken to the income statement (21.5) (6.8) Closing balance Further details on the investments in this category: R The 'bare dominium revaluation' refl ects Massmart's right to acquire a 49.9% share in the bare dominium over seven Makro properties. R The 'investment in offshore trading structure' is in M-class preference shares representing an international treasury, shipping and trading business unit. R The 'participation in an insurance cell-captive on extended warranties' relates to an insurance arrangement with Mutual & Federal pertaining to extended warranties sold within the Group. R The 'participation in an insurance cell-captive on premium contributions' relates to an insurance arrangement with Mutual & Federal pertaining to general insurance within the Group. Reconciliation of loans and receivables Opening balance Investment realised (0.2) (0.2) Closing balance Further details on the investments in this category: R The 'Trencor export partnership' represents our participation in export containers. Reconciliation of held-to-maturity investments Opening balance Amortisation taken to the income statement (0.6) 0.5 Closing balance Further details on the investments in this category: Reconciliation of available-for-sale investments Opening balance Fair value adjustment Closing balance Further details on the investments in this category: R Listed investments include shares held on the JSE. R The directors value the unlisted investments at R363.7 million (2010: R312.2 million). R For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these investments, see note 39 on page 276.

249 Massmart Annual Report Other financial assets Rm Rm Housing loans to the executive committee members of Massmart Holdings Limited: Balance at the beginning of the year 0.3 Advanced during the year Repayments (0.3) Balance at the end of the year Employee share trust loans to the directors and executive committee members of Massmart Holdings Limited: Balance at the beginning of the year Advanced during the year Repayments (117.6) (21.9) Balance at the end of the year Other employees' loans: Housing and staff loans Employee share trust loans 12.2 Finance lease deposit Other loans R These loans are classifi ed as 'Loans and receivables'. For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these values, see note 39 on page 276. R All housing and staff loans bear interest at various rates below the prime interest rate. The loans to the employee share trust participants, including executive directors, attract interest of zero percent and are secured by the underlying shares. R The fi nance lease deposit accrues interest at 13.6%. R Details of the housing and employee share trust loans to the directors and executive committee members of Massmart Holdings Limited: Pattison, Hayward, Other executive GM GRC committee Total Rm Rm Rm Rm 2011 Balance at the beginning of the year Advanced during the year Repayments (30.6) (24.4) (62.6) (117.6) Balance at the end of the year Balance at the beginning of the year Advanced during the year Repayments (3.9) (3.0) (15.3) (22.2) Balance at the end of the year

250 248 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Deferred taxation Rm Rm The movements during the year are analysed as follows: Net asset at the beginning of the year Charge to profi t or loss for the year 26.4 (34.0) Charge to equity 0.6 (4.5) Disposal of subsidiary (3.1) (13.3) Net asset at the end of the year Deferred taxation balances are presented in the balance sheet as follows: Deferred taxation assets Deferred taxation liabilities (22.2) (19.4) Opening balance Charged to income Charged to equity Acquisitions/ disposals Exchange differences Closing balance Rm Rm Rm Rm Rm Rm 2011 Temporary differences Trademarks Assessed loss unutilised (7.1) 88.7 Export partnerships (4.0) 0.2 (3.8) Debtors provisions (0.1) 14.1 Prepayments (149.8) (29.6) (179.4) Creditors provisions (0.1) 74.4 Property, plant and equipment (73.7) (17.4) (3.1) 0.5 (93.7) Finance leases 10.8 (2.4) 8.4 Long-term provisions Income not accrued (5.1) 5.0 (0.1) Deferred income 54.6 (5.5) (1.0) 48.1 Operating lease adjustment (0.3) Other temporary differences (30.4) (8.9) 0.6 (0.2) (38.9) Total (3.1) (8.3) Temporary differences Trademarks Assessed loss unutilised (3.7) 65.5 Export partnerships (4.3) 0.3 (4.0) Debtors provisions Prepayments (127.5) (21.5) (0.8) (149.8) Creditors provisions (0.1) 63.3 Property, plant and equipment (38.8) (17.3) (17.6) (73.7) Finance leases 12.3 (1.5) 10.8 Long-term provisions Income not accrued (0.3) (4.8) (5.1) Deferred income 55.3 (22.7) 22.6 (0.6) 54.6 Operating lease adjustment (0.6) (0.3) Other temporary differences 3.8 (9.6) (4.5) (20.2) 0.1 (30.4) Total (29.4) (4.5) (13.3) (4.6) 218.9

251 Massmart Annual Report Inventories Rm Rm Food Inventory at cost Provisions (130.3) (122.0) Liquor Inventory at cost Provisions (20.6) (19.2) General Merchandise Inventory at cost Provisions (240.2) (235.4) Home Improvements Inventory at cost Provisions (155.8) (146.3) Total inventory net of provisions Carrying amount of inventories carried at net realisable value R Inventories are carried at the lower of cost and net realisable value. R Provisions include: shrinkage and obsolescence provisions, write-downs to net realisable value and unearned rebates and settlement discounts per SAICA Circular 9/2006 Transactions giving rise to Adjustments to Revenue/Purchases. R Inventory is fully funded by trade payables. Details of trade payables can be found in note 26 on page 258. R No inventory is pledged as security. COMPOSITION OF TOTAL INVENTORIES (%) % Food 30.0 Liquor 6.1 General merchandise 43.5 Home improvements 20.4

252 250 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Trade, other receivables and prepayments Rm Rm Trade receivables 1, ,272.3 Allowance for doubtful debts (59.8) (56.1) 1, ,216.2 Prepayments Other accounts receivable 1, ,060.6 Total receivables net of provisions 2, ,322.6 Movement in allowance for doubtful debts Balance at the beginning of the year Decrease in allowance recognised in profi t or loss Balance at the end of the year Ageing of debtors provided for: 60 to 90 days to 120 days days Total R No interest is charged on the trade receivables for the fi rst 30 days from the date of the invoice. Thereafter, differing structures exist between the Divisions with interest being charged between 12% and 24% (2010: 12% and 24%) per annum on the outstanding balance. Trade receivables between 30 days and 180 days are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience. It is the Group's policy to provide fully for all receivables that are past due because historical experience is such that these receivables are generally not recoverable. R Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defi nes credit limits by customer. Limits and scoring attributed to customers are reviewed quarterly to once a year. There is no customer who represents more than 5% of the total balance of trade receivables. R Included in the Group's trade receivables balance are debtors with a carrying amount of R8.8 million (2010: R8.1 million) which are past due at the reporting date for which the Group has not provided. The Group considers the amounts recoverable and currently holds security over these debtors or the debtors are insured Rm Rm Ageing of past due debtors but not impaired 60 to 90 days to 120 days days Total R In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. R Included in the allowance for doubtful debts in the prior year were specifi c trade receivables with a balance of R7.0 million which had been placed under liquidation. This represented the difference between the carrying amount of the specifi c trade receivable and the present value of the expected liquidation proceeds. There were no specifi c trade receivables under liquidation included in the current year. R Trade receivables are classifi ed as 'Loans and receivables'. For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these values, see note 39 on page 276.

253 Massmart Annual Report Issued capital Share capital Share premium Rm Rm Rm Rm Authorised 500,000,000 (2010: 500,000,000) ordinary shares of 1 cent each ,000,000 (2010: 20,000,000) non-redeemable cumulative non-participating preference shares of 1 cent each ,000,000 (2010: 18,000,000) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each ,000,000 (2010: 4,000,000) 'B' convertible redeemable non-cumulative participating preference shares of 1 cent each Issued 213,883,460 (2010: 201,495,504) ordinary shares of 1 cent each ,192,748 (2010: 17,673,670) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each ,295,662 (2010: 3,871,523) 'B' convertible redeemable non-cumulative participating preference shares of 1 cent each Number of Share capital Share premium shares Rm Rm Ordinary shares Balance at June ,302,639* Shares issued in terms of the Massmart Thuthukani Empowerment Trust 85,328 Shares issued in terms of the Massmart Black Scarce Skills Trust 107,537 Ordinary shares issued June ,495, Treasury shares (60,056) (7.4) Ordinary shares issued excluding treasury shares June ,435, Balance at June ,495,504* Shares issued in terms of the Massmart Executive Share scheme 6,331, Shares issued in terms of the Massmart Thuthukani Empowerment Trust 5,480,922 Shares issued in terms of the Massmart Black Scarce Skills Trust 575,861 Ordinary shares issued June ,883, Treasury shares (107,644) Ordinary shares issued excluding treasury shares June ,775, * The number of shares is the ordinary shares issued before deducting treasury shares

254 252 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Issued capital continued R Ordinary shares, which have a par value of 1 cent, carry one vote per share and carry the right to dividends. Number of Share capital Share premium shares Rm Rm 'A' convertible redeemable non-cumulative participating preference shares Balance at June 2009 Net shares issued in terms of the Massmart BEE transaction 17,758, Shares converted to ordinary shares (85,328) Treasury shares (17,673,670) (0.2) Balance at June 2010 Net shares issued in terms of the Massmart BEE transaction 17,673, Shares converted to ordinary shares (5,480,922) Treasury shares (12,192,748) (0.2) Balance at June 2011 R 'A' convertible redeemable non-cumulative participating preference shares, which have a par value of 1 cent, are held in the Thuthukani Empowerment Trust. These shares carry one vote per share, which are cast by the appointed trustees, and carry the right to dividends. On election of the benefi ciary, the shares will convert to ordinary shares on a one-for-one basis and will rank pari passu with all ordinary shares then in issue. Number of Share capital Share premium shares Rm Rm 'B' convertible redeemable non-cumulative participating preference shares Balance at June 2009 Net shares issued in terms of the Massmart BEE transaction 3,979,060 Shares converted to ordinary shares (107,537) Treasury shares (3,871,523) Balance at June 2010 Net shares issued in terms of the Massmart BEE transaction 3,871,523 Shares converted to ordinary shares (575,861) Treasury shares (3,295,662) Balance at June 2011 R 'B' convertible redeemable non-cumulative participating preference shares, which have a par value of 1 cent, are held in the Black Scarce Skills Trust. These shares carry one vote per share, which are cast by the trustees, and do not carry the right to dividends. On election of the benefi ciary, the shares will convert to ordinary shares on a one-for-one basis and will rank pari passu with all ordinary shares then in issue. Share options granted under the Massmart Holdings Limited Employee Share Trust R As at June 2011, executives and senior employees have options over 6,079,937 ordinary shares (of which 3,846,383 are unvested). As at June 2010, executives and senior employees had options over 14,156,168 ordinary shares (of which 11,812,673 are unvested). R Share options granted under the Employee Share Incentive Scheme carry no rights to dividends and no voting rights. Further details of the Employee Share Incentive Scheme are contained in note 29 on page 260. R During the period under review, the only shares bought in the market were by the Share Trust whereby 2.1 million shares were bought at an average price of R totalling R273.9 million.

