Saving our customers money so they can live better

Our Integrated Annual Report for the year ended December 2016 Massmart, Africa’s second largest retail group, comprises four divisions operating 412 stores, across 13 sub-Saharan countries.

Through our widely-recognised, differentiated retail and wholesale formats, we have leading shares in the General Merchandise, Liquor, Home Improvement and wholesale Food markets. Our key foundations of high-volume, low-cost and operational excellence enable our price leadership. Massmart Integrated Annual Report 2016

Contents

Reducing our Chief Financial Divisional Remuneration environmental Engaging our Officer’s review reviews report impact stakeholders p39 – 49 p57 p71 p85 p91

Navigating our report

In addition to the content that appears in this report, articles marked with this icon can be 01 02 03 04 05 found online. Visit our Integrated Our business Leadership Our performance Transparency and Shareholder Annual Report website at: at a glance review accountability information www.massmart.co.za/iar2016 Use this icon to refer to articles in this report 02 Performance highlights 27 A message from 37 Financial capital 103 Corporate Governance 111 Notice of Annual General 03 Approach to reporting our Chairman 57 Manufactured capital overview Meeting This icon 05 Our business 30 Our CEO’s letter to 67 Human capital 104 Our assessment of the 116 Form of proxy highlights definitions 07 Business model our stakeholders 85 Natural capital principles of King III 117 Notes to the form of proxy 09 Our Divisions 35 Our Board 89 Social and Relationship capital 105 Our Board 118 Definitions and formulas 11 Footprint 99 Intellectual capital 107 Our Board Committees 13 Operating environment Group Annual Financial 109 Board and Committee attendance 15 Material matters and risks Statements and notes www.massmart.co.za/ Detailed information on our 19 Strategic priorities iar2016/groupafs Board Committees 21 How we add value Company Annual Financial www.massmart.co.za/ 23 Stakeholder engagement Statements and notes iar2016/t&a 25 Shareholder analysis www.massmart.co.za/ Full assessment of the iar2016/companyafs application of King III Five year review www.massmart.co.za/ www.massmart.co.za/ iar2016/KingIII iar2016/5yearreview Massmart Integrated Annual Report 2016 02

Our performance highlights

FINANCIAL CAPITAL HUMAN CAPITAL SOCIAL AND RELATIONSHIP CAPITAL

Approximately There are currently 300 Massmart-sponsored 7.7% mobile kitchens in schools Total sales 13,000 across South Africa, 100 of which were supplied by the employees have registered for R91,250.0 million Walmart Foundation. Since Massmart’s truCARE low-cost 2015: R84,731.8 million inception an estimated medical care offering 15.5 % 151 million Operating profit meals before interest have been prepared by the R2,483.4 million local communities of these 2015: R2,150.4 million Saving our schools, making a positive customers impact on the education prospects of 200,000 01 money so they children each year 15.6 % can live better Our business Headline Earnings R1,293.3 million at a glance 2015: R1,118.8 million INTELLECTUAL CAPITAL Builders MANUFACTURED CAPITAL PERFORMANCE HIGHLIGHTS 02 Our Online APPROACH TO REPORTING 03 NATURAL CAPITAL OUR BUSINESS 05 collaboration is seen as a new sales channel BUSINESS MODEL 07 Massmart have installed solar where innovation opportunities OUR DIVISIONS 09 efforts energy plants capable of can be explored before being generation approximately sent to stores FOOTPRINT 11 contributed to reducing OPERATING ENVIRONMENT 13 our operating costs MATERIAL MATTERS AND RISKS 15 and improving working 2 million kWh capital management STRATEGIC PRIORITIES 19 of clean electricity HOW WE ADD VALUE 21 per year STAKEHOLDER ENGAGEMENT 23 SHAREHOLDER ANALYSIS 25 03 Our business at a glance Massmart Integrated Annual Report 2016 04

Our approach to reporting

We are proud to present Massmart’s 2016 Integrated Board approval How to read our report Annual Report. This report covers the integrated financial The Massmart Board of Directors confirm that they have This report has been developed to explain how collectively assessed the content of this Integrated Annual Massmart creates value over time. To assist and non-financial performance of Massmart and its Report and accompanying statutory information, and stakeholders in making this assessment, this report subsidiaries for the 52 weeks ended December 2016. confirm it addresses all material issues and presents a has been designed in the following structure: balanced and fair account of the Group’s performance. On recommendation of the Audit Committee, which AN INTRODUCTION TO MASSMART has oversight for the integrity of the Integrated Annual EXPLAINING OUR BUSINESS; HOW WE Report and the audited consolidated Group Annual CREATE VALUE; AND REFLECTING ON OUR Financial Statements prepared for the 52 weeks ended OPERATING CONTEXT AND STRATEGIC 25 December 2016, the Board of Directors has therefore This Integrated Annual Report is our primary report to Materiality RESPONSE TO IT stakeholders and is aimed at addressing our stakeholders’ approved the Integrated Annual Report and the audited In accordance with the stated objectives of integrated information needs. It aims to demonstrate how the material consolidated Group Annual Financial Statements for OPENING CHAIRMAN AND CEO STATEMENTS matters in relation to our financial and non-financial reporting, the Massmart Integrated Annual Report focuses release to shareholders on 31 March 2017. They are signed on those matters that are material to Massmart’s ability performance, governance, risks and strategy lead to the on the Board’s behalf by: AN EVALUATION OF THE VALUE CREATED to create value over the short-, medium- and long-term. creation of value in the short-, medium- and long-term. ACROSS THE SIX CAPITALS While this report is primarily aimed at the providers of Material issues have been identified and reported with financial capital, it takes into account the information needs regard to the six capitals, namely: financial, manufactured, A REVIEW OF OUR GOVERNANCE of our diverse range of stakeholders including shareholders, human, natural, social and relationship, and intellectual. STRUCTURES customers, employees, suppliers and communities. Management’s interpretation of materiality, being those Kuseni Dlamini Guy Hayward transactions, balances and information that are significant Chairman Chief Executive Officer in terms of Rand value, the Group’s risk profile or the Scope of the report Group’s strategic intent, such that Management believe Highlighting our values The scope of the Massmart Integrated Annual Report omission of disclosure thereof would influence the Group’s Forward looking statements The structure of the report is centred around the includes the Group’s four Divisions and key functions. With stakeholders’ decisions, has been applied in determining The Massmart Integrated Annual Report includes forward six capitals as a holistic framework against which respect to comparability, all significant items are reported the financial and non-financial content and disclosure in looking statements which relate to the possible future to measure value created. As part of this value in a manner consistent with the previous financial year, with this Report. financial position and results of the Group’s operations. creation story, we have also highlighted initiatives no material restatements. These statements by their nature involve known and applicable to our values as these guide the way we The report has been prepared in accordance with the unknown risks, uncertainties and other important factors Combined assurance work. Our values are marked by the following icons: framework principles set out in the Integrated Reporting that could cause the actual results, performance or Framework of the International Integrated Reporting Massmart applies a combined assurance model, introduced achievements of the Group to be materially different from ETHICAL AND RESPECTFUL Council (IIRC). Other reporting frameworks applied where by King III, which seeks to optimise the assurance obtained the future results, performance or achievements expressed Good business at the centre appropriate include: from Management and internal and external assurance or implied by such forward looking statements, as they of everything we do • The King Code of Governance Principles (King III); providers. The Group’s Risk Committee monitors all the relate to events and depend on circumstances that may or • JSE Listing Requirements; significant risks facing the Group and with the help of may not occur in the future. RESPONSIBLE • International Financial Reporting Standards (IFRS), Management, provides the Massmart Board of Directors Factors that could cause actual results to differ materially Thoughtful choices for relevant to financial information provided in the with assurance that it has implemented and monitored the from those in forward looking statements include, but are a better future summary financial results and the Chief Financial Group’s risk management plan, and that it is integrated into not limited to, global and national economic and market Officer review; day-to-day activities. They are also responsible for monitoring conditions, competitive conditions, the cyclical nature EXCELLENCE • The Companies Act of South Africa, No. 71 of 2008 and implementing the necessary internal controls. of the retail sector, consumer and trade credit and the Smart ideas that inspire (as amended); and The internal audit function, overseen by the Group’s associated costs and risks of lending, inventory levels and everyday excellence • The ‘core’ reporting requirements of the G4 Audit Committee, assesses the effectiveness of Massmart’s regulatory factors. system of internal control. The Group receives external The Group is not under any obligation to update or alter Sustainability Reporting Guidelines. INCLUSIVE assurance on certain aspects of the business. For example, any forward looking statements publicly, whether as a result Creating opportunities the Group’s external auditors, Ernst & Young Inc. provide an of new information, future events or otherwise. Investors for everyone to prosper opinion on the fair presentation of the Group and Company are cautioned not to place undue reliance on any forward Annual Financial Statements. looking statements contained herein, as they have not been The Group’s Audit Committee ensures that the combined reviewed or reported on by the Group’s external auditors. Read more about our values and our purpose assurance model is applied throughout the Group to p5 and p28-29 provide a co-ordinated approach to all assurance activities Read more on our stakeholder engagement and this Committee also monitors the relationship between p23-24 and p91-94 the external service providers and the Group. 05 Our business at a glance Massmart Integrated Annual Report 2016 06

Our business We are able to achieve our purpose because of:

Our relationships OUR COMMITMENT MOST TRUSTED We nurture exceptional partner and We regularly engage with our partners stakeholder loyalty, enabling us to build and stakeholders. We are committed to 93% trusted, long-term relationships. 1,000 suppliers participated in the Massmart Ethics score saving our customers Supplier Relationship survey. 2015: 81% We are committed to good governance money so they can and compliance. We have a track record of excellent live better. We receive positive feedback from our delivery against commitments. suppliers about our ethics in business We operate for less so that we can save practices (in 2016 we received an average our customers money. We maintained an ethics score of 93% and respondents expenses to sales ratio of 16.3%. indicated that Massmart is ‘highly collaborative, tough but fair’).

OUR PURPOSE

To be the most trusted, high volume, lowest cost, Our scale and retail format wholesale and retail Group HIGH VOLUME in sub-Saharan Africa, LOWEST COST As a result of our procurement scale, Our business model ensures that we are our high-sales density formats and our able to maintain our low price points Lowest delivering exceptional value cost-efficient routes to market, we are across our formats. basket to mass market consumers. able to optimise supplier distribution Lowest comparable basket price and obtain price efficiencies. (Cambridge offers the cheapest and Makro price the second cheapest basket of goods out Cambridge We manage categories at a Group of South Africa’s seven biggest chains Foods level allowing us to pass on savings to surveyed by Retail Price Watch July 2016). Retail Price Watch OUR VALUES our customers. July 2016

These values enable us deliver on our purpose:

ETHICAL AND RESPECTFUL Good business at the centre of everything we do EXCEPTIONAL VALUE TO MASS MARKET Our best value offering RESPONSIBLE Thoughtful choices for We exceed expectations of value We are committed to giving our a better future amongst the widest consumer market customers the best possible retail 19 in sub-Saharan Africa. experience. Stores opened 2015: 21 EXCELLENCE We invest in the development of our Smart ideas that inspire We are committed to executing across people so that they can provide excellent everyday excellence channels so that our customers can customer service. easily access our products. INCLUSIVE In 2016, we opened 19 stores, including 100 % Creating opportunities two outside of South Africa. We saw 100% Growth in for everyone to prosper growth in online sales. online sales 2015: 65% 07 Our business at a glance Massmart Integrated Annual Report 2016 08

INPUT BUSINESS ACTIVITIES OUTPUTS OUTCOMES OUR BUSINESS DRIVERS HOW WE DO BUSINESS WHAT WE DELIVER WHAT WE ENABLE Our business model The resources Massmart Our four Divisions operate more In 2016 we undertook the Through these actions, uses to create value are: successfully as a Group because we: following actions to enhance we created value our outcomes: for our stakeholders:

FINANCIAL CAPITAL FINANCIAL CAPITAL FOR OUR CUSTOMERS The funds available to and utilised by • Drove existing sales through clear customer the Group and value propositions, superb execution of • Our costs to sales ratio of 16.3% • The funds generated and reinvested in retail basics, and positive price gap is the lowest and enables us to the Group We meet our • Effective margin management through a focus compete aggressively on price on buying, inventory ranges and levels, product • Helped customers avoid Implement Group- MANUFACTURED CAPITAL customers’ needs innovation, supplier collaboration and route-to- approximately 98.9 million kWh wide agreements Our Divisional structure through which by providing market relevance of energy through sale of energy enabling greater we sell our products and services efficient and alternative energy extraction of value exceptional value MANUFACTURED CAPITAL • Our focused independent Divisions products across Divisions goods, through addressing different customer profiles • New store and store closure strategy FOR PROVIDERS OF across geographies accessible retail • Invested R0.8 billion in IT infrastructure and the FINANCIAL CAPITAL • A proven high volume, low-cost model and wholesale refurbishment of existing stores and new stores • Growth into Africa (led by Game and Builders • Sales increased by 7.7% to Apply a strategic HUMAN CAPITAL formats and Warehouse) R91.3 billion operating and • Operating profit before interest The unique set of skills, experiences, financial framework online. HUMAN CAPITAL increased by 15.5% to R2.5 billion perspectives and ideas of our people to guide Group’s • Headline earnings increased by • Our ethical and experienced leadership activities IN 2016 WE SAVED • A remuneration policy supporting the and management Ensure Group- OUR CUSTOMERS development and retention of top talent and 15.6% to R1.3 billion • A diverse workforce wide consistent critical skills • R404.4 million distributed to compliance with • Aligned learning and development solutions with shareholders as dividends NATURAL CAPITAL best governance R1.9 gaps identified through the talent review process • R601.0 million paid to lenders Our commitment to reducing our and legislative • Introduced truCARE – occupational health- as interest environmental impact requirements billion offering providing permanent employees FOR OUR EMPLOYEES • A sustainable approach to supply and with private primary healthcare at no cost consumerism • Conversion of 6,218 contractor NATURAL CAPITAL staff into full time employees SOCIAL AND RELATIONSHIP CAPITAL • Advocated more sustainable practices and • Invested R9.4 million in Our commitment to champion social product choices leadership development equality initiatives in our business and • Optimised operational energy efficiency • R7.3 billion paid to employees as salaries and wages through our supply chain, as well as the Collaborate via our • Conserved water through the introduction of • 89% of permanent employees value added to our business through our forums to ensure rain water and condensate harvesting solutions relationships with our stakeholders with medical benefits Group-wide sharing and SOCIAL AND RELATIONSHIP CAPITAL • Engaging with our stakeholders leverage of capabilities, FOR OUR COMMUNITIES • A customer-centric approach to business knowledge and • Proactive programme of engagement including stakeholder workshops, surveys and one-on-one • R24.1 million invested in INTELLECTUAL CAPITAL information issue meetings CSI initiatives How, through innovation, we pass on • Invested in local supplier development • Total procurement from benefits to our customers • Focused on school nutrition, early childhood the Supplier Development • A robust, flexible business strategy development and school maintenance and Programme beneficiaries • An effective supply chain and leading infrastructure surpassed R139 million IT solutions • Group electricity efficiency INTELLECTUAL CAPITAL improved 10% • Focus on growing online shopping • 55% of domestic import facilities • Grew private label have undergone responsible • Innovative promotions – Makro R100 sourcing audits promotions and Massbuild’s Price-Lock 09 Our business at a glance Massmart Integrated Annual Report 2016 10

Our Divisions

Massdiscounters is a multi-category Masswarehouse is a warehouse Massbuild is a home Masscash is a Food wholesaler, retailer General Merchandise discounter and club trading in Food, General improvement retailer and and buying association. It comprises Food retailer. Merchandise and Liquor. Building Materials supplier. two Divisions, Wholesale and Retail.

Game offers customers the widest range of branded Makro sells General Merchandise, Food & Liquor to Massbuild has four store formats that cater to The Wholesale brands include: products, at the best price, with a quality guarantee wholesale and retail customers. This blend gives it different markets: CBW and Trident wholesales Food, Liquor and for customers. a robustness that enables it to trade comfortably in Builders Warehouse is a category killer for DIY, the cosmetics in bulk to independent dealers, government DionWired offers the widest range of the world’s most economic cycles. The warehouse club format homeowner and building contractor, offering an feeding schemes, franchise members, small traders leading Hi-tech brands to the South African high- keeps costs down and provides the platform for a extensive range of competitively priced products. and hawkers. income consumer. DionWired offers buyers an high volume, high margin sales offering of quality Builders Express caters to the homeowner and Jumbo sells mainly cosmetics, toiletries and haircare interactive shopping experience with tech experts branded merchandise. The customer database of DIY enthusiast, focuses on a convenient location, a products to individual customers and independent on-hand to provide the best advice and on-site Makro store cards used at the point of purchase helps customer-friendly store layout with pleasing displays general dealers. repairs and services. to keep track of active members. and personalised service and advice. Shield is a voluntary buying association that buys The Fruitspot is an established wholesaler and Builders Superstore focuses on the lower-income products in bulk on behalf of 517 members who own distributor of fresh and cut fruit and vegetables. population in under-served markets around the wholesale or retail businesses. It provides customers with quality products at country. These stores are conveniently located near Retail brands, targeting the lower LSM group, include: best prices. commuter nodes. Cambridge Food stores in a mix of urban, peri-urban Builders Trade Depot caters mostly for medium-to and rural areas; and large-sized contractors and tradesmen engaged in Rhino stores, largely in rural areas. Both are focused on building, maintenance and renovation projects. It their fresh propositions, with strong emphasis on in-store trades from large regional low-cost outlets. butcheries, bakeries and fruit and veg departments.