255 Massmart Annual Report R During the prior year, the only shares bought in the market were by the Share Trust whereby 1.2 million shares were bought at an average price of R totalling R137.2 million. R The directors have the authority, until the next annual general meeting, to issue the ordinary shares of the Company up to a maximum of 5% of the shares already issued. 22. Other reserves Rm Rm Foreign currency translation reserve (35.4) (38.0) Hedging reserve (2.2) (0.6) Share-based payment reserve Capital redemption reserve fund Amortisation of trademarks Fair value adjustment of available-for-sale fi nancial asset (13.2) (13.2) Fair value adjustment on listed shares Change in minority interests Cost of acquiring minority interests (272.0) (212.9) Treasury shares (1.3) Reconciliation of the foreign currency translation reserve Balance at the beginning of the year (38.0) (7.1) Translation on consolidation 2.6 (30.9) Balance at the end of the year (35.4) (38.0) R Exchange differences relating to the translation from functional currencies of the Group's foreign subsidiaries into Rands are accounted for in the foreign currency translation reserve. Reconciliation of the hedging reserve Balance at the beginning of the year (0.6) (12.4) Movement on cash fl ow hedges (1.6) 11.8 Balance at the end of the year (2.2) (0.6) R The hedging reserve represents hedging gains and losses recognised on the effective portion of cash fl ow hedges. The hedge is released from equity at the same time the forecast transaction is recognised in profi t or loss. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profi t or loss for the period. Reconciliation of the share-based payment reserve Balance at the beginning of the year Share-based payment expense related to the Massmart Holdings Limited Employee Share Trust Share-based payment expense related to the Massmart Thuthukani Empowerment Trust Share-based payment expense related to the Massmart Black Scarce Skills Trust Share-based payment expense related to the Walmart Transaction 70.1 Balance at the end of the year R The share-based payment reserve arises on grant of share options to employees under the Employee Share Incentive Schemes. Details of the Employee Share Incentive Schemes can be found in note 29 on page 260. The share-based payment valuation was performed by Alexander Forbes for all periods and all schemes are equity-settled share schemes.

256 254 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Other reserves continued Massmart Share Schemes Massmart Holdings Limited Employee Share Trust Details of the share options outstanding during the year are as follows: Number of share options Weighted average exercise price Number of share options Weighted average exercise price Rand Rand Outstanding at the beginning of the year 14,156, ,055, Granted during the year 584, ,051, Forfeited during the year (411,375) (692,519) Exercised during the year (8,248,973) (2,258,320) Outstanding at the end of the year 6,079, ,156, Exercisable at the end of the year 2,233,554 3,315,237 In 2011, the weighted average share price at the date of exercise for share options exercised during the year was R The options outstanding at the end of the year had a weighted average remaining contractual life of 6.9 years. Options were granted on 1 September The estimated fair values of the options granted on this date was R In 2010, the weighted average share price at the date of exercise for share options exercised during the year was R The options outstanding at the end of the year had a weighted average remaining contractual life of 3.7 years. Options were granted on 1 September 2009, 1 October 2009, 16 November 2009, 1 March 2010, 1 April 2010 and 1 May The estimated fair values of the options granted on those dates were R23.77, R25.93, R26.48, R27.58, R30.99 and R36.14, respectively These fair values were calculated using the Binomial model. The inputs into the model were as follows: Weighted average share price (Rand) at granting dates Expected volatility 32.8% 34.2% 32.6% 36.0% Expected life 3 10 years 3 5 years Risk-free rate 6.5% 7.2% 7.5% 8.4% Expected dividend yield 4.3% 4.5% 4.8% 5.0% Expected volatility was determined by calculating the historical volatility of the Company's share price over the number of previous years corresponding with the option lifetime. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

257 Massmart Annual Report Massmart Thuthukani Empowerment Trust In 2011, the weighted average share price at the date of exercise for share options was R The options outstanding at the end of the year had a weighted average remaining contractual life of 15 months. In 2010, the weighted average share price at the date of exercise for share options was R The options outstanding at the end of the year had a weighted average remaining contractual life of 27 months. These fair values were calculated using the Binomial model. The inputs into the model were as follows: Weighted average share price (Rand) at granting dates (no issues in 2008, 2009, 2010 or 2011) Expected volatility 30.1% 32.3% 30.1% 32.3% Expected life 5 years 5 years Risk-free rate 8.3% 8.4% 8.3% 8.4% Expected dividend yield 3.7% 3.7% Expected volatility was determined by calculating the historical volatility of the Company's share price over the number of previous years corresponding with the option lifetime. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Massmart Black Scarce Skills Trust In 2011, the weighted average share price at the date of exercise for share options exercised during the year was R The options outstanding at the end of the year had a weighted average remaining contractual life of 3.0 years. No options were granted in the current fi nancial year. In 2010, the weighted average share price at the date of exercise for share options exercised during the year was R The options outstanding at the end of the year had a weighted average remaining contractual life of 4.0 years. Options were granted on 27 May 2009 and 1 April The estimated fair values of the options granted on those dates were R22.97 and R30.99, respectively. These fair values were calculated using the Binomial model. The inputs into the model were as follows: Weighted average share price (Rand) at granting dates Expected volatility 32.6% 37.1% 32.6% 37.1% Expected life 3 5 years 3 5 years Risk-free rate 7.1% 8.4% 7.1% 8.4% Expected dividend yield 4.6% 4.9% 4.6% 4.9% Expected volatility was determined by calculating the historical volatility of the Company's share price over the number of previous years corresponding with the option lifetime. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

258 256 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Minority interest Rm Rm At the beginning of the year Net changes in minority interests (1.0) (0.8) Income attributable to minorities Minorities relating to acquisitions Distribution to minorities (27.5) (41.6) At the end of the year R The minority interests comprise mainly CBW store managers' holdings in certain Masscash stores. R The minorities relating to acquisitions is the take on minority balance on all acquisitions in the period. 24. Non-current liabilities Rm Rm Interest-bearing Unsecured Medium-term payable Less: Included in current liabilities (4.2) (4.2) Secured Medium-term bank loans Less: Included in current liabilities (286.8) (217.9) Capitalised fi nance leases Less: Included in current liabilities (22.3) (25.0) Total interest-bearing liabilities Interest-free Unsecured Minority shareholders' loans Income received in advance Less: Included in trade and other payables (21.5) (26.3) Operating lease liability Less: Included in trade and other payables Total non-interest-bearing liabilities Total non-current liabilities 1,

259 Massmart Annual Report R Included in current liabilities is a medium-term payable of R4.2 million (2010: R4.2 million), which is an amount owing to the Massmart Education Trust relating to cash reserves invested with Group Treasury. The short-term portion has been accounted for in note 28 on page 259. R A new three-year fi xed term loan of R500 million was secured during the fi nancial year payable quarterly over three years. The loan bears interest of 8.1%. The loan is secured by intra-group cross suretyships. The short-term portion has been accounted for in note 28 on page 259. R Two medium-term amortising bank loans, raised in the 2006 fi nancial year to fund the Massbuild acquisitions were repaid in the current fi nancial year. The loans bore interest at a fi xed rate of 8.8% and 8.7% respectively. The loans were secured by intragroup cross suretyships. R A three-year fi xed term loan of R500 million was secured during the second half of the previous fi nancial year repayable quarterly over three years. The loan bears interest of 9.8%. The loan is secured by intragroup cross suretyships. The short-term portion has been accounted for in note 28 on page 259. R Capitalised fi nance leases include: vehicle, fi xtures, fi ttings, plant and computer equipment and property leases, repayable in monthly instalments varying from one to fi ve years at varying interest rates between 4.0% and 17.5% (2010: between 4.5% and 17.5%). The short-term portion has been accounted for in note 28 on page 259. R The capitalised fi nance leases are secured by moveable assets with a book value of R24.2 million (2010: R37.5 million) and the property lease by the value of the underlying land amounting to R36.4 million (2010: R38.3 million). These assets are accounted for in note 13 on page 240. R The income received in advance is for extended warranties which are sold within the Group and which have been released over the prior period. The short-term portion has been accounted for in note 26 on page 258. R The operating lease liability relates to the lease smoothing adjustment required by IAS 17 Leases. The shortterm portion has been accounted for in note 26 on page 258. R For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these values, see note 39 on page Non-current provisions Rm Rm Onerous lease provision Less: Payable within one year included in current provisions (14.4) (2.1) Provision for Supplier Development Fund Provision for post-retirement medical aid contributions and other medical aid provisions Repayable within 1 year* Repayable in 2 5 years Repayable after 5 years Total Rm Rm Rm Rm * Included in current provisions in note 27 on page 259. R Certain Group companies provide post-retirement healthcare benefi ts to their retirees. This fund is accounted for as a defi ned benefi t plan and measured using the projected unit credit method. The liability is unfunded. The main assumption used in calculating the costs and the provision is an 'interest rate medical infl ation rate' gap of 1.0% (2010: 1.5%).

260 258 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Non-current provisions continued Rm Rm The net expense recognised in the income statement is: Current service cost Interest cost Benefi ts paid against balance sheet held liability (1.5) (1.4) Net actuarial loss/(gain) recognised in the year 1.6 (2.9) Net expense recognised as part of employment costs Movements in the post-retirement medical aid liability: Opening defi ned benefi t obligation Expense as above Closing defi ned-benefi t obligation R The last valuation of the liability for the post-retirement medical aid contributions was performed as at 30 June 2011 by Alexander Forbes, Fellow of the Institute of Actuaries (2010: Alexander Forbes, Fellow of the Institute of Actuaries). The current year costs have been assessed in accordance with the advice of independent actuaries. R The net actuarial loss in the current year arose as a result of a combination of the following factors: R An unexpected loss of R5.6 million arose as a result of an decrease in the real discount rate, ie a decrease in the difference between the discount rate and the healthcare cost infl ation assumption from 1.5% per annum to 1.0% per annum. R Lower than expected infl ation resulted in a net gain of R1.7 million. R Unexpected changes in the membership and membership profi le resulted in a net gain of R2.3 million. R Other than the changes listed above, the remaining assumptions are consistent with the assumptions applied in the prior year. 26. Trade and other payables Rm Rm Trade payables 7, ,329.0 Income received in advance short-term portion Operating lease liability short-term portion (21.8) (6.0) Leave pay accrual FEC liability Sundry payables and other accruals 1, , , ,194.3 R The income received in advance is for extended warranties which are sold within the Group and which have been released over the period under review. The long-term portion has been accounted for in note 24 on page 256. R The operating lease liability relates to the lease smoothing adjustment required by IAS 17 Leases. The longterm portion has been accounted for in note 24 on page 256. R The Group has fi nancial risk management policies in place to ensure that all payables are paid within the credit timeframe. Settlement discounts received range from 1.0% to 3.0% (2010: 1.0% to 3.0%). R For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these values, see note 39 on page 276.

261 Massmart Annual Report Provisions Rm Rm Onerous lease provision ,1 Leasehold improvements 1,5 Other ,2 26,8 25,8 R Provisions raised against specifi c assets, for example inventories and trade receivables, are offset against those assets. Opening balance Amounts provided Amounts utilised Unused amounts reversed Closing balance Reconciliation of provisions Rm Rm Rm Rm Rm 2011 Onerous lease provision (2.7) 14.4 Leasehold improvements 1.5 (1.5) Other 22.2 (9.6) (0.2) (13.8) (0.2) Restructuring costs raised on acquisition 0.7 (0.7) Onerous lease provision (0.8) 2.1 Leasehold improvements 6.0 (4.5) 1.5 Other (0.7) (5.3) Other current liabilities Rm Rm Medium-term bank loans Capital short-term portion Interest accrual Capitalised fi nance leases Massmart Education Trust loan Trade fi nance facility Lamberti Education Foundation Trust loan

262 260 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Other current liabilities continued R A new three-year fi xed term loan of R500 million was secured during the fi nancial year payable quarterly over three years. The loan bears interest of 8.1%. The loan is secured by intra-group cross-suretyships. The medium-term portion has been accounted for in note 24 on page 256. R Two medium-term amortising bank loans, raised in the 2006 fi nancial year to fund the Massbuild acquisitions were repaid in the current fi nancial year. The loans bore interest at a fi xed rate of 8.8% and 8.7% respectively. The loans were secured by intragroup cross suretyships. R A three-year fi xed term loan of R500 million was secured during the second half of the previous fi nancial year repayable quarterly over three years. The loan bears interest of 9.8%. The loan is secured by intragroup cross suretyships. The medium-term portion has been accounted for in note 24 on page 256. R Capitalised fi nance leases include: vehicle fi xtures, fi ttings, plant and computer equipment and property leases, repayable in monthly instalments varying from one to fi ve years at varying interest rates between 4.0% and 17.5% (2010: between 4.5% and 17.5%). The short-term portion has been accounted for in note 28 on page 256. R The capitalised fi nance leases are secured by moveable assets with a book value of R24.2 million (2010: R37.5 million) and the property lease by the value of the underlying land amounting to R36.4 million (2010: R38.3 million). These assets are accounted for in note 13 on page 240. R The Massmart Education Trust loan represents cash reserves invested with Group Treasury. The medium-term portion has been accounted for in note 24 on page 256. R The trade fi nance facility is an offshore US Dollar facility available for working capital requirements. The Group has used this facility to fund four African working capital loans - namely Botswana, Ghana, Malawi and Mozambique (2010: Ghana, Malawi and Mozambique). The facility is capped at USD 20 million, of which we have utilised USD 10.9 million (2010: USD 8.3 million) at the balance sheet date. R The Lamberti Education Foundation Trust loan represents cash reserves invested with Group Treasury. R For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these values, see note 39 on page Employee share incentive schemes s 000s Massmart Holdings Limited Employee Share Trust Total shares and options available to the scheme 39,500 39,500 Total shares and options available to the scheme 39,500 39,500 Shares and treasury shares issued to the scheme (16,493) (10,142) Remaining capacity for issue in terms of the JSE practice 23,007 29,358 Opening balance of shares and options 17,515 19,502 New shares and options offered to employees and executive directors 584 1,312 Shares and options sold by employees and directors (10,134) (2,607) Shares repurchased from/forfeited by employees and options lapsed/forfeited (411) (692) Closing balance of shares and options 7,554 17,515 The closing balance includes 1,474,255 (2010: 3,358,878) shares and 6,079,937 (2010: 14,156,168) options. Shares and options previously issued to employees who then subsequently left the Group are excluded from the fi gures above. The amendments needed to bring the Share Trust rules in line with the new JSE Schedule 14 requirements were approved by the shareholders at the AGM on 24 November Options may be exercised at any time, but shares arising out of options may only be sold when they have vested with the participant.

263 Massmart Annual Report Vesting occurs over a fi ve-year period, as follows: 25% two years after the offer date; 50% three years after the offer date; 75% four years after the offer date; 100% fi ve years after the offer date; and expires ten years after the offer date. In terms of the scheme rules, all share loans on offers must be repaid or options exercised no later than 10 years from the offer date. The following options granted to employees and directors in terms of the Massmart Employee Share Incentive Scheme have not yet been exercised: Offer date Expiry date Exercise price (R) No of options at June 2010 No of options forfeited and expired No of options exercised New options granted No of options at June November November ,25 250, , August August ,95 537, , , January January ,03 50,000 25,500 24,500 1 September August ,31 24,210 24, February February ,24 2,750 2,750 1 April March ,91 400, , ,000 1 May April ,42 2,535 1,293 1, May May ,97 128,692 83,376 45, May May ,88 87,703 64,149 23,554 1 October September ,48 7,556 6,497 1,059 1 November October ,91 31,320 16,859 14, November November ,19 69,126 47,057 22,069 1 April March ,74 93,818 47,853 45, May May ,13 223,361 6, ,434 78, August August ,93 60,710 40,582 20,128 1 October September ,42 35,297 3,443 18,543 13, November November ,04 93,028 53,573 39, February February ,79 376, , ,856 2 April April ,67 18,388 11,098 7, May May ,25 1,529,970 46, , , August August ,75 178, ,319 73, November November ,58 243, , ,960 1 April March ,91 1,312,945 42, , , May May ,86 3,214, ,754 1,737,247 1,334,508 1 September August ,86 520,175 45, , , October October ,42 596, , , November November ,91 98,900 50,445 48,455 1 March February ,71 318, , , May May ,598, ,331 1,316,421 1,174,634 1 September August , , ,617 1 October September ,902 34,634 33,268

264 262 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Employee share incentive schemes continued Offer date Expiry date Exercise price (R) No of options at June 2010 No of options forfeited and expired No of options exercised New options granted No of options at June November November ,665 37,578 36,087 1 March February , , ,519 1 April March ,680 98,278 94,402 1 May April ,286 17,172 79,117 75,997 1 September August , , ,166 14,156, ,375 8,248, ,117 6,079, s 000s Massmart Thuthukani Empowerment Trust Total shares and options available to the scheme 18,000 18,000 Opening balance of share units 12,826 13,694 Shares sold (8,550) (85) Shares repurchased from/forfeited by employees and options lapsed/forfeited (100) (783) Closing balance of share units 4,176 12,826 Vesting occurs over a six-year period, as follows: 33,3% in October 2010; 33,3% in October 2011; 33,4% in October 2012; and expires six years after the offer date.

265 Massmart Annual Report The following options granted to eligible employees in terms of the Massmart Thuthukani Empowerment Trust have not yet been exercised: Offer date Expiry date Exercise price (R) No of options opening balance No of options forfeited and expired No of options exercised No of options closing balance October October September ,826, ,635 8,550,028 4,175, September ,693, ,232 85,328 12,826, s 000s Massmart Black Scarce Skills Trust Total preference shares available to the scheme 3,979 3,979 Reconciliation of units Opening balance of share units 2,203 2,271 New share units offered to employees 304 Shares sold by employees (1,148) (285) Share units repurchased from/forfeited by employees and options lapsed/forfeited (165) (87) Closing balance of share units 890 2,203 Conversion of share units into preference shares Vesting occurs over a fi ve-year period, as follows: 25% two years after the offer date; 50% three years after the offer date; 75% four years after the offer date; 100% fi ve years after the offer date; and expires six years after the offer date.

266 264 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Employee share incentive schemes continued The following options granted to eligible employees in terms of the Massmart Black Scarce Skills Trust have not yet been exercised: Offer date Expiry date Exercise price (R) No of options opening balance No of options forfeited and expired No of options exercised New options granted No of options closing balance October September ,485 9, , ,325 2 April April ,309 9,637 7, November November ,277 6,056 3,221 1 April March ,507 25, , ,790 1 October September ,787 95, , ,998 1 April March ,759 7,742 27,242 24, May May ,889 8,105 7,784 1 April March ,862 25, , ,045 2,202, ,582 1,148, , October September ,132 10, , ,485 2 April April ,807 4,498 17, November November ,794 1,517 9,277 1 April March ,751 44, , ,507 1 October September ,566 30, ,787 1 April March ,759 59, May May ,889 15,889 1 April March , , Retirement benefit information 2,270,698 86, , ,862 2,202,875 All full-time permanent Massmart staff are members of either the Massmart Pension Fund, the Massmart Provident Fund or the SACCAWU National Provident Fund. These funds are defi ned contribution funds and are subject to the Pension Funds Act, Following the recent acquisitions, many of their staff are still members of the retirement funds of the previous business owners. Projects are underway to transfer these employees to one of the above funds in future. With effect from 1 March 2007, the Massmart Pension Fund and Massmart Provident Fund have been classifi ed as valuation exempt. This exemption expired on 1 March 2010 and had to be re-applied for by 1 March The application for both funds was submitted in May 2010 to the Financial Services Board. Approval for the Massmart Provident Fund was received on 11 June 2010 and on 26 April 2011 in respect of the Massmart Pension Fund. The new exemption expires on 1 March Contributions received by the funds for the year ended 30 June 2011 amounted to R294 million (2010: R257 million). The Group's contribution of R176 million (2010: R154 million) was included in the income statement for the year as part of the employee costs.

267 Massmart Annual Report Commitments Rm Rm Commitments in respect of capital expenditure approved by directors: Contracted for Stores to be opened Stores to be refurbished Purchase of new system software Purchase of new hardware Store relocations Minor revamps Purchase of plant and equipment 17.9 Other Not contracted for Stores to be opened Stores to be refurbished Purchase of new system software Purchase of new hardware Store relocations Minor revamps Store conversions 45.9 Purchase of plant and equipment 15.0 Other , R Massmart has the right of fi rst refusal on the sale of any shares by the minority shareholders in various CBW stores. Historically Massmart has exercised this right. The amount to be paid in future, should Massmart exercise its rights, totals R244.2 million (2010: R224.7 million). R Capital commitments will be funded using current facilities.