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

165 5-10 20 6-10 104 5-10 123 2-5 Stores Game Stores Makro primary Stores Builders Warehouse Stores Wholesale 22 outside All in South Africa customers 5 outside 12 outside South Africa (19 stores in 2015) South Africa 5-10 South Africa 2-6 (161 stores in 2015) 8-10 (102 stores in 2015) Builders Express (121 stores in 2015) DionWired 2-8 Retail Makro secondary 10,481 customers, via trade Full-time employees 2-6 13,139 10,050 Builders Superstore 13,764 Full-time employees (9,952 in 2015) Full-time employees Full-time employees (13,796 in 2015) (10,648 in 2015) 4-8 (13,187 in 2015) Builders Trade Depot 11 Our business at a glance Massmart Integrated Annual Report 2016 12

Our footprint

Massmart is an African retailer that operates Stores Stores through 412 stores 39 in the rest of sub-Saharan Africa 373 in South Africa in 13 countries across sub-Saharan Africa. 373 of our stores are in South Africa, in both urban and rural areas, enabling access to a broad consumer base. We operate a further 39 stores across the rest of sub-Saharan Africa.

TOTAL 412 24 141 20 38 43 13 10 66 57 Stores Stores Stores Stores Stores Stores Stores Stores Stores Stores 2015: 403 2015: 24 2015: 137 2015: 19 2015: 39 2015: 41 2015: 14 2015: 8 2015: 70 2015: 51

SOUTH AFRICA 373 24 119 20 33 43 13 10 54 57 2015: 365 2015: 24 2015: 117 2015: 19 2015: 33 2015: 41 2015: 14 2015: 8 2015: 58 2015: 51

REST OF 39 AFRICA 22 5 12 2015: 38 2015: 20 2015: 6 2015: 12 13 Our business at a glance Massmart Integrated Annual Report 2016 14

Our operating environment

Massmart’s ability to create value is partly determined by its operating context and its response to the resulting risks and opportunities. 2016 was a year of global political uncertainty and resulting currency fluctuations and lower commodity prices had an impact on the sub-Saharan African economic THE MARKETS IN WHICH WE OPERATE THE SOUTH AFRICAN RETAIL ENVIRONMENT CONSUMER OUTLOOK

environment. Economic pressures The majority of Massmart’s business is based in South Economy remains under pressure with slow economic Low consumer confidence persists, impacted by weak within the South African consumer Africa, but we also operate in 12 other African countries growth, a severe drought and policy uncertainty. growth of formal employment and political and policy that collectively contribute 8.7% towards Group sales Rating agency reviews place a spotlight on the uncertainty. environment affected consumer (2015: 8.4%). While there are economic challenges in the country’s sovereign credit rating status. confidence and shopping behaviour. short term, the outlook for sub-Saharan African growth Business cycle appears to be turning remains positive albeit with higher risks and volatility. Weak underlying economic growth (SARB Lead Indicator Q4 2016) (0.3% in 2016 compared with 2015 – StatsSA) Economic growth estimated to have slowed to End of drought should lead to lower food prices 1.5% in 2016, with better growth expected in 2017 (2.9%) High food inflation Household debt/disposable income World Bank (11.7% year on year Dec 16 – StatsSA) ratio at a decade low Drought issues South Africa avoids credit ratings downgrade, but outlook cut to negative Currency weakness in key African markets (including Nigeria and Mozambique) Food prices accelerate due to drought

Weak consumer confidence, consumers limit spend to essential items affecting General Merchandise and DIY sales

High unemployment

Our differentiated retail Group operating offering, good margin profit before interest management and excellent expense control enables us to respond effectively to the 15.5 % challenges presented by the R2,483.4 million socio-economic environment. 2015: R2,150.4 million

Read more about our expense control on p41 15 concern facingthebusiness. andkey risksandopportunities context, theinterests ofkey stakeholders, mediacoverage orpublic consideration isgiven to theGroup’s long-term strategy, itsoperating toability achieve itsobjectives. Indetermining theseissues Materiality isdefinedasany material Massmart’s issuethatcan impact risks and matters Material Our business at aglance at business Our • • • • • • • • • • that may include: (quantitative); or have significant qualitative dimensions 5% more by or assets total or tax and interest before annual earnings Divisional impact or indirectly directly that ones as Risk Policy Group the in defined are incidents These Committee. Risk to the year the during occurred that incidents risk major any report Officers Risk Divisions’ Board. the and Committee Risk the management, Executive by annually reviewed are matters Material objectives. strategic its to achieve ability Group’s the affect to significantly potential the have which risks and matters material identified has Massmart or execute its strategy and business objectives. business and strategy its execute or implement to ability Group’s or Division’s the affecting nationwide media coverage and/or public concern; or failure; system ITsignificant environment; control the in breakdown a major qualitative or quantitative; whether breach, compliance or ethical a material risk; reputational or financial major in result may that matter a legal theft; or fraud a large base; customer Division’s the of portion major a affecting and/or its executives and management; Division the of reputations to the damage serious shareholders; public Holdings’ to Massmart concern a major the process, reporting risk annual the of part As overseeing these risks. these overseeing for line-responsibility has Officer Risk or Prevention aLoss where Committee Executive Divisional each of responsibility direct the therefore –are others amongst safety, food and systems IT detection, and prevention fire compliance, security, and safety health, in-store include –which risks These actions. management or mitigated by local addressed immediately be can nature their by risks Operational process. Management Risk Group’s the of focus primary the are chain, supply and transformation succession, and retention talent executive include example, for which, risks, These responses. business tactical or strategic long-term through mitigated partially and managed monitored, be only cases, most in can, and nature in material more and term longer- to be tend risks Strategic/environmental operational risks. described asstrategic/environmental risksand categories ofGroup riskthat canbroadly be The Committee Risk considers there to betwo OPERATIONAL RISKS ENVIRONMENTAL/STRATEGIC RISKS

IMPACT ON MASSMART

LOW MEDIUM HIGH systems technology (IT) information of Adequacy Massmart key risks: Massmart channel efficiency channel and distribution Procurement poor strategic execution by the Divisions the by execution strategic poor Non-adherence to business model or 10 UNLIKELY management margin and Expense control 9 8 to health and safety standards safety and health to associated with non-adherence Reputational damage LIKELIHOOD OF RISK OCCURRING 1 6 operations Group’s African the of Volatility 7 MODERATE and succession retention Talent 2 5 4 Constrained consumer environment Massmart Integrated Annual Report 2016 Report Annual Integrated Massmart Insufficientprogress with transformation major merchandise categories our on attack Competitor 3 LIKELY 16 17 Our business at a glance Material matters and risks Massmart Integrated Annual Report 2016 18

Below are the key risks facing the Group:

Principal risk Response Principal risk Response Non-adherence to business model or The Group insists on strategic clarity at the Divisions Reputational damage associated To ensure product safety, regular supplier 1 poor strategic execution by the Divisions and Massmart Corporate. All Divisional and Group 6 with non-adherence to health and compliance audits are conducted and our food strategies are formally documented and reviewed at safety management system is audited by reputable Massmart’s ability to successfully execute its strategy Divisional, Group Executive Committee and Board safety standards third parties. Massmart has robust product recall is dependent on adherence to the Group’s business levels. Divisional strategies dictate management’s At Massmart, we aim to provide safe, healthy and procedures in place. model by the four Divisions. Non-adherence could operational priorities and progress against these good-quality products to our consumers. We also There is high compliance, health and safety impact the Group’s longer-term financial performance. strategies is monitored on a monthly basis. recognise that the health, safety and well-being of awareness across the Group. We also make use of our employees is vital to the continued success of professional third parties to assess in-store health and our operations. There is a significant reputational risk safety issues. Talent retention and succession The Executive Committee actively monitors the associated with non-adherence to food safety and 2 Given the scarcity of retail-specific skills (merchandise, progress, development and succession plans for the health and safety standards or failure to maintain operations and supply chain) there is an increased ‘Top 500’ employees. There are in-house education appropriate hygiene levels; poor in-store health and need to develop and retain sufficient business and programmes that focus on developing graduates, safety standards, and site distribution threat. leadership skills. This increases the need for an actively middle management and junior executives. managed leadership succession pipeline. The Group’s remuneration policy, incorporating short- and long-term incentives, is designed to reward Volatility of the Group’s African operations We make careful pre-selection of countries and performance and provides an opportunity for staff to 7 This refers to the volatility and complexity of doing locations for new stores, with a thorough evaluation accumulate wealth. business in 13 African countries, each with different and on-going monitoring of customs, tax, and regulatory, fiscal and customs environments and exchange control and business legislation. Dedicated Executives across several functions monitor and Competitor attack on our major We maintain a relevant competitive product offering political risk. African currencies can be illiquid, making cash repatriation vulnerable and currencies volatile. manage the African operations. 3 merchandise categories that offers our customers affordable value through continued management of low-cost efficient There are also operational and logistical challenges in Negative impact from a sustained attack by major operations. We optimise our store locations and ensure managing the lengthy supply chain. competitors (international or local) aimed at one or regular store refurbishments and format renewal. more of the Group’s major categories or formats. Procurement and distribution channel We work closely with key suppliers to optimise areas 8 efficiency of common interest, including supply chain efficiency, Insufficient progress with transformation Transformation is an agenda item at all Divisional to ensure their products reach their desired target and Group Board meetings and the Group Executive An ineffective or inefficient supply chain may result in markets cost effectively. 4 In the broader national context, inadequate sub-optimal inventory management, with duplication transformation at all levels by Massmart and other Committee is clear on its responsibility to deliver the In January 2017, Massmart appointed a Group Supply transformation strategy. of costs and over or under stocking affecting holding Chain & Logistics Executive to focus on leveraging the South African businesses will curb the country’s costs and sales. long-term sustainable growth. This issue includes Group’s transport, logistics and supply chain. insufficient Black representation at an Executive level at the Group and Divisions. Expense control and margin Operating expenses are tightly controlled with key 9 management focus areas including supply chain and logistics efficiency and effectiveness, reducing store Constrained consumer environment Massmart’s leadership across major merchandise It is strategically significant to maintain a low cost categories and our different retail and wholesale construction and in-store operating costs, and 5 Sub-Saharan African consumer confidence and base and essential that the Group implements effective labour-scheduling of our store employees. spending has been constrained in recent years owing formats enables us to respond effectively, and in a sustainably low and efficient operational and overhead to increased interest rates, the volatile currency and differentiated manner to the tough socio-economic cost structures. Our brand commitment requires an deteriorating economic conditions. conditions. everyday low cost foundation. These economic variables further impact margins All direct foreign exchange import liabilities are and profitability as they can cause disruption in the forward covered and interest rates on the Group’s The Technology, Information and Process (TIP) sourcing, supply and sale of raw and finished products. medium-term debt have been fixed. Property lease Adequacy of information technology escalation rates are negotiated as low as possible and 10 (IT) systems Forum approves all major IT developments in Group. are inflation-linked. Massmart Internal Audit Services has significant IT There is potential for misalignment between business expertise and assesses all IT developments and is part strategy and IT capability, which can result in reduced of the ‘go-live’ decision on any project. operational effectiveness. Given Massmart’s divisional structure there is reduced risk of failure and distraction associated with large scale system implementations in the Divisions. 19 Our business at a glance Massmart Integrated Annual Report 2016 20

Our strategic priorities

We remain focused on our Our progress against We see the following four strategic priorities: these priorities in 2016: continuing opportunities:

Improve and To drive the growth and • Operating profit growth of 15.5% by • Game’s roll-out of SAP point-of-sale profitability of the core offering a clear customer and value system and ERP is key to its long-term grow our South African business proposition growth and profitability over the medium term. • A sharp cost focus through careful new • Masscash Wholesale is evolving core business store decisions, leveraging IT and digital towards a low-cost distribution partner to simplify in-store processes, and effective • The Group’s supply chain focus on workforce-scheduling helped us maintain total cost-to-serve and value-added a 16.3% expenses to sales ratio Financial Services drive

Grow retail To expand further into Food • Retail Food continues to outperform with • New Cambridge and Rhino stores Retail and the Fresh categories a 10% comparable sales increase to gain share in lower-income Food Food and through new stores and our • The Fruitspot opened facilities in Cape market (12.8% space growth in 2016 existing formats, and to scale Town and Durban and one new meat plant and 16% planned for 2017) Builders is expected to open in late 2017, delivering • There is capacity to increase our market and leverage the Builders formats in Group procurement and distribution leadership through new stores for all brand through several formats. efficiencies to stores Builders formats – Warehouse, Express South Africa and Superstore

Grow Africa Sub-Saharan African • Sub-Saharan African expansion through • Currently 39 ex-SA stores, represent expansion through opening Game stores an 8.7% sales participation opening Builders • Weaker local currencies caused lower Warehouse, Game Rand profits and forex translation costs • Ex-SA businesses’ sales grew by 11.2% and Masscash stores. and in constant local currencies grew by 13.4%

Grow online/ To expand, improve • Online sales more than doubled for the year • Internationally customer purchases and refine our online/ • Builders Warehouse pilot online offering of one of our largest merchandise omnichannel ecommerce offerings in with 10,000 products delivered great data categories, General Merchandise, have DionWired, Makro and and rich functionality moved significantly online • Game will evolve an online offering Massbuild. with SAP Hybris and is expected to be Find more about Builders Online on p99 fully functional over the next few years

Read more about our strategic priorities in our CEO’s letter to our stakeholders p33 21 Our business at a glance Massmart Integrated Annual Report 2016 22

How we add value

We believe that our Below are examples of the trade-offs that have R91,250.0 m R73,948.9 m R344.0 m R6,725.5 m responsibility goes beyond influenced our ability to create shared value: Sales Cost of sales Other revenue and Net costs of services and advocating for our customers (2015: R84,731.8 million) (2015: R68,689.6 million) interest received other operating expenses Increasing permanent workforce (2015: R158.0 million) (2015: R6,263.3 million) by offering low prices and In response to the amendments to the Labour Relations Act, Massmart undertook to convenience, but also includes HUMAN the positive impact we have reduce its reliance on labour brokers and in CAPITAL 2016 6,218 employees joined the permanent on the environment and workforce at Massmart. While this had a FINANCIAL positive impact on our human capital, it has CAPITAL R7,346.6 m the communities they come To employees as salaries, adversely affected our financial capital as it wages and other benefits from. Massmart contributes has resulted in increased employment costs. significantly to society (2015: R6,784.3 million through employment, skills Responsible sourcing 8.3% Our initiatives of advocating sustainable development, the development supply and consumerism and responsible of businesses in our supply chain sourcing require the use of financial capital in RELATIONSHIP the form of cash reserves to remunerate the AND NATURAL R1,036.5 m CAPITAL Depreciation and our contribution to tax associates involved in audits and to fund the and amortisation revenues in the regions where various programmes. However, relationship FINANCIAL CAPITAL (2015: R946.2 million) we operate. and natural capital are enhanced as suppliers The value we added and NGOs partner with us in an effort to 9.5% We are aware of the competing reduce Massmart’s impact on natural capital.

interests of stakeholders and Expanding into Africa recognise the interdependence As the Group pursues the strategic priority R1,019.8 m to expand its footprint in Africa, it is exposed MANUFACTURED R10,919.6 m To providers of between the six capitals in (2015: R9,936.9) to foreign currency movements, political risk AND FINANCIAL financial capital CAPITAL creating shared value. Our and operational challenges of operating in (2015: R1,478.2 million values guide our decision- new environments. The expansion into Africa FINANCIAL, will in future enhance our manufactured and SOCIAL AND 31.0% making and in this way allow RELATIONSHIP financial capital; it may temporarily expose CAPITAL 9.9% us to optimise the trade-offs the Group to negative financial, social and between resources and capitals. relationship capital impacts. R903.7 m Energy efficiency Net earnings retained Makro Carnival City, the newest and biggest (2015: R198.6 million) Makro store to date, was constructed as an 355.0% energy-efficient building which required HUMAN AND an initial outlay of financial capital but NATURAL enabled long-term energy conservation CAPITAL and therefore enhanced natural capital. FINANCIAL R588.9 m 500 permanent jobs and a further 3,000 CAPITAL To Government as taxation temporary jobs were generated as a result R24.1 m (excluding value added tax) of the construction phase of the project To the community (2015: R505.9 million) (2015: R23.7 million) thereby enhancing human capital. 16.4% 1.7%

Our Cambridge staples’ basket: voted cheapest by Retail Price Watch 2016 23 Our business at a glance Massmart Integrated Annual Report 2016 24

Stakeholder engagement

Massmart is committed to saving customers money so they can live better. Our ability to fulfil this We have identified the We have numerous Our response commitment is dependent on the following matters of stakeholder channels has been to: transparent trust-based relationships mutual interest: including: we develop with our customers,

employees, shareholders, suppliers, CUSTOMERS • Price competitiveness • Face-to-face interviews with customers • Ensure a low cost • Product quality and safety • In-store communication and campaigns operating model government, civil society and the Makro has 28 • Product availability • Online and social media interaction • Offer clear value through Pick-Up Lockers communities in which we operate. • Online shopping • Contact centres well-priced and relevant • Compliance with the Consumer merchandise To achieve this we participate in Protection Act DionWired on Twitter • Grow online shopping and digital activation numerous one-on-one meetings with EMPLOYEES • Growth and development • Employee engagement survey • Review our Massmart Corporate University offering key stakeholders and we undertake • Equal opportunity • Regular management updates • Optimise our HR/Payroll system regular engagements and themed • Recognition • CEO road show • Implement Total Rewards Strategy to ensure • Trust in leadership • Internal publications competitive remuneration across three key aspects discussions with subject matter • Clear link between work and • Performance reviews and career planning of basic salary, short- and long-term incentives experts. We are involved in public Company objectives • Team meetings policy forums with government and • Competitive and fair remuneration civil society representatives, and SHAREHOLDERS • Business performance and strategy • Results presentations • Maintain our focus on improving sales, operating • Return on investment • Our Integrated margin and expenses engage with consumer interest groups. • Margin outlook and managing costs Annual Report • Grow Retail Food by focusing on Fresh category In addition, we seek opinion from our • Economic, social and • Investor road shows • Scale and leverage Builders’ formats environmental risks • Our Investor website • Adopt a cautious and measured customers and suppliers through our • Executive remuneration aligning • One-on-one meetings and calls approach to growing in Africa intercept and advocacy surveys. with shareholders’ objectives • Annual General Meeting • Grow online/omnichannel • Store visits • Our participation in the JSE Responsible Fresh category Massmart’s Private label Investment index, FTSE4Good, Carbon added to Game brand, Campmaster Disclosure Projects and other assessments and Makro stores