268 266 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Operating lease commitments Rm Rm Land and buildings Year 1 1, Years 2 to 5 4, ,774.1 Subsequent to year 5 4, , , ,532.6 Plant and equipment Year Years 2 to Other Year Years 2 to Subsequent to year , ,573.5 R Promissory notes that represent commitments under non-cancellable operating leases of R485.2 million (2010: R650.0 million) entered into by Masstores (Pty) Limited on behalf of certain Makro stores are included in operating lease commitments in land and buildings. These leases terminate in December 2020 and have a discounted present value of R338.0 million (2010: R485.1 million), discounted at 15% (2010: 15%). In accordance with IAS 17 Leases, the rentals paid are amortised over the entire remaining lease period on a straight-line basis. 33. Contingent liabilities Rm Rm Contingent liability R Other than noted below, there are no current or pending legal or arbitration proceedings, of which the Group is aware, which would have a material effect on the Group's fi nancial position. R Following the South African Competition Tribunal s approval of the Walmart / Massmart merger in June 2011, certain Unions and South African Government departments have fi led legal papers to appeal and review, respectively, the Tribunal s decision. This matter will be heard by the Competition Appeal Court on October Whilst the outcome of this hearing is uncertain, Walmart and Massmart are confi dent about the strength of our legal position. In the unlikely event of an adverse ruling, whatever that may be, it is unclear what the impact, if any, will be on the Group s fi nancial position. Shareholders will be kept informed about all material developments in this regard.

269 Massmart Annual Report Related-party transactions Rm Rm Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below. Compensation of key management personnel: The remuneration of executive directors and other key management (defi ned as the 11-person Massmart Executive Committee) during the year was as follows: Short-term benefi ts (salaries, benefi ts and short-term incentives) Retirement benefi ts Other long-term benefi ts Gains on exercise of share options R The remuneration of directors and key executives is determined by the Remuneration Committee having regard to the performance of individuals and market trends. There was no change to the composition of the Executive Committee during the two years under review. R The gains on exercise of share options in 2011 arises mainly as a result of the Walmart acquisition in June Other related-party transactions: R From time to time, in the normal course of business, Massmart and its divisions make use of private aircraft hired from competitively selected charter companies, two of which operate aircraft indirectly benefi cially owned by the Group's Chairman, Mark Lamberti. R The Group holds cash reserves on behalf of the Group's Chairman, Lamberti Education Foundation Trust. Further details relating to these cash reserves can be found in note 28 on page 259. R Loans to directors have been disclosed in note 17 on page 247. R The post-retirement medical aid liability, Massmart Pension Fund and Massmart Provident Fund are managed for the benefi t of past and current employees of the Group. Further details can be found in note 25 and note 30 on page 257 and 264, respectively.

270 268 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Directors emoluments The comments below provide further background and context to the fi gures disclosed in this note, Directors emoluments, and Interests of directors in the Company s Share Scheme (note 36 on page 271). GM Pattison Following a third-party executive remuneration analysis which assessed positions of similar stature and complexity, the Remuneration and Nominations Committee awarded Grant a 23.8% increase to his salary and allowances for the 2011 fi nancial year, from R3.02 million to R3.74 million. In line with the Group s Shortterm Executive Incentive Scheme which rewards executives based on growth in HEPS, he received six months salary as a bonus. In addition, the Committee awarded him a qualitative bonus of six months in recognition of his exceptional effort, leadership and effective communication with all aspects of the Walmart transaction. These bonuses totalled R3.67 million. During the 2011 fi nancial year, but before the commencement of the closed period caused by the Walmart transaction, Grant converted and sold 85,919 Massmart shares and options realising a gain on exercise of share options of R5.5 million. Furthermore, as result of Walmart acquiring 51% of the Massmart vested and unvested share options held by benefi ciaries of the Massmart Employee Share Trusts, Grant necessarily had to convert and sell 752,961 shares and options, realising a gain on exercise of share options of R72.4 million. Through the share scheme, Grant holds 723,418 Massmart shares and options of which 42,202 shares are held in the Pattison Family Trust, of which Grant is a benefi ciary. The average length of time that he has held these is 5.4 years and the average strike price is R51.84 per share. The Pattison Family Trust also directly owns 218,055 Massmart shares. GRC Hayward Following a third-party executive remuneration analysis which assessed positions of similar stature and complexity, the Remuneration and Nominations Committee awarded Guy a 13.7% increase to his salary and allowances for the 2011 fi nancial year, from R2.42 million to R2.75 million. In line with the Group s Shortterm Executive Incentive Scheme which rewards executives based on growth in HEPS, he received six months salary as a bonus. In addition, the Committee awarded a qualitative bonus of three months in recognition of his exceptional effort with regard to the Walmart transaction. These bonuses totalled R2.06 million. During the 2011 fi nancial year, but before the commencement of the Closed Period caused by the Walmart transaction, Guy converted and sold 175,000 Massmart shares and options realising a gain on exercise of share options of R19.3 million. Furthermore, as a result of Walmart acquiring 51% of the Massmart vested and unvested share options held by benefi ciaries of the Massmart Employee Share Trusts, Guy necessarily had to convert and sell 410,747 shares and options, realising a gain on exercise of share options of R36.9 million. Through the share scheme, Guy holds 394,627 Massmart shares and options of which 19,912 shares are held in the Bluett-Hayward Trust, of which Guy is a benefi ciary. The average length of time that he has held these is 4.7 years and the average strike price is R58.20 per share. Guy also owns 36,517 Massmart shares directly.

271 Massmart Annual Report Services as directors of Massmart Holdings Limited Bonuses and performancerelated payments 1 Otherwise in connection with the affairs of Massmart Holdings Fringe benefit of interestfree loans used to Gains on exercise of share options and on shares purchased Retirement Salary and allowances Other benefits and related benefits Limited Subtotal finance shares 2 by directors Total R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 For the year ended June 2011 Executive directors Pattison, GM 3,738 3, ,280 3,829 77,947 90,056 Hayward, GRC 2,751 2, ,493 3,073 56,164 64,730 6,489 5, ,773 6, , ,786 Non-executive directors Lamberti, MJ Seabrooke, CS Brand, MD* Davis, JA Dlamini, KD* Gwagwa, NN Hodkinson, JC* Langeni, P Matthews, IN* Maw, P* McMillan, CD Suarez, JP Mokhobo, DNM* Rubin, MJ* , ,183 5,183 Prescribed Officers Prescribed Offi cer A 3, ,185 48,425 Prescribed Offi cer B 5,229 1,413 22,108 28,750 Prescribed Offi cer C 5,690 1,533 21,401 28,624 Prescribed Offi cer D 2,866 1,960 19,086 23,912 Prescribed Offi cer E 5,828 14,531 20,359 Prescribed Offi cer F 4, ,522 18,622 Prescribed Offi cer G 2, ,016 12,995 Prescribed Offi cer H 2, ,391 12,389 Prescribed Offi cer I 2, ,564 11,881 Prescribed Offi cer J 2,510 5,267 7,777 37,776 6, , ,734 Total 5,143 6,489 5, ,732 13, , ,703 1 In order to match incentive awards with the performance to which they relate, bonuses above refl ect 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. * Resigned 20 June 2011

272 270 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Directors' emoluments continued Services as directors of Massmart Holdings Limited Bonuses and performancerelated payments 1 Otherwise in connection with the affairs of Massmart Holdings Fringe benefit of interestfree loans used to Gains on exercise of share options and on shares purchased by Retirement Salary and allowances Other benefits and related benefits Limited Subtotal finance shares 2 directors Total R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 For the year ended June 2010 Executive directors Pattison, GM 3, ,659 4,513 9,172 Hayward, GRC 2, ,777 3,733 7,510 5,438 1, ,436 8,246 16,682 Non-executive directors Lamberti, MJ Seabrooke, CS Brand, MD Combi, ZL Dlamini, KD Gwagwa, NN Hodkinson, JC Langeni, P Matthews, IN Maw, P Mokhobo, DNM Rubin, MJ , ,201 5,201 Prescribed Officers Prescribed Offi cer A Prescribed Offi cer B Prescribed Offi cer C Prescribed Offi cer D Prescribed Offi cer E 4, ,360 6,329 Prescribed Offi cer F Prescribed Offi cer G Prescribed Offi cer H Prescribed Offi cer I Prescribed Offi cer J ,498 8,652 20,349 66,500 Total 5,161 5,438 1, ,135 16,898 20,349 88,383 1 In order to match incentive awards with the performance to which they relate, bonuses above refl ect 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 1 May 2010.

273 Massmart Annual Report Interests of directors in the Company's share scheme Details of directors' shares and share options per director: Relevant date Subscription price (R) Market price (R) Number of shares/ share options Pattison, GM Balance at the beginning of the previous year 1,562,298 No shares were traded, exercised or granted in the prior period. Gain on sale/ exercise (R000) Expiry date Balance at the beginning of the year 1,562,298 Shares traded 26 May (35,919) Shares traded 23 May (382,500) 35,904 Shares traded 24 May (28,052) 1,508 Shares traded 26 May (43,480) 3,264 Shares traded 27 May (43,929) 3,092 Options exercised 27 August (50,000) 5,549 Options exercised 27 August (51,000) 6,990 Options exercised 1 April (204,000) 21,640 New shares/options granted Balance at the end of the year 723,418 77,947 Comprising: 27 August , August April , March May , May May , May May , May May , May 2019

274 272 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Interests of directors in the Company's share scheme continued Relevant date Subscription price (R) Market price (R) Number of shares/ share options Gain on sale/ exercise (R000) Expiry date Hayward, GRC Balance at the beginning of the previous year 1,032,898 No shares were traded, exercised or granted in the current period. Balance at the beginning of the year 1,032,898 Shares traded 10 March (8,643) Shares traded 26 May (43,881) Shares traded 1 April (102,000) 10,820 Shares traded 23 May (76,500) 7,180 Shares traded 24 May (25,445) 1,362 Shares traded 1 April (20,729) 1,680 Shares traded 26 May (38,070) 2,860 Shares traded 27 May (109,753) 7,728 Options exercised 13 November (100,000) 10,968 Options exercised 27 August (75,000) 8,324 Options exercised 27 August (38,250) 5,242 New shares/options granted Balance at the end of the year 394,627 56,164 Comprising: 27 August , August April , March May , May May , May April ,912 1 April May , May May , May 2019

275 Massmart Annual Report Principal subsidiaries Details of Massmart's material subsidiary companies are as follows: Number of shares in issue Place of incorporation Ownership Voting power Shares at book value Indebtedness Name of company (000) and operation (%) (%) Principal activity (Rm) (Rm) 2011 De La Rey 1001 Building Materials (Pty) Limited South Africa 100 Selling of building 100 materials Massbuild (Pty) Limited South Africa Jumbo Cash & Carry (Pty) Limited South Africa Wholesale and retail of DIY products Wholesale cash and carry 74.5 Masscash Holdings (Pty) Limited South Africa Holding company 1.0 Massmart International Holdings Limited Mauritius Holding company 81.5 Massmart Management & Finance Company (Pty) Limited South Africa Masstores (Pty) Limited 200 South Africa De La Rey 1001 Building Materials (Pty) Limited South Africa Builders Trade Depot (Pty) Limited South Africa Jumbo Cash & Carry (Pty) Limited South Africa Management, investment and fi nance 34.0 Retailing, warehousing, mass merchandising (478.0) Selling of building materials Wholesale and retail of DIY products 54.9 Wholesale cash and carry 74.5 Masscash Holdings (Pty) Limited South Africa Holding company 1.0 Massmart International Holdings Limited Mauritius Holding company 81.5 Massmart Management & Finance Company (Pty) Limited South Africa Management, investment and fi nance (60.1) Masstores (Pty) Limited 200 South Africa 100 Retailing, warehousing, mass 100 merchandising (478.0) Servistar (Pty) Limited South Africa DIY retailer (134.4) R The above details are given in respect of interests in subsidiaries, where material. A full list of subsidiaries is available to shareholders, on request, at the registered offi ce of the Company.

276 274 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Notes to the cash flow statement Rm Rm 38.1 Cash flow from trading Profi t before taxation 1, ,820.0 Adjusted for: Depreciation, amortisation and impairment Net loss on disposal of property, plant and equipment Interest income (33.2) (45.9) Interest expense Investment income (46.8) (33.8) Dividend income (2.1) (2.3) Share-based payment expense Unrealised foreign exchange loss Supplier Development Fund Other non-cash movements (2.5) (41.3) 2, , Working capital movements Increase in inventories (589.3) (629.9) Increase in trade receivables and prepayments (241.9) (394.8) Increase in trade payables ,319.0 Decrease in provisions (1.4) (1.7) (625.4) Taxation paid Normal taxation: Amounts owing at the beginning of the year (179.8) (161.1) Amounts owing at the end of the year Receiver of Revenue balance acquired on current year acquisitions (1.7) 2.8 Taxation charged to the income statement (excluding deferred taxation) (611.7) (574.3) (645.1) (552.8) 38.4 Investment to maintain operations Land and buildings/leasehold improvements (25.6) (9.7) Vehicles (27.4) (22.8) Fixtures, fi ttings, plant and equipment (152.5) (125.5) Computer hardware (44.0) (33.6) Computer software (95.9) (92.4) (345.4) (284.0) 38.5 Investment to expand operations Land and buildings/leasehold improvements (310.4) (40.8) Vehicles (21.4) (14.6) Fixtures, fi ttings, plant and equipment (415.1) (239.9) Computer hardware (46.0) (33.3) Computer software (12.5) (17.5) Goodwill (37.6) (843.0) (346.1) 38.6 Proceeds on disposal of property, plant and equipment Vehicles Fixtures, fi ttings, plant and equipment Computer software and equipment

277 Massmart Annual Report Rm Rm 38.7 Proceeds on disposal of assets classified as held for sale 15.0 R Proceeds on disposal of 11 Saverite stores 38.8 Investment in subsidiaries Fair value of assets and liabilities acquired in subsidiaries: Cash and cash equivalents 0.7 (9.4) Inventories (23.6) (78.3) Trade and other receivables and prepayments (0.5) (73.7) Tangible assets (82.2) (205.8) Intangible assets (1.2) Loans and investments (25.2) Taxation 1.7 (2.8) Trade payables Provisions Long-term debt Deferred taxation Goodwill (185.0) (305.8) Minorities Other (2.0) Total purchase price (170.3) (379.3) Less: Cash and cash equivalents of subsidiary (0.7) 9.4 Cash impact of acquisition, net of cash and cash equivalents acquired (171.0) (369.9) 38.9 Disposal of subsidiary Net assets at date of disposal: Trade and other receivables and prepayments 6.9 Goodwill 16.0 Total net assets at date of disposal 22.9 Gain on disposal 4.0 Cash and cash equivalents received on sale 26.9 R The disposal of subsidiary in the prior year relates to the sale of the cell phone contract business in CellShack (Masscash) Other investing activities including minority interests acquired Off-shore investment (26.4) (26.9) Cost of acquiring minority interests (48.3) (212.8) Treasury shares 91.1 Other 96.0 (15.2) 21.3 (163.8) Cash and cash equivalents at the end of the year Cash on hand and balances with banks 1, ,368.3 Bank overdrafts (804.7) (57.4) Cash and cash equivalents at the end of the year ,310.9

278 276 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Financial instruments 39.1 Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balances. The capital structure of the Group consists of debt, more specifi cally medium-term interest-bearing debt and equity attributable to equity holders of the parent, comprising share capital, share premium, other reserves and retained profi t. (See notes 21 and 22 respectively on pages 251 and 253). The targeted level of gearing is determined after consideration of the following key factors: R the needs of the Group to fund current and future capital expenditure to achieve its stated production growth target; and R the desire of the Group to maintain its gearing within levels considered to be acceptable taking into account potential business opportunities and the position of the Group in the business cycle. The Group has medium-term debt facilities that include certain covenants, including: R maximum gearing ratio R minimum interest cover R specifi ed levels of shareholders' equity At year-end, of the Group's general banking facility of R3,011.9 million (2010: R1,911.9 million), only R778.4 million (2010: R57.4 million) had been utilised and thus R2,233.5 million (2010: R1,854.6 million) was still available Significant accounting policies Details of significant accounting policies, including the recognition criteria, the basis for measurement and the basis on which income and expenses are recognised, in respect of each category of financial asset, financial liability and equity instrument, are disclosed under the notes in accounting policies (in note 1 on page 214) Categories of financial instruments Fair values of financial instruments All fi nancial instruments have been classifi ed according to the relevant IAS 39 Financial Instruments: Recognition and Measurement category. There is no difference between their fair value and carrying value and they are accounted for as follows: Financial assets Fair value through profi t or loss (FVTPL) These are held at fair value and any adjustments to fair value are taken to the income statement. Listed investments are carried at market value by reference to stock exchange quoted selling prices. Loans and receivables These are held at amortised cost less any impairment losses recognised to refl ect irrecoverable amounts. Held-to-maturity investment These are held at amortised cost less any impairment losses recognised to refl ect irrecoverable amounts. Available-for-sale investments These are held at fair value and any adjustment to fair value is taken comparative income.

279 Massmart Annual Report Financial liabilities All fi nancial liabilities are held as non-trading liabilities and are shown at amortised cost. The cash fl ows expected from the Group's participation in export partnerships over the next two to fi ve years cannot, in the opinion of the directors, be accurately fair valued and therefore have not been discounted. For fair presentation purposes, it is noted that any fair value impairment in the amounts due to the Group by virtue of its participation in such partnerships would result in a corresponding reduction in the fair value of the related deferred tax liability. Consequently, such fair value impairment would have no impact on either the statement of cash fl ows or income statement of the Group. Available- for- Liability at Held-to- sale Non- Financial amortised Loans and maturity financial financial Total instrument FVTPL cost receivables investments assets instrument Rm Rm Rm Rm Rm Rm Rm Rm 2011 Assets Non-current assets Property, plant and equipment 2, ,717.8 Goodwill 2, ,049.4 Other intangibles Investments Investment in associate Bare dominium revaluation Investment in offshore trading structure Participation in insurance cellcaptive on extended warranties Participation in insurance cell-captive on premium contributions Trencor export partnership Other unlisted investments Other listed investments Other fi nancial assets Housing and staff loans Employee share trust loans Finance lease deposit Other loans Deferred taxation Current assets Inventories 6, ,199.7 Trade, other receivables and prepayments 2, , , Trade and other receivables 2, , , Prepayments Taxation Cash and bank balances 1, , ,549.1 Restricted cash held on behalf of Massmart Employee Share Trusts benefi ciaries* 1, , ,093.6 Total assets 17, , , ,610.9

280 278 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Financial instruments continued Available- for- Liability at Held-to- sale Non- Financial amortised Loans and maturity financial financial Total instrument FVTPL cost receivables investments assets instrument Rm Rm Rm Rm Rm Rm Rm Rm Liabilities Non-current liabilities Non-current liabilities interest-bearing Medium-term bank loans Capitalised fi nance lease Non-current liabilities interest-free Minority shareholders' loans Operating lease liability Non-current provisions Deferred taxation Current liabilities Trade and other payables 9, , ,378.4 (0.3) Trade payables 7, , ,553.9 Operating lease liability (21.8) (21.8) Income received in advance Sundry payables and other accruals 1, , ,824.5 Massmart Employee Share Trusts' benefi ciaries liability * 1, , ,093.6 Provisions Taxation Other current liabilities Medium-term payable Medium-term bank loans Capitalised fi nance lease Bank overdrafts Total liabilities 13, , , * These amounts represent the net cash proceeds held in the three Massmart Employee Share Trusts, and the corresponding liability to the benefi ciaries, as a result of the Walmart Transaction. The cash was distributed to benefi ciaries shortly after 26 June The Massmart Employee Share Trusts are consolidated with the Group results. In the Statement of Cash Flows, the two amounts have been contra d in the Cash infl ow from Financing Activities.

281 Massmart Annual Report Available- for- Liability at Held-to- sale Non- Financial amortised Loans and maturity financial financial Total instrument FVTPL cost receivables investments assets instrument Rm Rm Rm Rm Rm Rm Rm Rm 2010 Assets Non-current assets Property, plant and equipment 2, ,055.2 Goodwill 1, ,875.0 Other intangibles Investments Investment in associate Bare dominium revaluation Investment in offshore trading structure Participation in insurance cellcaptive on extended warranties Participation in insurance cell-captive on premium contributions Trencor export partnership Other unlisted investments Other listed investments Other fi nancial assets Housing and staff loans Employee share trust loans Finance lease deposit Other loans Deferred taxation Current assets Inventories 5, ,601.5 Trade, other receivables and prepayments 2, , , Trade and other receivables 2, , ,276.8 Prepayments Taxation Cash and bank balances 1, , ,368.3 Restricted cash held on behalf of Massmart Employee Share Trust benefi ciaries Total assets 14, , , ,060.4

282 280 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Financial instruments continued Available- for- Liability at Held-to- sale Non- Financial amortised Loans and maturity financial financial Total instrument FVTPL cost receivables investments assets instrument Rm Rm Rm Rm Rm Rm Rm Rm Liabilities Non-current liabilities Non-current liabilities interest-bearing Medium-term bank loans Capitalised fi nance lease Non-current liabilities interest-free Minority shareholders' loans Operating lease liability Non-current provisions Deferred taxation Current liabilities Trade and other payables 9, , , Trade payables 7, , ,329.0 Operating lease liability (6.0) (6.0) Income received in advance Sundry payables and other accruals 1, , ,844.4 Provisions Taxation Other current liabilities Medium-term payable Medium-term bank loans Capitalised fi nance lease Bank overdrafts Total liabilities 10, , ,

283 Massmart Annual Report Financial risk management The Group does not trade in fi nancial instruments, but in the ordinary course of business operations, the Group is exposed to a variety of fi nancial risks arising from the use of fi nancial instruments. These risks include: R market risk (comprising interest rate risk, currency risk and other price risk) R liquidity risk R credit risk The Group has developed a comprehensive risk management process to facilitate, control and monitor these risks. This process includes formal documentation of policies, including limits, controls and reporting structures. The Executive Committee is responsible for risk management activities within the Group. Market risk management Market risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market prices. The market risks that the Group is primarily exposed to include currency risk, interest rate risk, and other price risk. Market risk is managed by identifying and quantifying risks on the basis of current and future expectations and ensuring that all trading occurs within defi ned parameters. This involves the review and implementation of methodologies to reduce risk exposure. The reporting on the state of the risk and risk practices to executive management is part of this process. The processes set up to measure, monitor and mitigate these market risks are described below. There has been no change to the Group s exposure to market risk or the manner in which it manages and measures the risk since the prior period. Interest rate management During the year, the position of the Group alternated between having surplus cash and being in a borrowed position. The size of the Group's position, be it either surplus cash or borrowings, exposes it to interest rate risk. The interest-bearing debt funding requirements and the investment of surplus cash funds are managed by Massmart through its own commercial bank facilities.