SUPPLIERS • Responsible sourcing • Supplier relationship survey • Recognise our top • Brand custodianship • Environmental supplier awards environmentally focused suppliers • Distribution channel • On-going site visits and audits • Undertake timber and seafood efficiency • Regular meetings procurement screening • Operational practices • Supplier Development Programme (SDP) • Cross-divisional collaboration to ensure single Harry Montjane, an SDP participant supplier negotiations

GOVERNMENT, • Transformation • Socio-economic development workshops • Invest in local supplier development COMMUNITIES AND • Economic development • South African Citizens’ Bribery Survey • Offer a CSI programme focused on school nutrition, CIVIL SOCIETY • Food security • Formal partnerships and projects early childhood development, school maintenance • Energy efficiency • Membership and engagement with industry bodies and infrastructure • Sustainable seafood and timber • Drafting of submissions to parliamentary bodies • Power two Makro stores using renewable energy sourcing • Socio-economic development programmes Read more on how we have engaged • Public policy issues 40 million meals with our stakeholders p93-96 • Retail sector related issues are prepared at our mobile kitchens 25 Our business at a glance

Shareholder analysis The following analysis of shareholders was extracted from the shareholders’ register:

Number Number Shareholder spread of holders % of shares %

1 – 1,000 shares 3,278 81.3 595,434 0.3 1,001 – 10,000 shares 461 11.4 1,518,265 0.7 10,001 – 100,000 shares 213 5.3 7,307,033 3.4 Percentage 100,001 – 1,000,000 shares 57 1.4 17,549,704 8.1 shareholding 1,000,001 shares and over 25 0.6 190,165,898 87.5 4,034 100.0 217,136,334 100.0

Public/non-public shareholders

Non-public shareholders: Walmart subsidiary: Main Street 830 Proprietary Limited 1 – 113,859,293 52.4 Percentage Directors and Group Executives shareholding of the Company 3 0.1 253,103 0.1 Share trusts 1 – 971,525 0.5 Public shareholders 4,029 99.9 102,052,413 47.0 4,034 100.0 217,136,334 100.0 02 Distribution of shareholders Leadership Walmart subsidiary: Main Street 830 Proprietary Limited 1 – 113,859,293 52.4 review Unit trusts/Mutual funds 100 2.6 51,732,084 23.8 Percentage Pension funds 60 1.5 22,125,540 10.2 shareholding Other managed funds 3,801 94.2 9,537,200 4.4 Sovereign wealth 13 0.3 3,809,469 1.8 A MESSAGE FROM OUR CHAIRMAN 27 Custodians 15 0.4 4,018,259 1.9 Private investors 11 0.3 2,025,070 0.9 OUR CEO’S LETTER TO OUR 30 STAKEHOLDERS Hedge fund 10 0.2 1,094,191 0.5 Investment trusts 5 0.1 4,511,741 2.1 OUR BOARD 35 Insurance companies 10 0.2 2,336,593 1.1 Exchange-traded fund 7 0.2 2,035,105 0.9 Local authorities 1 – 51,789 – 4,034 100.0 217,136,334 100.0

Custodians and managers holding 3% or more The following custodians and managers held beneficially, directly or indirectly, equal to or in excess of 3% of the Company's shares: Walmart subsidiary: Main Street 830 Proprietary Limited 113,859,293 52.4 Aberdeen Asset Management Group 46,211,069 21.3 Public Investment Corporation 12,210,578 5.6 27 Leadership review Massmart Integrated Annual Report 2016 28

A message from our Chairman Delivering on our strategy Smart ideas that inspire Making a difference Our clear strategy, operational priorities and diversified everyday excellence EXCELLENCE business model have enabled us to navigate the economic Builders Online is seen as a new sales channel where hurdles we faced in 2016. Under Guy Hayward’s astute in challenging times innovation opportunities can be explored before being leadership, we have managed to deliver solid results, sent to stores. As space becomes more scarce and testament to our world-class talent bench. Our focus on expensive, the platform gives Massbuild an opportunity good margin management and excellent cost control has to reduce space and use existing spaces to introduce new resulted in strong divisional performance and resulted in categories or expand more profitable categories. ‘Our clear strategy, operational priorities the Group delivering above market expectations. Creating and sharing value with our customers is an and diversified business model have inherent part of our customer value proposition. Our promise Creating opportunities for enabled us to navigate the economic is to save customers money so that they can live better. everyone to prosper INCLUSIVE We achieve this by understanding our customers’ needs We believe it is not just the responsibility of Government hurdles we faced in 2016.’ and ensuring we offer them relevant, competitive to improve society; business has an equally important role product choices. In a Retail Price Watch Survey (July 2016) to play. As Chairman of Massmart, I believe that this is the conducted across South Africa’s seven biggest chains in Kuseni Dlamini, Group Chairman core to being a good business as today’s problems are four categories for a total basket of goods Cambridge came too complex and too big for government to solve alone. out cheapest and Makro second. We are proud to occupy Across the globe, 2016 was a challenging year both Some of the political noise that dominated public discourse in We believe in doing well by doing good wherever and the first and second spots. politically and economically, and this was no different for 2016 was unhelpful to the promotion of a stable environment whenever we can. Through public private partnerships, Africa. I am very pleased to report that Massmart emerged that provides the certainty and predictability key to winning and working towards a common goal, we have the ability strongly in spite of these circumstances and delivered solid hearts and minds of foreign investors. As a nation, we need Keeping pace with changing customer to enable economic prosperity for all, especially for those results across its Divisions. to continuously project and demonstrate a tangible sense of needs less fortunate. In this period we saw a total sales increase of 7.7% common purpose that puts the national economic interest Massmart plays an important role in creating jobs in all (bringing our revenue to R91.3 billion), with good growth and broader national interest above all else. Ever growing access to the Internet and increased the markets in which we operate. We embrace the ethos across all four of our Divisions. I believe that it is the South Africa has what it takes to be a globally competitive, ownership of smartphones continues to change the way and principles of South Africa’s National Development commitment, passion and energy of all Massmart’s people world class and admired nation. It is the duty of all leaders customers shop and, consequently, the growth of online Plan (NDP), especially around job creation. We create jobs that enabled us to achieve this. in business and politics alike to do their part to enable the remains one of Massmart’s key strategic objectives. In along the value chain from the construction of stores, to country to unlock its full potential for the benefit of current 2016 Massbuild launched a world-class online offering to employing associates in our shops and through our supply complement the existing Builders’ shopping experience. The South African environment and future generations. chain. We will continue to look at ways to drive employment Looking to the year ahead, the South African consumer This platform supports our value proposition of being by working in partnership with relevant authorities to Our robust, yet flexible strategy enabled Massmart to outlook is mildly positive as the business cycle appears to the customers’ first choice, providing convenient shopping maximise our contribution. For example, at our new Makro navigate the economic headwinds South Africa faced be turning (SARB Leading Indicator, Q4 2016) and the end hours and locations, with the widest range of quality branded Carnival store, 500 permanent jobs were generated during in 2016. In the period, economic growth was lacklustre of the drought should lead to lower food prices and falling products, project complete solutions and best advice. It has the construction phase. mainly due to the weak performance of the manufacturing consumer price inflation. also allowed for an expanded product offering and extended Employee welfare and affordable access to health cover sector, a protracted drought, low commodity prices, high our reach to customers who previously did not have access to for our employees is important to Massmart. unemployment and inflationary pressures placing pressure the various Builders’ formats due to their location. on consumer spending. The African opportunity The year was also marked by increased social unrest. Our African stores have been resilient in what can The #FeesMustFall campaign, a student-led movement be described as a tough operating environment. calling for free tertiary education, dominated national Notwithstanding the decline in commodity and oil prices conversation and the news agenda. The concerns around and foreign currency challenges, our African operations student funding, access to education and outsourced delivered sales growth in Rands of 11.2% (13.4% in constant workers are complex and require concerted efforts from local currencies). all stakeholders to ensure that the youth are able to find Growing our African footprint remains a key strategic meaningful work. We recognise that quality education is priority; we believe Africa presents a myriad of growth key to enabling sustainable employment and as a business opportunities. Our commitment to growing our business we need access to talent with the right skills in order to in Africa is very strong and long-term. Over the coming continue to flourish. years we will grow our retail footprint with the ambition We believe business can and must play a pivotal role in of achieving space growth of about 26.2% in the next two building and retaining local and foreign investor confidence years. We remain confident in the medium- to long-term in South Africa. This is important in order to attract and retain prospects of African economies. foreign investors, however to achieve this we need political As an African company, Massmart is a proud investor and and policy certainty, with smart regulations that attract and partner for growth and development of the continent. We are retain foreign investment. The more investors we have in invested for the long-term, and aim to make a positive impact South Africa, the better for our economy and society alike. on the communities and countries in which we operate. We Increased access to private This is key to driving inclusive and sustainable that benefits all have policies regarding local sourcing and employment in healthcare for employees our people, especially the poorest of the poor. order to achieve this: in most of our African operations almost See the truCARE case study Political stability is also an indispensable prerequisite for 95% of our management and employees are locals and the on p67 sustained inclusive growth and development. vast majority of our fresh produce is locally sourced. 29 Leadership review A message from our Chairman Massmart Integrated Annual Report 2016 30

Our CEO’s letter to our stakeholders

We took our first step towards offering a robust healthcare Good business at the Strong growth in a programme with the implementation of mandatory ETHICAL AND healthcare cover for all new permanent employees in 2008. centre of what we do RESPECTFUL Our programme, which comprises the three Massmart Health Massmart has an unwavering commitment to good tough environment Plan Options (Choice, Network and Essential) and the Impilo governance; across all the markets in which we operate Workplace Wellness Programme, has now been further we apply good corporate governance standards. Our expanded with the launch of truCARE in January 2016. colleagues ensure that the Massmart way of doing business, ‘Most Massmart Divisions performed A good proof of what is possible when Government underpinned by the principal of ‘doing well by doing good’ exceptionally well in the tough South and business work together is our Supplier Development is effectively applied across all our businesses. Programme (SDP). Our SDP typically involves assisting We also believe that we should play a broader anti- African consumer environment...’ suppliers to meet product quality standards; investing in corruption role in our society because bribery increases the cost of living for all of us and undermines the rule of law bespoke manufacturing equipment to build capacity and Guy Hayward, Group CEO providing retail and business management training. We are and the values of our democracy. It is not good for social immensely proud of what we have achieved through this, cohesion nor is it good for business, hence our sponsorship knowing that we are playing our part in helping to unleash of the South African Citizens’ Bribery Survey. The year in review Our Board is actively engaged and encourages the entrepreneurial potential in Africa. Import substitution Massmart’s total sales were R91.3 billion, an increase of 7.7% over the prior year. is an area where we are having an impact; we are working management to profitably grow Massmart in the best interest of all stakeholders. I am delighted to report Comparable stores’ sales growth was 5.4%, with product inflation of 6.7%. with numerous small- and medium-sized enterprises to that there was excellent attendance at the Board and Currency weakness and challenging operating environments saw total sales resuscitate local manufacturing of these goods and, by so Committee meetings. Our Board conducts regular reviews growth from our non-South African stores slow to 11.2% (13.4% in constant doing, promote local job creation and retention. of our effectiveness, composition, strategy, structure and currencies) from 23.2% for the six months to June 2016. Our partnership with the Department of Basic Education, talent within Massmart. Good margin management and excellent expense control resulted in Group in which we provide facilities for the hygienic preparation Our financial Our Board diversity is one of Massmart’s strengths. From trading profit, excluding foreign exchange movements and interest, growing by of meals for school children across the country, is another global retail experience, to race, gender, experience and 11.9% to R2.6 billion, while headline earnings increased by 15.6% to R1.3 billion. highlights: example of the government and private sector working length of service, Massmart’s Board is well positioned to Much has been said, both externally and elsewhere in this Integrated Annual together to bring about positive change in South Africa. add value to the business. Report, about the difficult South African and sub-Saharan African economic environments in 2016. It is likely that the period from early 2016 to mid-2017 Thoughtful choices for will represent South Africa’s economic low-point in the decade to 2020. The 7.7% Our Board divergent sales performances across our major product categories reflect the Total sales a better future The Board of Massmart continues to work effectively economic pressure within the South African consumer environment, with total R91,250.0 million in providing strategic oversight and supporting our Food & Liquor sales growing at 11.7% for the year while General Merchandise Managing our impact on the environment is equally 2015: R84,731.8 million important. Across our store network we are consistently Executive team in the execution of the Group’s strategy. grew by 1.5% and Home Improvement/DIY total sales grew by 5.6%. Sales in improving energy efficiency in our efforts to drive down Guy Hayward, our CEO, and his Executive team continue to General Merchandise and, to lesser extent, DIY were negatively impacted by very our carbon footprint. We are committed to seeking do a commendable job in delivering impressive results in a low discretionary spending by consumers. commercially viable renewable energy alternatives and in challenging economic cycle. Since 2014 many African economies have been adversely affected, to varying % After two and a half years on the Massmart Board, degrees, by a strong US Dollar, weak commodity prices, their own currency 5.4 2016 we installed two solar photo-voltaic plants at our new Makro store at Carnival City and at Makro Woodmead. The Walmart appointee Andy Clarke has resigned with effect weakness, and undiversified industrial/manufacturing bases. Compounding this Comparable plants will help reduce energy costs whilst also lowering from 22 February 2017. Andy’s deep retail experience is that drought conditions in southern Africa remained severe and sales growths sales growth energy related carbon emissions by around 30%. We are contributed significantly to the Group’s retail thinking and in this region slowed noticeably in the latter part of 2016. Slightly more than 2015: 6.7% committed to doing our part to contribute to greening execution, especially on Fresh and online, and we thank 50% of the Group’s ex-SA sales are non-Food (General Merchandise and Home the South African economy and, by so doing, help the him for his valuable service. Improvement) and the difficult economic conditions therefore exacerbated country fulfil its commitments to the COP21 Paris Climate these categories’ performances. In Rands, the Group’s total sales growth ex-SA was 11.2% while comparable stores’ sales growth was 3.1%. At a category level Agreement. With thanks to all our stakeholders 15.5 % these comparable sales growths were 9.4% in Food but 0.6% in non-Food, South Africa is a water scarce country which requires a Operating profit On behalf of the Board, I would like to thank the 48,000 reflecting the adverse conditions of the ex-SA consumer economies. consolidated effort across all sectors to attain and maintain before interest colleagues that make Massmart the business it is. We are Most Massmart divisions performed well in the tough South African water security for current and future generations. Through R2,483.4 million also deeply grateful to our suppliers, and to our customers consumer environment where we effectively managed the fine line between our water saving initiatives we are doing our bit to help 2015: R2,150.4 million who choose our stores as their retail destination. Lastly, I growing sales and maintaining profitability, whilst controlling cost growth in the conserve this vital resource, expanding rainwater and would like to thank my Board colleagues, management and face of severe cost pressures. condensate initiatives at a number of our Builders Warehouse stakeholders for their passion and support, without which it During the 2016 year, 19 stores were opened, including two outside of South and Makro stores, saving approximately 20 million litres of would have been difficult to achieve the solid results we did. Africa, representing new space growth of 3.7%. Our focus on optimising the % water in 2016. Group’s store footprint continued with ten stores being closed, resulting in a 15.6 As part of our environmental supply chain focus, we net space increase of 1.2%. Our portfolio of 412 stores includes 39 outside Headline have prioritised products that are potentially vulnerable South Africa 8.7% of the Group’s sales. Ex-SA sales currently represent 19.0% of earnings to exploitation and unsustainable utilisation. While Kuseni Dlamini Massdiscounters’ total sales, 7.9% of Massbuild and 13.3% of Masscash Wholesale R1,293.3 million sustainable timber and fresh and frozen seafood sourcing Chairman respectively. We expect to open 11 new stores outside South Africa during 2017- 2015: R1,118.8 million remain a high priority, we have expanded our focus to 31 March 2017 18 representing 26% space growth. include canned tuna and poultry welfare. 31 Leadership review Our CEO’s letter Massmart Integrated Annual Report 2016 32

Our response Our operational Store changes A pilot online offering for our contractor customers has Later in this letter, I describe our four strategic priorities we are pursuing, highlights: Four Game stores, two in South Africa and one each in progressed well. The online proposition is exceptional namely: improving and growing the core business; growing Retail Food Kenya and Zambia were opened during the year, whilst two with rich data and broad functionality, and was opened and Builders’ formats in South Africa; growth into sub-Saharan Africa; and DionWired stores were opened and two closed, increasing for browsing to the general public in early 2017. In late ecommerce. In the shorter-term however, we are emphasising: trading space by 2.3% to 545,094m². We expect to open March 2017 we opened the site to online purchases by all • Holding operating costs as a % of sales as low as feasible. This is achieved eight Games stores during 2017-18, including six across four customers and the initial response has been exceptional. ex-SA countries, and two DionWired stores in South Africa. in multiple ways but key focus areas include supply chain and logistics’ The difficult economic Store Changes efficiencies, reducing store construction and in-store operating costs, environment saw every Masswarehouse One small Builders Warehouse store was closed in Mozambique. Two Builders Express stores and two effective labour-scheduling of our store employees, and an intense focus Division report comparable Makro: 20-store Makro warehouse club trading in Food, Builders Superstores were opened; and one Builders on the procurement costs of our goods-not-for-resale; sales growth below sales General Merchandise and Liquor. Trades in South Africa Trade Depot store was closed in South Africa. Net trading • Maintaining a competitive price-gap against our major competitors inflation; Massfresh: houses the Group’s fresh produce, fresh space remained similar to 2015 at 449,212m². There will across Known Value Items (KVI’s). This price-gap is enabled by Massmart’s meat and bakery operations including The Fruitspot, an be four new Builders Warehouse stores opened in both operating costs (as a % of sales) being the lowest in South African retail; established wholesaler and distributor of fresh and cut fruit Mozambique and Zambia during 2017-18, with a number • Working closely with key suppliers to ensure that we invest energy and vegetables. of the Massbuild brands planning new store openings in and resources into areas of common interest, including supply chain Total sales for the year increased by 11.0% and South Africa. efficiency, to ensure their products reach their desired target markets Encouraging profit comparable sales grew by 7.6% with product inflation of cost effectively; and recoveries in Massdiscounters 6.5%. Total sales growths in Food & Liquor are higher than Masscash • Being selective about our South African store footprint: only opening and Masscash; 11% while the much lower General Merchandise sales are Masscash comprises 54 Wholesale Cash & Carry and 57 stores that we are confident will be sustainably profitable and closing reflective of soft discretionary spending. those with permanently compromised profitability. Retail stores trading in South Africa; 12 Cash & Carry stores in There were significant cost pressures within the business, Botswana, Lesotho, Mozambique, Namibia and Swaziland; including new store pre-opening costs of R17.4 million, and Shield, a voluntary buying association trading in South Overview of financial performance resulting in an increase in trading profit before interest and Africa, Botswana, Namibia and Swaziland.