284 282 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Financial instruments continued 39.4 Financial risk management continued The carrying amount of the Group's fi nancial assets and liabilities at balance sheet date that are subject to interest rate risk is as follows : Subject to interest rate movement Non-interest-bearing Fixed Floating Total Rm Rm Rm Rm 2011 Financial assets Investments Investment in associate Bare dominium revaluation Investment in offshore trading structure Participation in insurance cell-captive on extended warranties Participation in insurance cell-captive on premium contributions Trencor export partnership Other unlisted investments Other listed investments Other financial assets Housing and staff loans Employee share trust loans Finance lease deposit Other loans Trade, other receivables and prepayments Trade and other receivables 2, ,515.2 Cash and bank balances 1, ,549.1 Restricted cash held on behalf of Massmart Employee Share Trusts' beneficiaries 1, ,093.6 Total financial assets , , ,663.4 Financial liabilities Non-current liabilities interest-bearing Medium-term bank loans Capitalised fi nance lease Non-current liabilities interest-free Minority shareholders' loans Trade and other payables Trade payables 7, ,553.9 Sundry payables and other accruals 1, ,828.2 'Massmart Employee Share Trusts' benefi ciaries liability 1, ,093.6 Other current liabilities Medium-term payable Medium-term bank loans Capitalised fi nance lease Bank overdrafts Total financial liabilities 1, , ,292.0

285 Massmart Annual Report Subject to interest rate movement Non-interest-bearing Fixed Floating Total Rm Rm Rm Rm 2010 Financial assets Investments Investment in associate Bare dominium revaluation Investment in offshore trading structure Participation in insurance cell-captive on extended warranties Participation in insurance cell-captive on premium contributions Trencor export partnership Other unlisted investments Other listed investments Other financial assets Housing and staff loans Employee share trust loans Finance lease deposit Other loans Trade, other receivables and prepayments Trade and other receivables 2, ,276.8 Cash and bank balances 1, ,368.3 Total fi nancial assets , , ,229.0 Financial liabilities Non-current liabilities interest-bearing Medium-term bank loans Capitalised fi nance lease Non-current liabilities interest-free Minority shareholders' loans Trade and other payables Trade payables 7, ,329.0 Sundry payables and other accruals 1, ,845.0 Other current liabilities Medium-term payable Medium-term bank loans Capitalised fi nance lease Bank overdrafts Total fi nancial liabilities , ,940.8

286 284 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Financial instruments continued 39.4 Financial risk management continued Interest rate sensitivity The Group is sensitive to the movements in the SA Prime interest rate. The rates of sensitivity represents management's assessment of the possible change in interest rates. The average interest rate for the Group for the year was 7.2% (2010: 8.0%), and the variable interest paid was R59.4 million (2010: R24.8 million). If the SA Prime interest rate increased and decreased by 50 average basis points (2010: increased and decreased by 50 average basis points) at year-end, the income for the year would have decreased and increased by R4.1 million respectively (2010: decreased and increased by R1.6 million respectively). Currency risk management All foreign-denominated trading liabilities are covered by forward exchange contracts. Foreign-denominated assets are not covered by forward exchange contracts. The carrying amount of the Group's foreign currency denominated monetary assets at balance sheet date is as follows : South African Rand US Dollar Euro Other Total Rm Rm Rm Rm Rm 2011 Investments Trade receivables 2, ,515.2 Cash and bank balances 1, , , , Investments Trade receivables 2, ,276.8 Cash and bank balances 1,066.0 (9.6) , , ,901.3 Foreign currency sensitivity The US Dollar is the primary currency to which the Group is exposed. In the past, the US Dollar movement against the Rand has been a good proxy for the Group's exposure to the basket of African currencies. During the 2009 fi nancial year, this relationship broke as the African currencies weakened considerably and can be seen in the graph below. In the 2010 and the 2011 fi nancial years, the relationship was restored.

287 Massmart Annual Report RELATIONSHIP BETWEEN THE AFRICAN BASKET AND THE US DOLLAR (%) RAND MOVEMENT 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% STRENGTH WEAKNESS Rand/African basket Rand/US$ This graph shows the annual change of closing spot rates at each fi nancial year-end. As a result of the recent African currency volatility, we have extended the sensitivity calculation for the Group's three larger African currencies, namely the Malawian Kwacha, the Nigerian Naira and the Zambian Kwacha. The year-end spot rates were: Spot rate Spot rate Currency June 2011 June 2010 US Dollar Malawian Kwacha Nigerian Naira Zambian Kwacha The table below indicates the Group's sensitivity at year-end to movements in the relevant foreign currencies on fi nancial instruments, excluding forward exchange contracts. The rates of sensitivity are the rates used when reporting the currency risk to the Executive Committee of the Group and represents management's assessment of the possible change in reporting foreign currency exchange rates.

288 286 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Financial instruments continued 39.4 Financial risk management continued Rm Rm 5% increase 5% decrease 2011 US Dollar Profi t/(loss) 3,8 (3,8) Financial assets/(liabilities) (3,8) 3,8 Malawian Kwacha Profi t/(loss) 0,5 (0,5) Financial assets/(liabilities) (0,5) 0,5 Nigerian Naira Profi t/(loss) 0,5 (0,5) Financial assets/(liabilities) (0,5) 0,5 Zambian Kwacha Profi t/(loss) 0,0 0,0 Financial assets/(liabilities) 0,0 0, US Dollar Profi t/(loss) 6,7 (6,7) Financial assets/(liabilities) (6,7) 6,7 Malawian Kwacha Profi t/(loss) 1,7 (1,7) Financial assets/(liabilities) (1,7) 1,7 Nigerian Naira Profi t/(loss) 0,3 (0,3) Financial assets/(liabilities) (0,3) 0,3 Zambian Kwacha Profi t/(loss) 0,2 (0,2) Financial assets/(liabilities) (0,2) 0,2 Forward foreign exchange contracts Forward exchange contracts are entered into to manage exposure to fl uctuations in foreign currency exchange rates on specifi c trading transactions. The Group's policy is to enter into forward contracts for all committed foreign currency purchases. Forward foreign exchange contracts have been accounted for according to IAS 39 Financial Instruments: Recognition and Measurement. Fair value has been determined using money market derivative rates at 26 June 2011 and the net gain or exposure on the contracts has been refl ected in the fi nancial statements.

289 Massmart Annual Report At year-end, the open forward exchange contracts were as follows: Foreign currency (millions) Fair value adjustment (Rm) Contract equivalent (Rm) Average exchange rate 2011 US Dollar 62,8 (3,6) ,0 Sterling 0, ,5 Euro 0, ,0 (3,6) US Dollar 88,9 (0,6) 696,6 7,8 Sterling 0,1 1,7 11,4 Euro 0,2 1,6 9,9 Forward foreign exchange contracts sensitivity (0,6) 699,9 The following table indicates the Group's sensitivity of the outstanding forward exchange contracts at the balance sheet date to movements in the US Dollar. The US Dollar is the primary currency in which the Group has entered into forward foreign exchange contracts. The rates of sensitivity are the rates used when reporting the currency risk to the Executive Committee of the Group and represents management's assessment of the possible change in foreign currency exchange rates. The Rand/US Dollar year-end rate was R6.95 (2010: R7.67). US Dollar Rm Rm 5% increase 5% decrease 2011 Profi t/(loss) 18,3 (25,6) Derivative fi nancial assets/(liabilities) 21,9 (21,9) Equity 0,9 (0,9) 2010 Profi t/(loss) 33,1 (36,5) Derivative fi nancial assets/(liabilities) 34,8 (34,8) Equity 1,7 1,7

290 288 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Financial instruments continued 39.4 Financial risk management continued Liquidity risk management Liquidity risk is the risk that the Group will be unable to meet a fi nancial commitment in any location or currency. This risk is minimised through the holding of cash balances and suffi cient available borrowing facilities (refer to note 24 on page 256). In addition, detailed cash fl ow forecasts are regularly prepared and reviewed so that the cash needs of the Group are managed according to its requirements. The following table details the Group's contractual maturity for its non-derivative fi nancial liabilities. The table has been compiled based on the undiscounted cash fl ows of fi nancial liabilities based on the earliest date on which the Group can be required to repay the liability. The cash fl ows include both the principal and interest payments. Repayable Repayable Repayable within 1 year 2 5 years after 5 years Total Rm Rm Rm Rm 2011 Financial liabilities Non-current and current liabilities interest-bearing Medium-term payable Medium-term bank loans Capitalised fi nance lease Non-current liabilities interest-free Minority shareholders' loans Trade and other payables Trade payables 7, ,553.9 Sundry payables and other accruals 1, ,828.2 Massmart Employee Share Trusts benefi ciaries liability 1, ,093.6 Bank overdrafts Total undiscounted cash flows of the Group's financial liabilities 11, ,409.8 Less: Future fi nance charges (117.8) Total financial liabilities 12,292.0