In his report included on pages 39-49, our Chief Financial Officer, Johannes tax of only 4.4%. Total sales increased by 7.5%, comparable sales Now R1 billion sales from the van Lierop, addresses in useful detail the key financial issues necessary to Online sales more than doubled for the year and we increased by 7.9% with product inflation of 9.3%. Lower- five Builders Warehouse stores understanding and interpreting the Group’s 2016 performance. continue to expand and improve the online offering income consumer demand was slightly mitigated by high in ex-SA countries; including now offering a virtual marketplace in General Food inflation, particularly in commodities. Merchandise. Divisional operational review In February 2016 one of our biggest Cash & Carry stores, New Fruitspot facilities, which will improve our internal Jumbo in the south of Johannesburg, was destroyed by fire. and external distribution efficiencies, were opened in Cape Massdiscounters We were fully covered by insurance, as described in the Chief Town and Durban in the latter part of 2016. Financial Officer’s review, and expect to open the rebuilt Game: 141-store General Merchandise discounter and Food retailer. Trades Private label sales represent Store changes store in April 2017. This is why this Division’s comparable in South Africa, Botswana, Ghana, Kenya, Lesotho, Malawi, Mozambique, 9.2% of Group sales; The April 2016 opening of a new Makro store near Carnival store sales growth exceeds total store sales growth. Namibia, Nigeria, Tanzania, Uganda and Zambia Mall, east of Johannesburg, and an extension to the Competition and price-pressure were intense in both DionWired: 24-store Hi-tech retailer. Trades in South Africa Strubens Valley store, in Johannesburg West, increased Retail and Wholesale but both businesses responded Total sales for the year increased by 5.3% and comparable sales grew trading space by 11.3% to 217,907m². In late 2017 we expect assertively and effectively. The retail formats, Cambridge by 1.5% with product inflation of 4.8%. South African total and comparable to open our 21st store in South Africa in the north of and Rhino, performed well, growing comparable sales sales growths were higher in the second half of 2016 while ex-SA sales Johannesburg. above 10% and gaining market share. Effective margin growth in Rands slowed dramatically given the economic conditions and management and good cost control enabled Masscash to our higher proportion of non-Food sales. 19 new stores opened, Massbuild grow trading profit before interest and tax by 28.2%. Our two-year focus on Game’s merchandise execution and addressing including two outside of Massbuild comprises 99 stores, trading in DIY, Home Store changes in-store and supply chain costs manifested in a strong trading margin South Africa, increasing gross Improvement and Building Materials, under the Builders Four Wholesale stores were closed; and eight Retail stores and expense performance, and so Massdiscounters’ trading profit before space by 3.7%; and Warehouse, Builders Express, Builders Trade Depot and were opened and two closed, resulting in net trading space interest and tax increased by 54.8%. Builders Superstore brands in South Africa; and five Builders decreasing by 4.3% to 356,531m². Over the past three years DionWired had an exceptional year with good sales, despite a very Warehouse stores in Botswana, Mozambique and Zambia. we have closed 12 Cash & Carry stores with a view to driving challenging environment, and an impressive profit performance. Massbuild grew total sales for the year by 5.6%, with higher sales through fewer, more efficient, stores. In 2017-18 In the last quarter of 2016 we successfully trialled the new SAP point-of- comparable sales increasing by 1.7% and product inflation we will be opening 20 new Rhino and Cambridge stores in sale system in 12 Game stores in South Africa. We have therefore started of 4.7%. Sales growth in our South African stores improved South Africa, and one Wholesale store in Zambia. the next phase of the point-of-sale roll-out, with all Game and DionWired Effective inventory slightly in the second half of 2016 as a result of more effective stores in SA likely to be converted by June 2017. The more significant management resulted in promotions and good merchandise execution while our SAP ERP systems’ implementation remains on schedule for mid-2018. In stock days of 58 at December ex-SA stores’ sales growth in Rands decelerated markedly time this implementation will support improved in-store processes and 2016, better than given the weakening economies in those countries. inventory management, improve customer engagement and relationship 63 days a year earlier. Given the sales pressures and despite good expense management, enable an online offering, and provide a platform to offer control, the increase in Massbuild’s trading profit before ancillary financial services. interest and tax was 2.7%. Our Fresh roll-out continues with 88 Game stores now offering this For further information on our category. Although not yet in all stores, Food & Liquor sales participation is Divisions see p59-66 already 23% and is achieving comparable growth of 11%. 33 Leadership review Our CEO’s letter Massmart Integrated Annual Report 2016 34

Strategic priorities Improve and grow the core South African business The Board and Executive Committee For the longer-term, our There are two broad dimensions to this objective – one, to improve the profitability My Board and Executive Committee colleagues remain a key areas of strategic focus of, and to continually seek new growth avenues for, each of the divisions; and two, source of great counsel and support. At Board level we have remain unchanged: to ensure that we collaborate across the divisions, i.e. intra-Group to reduce cost ready access to skills and experience across diverse areas duplication and inefficiency. To this end, the profit improvement in Game and including international retail, corporate governance and Masscash Wholesale and Retail were great performances and a tribute to those risk, public policy and transformation, and real estate. This management teams and staff. Our collaboration efforts are overseen by our Group counsel, of course, extends beyond me to our Executive Commercial Executive, Llewellyn Steeneveldt, and involve our core functional areas Committee colleagues and senior management. I thank and across each Division – like IT, Real Estate, Merchandise and Private Label – working acknowledge the support the business and I have received To drive the growth and together. Collaboration takes many forms: negotiating with a single supplier across from my Board colleagues, and I recognise the quality of the profitability of the core the Group for best price and service; aligning around a single instance of the leadership, strategic debate and operational execution that South African business over product master-data; or enforcing a peer-review for new IT projects. comes from my Executive Committee colleagues. the medium-term; In early 2017 we appointed a Group Supply Chain & Logistics Executive, With effect from 31 August 2016, the Deputy Chairman of Richard Inskip, with a mandate to improve the Group’s transport, logistics and our Board, Chris Seabrooke, handed over the chairman roles supply chain capabilities over the long-term. Our supply chain community has of the Audit and Risk Committees to Moses Kgosana and already done good work in this area – evidenced by the sharp improvement in ceased to be a member of both committees after 16 years the Group’s inventory levels which reduced by five days from December 2015. of membership. Expand further into Food Retail and the Fresh categories After 2.5 years on the Massmart Board, Walmart-appointee Andy Clarke resigned with effect from 22 February 2017. We remain excited by the long-term growth opportunities presented by both Andy’s deep retail experience contributed significantly to To expand further into Retail Food and Builders Warehouse in South Africa. Although still low, we believe the Group’s retail thinking and execution, especially on Fresh Food Retail and the Fresh that Builders Warehouse has the largest market share in South African Home and online, and we thank him for his valuable service. categories through new Improvement/DIY and we will continue to roll-out this very strong retail offering Read more on our collaboration In August 2016, we announced that Albert Voogd was stores and our existing formats through three formats – Builders Warehouse, Builders Express and Builders efforts on p57-58 in South Africa; joining as the Massdiscounters Chief Executive Officer Superstore. Retail Food, already a R15 billion sales category across the Group, is (CEO). Outgoing CEO Robin Wright, whose drive and being rolled-out through adding the Fresh category to Game and Makro stores, energy played a very significant part in the improved Game and by opening more Rhino and Cambridge stores on a regional basis. performance, has retired but will continue to work with Growth into sub-Saharan Africa Massmart on specific projects. Sales update and outlook As noted elsewhere, our 2016 sales growth from our ex-SA stores was strong With effect from November 2016, Joe Ralebepa joined For the 13 weeks to 26 March 2017 Massmart’s total at 11.2% (and 13.4% in local currencies) which is well above the 8.0% total sales the Group as General Counsel and the Massmart Holdings sales growth was 0.5% over the prior year’s period Sub-Saharan African growth reported from our South African stores for the same period. Ex-SA sales Company Secretary, replacing Mike Spivey who, after six and comparable store sales decreased by 1.7%. Sales expansion through opening currently represent 19.7% of Game’s total sales, 7.9% of Massbuild and 13.3% of great years at Massmart, returns to an executive role with performance outside South Africa remains weak with Builders Warehouse, Game Masscash Wholesale respectively. Walmart International. Mike played a significant role in Rand total sales growth of -17.4% and comparable sales and Masscash stores. In the We are optimistic, but measured, about the long-term growth opportunities upweighting the effectiveness and contribution of the growth of -19.4%, while in constant currency these figures next two years we anticipate across selected African countries and expect to open 11 new stores, representing legal community within Massmart and in helping the are -1.9% and -2.1% respectively. South African total and opening 11 new stores 26% additional space, in five countries outside South Africa during 2017-18. Group participate usefully within the Walmart International comparable sales growths are 2.5% and 0.2% respectively. representing ex-SA space Despite the current economic headwinds facing sub-Saharan Africa ex-SA, the business, governance and legal fraternities. Given our large wholesale businesses, the Group’s sales growth of about 26.2%; and major regions of south, west and east Africa are forecast to grow ahead of South Richard Inskip joined the Group in January 2017 as Group performance for the 13 weeks has been adversely impacted African economic growth. Supply Chain & Logistics Executive to focus on leveraging by Easter falling in April 2017 compared to March in 2016. the Group’s transport, logistics and supply chain. This Integrated Annual Report was finalised a day after Ecommerce the announcement of several changes to key roles in the We are alive to the growing presence of online shopping and digital activation Our people and transformation South African Cabinet. This development may increase in our customers’ lives and the effect it has on their shopping behaviour and policy uncertainty in South Africa, potentially with negative needs. Similarly, we are clear that internationally customers’ purchases of General The contribution of our 48,000 colleagues never goes consequences for the economy, and thus it is extremely unnoticed or unappreciated, especially in the current difficult to currently provide any useful short- to medium- To expand, improve and Merchandise, are increasingly migrating to online platforms. It is estimated that in environment where likely many of them, and their own term economic or performance outlook. refine our online/ecommerce South Africa online sales represent only 1.5% to 2.0% of sales and we see similar participation rates in those categories we sell online. It is likely however, that this families, are feeling the adverse consequences of the weak offerings in DionWired, Makro economy. We would like to acknowledge and thank every and Massbuild. participation will grow rapidly and, indeed, in Makro online sales doubled in 2016 Conclusion compared to the prior year. In response Massmart has built both B2B and retail colleague for their service and support, including those in online offerings covering: General Merchandise and Liquor in Makro; DionWired’s our administrative offices and distribution centres, knowing Our appreciation and gratitude is due to all our stakeholders Hi-tech merchandise range; Builders Online; and, in Masscash, Shield’s B2B platform. that the largest part of the Group’s improving performance for their support for, and contribution and commitment to, Linked to ecommerce and digital is the provision of a broad array of financial comes from their efforts. Massmart during this period. services to our retail customers. An executive with many years’ experience in this For a business to be sustainable it must reflect, and area, Gerhard Hayes, joined the Group in 2015 and much work is underway to be responsive to, the needs, nature and direction of the expand and improve our offering including the roll-out of kiosks across our store society within which it operates. We believe that diversity network providing financial services such as prepaid electricity, Lotto tickets and and transformation make a business stronger, more resilient airtime purchases. and more responsive. As a major South African corporate, Guy Hayward we continue to focus on the transformation of our senior Chief Executive Officer and executive management. 31 March 2017 35 Leadership review

Our Board

Massmart’s Board is responsible for For the complete and detailed CVs of the Board members please visit directing the Group towards achieving www.massmart.co.za/iar2016/CVs Massmart’s vision and mission.

Executive Directors Non-independent non-Executive Directors Guy Johannes Andy JP Enrique Hayward van Lierop Clarke Suarez Ostalé (51) (50) (53) (53) (56) Chief Executive Officer Chief Financial Officer President and Chief Senior Vice President of President and CEO of Employee since 2000 Employee since 2015 Executive Officer Realty and Walmart US Walmart Latam, India & Appointed Appointed of ASDA Appointed Africa and Chairman of 15 May 2001 12 March 2015 Appointed 20 June 2011 the board of directors of 16 July 2014 Walmart Mexico, Central E R SE E R SE America and Chile Resigned 22 February 2017 Appointed 24 February 2016 03 M N Our performance

FINANCIAL CAPITAL 37 MANUFACTURED CAPITAL 57 HUMAN CAPITAL 67

Independent non-Executive Directors NATURAL CAPITAL 85 SOCIAL AND RELATIONSHIP CAPITAL 89 Kuseni Chris Dr Nolulamo Moses Phumzile Dlamini Seabrooke (Lulu) Gwagwa Kgosana Langeni INTELLECTUAL CAPITAL 99 (49) (64) (57) (58) (42) Chairman of the Board Deputy Chairman Appointed Appointed Appointed Appointed of the Board 1 November 2006 1 September 2015 25 August 2004 10 April 2014 Appointed A R A R A R SE 1 February 2000 A M N

M N

A Audit E Executive M Remuneration N Nomination R Risk SE Social and Ethics 37 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 38

Game seeks, through its promotional activity, to The concept is to choose about 50 products, negotiate with Through our communicate to their core customer demographic about its suppliers to hold their cost prices for at least six months, unbeatable weekly deals. Their media strategy is designed to and then in turn hold the reduced selling price for the full maximise their reach and share-of-voice in the market each six months. Massbuild doubled the amount of products promotions, we saved week. The key objective is to drive feet into stores everyday on the 6 month Price-Lock adverts in 2016, giving Builders utilising high volume driving lines at prices nobody can beat. branches a broader variety of merchandise to display DionWired’s purpose is to simplify life by obsessively in bulk, helping to re-enforce the value for money price our customers sharing the joy of technology. Through their promotional message in-store. activity, they aim to constantly share trending technology A deal a day is a daily targeted SMS marketing campaign with their high LSM customer profile, showing them how focused at Masscash Wholesale’s existing store customer R1.9 billion in 2016. it can be used to make life simpler. Their key promotional database. Each day customers are offered two or three objective is to drive traffic online and to stores, through deep-cut deals that are valid for a single day only. Real deals velocity driving lines, with the added value of their is a quarterly campaign that promotes 10 KVI deals, for 10 services’ bouquet. days nationally. During 2016 the highly successful Makro R100 Gumba Gumba refers to items of extraordinary promotions continued, and were once again effective large magnitude. These words are personified through FINANCIAL CAPITAL at increasing footfall and in expanding the number of Cambridge Food’s consumer champion, Mr Gumba Gumba, THE FUNDS AVAILABLE TO AND categories shopped. a larger-than-life character that is dedicated to saving ETHICAL AND UTILISED BY THE GROUP The Price-Lock campaign was initiated in Massbuild two people money so that they can live better lives. To achieve RESPECTFUL years ago following insights from the UK market. this, Cambridge Food does not just offer its customers ordinary savings, but rather Gumba Gumba savings. 39 Our performance: Financial capital Chief Financial Officer’s review Massmart Integrated Annual Report 2016 40

Chief Financial Comparable sales Officer’s review growth of 5.4% and product inflation Summary consolidated income statement estimated at 6.7%.

December December Gross profit margin 2016 2015 % increased slightly from ‘Good margin management and great expense Rm (Audited) (Audited) change 18.9% to 19.0%. control underpinned our results.’ Revenue 91,564.9 84,857.4 7.9 Sales 91,250.0 84,731.8 7.7 Includes R30 million of financial services’ Johannes van Lierop, Group CFO Cost of sales (73,948.9) (68,689.6) (7.7) income which were not Gross profit 17,301.1 16,042.2 7.8 in the prior year and Other income 216.8 125.6 72.6 insurance proceeds on Sales Sales split Jumbo Crown Mines’ Depreciation and amortisation (1,036.5) (946.2) (9.5) During a year where the sub-Saharan Africa consumer Our ex-SA businesses represented 8.7% (2015: 8.4%) non-PP&E items. environment became increasingly challenging, total Group of total sales and grew by 11.2% in Rands and 13.4% in Employment costs (7,346.6) (6,784.3) (8.3) sales for the year to December 2016 increased by 7.7% over the constant currencies, while comparable sales growth Occupancy costs (3,133.2) (2,865.6) (9.3) Great expense control prior year, with a comparable sales growth of 5.4%. Product in Rands from these territories was 3.1%. Other operating costs (3,397.8) (3,245.8) (4.7) resulted in comparable inflation was estimated at 6.7%, suggesting a real comparable expense growth of only Trading profit before interest and taxation 2,603.8 2,325.9 11.9 volume decline of 1.3%. Inflation in General Merchandise, 5.4%. Expenses as a % of Food & Liquor and Home Improvement increased to 5.9%, Impairment of assets (76.7) (25.7) sales were held at 16.3%. 7.7% and 4.7% respectively. Insurance proceeds on items in PP&E 98.1 – Majority of the Operating profit before foreign 91.3% impairment and the Inflation exchange movements and interest 2,625.2 2,300.2 14.1 Group sales: South African sales insurance compensation December December SA vs. ROA Net foreign exchange loss (141.8) (149.8) 5.3 income were as a result % % 2016 2015 8.7 Operating profit before interest 2,483.4 2,150.4 15.5 of the Jumbo Crown Rest of Africa sales Mines’ store fire in Group production 6.7 3.0 – Finance costs (601.0) (507.7) (18.4) February 2016. General Merchandise 5.9 3.2 – Finance income 29.1 32.4 (10.2) Food & Liquor 7.7 3.8 Net finance costs (571.9) (475.3) (20.3) We actively managed Home Improvement 4.7 2.5 Profit before taxation 1,911.5 1,675.1 14.1 the value and currency of our foreign- Taxation (588.9) (505.9) (16.4) denominated balances. Gross profit 57.0 % Food & Liquor Profit for the year 1,322.6 1,169.2 13.1 The Group’s gross margin of 19.0% is marginally higher than Increase in net finance that of the prior year of 18.9%, mostly driven from business- Group sales: 29.1% Profit attributable to: costs mainly aggravated category split mix and better category management. Gross profit includes General Merchandise – Owners of the parent 1,308.2 1,112.8 17.6 by two interest rate rebates and other forms of income earned from suppliers. hikes in 2016. 13.9 % – Non-controlling interests 14.4 56.4 (74.5) Other income Home Improvement Profit for the year 1,322.6 1,169.2 13.1 Included in other income are dividends from unlisted Basic EPS (cents) 604.7 513.5 17.8 investments and financial services’ income which were not Diluted basic EPS (cents) 594.4 506.1 17.4 received in the prior year and insurance proceeds on non- property, plant and equipment (PP&E) items, mainly related Dividend (cents): to the Jumbo Crown Mines fire. – Interim 74.1 146.0 (49.2) % 53.1 – Final 224.8 112.2 100.4 Africa sales: Non-Food Food vs. non-Food – Total 298.9 258.2 15.8 46.9% Food & Liquor The audited consolidated Group Annual Financial Statements for the year ended December 2016 can be found on the Company website at: www.massmart.co.za/iar2016/groupafs 41 Our performance: Financial capital Chief Financial Officer’s review Massmart Integrated Annual Report 2016 42

R7,346.6 m 2015: R6,784.3 m • Total increase of 8.3%/ Comparable increase of 7.5% • Number of staff (Full-Time Equivalents) in line with prior year, despite new stores: +/- 48,000 FTEs R3,133.2 m R3,397.8 m Headline earnings 2015: R2,865.6 m December December Employment costs 2015: R3,245.8 m • Total increase of 9.3%/ R1,036.5 m 2016 2015 % • Total increase of 4.7%/ Comparable increase of 8.9% 2015: R946.2 m Rm (Audited) (Audited) change Comparable decrease of 0.6% • 2.2% increase in new trading • Depreciation and amortisation • Continued investment in IT Reconciliation of profit for the year to headline earnings space since the prior year to a growth of 9.5%/Comparable infrastructure across the Group Profit for the year attributable to owners of the parent 1,308.2 1,112.8 17.6 total of 1,568,744m² increase of 1.6% • Increase in line with Impairment of assets 76.7 25.7 Occupancy costs depreciable assets purchased Other operating costs over the year Loss on disposal of tangible and intangible assets 6.7 2.3 Profit on sale of non-current assets classified as held for sale – (5.2) Depreciation Compensation from 3rd parties for items of tangible assets that were (98.1) (1.2) and amortisation impaired, lost or given up Foreign currency translation reserve re-classified to the Income Statement – (12.7) Total tax effects of adjustments (0.2) (2.9) Operating expenses Finance costs Headline earnings 1,293.3 1,118.8 15.6 Operating expenses were tightly controlled, increasing Net finance costs have grown to R571.9 million (2015: R475.3 Foreign exchange loss after taxation 95.3 111.0 by 7.7% over the prior year, and great expense control million), mainly aggravated by two interest rate increases Headline earnings before foreign exchange (taxed) 1,388.6 1,229.8 12.9 resulted in comparable expense growth of only 5.4%. during 2016. Pleasingly expenses as a % of sales were held at 16.3%. Growth in employment costs, the Group’s biggest cost Headline EPS (cents) 597.8 516.3 15.8 Working R571.9 m category, increased by 8.3%. Occupancy costs increased capital 2016 Headline EPS before foreign exchange (taxed) (cents) 641.8 567.5 13.1 by 9.3%, mainly due to store openings. Depreciation and R475.3 m Rate Diluted headline EPS (cents) 587.6 508.8 15.5 amortisation increased by 9.5%. Other operating expenses 2015 increase increased by 4.7%. The non-capital costs of upgrading our Diluted headline EPS before foreign exchange (taxed) (cents) 630.9 559.3 12.8 IT infrastructure, as well as pre-opening store expenses are included in this expense category. Earnings before interest, tax, depreciation and amortisation (EBITDA) of R3.6 billion increased by 15.2% Summary consolidated statement of comprehensive income over the prior year. December December Taxation 2016 2015 % Jumbo Crown Mines impairment and The Group’s effective tax rate of 30.8% is in line with Rm (Reviewed) (Audited) change insurance proceeds expectation (2015: 30.2%). Massmart is not concerned about Profit for the year 1,322.6 1,169.2 13.1 Included in operating profit is the net insurance gain any specific element of historical tax risk in the Group, but Items that will not subsequently be re-classified to the Income Statement: 3.6 5.0 there remains the uncertainty that adjustments could arise of R45.0 million arising from the excess of the insured Net post retirement medical aid actuarial profit 3.6 5.0 replacement value over the net book value of the assets from potentially unfavourable tax assessments of previous Items that will subsequently be re-classified to the Income Statement: (368.2) (21.2) destroyed by the fire at the Jumbo Crown Mines store in tax returns. Management believes that the final outcomes February 2016. of any such matters will not have a material adverse effect Foreign currency translation reserve (376.9) (24.2) on the Group’s financial position. Cash flow hedges – effective portion of changes in fair value (23.2) 4.4 Foreign exchange loss December 2016 December 2015 Fair value movement on available-for-sale financial assets – (3.5) % (Audited) (Audited) Net realised and unrealised foreign exchange losses of Income tax relating to components of other comprehensive income 31.9 2.1 R141.8 million (2015: loss of R149.8 million) are also included Standard tax rate 28.0 28.0 Total other comprehensive loss for the year, net of tax (364.6) (16.2) in operating profit. African currencies have been particularly Non-taxable income and volatile and mostly weaker during the year. We have been disallowable expenses 2.9 1.0 Total comprehensive income for the year 958.0 1,153.0 (16.9) actively managing the value and currency of our foreign- Assessed loss not utilised 2.7 2.6 Total comprehensive income attributable to: denominated balances and we take out foreign exchange Other – including foreign – Owners of the parent 943.6 1,096.6 contracts on select exposures. All foreign-denominated tax adjustments (2.8) (1.4) inventory orders are automatically covered forward. – Non-controlling interests 14.4 56.4 Group tax rate 30.8 30.2 Total comprehensive income for the year 958.0 1,153.0 (16.9) 43 Our performance: Financial capital Chief Financial Officer’s review Massmart Integrated Annual Report 2016 44

Summary consolidated statement of financial position Property, plant and equipment and At the end of the current year, the Group’s onerous lease provision decreased from R33.8 million to R22.9 million. December December other intangible assets 2016 2015 % Rm (Audited) (Audited) change During the past few years, investment spending has been Trade, other payables and provisions focused on new IT infrastructure, store openings, and the ASSETS Creditors’ days decreased from 76 days to 70 days partly refurbishment of existing stores. The net book value of due to the lower inventory levels but also from the early Non-current assets 12,517.6 12,031.2 Growth below that of property, plant and equipment increased by 4.3% over the prior period (12.1%) settlement of some foreign-denominated creditor balances Property, plant and equipment 8,470.2 8,117.8 4.3 prior year. due to no significant as part of our foreign exchange risk management strategy. Goodwill and other intangible assets 3,159.0 2,999.1 5.3 property acquisitions. Deferred taxation The Supplier Development Programme, a separate fund Investments and other financial assets 164.2 165.1 created in response to the judgement of the Competition The deferred tax asset includes the operating lease Deferred taxation 724.2 749.2 Appeal Court at the time of the Walmart transaction, had liability arising from lease smoothing and unutilised a closing balance of R72.2 million (2015: R111.6 million) Current assets 19,348.3 18,687.6 Inventory days assessed losses. This net asset will reduce over time as the decreased by five and is reported on annually to the Competition Tribunal Inventories 11,803.0 11,934.5 (1.1) associated tax benefits are utilised. The net deferred tax highlighting our expenditure and achievements. to 58 days. asset decreased from R675.7 million at December 2015 to Trade, other receivables and prepayments 4,684.7 4,697.4 (0.3) R650.3 million at December 2016. Taxation 58.3 50.8 Lease exclusivity and contingent Cash on hand and bank balances 2,802.3 2,004.9 39.8 Inventories liabilities Non-current assets classified as held for sale 17.7 11.5 Improved inventory management saw our Inventory During 2016 there were several developments regarding Total assets 31,883.6 30,730.3 balance decrease by 1.1% compared to December 2015, lease exclusivities. These lease exclusivities are legal with inventory days reducing by five days to 58 days, arrangements contained within certain shopping centre EQUITY AND LIABILITIES despite store openings. lease agreements that appear to entrench the incumbent Total equity 6,183.7 5,791.1 major food supermarkets in certain localities within South Return on average Trade, other receivables and Africa. In 2014 Massmart formally requested the Competition Equity attributable to owners of the parent 6,108.1 5,636.0 8.4 shareholders’ equity Commission to investigate these market practices and in improved to 22.0%. prepayments Non-controlling interests 75.6 155.1 mid-2015 self-referred this complaint to the Competition Trade and other receivables were in line with 2015 and Non-current liabilities 4,722.4 3,053.4 Tribunal. In November 2016 the Constitutional Court handed New R2 billion term debtors’ days stayed flat, at nine days. Interest-bearing borrowings 3,301.9 1,819.6 81.5 down judgement in which Game won the right to operate loan obtained in as a supermarket that sells Food at the Cape Gate shopping Deferred taxation 73.9 73.5 the year. Capital management and shareholder centre. This ruling gives momentum to our Food business as Other non-current liabilities and provisions 1,346.6 1,160.3 returns it allows for free and fair trade in this space. Current liabilities 20,977.5 21,885.8 Creditors’ days Interest-bearing borrowings increased by R1 billion, the In addition to this matter, the Group and our subsidiaries Trade, other payables and provisions 19,634.0 20,077.7 (2.2) decreased from Group’s average borrowings only increased by R208 million are party to a variety of legal, administrative, regulatory and government proceedings, claims and inquiries arising in Taxation 138.4 155.6 76 to 70 days. against average borrowings in 2015. During the year, a R2.0 billion facility was entered into and was offset by the the normal course of business. While the results of these Bank overdrafts 180.6 446.4 settlement of older term loans, the settlement of overdrafts of proceedings, claims and inquiries cannot be predicted with Interest-bearing borrowings 1,024.5 1,206.1 R265.8 million and a working capital outflow of R263.0 million certainty, management believes that the final outcome of Interest bearing debt due to year-end being on Christmas weekend. the foregoing will not have a material adverse effect on the The Group’s gearing ratio (debt:equity) increased to Group’s financial position. Total equity and liabilities 31,883.6 30,730.3 increased to R4.5 billion to support the 62.6% (2015: 54.6%) at the end of the current year. Return repayment of overdraft on average shareholders equity for the year improved to Commitments borrowings and the 22.0% (2015: 20.4%). higher working capital December December outflow due to year-end Provisions and other liabilities 2016 2015 Rm (Audited) (Audited) being on Christmas The largest non-interest-bearing liability is the net operating Commitments in respect of weekend. The gearing lease liability of R1.3 billion (2015: R1.0 million) arising from capital expenditure approved ratio increased from the lease smoothing adjustment which will be reversed 54.6% to 62.6%. by Directors: over the remaining period of the Group’s operating leases. The increase in the operating lease liability primarily relates Contracted for 612.0 953.4 Debt:equity (%) Average debt/Average of opening and closing equity to the roll-out of new stores during the current year. Not contracted for 1,147.8 1,033.9 attributable to equity holders of the parent At year-end, the actuarial valuation of the Group’s 1,759.8 1,987.3 potential unfunded liability arising from post-retirement Return on average shareholders’ equity (%) medical aid contributions owed to current and future retirees Massmart has the right of first refusal on the sale of any shares Headline earnings/Average of opening and closing amounted to R111.7 million (2015: R104.2 million), R6.0 million by the non-controlling interest holders in various Masscash equity attributable to equity holders of the parent of which has been reflected as a current provision. stores. Historically Massmart has exercised this right. All capital commitments will be funded using current facilities. 45 Our performance: Financial capital Chief Financial Officer’s review Massmart Integrated Annual Report 2016 46

Capital expenditure The total capital expenditure of R1.8 billion comprises: R0.8 billion on replacement expenditure including store refurbishments and our IT systems’ investments; and R1.0 billion on expansionary expenditure.

December 2016 December 2015 Group cash flow analysis Rm (Audited) (Audited) Land and buildings/leasehold improvements 393.3 281.8 Rm 3,984.9 263.0 1,063.2 Vehicles 31.0 14.3 Fixtures, fittings, plant and equipment 443.3 353.6 2.0% Computer hardware 56.8 31.4 403.2 Capex split 1,774.9 Computer software 29.3 29.6 as a % of sales Investment to expand operations 953.7 710.7 (Dec 2015: 2.0%) 959.5 376.9 Land and buildings/leasehold improvements 123.8 134.7 2,621.7 Vehicles 43.0 64.7 Fixtures, fittings, plant and equipment 300.7 586.3 29.0% Land and buildings/ Leasehold improvements 1,558.5 Computer hardware 157.5 105.0 4.2% Vehicles Computer software 201.5 92.8 41.8% Fixtures, fittings, plant Other 0.2 0.2 and equipment 12.0% Computer hardware Investment to maintain operations 826.7 983.7 13.0% Computer software

Cash and cash equivalentsCash inflow fromWorking capital movementsNet interest and taxationNet paiddividend paid Cash outflow from Cash inflow from Foreign exchange movementsCash and cash opening balance trading activities investing activities financing activities equivalents closing balance Summary consolidated statement of changes in equity

Equity attributable Non- Share Share Other Retained to owners controlling Rm capital premium reserves profit of the parent interests Total Working capital movements Dividend paid Balance as at December 2014 (Audited) 2.2 733.4 550.5 4,048.3 5,334.4 192.8 5,527.2 The working capital outflow is largely as a result of timing In August 2015 Massmart indicated to shareholders Dividends declared – – – (914.1) (914.1) (52.7) (966.8) differences. The cash inflows obtained from inventory and that the Group’s future dividend policy would likely be trade receivables in the current period are comparable changed to levels similar to South African retail peers. Total comprehensive income – – (16.2) 1,112.8 1,096.6 56.4 1,153.0 to those in the prior period, however the cash outflow on This adjustment was necessary as a result of significant Changes in non-controlling interests – – (18.7) – (18.7) (41.4) (60.1) trade creditors in the current period exceeds that of the property acquisitions between 2012 and 2015 and store IFRS 2 charge and Share Trust transactions – – 218.5 (23.6) 194.9 – 194.9 prior period comparative due to the significantly large trade growth into Africa which increasingly entail investing in Treasury shares acquired – (58.3) 1.2 – (57.1) – (57.1) creditor balance at the end of December 2015 (10% higher real estate. Therefore, with effect from that dividend cycle, than that at December 2014). In addition, the early settlement the dividend cover was amended to 2.00 x cover. Balance as at December 2015 (Audited) 2.2 675.1 735.3 4,223.4 5,636.0 155.1 5,791.1 of foreign denominated creditors, to limit potential currency A gross final cash dividend of 224.80 cents per share Dividends declared – – – (404.4) (404.4) (48.5) (452.9) exposure, contributed to this position. (December 2015: 112.16), in respect of the year ended Total comprehensive income – – (364.6) 1,308.2 943.6 14.4 958.0 December 2016 was declared out of income reserves as defined in the Income Tax Act, 1962, and will be subject to Changes in non-controlling interests – – (132.3) – (132.3) (45.4) (177.7) the South African dividend withholding tax (DWT) rate of IFRS 2 charge and Share Trust transactions – – 198.5 (28.1) 170.4 – 170.4 20%. This was distributed to shareholders registered in the Treasury shares acquired – (106.1) 0.9 – (105.2) – (105.2) books of the Company on 20 March 2017. Year ended December 2016 (Audited) 2.2 569.0 437.8 5,099.1 6,108.1 75.6 6,183.7 47 Our performance: Financial capital Chief Financial Officer’s review Massmart Integrated Annual Report 2016 48

Geographic segment The Group's four Divisions operate in two principal geographical areas – South Africa and the rest of Africa. Segmental review December 2016 December 2015 Total South Africa Rest of Africa Total South Africa Rest of Africa The Group is organised into four Divisions for operational and management purposes, being Massdiscounters, Masswarehouse, Massbuild and Masscash. Massmart reports its operating segment information on this basis. The principal offering for each Sales 91,250.0 83,292.9 7,957.1 84,731.8 77,579.2 7,152.6 Division is as follows: Operating profit before interest and tax 2,483.4 1,824.8 658.6 2,150.4 1,495.8 654.6 • Massdiscounters (MDD) – General Merchandise discounter and Food retailer Segment assets (Total) 23,735.8 22,746.2 989.6 23,387.8 21,541.2 1,846.6 • Masswarehouse (MWH) – warehouse club trading in Food, General Merchandise and Liquor Segment assets (Non-current) 11,629.2 10,895.0 734.2 11,128.4 10,118.7 1,009.7 • Massbuild (MB) – Home Improvement retailer and Building Materials supplier • Masscash (MC) – Food wholesaler, retailer and buying association Net capital expenditure 1,770.8 1,624.0 146.8 1,649.6 1,366.1 283.5 No single customer represented more than 10% of any of one of the Divisions’ revenue in the current and prior financial year. • Segment assets excludes financial instruments and deferred taxation and reflects the geographic location of the Group's assets