291 Massmart Annual Report Repayable Repayable Repayable within 1 year 2 5 years after 5 years Total Rm Rm Rm Rm 2010 Financial liabilities Non-current and current liabilities interest-bearing Medium-term payable Medium-term bank loans Capitalised fi nance lease Non-current liabilities interest-free Minority shareholders' loans Trade and other payables Trade payables 7, ,329.0 Sundry payables and other accruals 1, ,845.0 Bank overdrafts Total undiscounted cash flows of the Group's financial liabilities 9, ,039.0 Less: Future fi nance charges (98.2) Total fi nancial liabilities 9,940.8 Credit risk management Potential areas of credit risk include trade and consumer accounts receivable and short-term cash investments. Credit risk arises from the risk that a counterparty may default or not meet its obligations timeously. Trade accounts receivable consist primarily of a large, widespread customer base. Group companies regularly monitor the fi nancial position of their customers. Where considered appropriate, credit guarantee insurance is used. The granting of credit is controlled by application and account limits. Provision is made for both specifi c and general bad debts, and at the year-end management did not consider there to be any material credit risk exposure that was not already covered by credit guarantee insurance or bad debt provisions. Further details relating to trade and other receivables can be found in note 20 on page 250. The carrying amount of the fi nancial assets represents the Group's maximum exposure to credit risk without taking into consideration any collateral provided : Maximum credit risk Rm Rm Investments Trencor export partnership Trade, other receivables and prepayments Trade and other receivables 2, ,276.8 Cash and bank balances 2, , , ,648.9

292 290 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Segmental reporting Primary business segments The Group is organised into four divisions for operational and management purposes, being Massdiscounters, Masswarehouse, Massbuild and Masscash. Massmart reports its primary business segment information on this basis. The principal offering for each division is as follows: Massdiscounters general merchandise discounter Masswarehouse warehouse club Massbuild home improvement retailer and building materials supplier Masscash food wholesaler, retailer and buying association Total Corporate Massdiscounters Masswarehouse Massbuild Masscash Rm Rm Rm Rm Rm Rm 2011 Sales 52, , , , ,623.7 Operating profi t before interest and taxation 1,611.3 (543.3) Trading profi t before interest and taxation * 2, Net fi nance (costs)/income (107.2) (255.9) Operating profi t/(loss) before taxation 1,504.1 (799.2) Trading profi t before taxation * 2, Inventory 6, , , , ,613.6 Total assets 17,274.3 (911.3) 5, , , ,312.0 Total liabilities 13,092.6 (4,090.2) 5, , , ,353.9 Net capital expenditure ** 1, Depreciation and amortisation Impairment losses Non-cash items other than depreciation and impairment (32.4) 65.5 (5.8) Cash fl ow from operating activities (41.1) 81.6 (7.3) (13.0) 93.3 Cash fl ow from investing activities (1,297.9) (225.1) (336.4) (167.5) (169.5) (399.4) Cash fl ow from fi nancing activities (119.1) SALES JUNE 2011 TRADING PROFIT BEFORE TAXATION JUNE 2011 % Massdiscounters Masswarehouse Massbuild Masscash %

293 Massmart Annual Report Total Corporate Massdiscounters Masswarehouse Massbuild Masscash Rm Rm Rm Rm Rm Rm 2010 Sales 47, , , , ,418.0 Operating profi t before interest and taxation 1,866.7 (69.7) Trading profi t before interest and taxation * 2, Net fi nance (costs)/income (46.7) (209.8) Operating profi t/(loss) before taxation 1,820.0 (279.5) Trading profi t before taxation * 2, Inventory 5, , , ,354.4 Total assets 14,289.4 (2,364.2) 4, , , ,872.6 Total liabilities 10,697.6 (5,000.4) 4, , , ,084.3 Net capital expenditure ** Depreciation and amortisation Impairment losses Non-cash items other than depreciation and impairment (28.8) 55.7 (22.0) Cash fl ow from operating activities 1, Cash fl ow from investing activities (1,130.7) 56.8 (285.0) (72.4) (387.5) (442.6) Cash fl ow from fi nancing activities (575.2) SALES JUNE 2010 TRADING PROFIT BEFORE TAXATION JUNE 2010 % Massdiscounters Masswarehouse Massbuild Masscash % R The corporate column includes certain consolidation entries. R All inter-company transactions have been eliminated in the above results. R Additional information can be found in the Operational review on pages 82 to 121. * Trading profi t before taxation is earnings before corporate net interest, asset impairments, BEE transaction IFRS 2 charges, foreign exchange movements and Transaction costs. ** Net capital expenditure is defi ned as capital expenditure less disposal proceeds.

294 292 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Segmental reporting continued Secondary geographic segments The Group's four divisions operate in two principal geographical areas South Africa and the Rest of Africa. Total South Africa Rest of Africa Total South Africa Rest of Africa Rm Rm Rm Rm Rm Rm Sales 52, , , , , ,607.6 Segment assets 17, , , , Net capital expenditure 1, , All inter-company transactions have been eliminated in the above results. 41. Value added statement June June Rm % Rm % Sales, royalties, franchise fees, rentals and management and administration fees (inclusive of VAT) 60, ,990.8 Cost of sales (43,281.8) (38,879.3) Interest and investment income Net costs of services and other operating expenses (3,953.8) (3,069.7) Value added 13, ,130.6 Applied as follows: To employees as salaries, wages and other benefi ts 3, , To Government as taxation 8, , To shareholders as dividends To lenders as interest Depreciation and amortisation Minorities Net earnings retained Total 13, , VALUE ADDED STATEMENT To employees as salaries, wages and other benefits 28.3 To Government as taxation To shareholders as dividends To lenders as interest Deprececiation and amortisation Minorities Net earnings retained %

295 Massmart Annual Report Critical accounting judgements and key sources of estimation uncertainty Critical judgements in applying the Group's accounting policies In the process of applying the Group's accounting policies, which are described in note 1 on page 214, management has not made any critical judgements that have a signifi cant effect on the amounts recognised in the fi nancial statements apart from those involving estimations. Key sources of estimation uncertainty R Property, plant and equipment Property, plant and equipment is depreciated over its useful life taking into account, where appropriate, residual values. Assessment of useful lives and residual values are performed annually, taking into account factors such as technological innovation, maintenance programmes, market information and management considerations. In assessing the residual values, the remaining life of the asset, its projected disposal value and future market conditions are taken onto account. For more detail on property, plant and equipment, see note 13 on page 240. R Goodwill impairment Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash fl ows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the reporting date was R2,049.4 million (2010: R1,875.0 million). The impairment of goodwill in the current year relates to the impairment of certain acquired goodwill in Masscash. A small impairment loss of R0.7 million was recognised in the prior year. Details of the impairment loss calculation are provided in note 14 on page 243. R Inventory provisions Inventory provisions include shrinkage, obsolescence and write-downs which take into account historical information related to sales trends and stock counts and represent the expected write-down between the estimated net realisable value and the original cost. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. For more detail on the provisions, see note 19 on page 249.

296 294 Group Financial Statements Notes to the annual financial statements continued for the year ended 26 June Critical accounting judgements and key sources of estimation uncertainty continued R Allowance for doubtful debts The Group assesses it doubtful debt allowance at each reporting date. Key assumptions applied are the estimated debt recovery rates and the future market conditions that could affect recovery. For more detail on the allowance, see note 20 on page 250. R Fair value of options granted The fair value of options granted in terms of IFRS 2 Share-based Payment is obtained using option pricing models. Assumptions include: expected volatility, expected life, risk-free rate and expected dividend yield. By obtaining an external valuation by accredited valuators, management is of the opinion that the risk relating to estimation uncertainty has been mitigated. For more detail on the valuations, see note 22 on page 253. R Provision for post-retirement medical aid Post-retirement healthcare benefi ts are provided to certain retired employees. Actuarial valuations are performed to assess the fi nancial position of the fund. Assumptions used include: the discount rate, healthcare cost infl ation, mortality rates, withdrawal rates and membership. By obtaining an external valuation by accredited valuators, management is of the opinion that the risk relating to estimation uncertainty has been mitigated. Details can be found in note 25 on page Events after the balance sheet date There are no material post balance sheet events. Two conditional acquisitions, Fruitspot and Rhino Cash & Carry, have been fi led with the Competition Commission whose fi ndings are expected to be issued in October 2011.

297 Massmart Annual Report Shareholder analysis The following analysis of shareholders was extracted from the shareholders register as at June 2011: Number % Number of shares % Shareholder spread 1 1,000 shares 5, ,167, ,001 10,000 shares ,329, , ,000 shares ,714, ,001 1,000,000 shares ,939, ,000,001 shares and over ,732, , ,883, Distribution of shareholders Walmart subsidiary: Main Street 830 (Pty) Ltd ,859, Unit Trusts/Mutual Fund ,911, Pension Funds ,731, Other Managed Funds ,341, Foreign Government ,254, Private Investors ,842, Custodians ,977, Insurance Companies ,472, Charity 2 714, American Depository Receipts , Investment Trust , Local Authority Hedge Fund Remainder 5, , , ,883, Public/non-public shareholders Non-public shareholders: Walmart subsidiary: Main Street 830 (Pty) Ltd 1 113,859, Directors and Group Executives of the Company ,355, Share trust 2 110, Public shareholders 6, ,558, , ,883, Custodians and managers holding 3% or more The following custodians and managers held benefi cially, directly or indirectly, 3% or more of the Company's shares: R Aberdeen Asset Management Group 28,724, R Public Investment Corporation 14,002, R JP Morgan Asset Management 9,264, R Baillie Gifford & Co Ltd 7,558, R Lazard Asset Management LLC Group 6,546, Further details of the directors' shareholdings can be found in the Directors' report on page 205

298

299

300 MILLION PROFIT FOR THE YEAR REVENUE HOLDINGS DEFINES THE STRATEGIC AND BROAD OPERATING PRINCIPLES THAT GUIDE THE GROUP S ACTIVITIES OPERATING PROFIT 127.6% R1,968.4 INCREASE 127.6% INCREASE COMPANY FINANCIAL STATEMENTS GROUP MANAGEMENT AND ADVISORY ROLE COMPANY FINANCIAL STATEMENTS R Income statement 299 R Statement of comprehensive income 299 R Statement of fi nancial position 300 R Statement of cash fl ows 301 R Statement of changes in equity 302 R Notes to the annual fi nancial statements 303

301 Massmart Annual Report Income statement for the year ended 26 June Notes Rm Rm Revenue 1 2, Management and administration fees received Dividends received 2, Employment costs (19.6) (11.5) Net operating income Operating profit 2 2, Finance income 0.7 Finance costs (0.4) Net fi nance income (0.4) Profit before taxation 2, Taxation 4 (84.3) (67.7) Profit for the year 1, Profi t attributable to: Owners of the parent 1, Profi t for the year 1, Dividend per share Interim Final * Total * Declared after the fi nancial year-end. R Details of the dividend can be found in note 11 on page 237 in the Group fi nancial statements. R The accounting policies are in line with the Massmart Group accounting policies. Refer to note 1 on page 214 of the Group fi nancial statements. Statement of comprehensive income for the year ended 26 June Rm Rm Profit for the year 1, No movement Total comprehensive income for the year 1, Total comprehensive income attributable to: Owners of the parent 1, Total comprehensive income for the year 1,

302 300 Company Financial Statements Statement of financial position as at 26 June Notes Rm Rm Assets Non-current assets 1, Interests in subsidiaries 5 1, Other fi nancial assets Deferred taxation Current assets Taxation Cash and bank balances Total assets 1, Equity and liabilities Capital and reserves 1, Share capital Share premium General reserves Retained profi t (32.7) Preference shares Total equity 1, Current liabilities Total equity and liabilities 1, R The accounting policies are in line with the Massmart Group accounting policies. Refer to note 1 on page 214 of the Group fi nancial statements.