Business segment

Rm Total Other MDD MWH MB MC Rm Total Other MDD MWH MB MC December 2016 December 2015 Sales 91,250.0 – 20,544.5 26,270.3 12,687.1 31,748.1 Sales 84,731.8 – 19,514.1 23,675.9 12,010.6 29,531.2 Operating profit before foreign exchange Operating profit before foreign exchange movements and interest 2,625.2 45.2 345.5 1,251.3 712.6 270.6 movements and interest 2,300.2 (39.8) 235.4 1,198.7 693.6 212.3 Trading profit before interest and taxation 2,612.9 – 364.3 1,251.3 712.6 284.7 Trading profit before interest and taxation 2,349.7 – 235.4 1,198.7 693.6 222.0 Net foreign exchange loss (141.8) (61.4) (10.1) – (77.6) 7.3 Net foreign exchange (loss)/gain (149.8) (78.1) (65.4) – (3.4) (2.9) Net finance (costs)/income (571.9) (337.3) (74.0) 60.6 (157.7) (63.5) Net finance (costs)/income (475.3) (292.6) (49.5) 53.0 (100.7) (85.5) Operating profit/(loss) before taxation 1,911.5 (353.5) 261.4 1,311.9 477.3 214.4 Operating profit before taxation 1,675.1 (410.5) 120.5 1,251.7 589.5 123.9 Trading profit/(loss) before taxation 2,041.0 (337.3) 290.3 1,311.9 554.9 221.2 Trading profit before taxation 1,874.4 (292.6) 185.9 1,251.7 592.9 136.5

Inventory 11,803.0 2.3 3,869.2 2,942.3 2,000.9 2,988.3 Inventory 11,934.5 22.1 4,064.7 3,095.7 1,865.3 2,886.7 Total assets 31,883.6 1,032.8 8,320.4 8,515.5 4,918.8 9,096.1 Total assets 30,730.3 (626.7) 8,234.5 8,314.0 5,122.1 9,686.4 Non-current asset held for sale 17.7 10.6 – – – 7.1 Non-current asset held for sale 11.5 11.5 – – – – Total liabilities 25,699.9 (3,461.8) 8,469.5 7,105.8 4,592.8 8,993.6 Total liabilities 24,939.2 (4,608.9) 7,999.0 7,865.3 4,602.8 9,081.0

Net capital expenditure 1,770.8 278.3 529.3 386.2 188.2 388.8 Net capital expenditure 1,649.6 186.8 527.4 234.4 351.6 349.4 Depreciation and amortisation 1,036.5 73.1 330.2 204.1 216.0 213.1 Depreciation and amortisation 946.2 62.0 336.0 169.5 184.8 193.9 Impairment losses 76.7 43.8 18.8 – – 14.1 Impairment losses 25.7 16.0 – – – 9.7 Non-cash items other than depreciation Non-cash items other than depreciation and impairment 438.5 132.8 196.6 30.0 (9.4) 88.5 and impairment 316.6 101.7 133.0 39.7 6.6 35.6

Cash flow from operating activities 2,255.5 (77.3) 757.8 1,186.5 (51.2) 439.7 Cash flow from operating activities 1,770.4 450.6 276.1 259.0 1,095.1 (310.4) Cash flow from investing activities (1,774.9) (275.2) (529.3) (393.5) (188.2) (388.7) Cash flow from investing activities (1,645.6) (183.2) (527.2) (234.4) (351.6) (349.2) Cash flow from financing activities 959.5 1,941.2 (35.1) (805.6) 55.6 (196.6) Cash flow from financing activities (25.5) (60.9) 166.2 (71.5) (712.0) 652.7

Inventory days 58.3 – 93.5 48.7 80.8 38.4 Inventory days 63.4 – 102.3 57.2 80.0 39.6 Number of stores 412 – 165 20 104 123 Number of stores 403 – 161 19 102 121 Trading area (m2) 1,568,744 – 545,094 217,907 449,212 356,531 Trading area (m2) 1,550,719 – 533,078 195,794 449,133 372,714 Trading area (m2) increase on Trading area (m2) increase on December December 2015 1.2% – 2.3% 11.3% 0.0% (4.3%) 2014 (excluding re-measurements) 0.7% – 5.3% – 2.9% (7.0%) Average trading area per store (m2) 3,808 – 3,304 10,895 4,319 2,899 Average trading area per store (m2) 3,848 – 3,311 10,305 4,403 3,080 Distribution centre space (m2) 337,097 – 160,071 67,847 60,235 48,944 Distribution centre space (m2) 346,660 – 178,488 58,475 60,235 49,462 Distribution centre space (m2) increase/ Distribution centre space (m2) increase on (decrease) on December 2015 (2.8%) – (10.3%) 16.0% 0.0% (1.0%) December 2014 5.6% – – 14% (2.4%) 34.9% • The other column includes consolidation entries. • Trading profit before taxation is earnings before corporate net interest, asset impairments, BEE transaction IFRS 2 charges and foreign exchange movements. • All intercompany transactions have been eliminated in the above results. • Net capital expenditure is defined as capital expenditure less disposal proceeds. 49 Our performance: Financial capital Chief Financial Officer’s review Massmart Integrated Annual Report 2016 50

Directors’ report for the year ended December 2016

Related-party transactions Going concern assertion Massmart and its Divisions enter into certain transactions The Board has formally considered the going concern with related parties in the normal course of business. assertion for Massmart and its subsidiaries and believes that Joe Ralebepa, Company Secretary Details of these are disclosed in more detail in Massmart’s it is appropriate for the forthcoming financial year. Annual Financial Statements. Of the Walmart integration and related costs, an amount due to Walmart of R1.0 million The year ahead (December 2015: R299.4 million) remains unpaid at the end Directors’ responsibilities This Integrated Annual Report was finalised a day after of the current financial year. There are no amounts due from The Directors acknowledge responsibility for the preparation of the Annual Financial the announcement of several changes to key roles in the Walmart at the end of the current financial year (December Statements, which, in their opinion, fairly present the results and cash flows for the year South African Cabinet. This development may increase 2015: R6.7 million). The Group has a R600.0 million medium- ended December 2016 and the state of affairs of Massmart Holdings Limited and its policy uncertainty in South Africa, potentially with negative term loan with Walmart repayable in one instalment in April subsidiaries at the end of the financial year. The external auditors are responsible for consequences for the economy, and thus it is extremely 2018, on which interest of 7.5% is paid quarterly. This loan is reporting on the fair presentation of these financial statements. difficult to currently provide any useful short- to medium- accounted for under interest-bearing non-current liabilities. The Company and its subsidiaries have maintained satisfactory accounting records and term economic or performance outlook. As a 52.4% shareholder, Main Street 830 Proprietary Limited, an effective system of internal controls to ensure the integrity of the underlying information. a subsidiary of Walmart, will also be receiving the ordinary Appropriate accounting policies, supported by sound and prudent managerial judgments dividend based on their number of shares held. Appreciation and estimates, have been consistently applied. 2016 was a challenging year, marked by volatility in our The Board’s Audit Committee reviews the financial information presented and ensures Directors’ emoluments operating environment. However, through the dedication that there has been adherence to International Financial Reporting Standards and the of our people we were able to meet these challenges Companies Act of South Africa. Internal and external auditors of Group companies have A detailed breakdown can be found in the Remuneration head-on, producing the good results that we did. This unrestricted access to the Committee. Report on pages 71-84. year our finance team continued to grow, we welcomed Accounting policies, critical new talent to the team and were delighted with the Group financial results internal promotions we made . Our processes and controls The financial results of the Group are set out in the income statement, statement of judgements and key sources of have been streamlined through the application of new comprehensive income, the statement of cash flows and the statement of changes in estimation uncertainty technology, and as a consequence we are better able to equity. The financial position of the Group is set out in the statement of financial position more innovatively serve the business. and accompanying notes. I have supervised the preparation of these audited We have embarked on the implementation of King IV summary consolidated results which have been principles as we continually strive to deliver an excellent Directorate and secretary prepared in accordance with the framework concepts Integrated Annual Report; this has been achieved through and the measurement and recognition requirements the collaboration of our finance teams at Massmart’s The current Directorate of the Company is shown on page 35. of International Financial Reporting Standards (IFRS), corporate office and across our Divisions. The Board comprises nine Directors at the time of this report of whom seven are non- its interpretations issued by the IFRS Interpretations I feel proud and privileged to have the opportunity to Executive and five are independent. In addition, each Board committee is chaired by an Committee, the SAICA Financial Reporting Guides as issued work with such an excellent team. The contribution and independent Director. by the Accounting Practices Committee and Financial More information on the Board efforts of the Group Finance teams, both at the Divisions and The Company Secretary provides a central source of guidance and advice to the Board, Pronouncements as issued by the Financial Reporting can be found on page 35 and and within the Company, on matters of ethics and good governance. The Company the corporate office, have once again been outstanding. Standards Council, presentation and disclosure as required on the Company’s website at: Secretary is Joe Ralebepa, an admitted attorney of the High Court of South Africa, whose I want to express my gratitude for their ways of working by International Accounting Standard (IAS) 34 Interim www.massmart.co.za/iar business and postal addresses are the same as that of the Company, and he was appointed together as a team and putting business performance, as 2016/CVs Financial Reporting, the JSE Limited Listings Requirements in November 2016. This role was previously held by Philip Sigsworth. well as personal and collective development, at the same and the requirements of the Companies Act 71 of 2008 After 2.5 years on the Massmart Board, Walmart-appointee Andy Clarke resigned with level. The result of this is fully to their benefit and to the of South Africa. The accounting policies and methods effect from 22 February 2017. advantage of all of our stakeholders. of computation used in the preparation of these audited At least one-third of the non-Executive Directors are required to retire every year and the summary consolidated results are in terms of IFRS and are Executive Directors have elected to also retire on this basis. As a result, all Directors retire by consistent in all material respects with those applied in the rotation at least every three years and if eligible and available, their names are submitted most recent Annual Financial Statements, as none of the for re-election by the shareholders at the Annual General Meeting (AGM). In addition, amendments coming into effect in the current financial shareholders must ratify the initial appointment of each Director at the first AGM following year have had a material impact on the financial reporting Johannes van Lierop that Director’s appointment. As a result of these requirements, at the 25 May 2017 AGM, Lulu of the Group, besides impacting disclosure within the Chief Financial Officer ETHICAL AND Gwagwa, Phumzile Langeni, JP Suarez and Johannes van Lierop retire by rotation. Being Annual Financial Statements. 31 March 2017 RESPECTFUL eligible, they all offer themselves for re-election. 51 Our performance: Financial capital Directors’ Report Massmart Integrated Annual Report 2016 52

Shares in issue Material subsidiaries Direct and ultimate holding companies Please find the movement in ordinary and preference shares for the financial year under review below: As at the date hereof, the following companies are material The Company’s direct holding company is Main Street 830 Ordinary shares subsidiaries of the Company: Proprietary Limited, incorporated in South Africa, and the Company’s ultimate holding company is Wal-Mart Stores, Balance at December 2014 217,118,072 Massbuild Proprietary Limited Inc., incorporated in the United States. Converted preference shares* 18,262 2004/035206/07 Balance at December 2015 217,136,334 Masscash Holdings Proprietary Limited Subsequent events Converted preference shares* – 1997/014716/07 There were no significant subsequent events after the Massmart International Holdings Limited Ordinary shares in issue at December 2016 217,136,334 year-end. (incorporated in Mauritius) 47902 C1/GBL Company Secretary certificate Preference shares Massmart Management and Finance Company Balance at December 2014 2,858,745 Proprietary Limited In terms of section 88(e) of the Companies Act No. 71 of Converted to ordinary shares (18,262) 1992/004084/07 2008, as amended (‘Companies Act’), I, Joe Ralebepa, in my capacity as Company Secretary of Massmart Holdings Balance at December 2015 2,840,483 Masstores Proprietary Limited 1991/006805/07 Limited, confirm that, to the best of my knowledge and Converted to ordinary shares – Wild Developments Proprietary Limited belief, in respect of the year under review, Massmart Preference shares in issue at December 2016 2,840,483 1973/000178/07 Holdings Limited has filed with the Companies and * These preference shares above relate to Massmart’s Black Scarce Skills Trust. Intellectual Property Commission all such returns and notices as are required of a public company in terms of the The principal subsidiaries above are determined based on Companies Act and that all such returns and notices appear the Group’s cross-surety arrangement. These subsidiaries to be true, correct and up to date. represent the Group for which lender covenants shall be Interests of Directors in the Company’s shares maintained. Details of the Company’s interests in material On behalf of the Board At December 2016, Directors owned, directly or indirectly, ordinary shares or options over ordinary shares in the Company. subsidiaries are set out in note 37 www.massmart. These holdings were all beneficial and are aggregated in the table below: co.za/iar2016/groupafs. December 16 December 15 Borrowing powers Options/ Options/ Joe Ralebepa Non-Executive Directors Shares Share Awards Shares Share Awards In terms of the Memorandum of Incorporation, the Group Company Secretary K Dlamini 9,800 – 9,800 – has unlimited borrowing powers. At December 2016, 31 March 2017 NN Gwagwa 9,800 – 9,800 – borrowings were R4.5 billion (December 2015: R3.5 billion). Executive Directors Going concern GRC Hayward 233,503 600,654 222,894 570,753 Massmart address The Directors are of the opinion that the business will be a JJM van Lierop – 156,477 – 107,678 The Company’s registered office and postal address are as going concern in the year ahead. In reaching this opinion, follows: the Directors considered the following factors: At the date of this report, the Directors’ beneficial holdings were as follows : Registered office: Postal address: • strong positive cash flows from trading; Massmart House Private Bag X4 March 17 April 16 • no recurring operating losses at Divisional and Group level; 16 Peltier Drive Sunninghill • well-controlled working capital and good quality Options/ Options/ Sunninghill Ext 6 2157 Non-Executive Directors Shares Share Awards Shares Share Awards inventory; Sandton, 2146 South Africa K Dlamini 9,800 – 9,800 – • approved short- and long-term financing, with sufficient South Africa additional short-term borrowing capacity if required; NN Gwagwa 9,800 – 9,800 – • key executive management in place; Executive Directors • there have been no material changes that may affect GRC Hayward 232,390 566,475 222,894 608,472 the Group in any of its customer, product or geographic JJM van Lierop – 156,477 – 144,877 markets; and • budgets to December 2017 reflect a continuation of the above positive factors. 53 Our performance: Financial capital Independent auditor’s report Massmart Integrated Annual Report 2016 54

Independent auditor’s report on Audit Committee audited summary consolidated report Annual Financial Statements for the year ended December 2016 for the year ended December 2016

Moses Kgosana, Chairman of the Audit Committee

To the Shareholders of Massmart The Audited Financial Statements and The Audit Committee met three times during the year ended December 2016. The Audit Committee The internal and external auditors presented formal reports to the Committee Holdings Limited our report thereon and attended these meetings by invitation. In response to the requirements of comprises: We expressed an unmodified audit opinion on the audited the Companies Act, King III and in terms of its charter, the Committee can report Opinion consolidated Group Annual Financial Statements of Massmart as follows: Holdings Limited in our report dated 31 March 2017. That • The scope, independence and objectivity of the external auditors was reviewed; The audited summary consolidated Annual Financial Mr Moses Kgosana report included the communication of other key audit • The audit firm Ernst and Young Inc. and audit partner Allister Jon Carshagen, are, Statements of Massmart Holdings Limited, incorporated Chairman matters. Key audit matters are those matters that, in our in the Committee’s opinion, independent of the Company. Roger Hillen will be in the ‘Financial Capital’ section of this Integrated Annual (Member since 2015) professional judgement, were of most significance in our succeeding Allister, who is retiring after five years as Massmart’s audit partner, Report, which comprise the summary consolidated Mr Kuseni Dlamini audit of the financial statements of the current period. and both he and Ernst and Young Inc. have been proposed to the shareholders statement of financial position as at 25 December 2016, the (Alternate member since August 2016) for approval to be the Group’s external auditor for the 2017 financial year; summary consolidated income statement, the summary Dr Lulu Gwagwa • On an on-going basis, the Committee reviews and approves the fees proposed consolidated statements of comprehensive income Directors’ responsibility for the audited (Member since 2011) by the external auditors; and changes in equity, and the Group cash flow analysis summary consolidated Annual Ms Phumzile Langeni • The appointment of the external auditor complies with the Companies Act, for the year then ended, on pages 43, 40, 42, 46 and 45 (Member since 2009) respectively, and related notes on pages 41-49, are derived Financial Statements as amended, and with all other legislation relating to the appointment of external auditors; from the audited consolidated Group Annual Financial The Directors are responsible for the preparation of the All are independent non-Executive • The nature and extent of non-audit services provided by the external auditors Statements of Massmart Holdings Limited for the year audited summary consolidated Annual Financial Statements Directors. They each have the requisite has been reviewed to ensure that the fees for such services do not become so ended 25 December 2016. in accordance with the requirements of the JSE Limited financial and commercial skills and significant as to call into question their independence; In our opinion, the audited summary consolidated Listings Requirements for abridged reports, set out in the experience to contribute to the • The nature and extent of future non-audit services have been defined and Annual Financial Statements derived from the audited ‘Board Approval’ on page 4, and the requirements of the Committee’s deliberations. consolidated Group Annual Financial Statements of Companies Act of South Africa as applicable to summary pre-approved; Massmart Holdings Limited for the year ended 25 December financial statements, and for such internal control as the • No reportable irregularities were identified and reported by the external A 2016 are consistent, in all material respects, with those Directors determine is necessary to enable the preparation auditors to the Committee; consolidated financial statements, in accordance with the of the audited summary consolidated Annual Financial • The Committee is satisfied that the internal financial controls of the Divisions requirements of the JSE Limited Listings Requirements for Statements that are free from material misstatement, whether and Group operated effectively throughout the year ended December 2016 abridged reports, set out in the ‘Board approval’ on page 4, due to fraud or error. and can be relied upon. In addition, the Committee is satisfied with the Group’s and the requirements of the Companies Act of South Africa accounting policies and that these have been appropriately and consistently as applicable to summary financial statements. Auditor’s responsibility applied throughout the year ended December 2016; • The Committee reviewed this Integrated Annual Report, and the audited Our responsibility is to express an opinion on whether consolidated Group Annual Financial Statements of Massmart Holdings Summary financial statements the audited summary consolidated Annual Financial Limited for the year ended 25 December 2016, and recommended them to Statements are consistent, in all material respects, with the The audited summary consolidated Annual Financial the Board for approval; More information on the Audit Committee’s audited consolidated Group Annual Financial Statements Statements do not contain all the disclosures required by • As at the date of this report, no complaints have been received relating to roles and responsibilities can be found on based on our procedures, which were conducted based IFRS and the requirements of the Companies Act of South accounting practices and internal audit of the Company or to the content or page 107 and on the Company’s website at on our procedures, which were conducted in accordance Africa as applicable to annual financial statements. Reading auditing of the Company’s financial statements, or to any related matter; and www.massmart.co.za/iar2016/auditcom the audited summary consolidated Annual Financial with International Standard on Auditing (ISA) 810 (Revised), Engagements to Report on Summary Financial Statements. • The Massmart website (www.massmart.co.za) has a link enabling the general Statements, therefore, is not a substitute for reading the public to lodge complaints with the Committee. Since establishing this audited consolidated Group Annual Financial Statements functionality in 2009, no complaints have been received. of Massmart Holdings Limited. The audited summary consolidated Annual Financial Statements and the audited consolidated Group Annual Financial Statements do not Per: Allister Jon Carshagen 102 Rivonia Road, reflect the effect of events that occurred subsequent to Director Johannesburg, the date of our report on the audited consolidated Group Registered Auditor Gauteng, South Africa Moses Kgosana Annual Financial Statements. 31 March 2017 Chairman of the Audit Committee 31 March 2017 55 Our performance: Financial capital Massmart Integrated Annual Report 2016 56