303 Massmart Annual Report Statement of cash flows for the year ended 26 June 2011 Cash flow from operating activities Notes Rm Rm Operating cash before working capital movements 11, Working capital movements 11, Cash generated from operations Interest received/(paid) 0.7 (0.4) Investment income 2, Taxation paid 11,3 (79.1) (75.6) Dividends paid 11,4 (846.1) (839.7) Net cash inflow/(outflow) from operating activities 1,137.8 (11.5) Loans to subsidiaries (911.0) (2.9) Other investing activities (576.1) Net cash (outflow)/inflow from investing activities (1,487.1) Issue of shares Net acquisition of treasury shares 11,5 (140.2) (97.5) Net cash inflow/(outflow) from financing activities (97.5) Net (decrease)/increase in cash and cash equivalents (7.9) 16.7 Cash and cash equivalents at the beginning of the year 16.7 Cash and cash equivalents at the end of the year R The accounting policies are in line with the Massmart Group accounting policies. Refer to note 1 on page 214 of the Group fi nancial statements.

304 302 Company Financial Statements Statement of changes in equity for the year ended 26 June 2011 Share Share Preference General Retained capital premium shares reserves profit Total Rm Rm Rm Rm Rm Rm Balance as at 30 June Total comprehensive income Share trust loss (97.5) (97.5) Dividends paid (839.7) (839.7) Realisation of prior year treasury shares Treasury shares (7.4) 2.5 (4.9) Share-based payment reserve Balance as at 30 June (32.7) Total comprehensive income 1, ,968.4 Share trust loss (140.2) (140.2) Dividends paid (846.1) (846.1) Realisation of prior year treasury shares Issue of shares Treasury shares (14.1) (1.3) (15.4) Share-based payment reserve (2.6) (2.6) Balance as at 30 June ,698.5 R The accounting policies are in line with the Massmart Group accounting policies. Refer to note 1 on page 214 of the Group fi nancial statements.

305 Massmart Annual Report Notes to the annual financial statements for the year ended 26 June Revenue Rm Rm Dividends received (included are dividends from subsidiary companies) 2, Management and administration fees received (included are management and administration fees from subsidiary companies) Operating profit Rm Rm Credits to operating profit include: Foreign exchange profi t Charges to operating profit include: Foreign exchange loss Share-based payment (2.6) 0.3 Contribution to pension scheme Net finance income Rm Rm Finance costs Interest on Group loans (0.4) Finance income Interest on Group loans 0.7 Net finance income 0.7 (0.4) 4. Taxation Rm Rm Current year South African normal taxation: Current taxation 2.2 Deferred taxation 3.1 (5.1) Secondary taxation on companies The rate of taxation is reconciled as follows: % % Standard corporate taxation rate Exempt income (27.7) (27.6) Secondary taxation on companies Other (0.2) (0.4) Effective rate

306 304 Company Financial Statements Notes to the annual financial statements continued for the year ended 26 June Interest in subsidiaries Rm Rm Shares at cost less amounts written off Amounts owing by subsidiaries 1, , R Details of net shares at cost can be found in note 37 on page 273 in the Group fi nancial statements. R These loans are unsecured, earn interest at variable rates and have no fi xed terms of repayment. 6. Other financial assets Rm Rm Unlisted investments Investment in Imagegate Limited (UK) Investment in Massmart Black Scarce Skills Trust and Massmart Thuthukani Empowerment Trust Listed investments Note 1 Classifi ed as a 'loan and receivable' fi nancial asset for IAS 39 purposes. R For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these fi nancial assets, see note 39 on page 276 in the Group fi nancial statements. 7. Deferred taxation Rm Rm The major movements during the year are analysed as follows: Net asset at the beginning of the year Charge to profi t or loss for the year (3.1) 5.1 Net asset at the end of the year The major components of deferred taxation are analysed as follows: Other temporary differences

307 Massmart Annual Report Issued capital Share capital Share premium Rm Rm Rm Rm Authorised 500,000,000 (2010: 500,000,000) ordinary shares of 1 cent each ,000,000 (2010: 20,000,000) nonredeemable cumulative non-participating preference shares of 1 cent each ,000,000 (2010: 18,000,000) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each ,000,000 (2010: 4,000,000) 'B' convertible redeemable non-cumulative participating preference shares of 1 cent each Issued 213,883,460 (2010: 201,495,504) ordinary shares of 1 cent each ,192,748 (2010: 17,673,670) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each ,295,662 (2010: 3,871,523) 'B' convertible redeemable non-cumulative participating preference shares of 1 cent each

308 306 Company Financial Statements Notes to the annual financial statements continued for the year ended 26 June Issued capital continued Number of Share capital Share premium shares Rm Rm Ordinary shares Balance at June ,302, Shares issued in terms of the Massmart Thuthukani Empowerment Trust 85,328 Shares issued in terms of the Massmart Black Scarce Skills Trust 107,537 Ordinary shares in issue June ,495, Realisation of treasury shares 17.3 Treasury shares (60,056) (7.4) Ordinary shares in issue excluding treasury shares June ,435, Balance at June ,495,504* Shares issued in terms of the Massmart Executive Share scheme 6,331, Shares issued in terms of the Massmart Thuthukani Empowerment Trust 5,480,922 Shares issued in terms of the Massmart Black Scarce Skills Trust 575,861 Ordinary shares in issue June ,883, Realisation of treasury shares 7.4 Treasury shares (107,644) (14.1) Ordinary shares in issue excluding treasury shares June ,775, *Ordinary shares, which have a par value of 1 cent, carry one vote per share and carry the right to dividends. Number of Share capital Share premium shares Rm Rm 'A' convertible redeemable non-cumulative participating preference shares Balance at June Net shares issued in terms of the Massmart BEE transaction Shares converted to ordinary shares (85 328) Balance at June Shares converted to ordinary shares ( ) Balance at June R 'A' convertible redeemable non-cumulative participating preference shares, which have a par value of 1 cent, are held in the Thuthukani Empowerment Trust. These shares carry one vote per share, which is cast by the appointed trustees, and carry the right to dividends. On election of the benefi ciary, the shares will convert to ordinary shares, on a one-for-one basis and will rank pari passu with all ordinary shares then in issue.

309 Massmart Annual Report Number of Share capital Share premium shares Rm Rm 'B' convertible redeemable non-cumulative participating preference shares Balance at June ,979,060 Net shares issued in terms of the Massmart BEE transaction 2,000,000 Shares converted to ordinary shares (107,537) Balance at June ,871,523 Shares converted to ordinary shares (575,861) Balance at the end of the year 3,295,662 R 'B' convertible redeemable non-cumulative participating preference shares, which have a par value of 1 cent, are held in the Black Scarce Skills Trust. These shares carry one vote per share, which is cast by the appointed trustees, and do not carry the right to dividends. On election of the benefi ciary, the shares will convert to ordinary shares on a one-for-one basis and will rank pari passu with all ordinary shares then in issue. Share options granted under the Massmart Holdings Limited Employee Share Trust R As at June 2011, executives and senior employees have options over 6,079,937 ordinary shares (of which 3,846,383 are unvested). As at June 2010, executives and senior employees had options over 14,156,168 ordinary shares (of which 11,812,673 are unvested). R Share options granted under the Employee Share Incentive Scheme carry no rights to dividends and no voting rights. Further details of the Employee Share Incentive Scheme are contained in note 29 on page 260. R During the period under review, the only shares bought in the market were by the Share Trust whereby 2.1 million shares were bought at an average price of R totalling R273.9 million. R During the prior year, the only shares bought in the market were by the Share Trust whereby 1.2 million shares were bought at an average price of R totalling R137.2 million. R The directors have the authority, until the next annual general meeting, to issue the ordinary shares of the Company up to a maximum of 5% of the shares already issued. 9. General reserves Rm Rm Balance at the beginning of the year Treasury shares (1.2) 2.5 Share-based payment reserve (2.6) The share-based payment reserve arises on the granting of share options to employees under the employee share incentive scheme. Details of the employee share incentive scheme can be found in note 29 on page 260 in the Group fi nancial statements. The share-based payment valuation was performed by Alexander Forbes for all periods and the scheme is equity-settled.

310 308 Company Financial Statements Notes to the annual financial statements continued for the year ended 26 June Cross-suretyships and promissory notes Rm Rm Cross-suretyships under banking and other fi nancial facilities 4, , , ,837.0 Banking facilities incorporate, amongst others, letters of credit, forward exchange contracts and electronic fund transfers. These facilities have been secured by cross-suretyships between Group companies. Other fi nancial facilities relate to Promissory notes that represent commitments under non-cancellable operating leases of R485.2 million (2010: R650.0 million) entered into by Masstores (Pty) Limited on behalf of Makro and are included in operating lease commitments in land and buildings. These leases terminate in December 2020 and have a discounted present value of R338.0 million (2010: R485.1 million), discounted at 15% (2010: 15%). In accordance with IAS 17 Leases, the rentals paid are amortised over the entire remaining lease period on a straight-line basis. At the balance sheet date the Massmart Group was net cash positive. The investment in subsidiaries has not been fair valued but the Group s market capitalisation, and by implication the value of its subsidiaries at reporting date was R28.3 billion (2010: R24.3 billion) 11. Notes to the cash flow statement Rm Rm 11.1 Cash flow from trading Profi t before taxation 2, Adjustment for: Interest (received)/paid (0.7) 0.4 Investment income (2,030.4) (887.5) Share-based payment expense (2.6) 0.3 Other non-cash movements (1.3) (0.1)

311 Massmart Annual Report Notes to the cash flow statement continued Rm Rm 11.2 Working capital movements Increase in trade and other payables Taxation paid Amounts owed at the beginning of the year Amounts charged to the income statement (84.3) (67.7) Deferred taxation 3.1 (5.1) Amounts owed at the end of the year (3.3) (5.4) Cash amounts paid (79.1) (75.6) 11.4 Dividends paid Cash dividends paid to shareholders (846.1) (839.7) 11.5 Net acquisition of treasury shares Share trust losses (140.3) (97.5) (140.3) (97.5)

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313