Five-year review for the year ended December 2016

Group income statement Group statements of financial position and cash flows Four-year Four-year (Rm) growth % 2016 2015 2014 2013 1 2012 (Rm) growth % 2016 2015 2014 2013 1 2012 Revenue 8.5 91,564.9 84,857.4 78,319.0 72,512.9 66,050.3 Statement of Financial Position Sales 8.5 91,250.0 84,731.8 78,173.2 72,263.4 65,839.5 Assets Cost of sales (73,948.9) (68,689.6) (63,610.8) (58,926.4) (53,563.0) Non-current assets 13.3 12,517.6 12,031.2 11,018.3 10,111.8 7,595.1 Gross profit 9.0 17,301.1 16,042.2 14,562.4 13,337.0 12,276.5 Current assets 5.8 19,348.3 18,687.6 17,870.1 16,036.1 15,422.2 Other income 216.8 125.6 145.8 249.5 210.8 Inventory 5.1 11,803.0 11,934.5 11,228.8 10,115.5 9,691.5 Depreciation and amortisation (1,036.5) (946.2) (846.6) (731.1) (661.2) Employment costs (7,346.6) (6,784.3) (6,109.0) (5,423.5) (4,686.5) Non-current assets classified as held for sale 17.7 11.5 18.0 – 2.5 Occupancy costs (3,133.2) (2,865.6) (2,678.8) (2,555.3) (2,296.5) Total assets 8.5 31,883.6 30,730.3 28,906.4 26,147.9 23,019.8 Other operating costs (3,397.8) (3,245.8) (3,033.3) (2,750.3) (2,533.0) Equity and liabilities Trading profit before interest and taxation 3.0 2,603.8 2,325.9 2,040.5 2,126.3 2,310.1 Total equity 5.9 6,183.7 5,791.1 5,527.2 5,369.6 4,915.3 Impairment of assets (76.7) (25.7) (24.6) (41.6) (21.6) Equity attributable to owners of the parent 6,108.1 5,636.0 5,334.4 5,173.0 4,739.7 Insurance proceeds on items in PP&E 98.1 – – – – Non-current liabilities 41.3 4,722.4 3,053.4 3,236.8 2,206.4 1,183.4 Operating profit before foreign exchange Current liabilities 5.5 20,977.5 21,885.8 20,142.4 18,571.9 16,921.1 movements, Walmart transaction, integration and related costs 3.5 2,625.2 2,300.2 2,015.9 2,084.7 2,288.5 Trade payables 6.4 16,139.4 16,320.4 14,841.5 13,702.5 12,601.3 Foreign exchange (loss)/gain (141.8) (149.8) (49.8) 67.8 (231.6) Total equity and liabilities 8.5 31,883.6 30,730.3 28,906.4 26,147.9 23,019.8 Walmart transaction, integration and related costs – – – – (348.9) Operating profit before interest 9.8 2,483.4 2,150.4 1,966.1 2,152.5 1,708.0 Statement of Cash Flows Finance costs (601.0) (507.7) (386.8) (283.8) (217.4) Cash inflow from trading activities 10.4 3,984.9 3,384.4 2,983.4 2,984.0 2,681.8 Finance income 29.1 32.4 41.5 28.7 90.0 Working capital movements (263.0) 372.0 (295.1) 752.6 (775.5) Net finance costs (571.9) (475.3) (345.3) (255.1) (127.4) Cash generated from operations 18.2 3,721.9 3,756.4 2,688.3 3,736.6 1,906.3 Profit before taxation 1,911.5 1,675.1 1,620.8 1,897.4 1,580.6 Taxation (588.9) (505.9) (483.4) (555.3) (549.6) Net interest paid (489.3) (437.0) (345.3) (255.1) (127.4) Profit for the year 6.4 1,322.6 1,169.2 1,137.4 1,342.1 1,031.0 Investment income 50.0 40.3 – 79.2 0.1 Taxation paid (573.9) (631.0) (683.4) (732.8) (601.5) Profit attributable to: Dividends paid (453.2) (958.3) (914.0) (913.4) (864.7) Owners of the parent 1,308.2 1,112.8 1,079.8 1,283.0 972.3 Cash inflow from operating activities 2,255.5 1,770.4 745.6 1,914.5 312.8 Preference shareholders – – – – 5.0 Investment to maintain operations (826.7) (983.7) (857.4) (752.1) (629.4) Non-controlling interests 14.4 56.4 57.6 59.1 53.7 Profit for the year 1,322.6 1,169.2 1,137.4 1,342.1 1,031.0 Investment to expand operations (953.7) (710.7) (1,322.1) (1,306.8) (685.2) Earnings per share (cents) Investment in subsidiaries and businesses (17.7) (16.9) (14.4) – (383.6) Basic EPS 7.7 604.7 513.5 497.8 591.4 449.8 Other net investing activities 23.2 65.7 47.4 (247.4) 33.5 Diluted basic EPS 7.6 594.4 506.1 492.9 585.1 443.2 Cash outflow from investing activities 1.6 (1,774.9) (1,645.6) (2,146.5) (2,306.3) (1,664.7)

Trading profit before interest and taxation2 5.0 2,612.9 2,349.7 2,061.7 2,145.4 2,147.8 Cash inflow/(outflow) from financing activities 959.5 (25.5) 1,349.7 293.0 135.6 Headline earnings 5.9 1,293.3 1,118.8 1,105.5 1,334.5 1,027.0 Net increase/(decrease) in cash and cash Headline earnings before foreign exchange equivalents 1,440.1 99.3 (51.2) (98.8) (1,216.3) movements (taxed) 3.9 1,388.6 1,229.8 1,141.4 1,285.7 1,193.8 Foreign exchange movements (376.9) (24.2) (53.7) 47.2 6.0 • Details of the ratios and terms can be found in definitions and formulas Cash and cash equivalents at the beginning of the • All periods are 12 month periods 1 2013 was a 53-week period A more detailed five-year review can period 1,558.5 1,483.4 1,588.3 1,639.9 2,850.2 2 Walmart transaction, integration and related costs have been included in the be found on the Company’s website at Cash and cash equivalents at the end of the period 2,621.7 1,558.5 1,483.4 1,588.3 1,639.9 2011 and 2012 financial years www.massmart.co.za/ 3 Excludes Walmart transaction, integration and related costs and the loss on iar2016/5yearreview • Details of the ratios and terms can be found in definitions and formulas disposal of Makro Zimbabwe • All periods are 12 month periods 1 2013 was a 53-week period. 57 Massmart Integrated Annual Report 2016 58

Massmart’s purpose to be the lowest cost wholesale A significant contributor to the Group’s cost-to-serve, and and retail Group in sub-Saharan Africa is premised on an area where the Group can benefit from collaboration, Leveraging a cost efficient route-to-market as the foundation of is supply chain, transport and logistics. In January 2017 price leadership. The low cost base required to achieve Richard Inskip joined Massmart as the Group Supply Chain price leadership can only be sustained by unlocking the & Logistics Executive. Richard’s mandate is to efficiently and scale through competitive benefit of our scale through collaboration effectively leverage the Group’s scale in its supply chain across the Divisions. activities including transport, logistics, distribution centres collaboration Our collaboration efforts involve the core functional and the associated areas of working capital management, areas across each Division – namely IT, Supply Chain, inventory service levels, and customer fulfilment. We Real Estate, Merchandise and Private Label – working believe this approach should result in a sustainably lower together. Collaboration takes many forms: negotiating cost-to-serve which will support our stated objective of with a single supplier across the Group for best price price-leadership. and service; aligning around a single instance of product MANUFACTURED CAPITAL master-data; using software to optimally manage primary and secondary transport and logistics; or enforcing a OUR DIVISIONAL STRUCTURE peer-review for new IT projects. Our collaboration efforts THROUGH WHICH WE SELL OUR contributed to reducing our operating costs and improving EXCELLENCE PRODUCTS AND SERVICES working capital management. 59 Our performance: Manufactured Capital Massmart Integrated Annual Report 2016 60

Massdiscounters

Massdiscounters operates through two retail formats: Game and DionWired. Game is a discount multi- category format retailer of General Merchandise, Fresh Food, Groceries and Liquor, operating throughout South Africa and in 18 cities in sub- Saharan Africa. DionWired sells the complete technological solution in Multimedia and Hi-tech.

2016 2016 Delivering on Strategic focus Future Management Highlights Strategy our strategy for 2017 outlook team

• Healthy profit growth of 54.8% • Deliver real value to our core What we did well: • Continue to improve our customers’ Game will continue to roll-out Fresh Guy Hayward Non-Executive Chairman amidst tough economic trading customer through unbeatable • Responded to our customers’ value proposition Food. We will refurbish some current conditions low prices • Simplify our systems and processes stores and focus on consolidating Albert Voogd needs by offering the correct Chief Executive Officer • Food continues to grow strongly • Offer a good retail experience assortment of price points as we invest in SAP point-of-sale and our footprint to optimise profitability. Lyle Brady • Focused customer-centric which guarantees quality • Re-energised our Food, Cellular ERP systems We will carry on consolidating the Supply Chain approach further aligned • Provide focused ranges that and Homeware offering • Reduce operating costs through focus Hi-tech and Multimedia categories. Nazim Cassim DionWired product offering, in-store meet all our customers’ • Collaborated with our suppliers to on supply chain, non-trading space We will start our Omnichannel experience, stock availability and household needs and labour scheduling journey. At DionWired we will focus Nick Favager improve supply chain efficiencies Merchandise value proposition • Ensure an effective supply chain, • Build the best team to deliver value • Mobilised the business around on reinvigorating our customer Jody Forrester • Improvements in the supply enabled by efficient information delivering on our strategic plan to our customers, shareholders and experience through focusing on Commercial Development chain enabling a reduction systems and processes and SAP implementation communities whom we serve our core purpose to simplify life Richard Fuller in stockholding levels, whilst by obsessively sharing the joy of Store Operations Africa achieving improved on-shelf The improvements we made: technology. Norman Gray stock availability Non-Executive • Significant growth in both sales John Hart • Improvements in the operating and margin of our Food & Liquor Formats model enabling reduced offerings Mark Huxtable operating costs • Improved in-stock coupled with IT • Successful pilot of SAP point-of- reduced stock level Erdi Kursunoglu sale system • Improved supply chain and store Finance Joe Ralebepa cost efficiencies Non-Executive Humsha Ramgobin The challenges we’re facing: Human Resources • Low consumer confidence and Mark Turner tough South African economic Marketing environment pressurising our core Johannes van Lierop middle-class customer Non-Executive Duval Van Rhyn 5.3% 54.8% • Slowing African economies 165 545,094 m2 Store Operations SA Sales Trading profit Stores Total trading space R20,544.5 million R364.3 million 2015: 161 stores 2015: 533,078 m2 2015: R19,514.1 million 2015: R235.4 million 61 Our performance: Manufactured Capital Massmart Integrated Annual Report 2016 62

Masswarehouse

Masswarehouse comprises Makro and The Fruitspot. Makro sells national and owned brands in the Food, Liquor and General Merchandise categories, catering for personal, commercial and trading customers. The Fruitspot is a wholesaler and distributor of fresh and cut fruit and vegetables in Gauteng, KwaZulu-Natal and the Western Cape.

2016 2016 Delivering on Strategic focus Future Management Highlights Strategy our strategy for 2017 outlook team

• Makro Carnival opened • Continue to grow our commercial What we did well: • Ensure we balance our investment in Makro remains focused on bringing the Guy Hayward Non-Executive Chairman in April 2017 achieving sales and customer service offerings • Continued maturation of fulfilment inventory for availability and price benefits of scale to all our customers. Doug Jones record sales on opening • Reduce cost to operate fulfilment capabilities, through building a multi-channel • Invest in our owned brands so that we We will do this by offering products and day and during its first network continue to bring relevant products at brands that our customers know and Chief Executive Officer network to service a wide range Dean Bauer month of trading • Continue to improve the Food best value to our customers trust at prices that save them money. of customer and product needs Supply Chain • Continued growth of offering to retail customers, and • Improvement in working capital • Empower our employees with better Makro will continue to work on providing retail and commercial deepen Fresh and Butchery offering data and simpler process to be more Michelle Chandler performance, in part through the continued access to our proposition to all customers, Human Resources Food business, • Grow market share in Liquor effective, at less cost adoption of automated algorithm-based and on building relevant and cost- Norman Gray supported by extended • Grow market share in retail • Build and operate our stores in an replenishment methods effective fulfilment capability to support Non-Executive national sales capability and commercial segments, • Delivered online commercial functionality environmentally responsible manner this. At The Fruitspot we will grow Garry Hendry • Continued growth of maintain margins and share in • Launched Makro marketplace • Complete the construction of the new the business by ensuring it becomes Merchandise: Food online sales, with B2B wholesale markets Makro store in Johannesburg north a supplier of choice to the retail and Stuart Jowett segment growing in • Optimise working capital through The improvements we made: • Reduce cost through process hospitality industry, and in the Group. Merchandise: General contribution replenishment and supply chain • Improved forecasting and replenishment optimisation and better contracting Merchandise • Conversion of more investments, while ensuring capabilities with service providers and suppliers Jonathan Koff than 1,300 contract adequate inventory levels • Improved mature stores’ profitability Merchandise: Liquor workers to permanent • Drive value through data-led insights • Improved the employment equity profile Gert Lourens employees into customer behaviours and needs of Executive and senior management teams Operations • Invest in technology to better serve • Better use of customer and market data to Joe Ralebepa customers, manage our supply chain optimise promotional and pricing activity Non-Executive and operate stores Pieter Schoeman The challenges we’re facing: IT and Projects • Low consumer confidence and weak Deepa Sita spending power Finance • Slowing and variable inflation, particularly in Craig Stewart Commercial food commodities Johannes van Lierop • Rand volatility causing import price challenges Non-Executive • Aggressive trading practices from 2 11.0 % 4.4% 20 217,907m Melanie van Rooy Sales Trading profit independent wholesale competitors Stores Total trading space Marketing • Availability of real estate for new stores R26,270.3 million R1,251.3 million 2015: 19 stores 2015: 195,794 m2 in South Africa 2015: R23,675.9 million 2015: R1,198.7 million 63 Our performance: Manufactured Capital Massmart Integrated Annual Report 2016 64

Massbuild

Massbuild is the Southern African leader in Home Improvement, DIY and Building Materials. Four Builders formats each cater to different markets with their own personalised feel and service offerings. Builders’ stores offer exceptional value, a comprehensive range of competitively priced products, with helpful service. Whatever our customers want or need to live better, we provide solutions to help them to ‘Get it Done’.

2016 2016 Delivering on Strategic focus Future Management Highlights Strategy our strategy for 2017 outlook team

• Four new stores opened in South • Developing Builders’ customer What we did well: • Open two new ex-SA stores in Kitwe Massbuild remains committed to Guy Hayward Africa: two Builders Express and value proposition • Our Best Price Cement and Price- (Zambia) and Maputo (Mozambique). growth through extending our store Non-Executive Chairman two Builders Superstores • Interconnected retail by Lock campaigns delivered great • Focus on optimisation initiatives, footprint, by opening new stores Llewellyn Walters • Builders Online launched to a digitising Builders, to increase value for money including space planning, assortment in South Africa and Southern Africa Chief Executive Officer select group of trade customers sales through channels such as • Piloted Builders Online to a select optimisation and workforce scheduling. and by growing sales through our Karen Ferrini in November 2016 ecommerce, a customer contact group of B2B customers • Relocate Western Cape Regional digital platform. We aim to increase Africa • Builders stores outside of South centre and customer relationship • Increased African stores Distribution Centre to a larger premises our market penetration in rural areas Norman Gray Africa achieved sales of R1 billion management contribution to the Group • Grow Builders Superstore by eight through the Builders Superstore Non-Executive • Centralised auto-replenishment • Extend and optimise supply stores format and filling the market gaps Neville Hatfield stock management contributed chain network to improve The improvements we made: • Grow Massbuild private label sales in metros, cities and towns with Merchandise 85% of total orders with on-shelf efficiencies and customer service • Increased the centralised • Build a leading inter-connected retail the appropriate format. Massbuild’s Diane Hoffman availability for replenishment through a central model warehousing and distribution business overall objective remains to be Supply Chain articles was 92% • Innovation through focusing network to 52% • Continuously revisit store specifications Southern Africa’s market leader in Chris Lourens • Revamped three key stores on Builders private label, home • Significant optimisation efforts to reduce costs and improve energy Home Improvement, DIY and Building Operations design and solar categories through implementing JDA efficiency Materials. Mncane Mthunzi • Space management Workforce Management pilot and Builders Superstore • Focus on brand awareness JDA Space Management pilot Lizelle Petersen • Grow Builders footprint through Finance new channels, new stores and The challenges we’re facing: Joe Ralebepa African expansion • Tough South African economic Non-Executive environment placing pressure on Alex Rymaszewski our core middle- and upper- Store Development income customer Andre Steyn • Economic challenge and the Marketing and Innovation resulting currency devaluation in Cristina Tomaz Weeden Mozambique Human Resources % % m2 Johannes van Lierop 5.6 2.7 104 449,212 Non-Executive Sales Trading profit Stores Total trading space R12,687.1 million R712.6 million 2015: 102 stores 2015: 449,133 m2 2015: R12,010.6 million 2015: R 693.6 million 65 Our performance: Manufactured Capital Massmart Integrated Annual Report 2016 66

Masscash

Masscash consists of a Wholesale division with Cash & Carry Food and cosmetics’ businesses, and a Retail division, which comprises Food outlets targeting lower LSM groups. The Wholesale division includes CBW, Jumbo Cash & Carry, Trident and Shield. The Retail division consists of the Cambridge Food and Rhino Cash & Carry brands.

2016 2016 Delivering on Strategic focus Future Management Highlights Strategy our strategy for 2017 outlook team

• Wholesale Cash & Carry • Complete reorganisation of What we did well: • Driving the Wholesale customer value Masscash Retail will open eight stores in 2017 Retail store optimisation plan Wholesale store operations and • Successfully regionalised Wholesale store proposition through investment in and a further 10 in 2018 representing space Guy Hayward completed buying departments operations sales capability growth of 59.8%. Key focus areas will include: Non-Executive Chairman Kevin Vyvyan-Day • National customer Banner and • Improve Wholesale supply • Improved operating performance of • Continue to build a superior route-to- process and quality improvements to the Franchise brands in Wholesale chain and logistics capability to market for our suppliers Fresh departments and IT infrastructure, and Chief Executive Officer Wholesale stores Bronwynne Bester accelerated growth in Food facilitate a superior route-to- • Significantly grew Retail business • Increase the Retail new store pipeline supply chain projects to improve operating Human Resources & Liquor market for suppliers profitability from new and existing stores to grow profitable regions and consider efficiencies, and investments in human Norman Gray • Second consecutive year of • Improve Retail profitability of • Maintained positive price perception in smaller format opportunities capital to support future growth plans. Non-Executive Chris Knight strong Retail operating profit underperforming regions, whilst an increasingly competitive environment • Expand Wholesale store footprint On the Wholesale side, our organisational growth in a challenging accelerating pace of growth of outside South Africa redesign, increased focus on customer Gauteng Managing Director • Strengthened Fresh Food proposition Mike Marshall BSP consumer environment profitable regions • Improve trading densities in new Retail solutions and sales, and absolute focus on and participation Joe Ralebepa • Opened eight new Retail stores • Enhance Fresh Food offering to stores whilst increasing profitability of providing a superior route-to-market for our Non-Executive – the highest number of store increase participation and margin The improvements we made: mature stores suppliers will continue to drive gains. Andrew Stein Marketing openings in a year • Roll-out single platform on SAP • Improved customer value proposition • Continue momentum in enhancing Craig Surmon within Retail Division and experience through better store the business’s Fresh Food proposition KZN Managing Director Johannes van Lierop operations and distribution capability • Continue to roll-out SAP roadmap Non-Executive • Improved Fresh department execution across all regions within Retail division • Successfully contained overhead costs Wholesale Guy Hayward The challenges we’re facing: Non-Executive Chairman • Tough consumer environment Neville Dunn characterised by weak employment and Chief Executive Officer Norman Gray less disposable income Non-Executive • Deflationary economic outlook in Andrew Mardon Food expected from quarter 2, 2017 Merchandise Thiruvashani Naicker Finance 2 7.5 % 28.2% 123 356,531m Joe Ralebepa Non-Executive Sales Trading profit Stores Total trading space Johannes van Lierop Non-Executive 2 R31,748.1 million R284.7 million 2015: 121 stores 2015: 372,714 m Robin Wright Non-Executive 2015: R29,531.2 million 2015: R222.0 million 67 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 68

Employee welfare and affordable access to health cover for truCARE has been specifically designed to meet Massmart our employees is important to Massmart. Research suggests employee’s occupational health and wellness needs, Increased access to that employees who have access to private healthcare are ensuring access to quality healthcare at no cost. It is linked healthier, and so are absent from work less often with the into the Universal Healthcare Provider Network a well advantage of increased productivity. established and fully accredited managed healthcare private healthcare We took our first step towards offering a robust healthcare company providing a comprehensive, integrated portfolio programme with the implementation of mandatory of services that sets a new benchmark in care management for employees healthcare cover for all new permanent employees in 2008. for medical schemes. Our programme, which comprises the three Massmart Health Through truCARE employees have access to the Plan Options (Choice, Network and Essential) and the Impilo Universal Healthcare Provider Network, which includes Workplace Wellness Programme, has now been further general practitioners (GPs), medicines, radiology, pathology, expanded with the launch of truCARE in January 2016. dentistry, optometry and HIV services. We believe that by truCARE is our occupational health and wellness offering offering facilitated access to these important services the for all new qualifying permanent employees who are not on risk of developing disabling or life threatening diseases, and one of the Company-approved and subsidised medical aid dealing with the associated costs thereof, can be reduced. options. truCARE was designed to ensure access for those Approximately 13,000 employees have registered for employees who typically cannot afford to be on Massmart’s Massmart’s truCARE offering since its launch. There has been cheapest medical aid option. It is available to any permanent a steady increase in the use of the truCARE services with the employee earning a salary below a certain threshold who has total claims by Massmart employees at the end of December HUMAN CAPITAL been employed by Massmart for longer than three months. 2016 of R7.8 million. THE UNIQUE SET OF SKILLS, EXPERIENCES, Through our truCARE programme we aim to provide tailored health and wellness benefits to all permanent employees. INCLUSIVE PERSPECTIVES AND IDEAS OF OUR PEOPLE 69 Our performance: Human capital Massmart Integrated Annual Report 2016 70

Human capital

Massmart Corporate University participants • monitoring of recruitment practices; • diversity awareness training and experiences; Race diversity • bonding of roles; and • specific focus on managing strategic diversity and 80 inclusion across all identified talent segments. • In terms of amendments to the Labour Relations Act 60 (S 198A(3)) an employee of a service provider not performing a genuine temporary service is deemed 40 to be the employee of that client after three months. Our approach to In response to these amendments, each Division our employees is MULTIPLY GROW DEVELOP A OPTIMISE TALENT CAPABILITIES LEAD CULTURE HR SYSTEMS 20 undertook an assessment of their employment contract based on four key composition. Plans to reduce reliance on Labour Brokers strategic pillars: Create a talent Develop and Promote an active, Build more intuitive, 0 are currently being implemented by all Divisions. In strategy where retain people leading and more responsive 2011 2012 2013 2014 2015 2016 2017 2016, more than 6,218 employees joined the permanent all our people who grow our learning culture systems to ACI White workforce at Massmart. prosper business that attracts maximise operating • An integral element of our culture is our employee value talented people efficiencies The percentage of African, Coloured and Indian (ACI) proposition. During the course of 2016 we have further participants/white participants in the MCU historically refined this to drive attraction and retention. (including proposed percentages for 2017). • Affordable healthcare in South Africa continues to be a subject of much debate. Employee welfare and affordable Gender diversity Multiply talent Grow capabilities access to health cover for staff is important for Massmart and as such 25,447 (2015: 16,324) employees received A key enabler of the Massmart business strategy is to have At all levels, our people are encouraged to develop 60 medical cover either through Massmart’s Health Plans or world-class, fit-for-purpose talent. themselves. Divisional learning and development teams its occupational health and wellness offering in 2016. Our focus this year has been on redesigning the provide skills development for both existing employees • 36.77% (2015: 38.83%) of the permanent workforce are Massmart talent management approach to create a and unemployed people through learnerships and skills 40 union members. The Company supports freedom of customised, integrated talent management solution that programmes. association as part of our culture. will better enable the organisation to plan for, identify, • The purpose of the Massmart Corporate University 20 • Our Women in Leadership Mentorship programmes assess, manage, develop and retain high value talent in all (MCU) is to support continuous learning at both have supported an increase in female store managers. identified talent segments. individual and organisational level, in order to position • Black management increased to 62.34% (2015: 60.13%) as In conducting this review, we adopted a fully integrated Massmart to achieve its long-term strategic objectives. 0 a percentage of all management. approach, resulting in Talent Management 2.0. We are guided The university is now entering its eighth year. 2011 2012 2013 2014 2015 2016 2017 by the need to empower our people to create a better future • In order to ensure its strategic relevance we conducted Male Female for themselves and the business while addressing the critical a review of all master classes and courses. This review Optimising HR processes skills shortage and transformation imperative. further aligns the course content to our critical talent The percentage of male/female participants in the MCU The HR Forum embarked on a project to implement a new The objectives of Talent Management 2.0 are to: segments. We are confident that the programme historically (including proposed percentages for 2017). Group-wide HR/Payroll system. The motivation was to • Ensure remuneration competitiveness through the content is more aligned than ever to meet Massmart’s replace the existing legacy payroll systems, while optimising systematic application of our Total Rewards Strategy; future needs. Developing a lead culture HR processes to facilitate clean data and richer reporting. • Align strategic talent management initiatives to current • As a result of this review we expanded our graduate • In July 2016, the Group-wide implementation of the We offer employees an authentic retail experience which and future business requirements; programme to include two focused graduate Sage VIP HR/payroll system, the People First project, was • Provide accurate, useful, actionable ‘people intelligence’ programmes for Finance and Store Development. encourages a spirit of entrepreneurship. We recognise that concluded. The project delivered the following for the to the business for the purpose of human capital risk Our cadet programme, which commenced in 2001, is a diverse and inclusive workforce is crucial for sustained first time: management and succession planning; bearing fruit as the first executive appointments were business growth. • a single Group-wide source of people data, and HR/ • Equip line managers to facilitate quality talent made from this group in 2016. • Transformation remains a critical focus predominantly payroll processes; conversations and robust talent reviews; • We have invested R8.1 million (2015: R4.5 million) in at senior management levels. Our vision is to become • a more intuitive, more responsive system allowing • Accelerate and multiply the development of high leadership development ensuring that the employees a truly diverse company that mirrors our customers for the creation of operating efficiencies in payroll potential talent through on-going career management who serve our customers have the best leaders and the communities we serve; a company that has an processing; and discussions and intentional development planning; possible. In order to ensure that our customers get the environment that will allow all team members to feel • an employee self-service portal. • Synergies continue with the HR/payroll community • Retain key and critical talent segments; best service from our employees, we have invested valued for all of their various characteristics, skills and • Build a diverse organisation that is representative of the R86.8 million (2015: R64.0 million) in upgrading skills and to conclude any outstanding issues, ensure full HR abilities, so that they contribute wholeheartedly to the customers and communities that we serve; and developing our people. adoption, and plan the implementation of Employee • Enable the operating Divisions by providing best practice • The MCU forms an integral element of our transformation success of the Company. To ensure that diversity and Self Service talent management processes, tools and training. agenda. Selection for programmes is based on South inclusion is viewed as integral to business sustainability • An online tool will be used to support our Talent Africa’s National Economically Active Population (EAP) rather than just the achievement of targets, we have Management 2.0 project and allow for richer, more demographics. introduced several initiatives, including, but not limited to: intuitive reporting. 71 Our performance: Human capital Massmart Integrated Annual Report 2016 72

Remuneration report • Review and approval of the Group’s recruitment and As a Group we value the opinion of our stakeholders and we Section A: Report from the Chairman retention strategies for key executive management roles believe that strong stakeholder engagement strengthens of the Remuneration Committee e.g. our annual Executive fireside chats remain a positive the relationship between them and our Board, helping to and informative process; ensure the effectiveness of our Board and their alignment • Succession planning – this is a topic that remains relevant to all stakeholder interests. In line with the principles set out and was discussed to ensure future success; and in King IV, we proactively engaged with our shareholders, Chris Seabrooke, Chairman of the Remuneration Committee • Robust discussions about transformation and gender as a key stakeholder, on this policy. Below are some of the diversity at a Board level. comments we received in this process and I am confident that this year’s report successfully addresses these. The report is SECTION A SECTION B SECTION C SECTION D Key remuneration priorities for 2017: Please consider disclosing variable pay performance presented in the is the Remuneration covers Massmart’s reports on Massmart’s contains the • Implement the change in Incentive metric from approved targets: The Board recognises that shareholders would wish following four Committee remuneration application of the Directors’ Group operating income to approved profit before tax to see prospective performance or financial targets but is sections: Chairman’s report philosophy and policy remuneration policy emoluments’ (PBT), enforcing more accountability for the Group’s net concerned at the likely commercial sensitivity of these. during 2016 tables working capital and overall level of interest-bearing debt. We do however disclose previous targets and the relative • Enhance our Employee Value Proposition to retain key achievements thereto. talent as well as to attract critical skills as may be required Please consider changing the order of the report and I am pleased to present the Massmart Remuneration Forward looking targets to meet strategic objectives. specifically bringing the application of the policy ahead of Report for the year ended December 2016. Within this the policy itself: We believe that without first understanding The Group’s Executives, including the Executive Directors, report information applicable to Massmart’s remuneration Non-binding advisory vote the Group’s remuneration philosophy and policy, it will be are incentivised around the achievement of each year’s philosophy, policy and practice for Executive and non- Each year at the Annual General Meeting (AGM), in very difficult to interpret the application thereof. actual financial performance compared to the annual Executive Directors is detailed. It sets out the actual accordance with King III, the Group remuneration policy is business plan approved by the Board the previous year. As Please improve performance metrics used: The business payments, accruals and awards for the 2016 financial year. put to a non-binding advisory vote, allowing shareholders explained within our policy which follows, performance is continues to consider a non-financial AIP metric for The Remuneration Report is aligned with the Remuneration to express their views on the policy adopted. Massmart will measured against three dimensions being: operating profit employees at an Executive level. guidelines of the King Code of Governance Principles (King once again table its remuneration policy for a non-binding before interest and taxation (but from 2017 this will be Please disclose any adhoc awards made in the year: III) and it is compliant with the Companies Act. The report advisory vote by shareholders at its 2017 AGM, having profit before taxation), total sales, and return on invested There were no discretionary awards in 2016. seeks to provide the following: received an 84.7% vote in favour of the policy at the AGM capital. Disclosing these forecast figures for the purposes • A summary of the Group’s remuneration policy, held on 26 May 2016. of this report would however, be revealing confidential and philosophy and objectives; commercially sensitive information. • The Remuneration Committee and its role; In finalising the annual business plan for the following • Key remuneration decisions taken during the 2016 Executive remuneration overview financial year, the Board considers the prevailing and forecast financial year; The following table provides an overview of the Executive Directors’ remuneration for 2016, explained in detail in economic conditions in all countries where we operate, • Key remuneration priorities for the 2017 financial year; Section C of this report (pages 79-81). key business objectives, the pursuit of growth, capital • Executive Directors’ contractual arrangements, pay-mix investment programmes, the relative business maturity R’000 Guy Hayward Johannes van Lierop and earnings; and and the appropriate degree of improvement in business Guaranteed package 6,129.0 5,660.0 • Non-Executive Directors’ contracts and payments. performance. As can be seen from the historical targets Other benefits 757.0 2,666.0 The Board is actively working towards the integration of noted elsewhere, previous annual business plans have Short-term incentive (101.2% of target achieved) 6,123.8 4,913.1 King IV recommendations in future remuneration reports. incorporated real growth in total sales, improved operating Total 2016 (excluding first-time long-term incentive vestings) 13,009.8 13,239.1 Massmart Group performance performance and improved returns on invested capital. Total 2015 11,956.5 12,266.1 % increase 8.8% 7.9% Although the year under review was challenging, I am Director changes pleased to report that 2016 saw a good delivery against the % of earnings performance-based 47.1% 37.1% In August 2016, I handed over the chairman roles of the Performance Shares vested 2,150.8 – Group’s strategic objectives and our targets for financial Audit and Risk Committees to Moses Kgosana, at which Long-term incentive* Restricted Shares vested 293.5 – performance. time I also ceased to be a member of both committees. We Total 2016 (including first-time long-term incentive vestings) 15,454.1 13,239.1 Despite the increasingly volatile environment, believe Moses Kgosana is an excellent candidate to lead Massmart’s total sales for the year ended December 2016 these important committees. * Long-term incentive shares vested for the first time in the current year. were R91.3 billion, an increase of 7.7% over the prior year (2015: R84.7 billion, 2014: R78.2 billion and 2013: R72.3 billion). Key remuneration issues deliberated by Pleasingly, Group operating profit, excluding foreign The information provided in this report has been approved exchange movements and interest, grew by 14.1% to the Remuneration Committee in 2016: by the Board on the recommendation of the Remuneration R2.6 billion (2015: R2.3 billion, 2014: R2.0 billion and 2013: • Decision to extend participation in the long-term incentive Committee. R1.9 billion) and our return on investment (ROI) for the year scheme to skilled/junior management level employees, was 18.3% (2015: 17.1%, 2014: 17.0% and 2013: 19.4%). increasing the portion of their remuneration linked to Taking the above performance into account, the Group strategic priorities and shareholder interest; Further detail on the Remuneration Remuneration Committee is satisfied that the remuneration • On-going deliberation about non-financial Annual Committee’s responsibilities is Chris Seabrooke policy, and its implementation, are appropriately aligned to Incentive Plan (AIP) metrics with the aim of improving the included in Section B p78 Chairman of the Remuneration Committee the achievement of Massmart’s strategic objectives. alignment to King IV recommendations; 31 March 2017 73 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 74

Section B: Remuneration policy

Remuneration philosophy The desired outcome of our Massmart’s total reward offering The purpose of Massmart’s remuneration philosophy is to remuneration programmes is to: establish fair and equitable reward levels that will attract, Guaranteed remuneration • Provide competitive and equitable remuneration, based motivate and retain high calibre employees. This is in The guaranteed remuneration of Executive Directors is set according to annual benchmarking using data from the PwC on an employee’s skills, performance and contributions to line with the Group’s culture and values, whilst aligning Remchannel and the Korn Ferry Hay Group salary surveys as well as specific benchmarking to other similar sized JSE listed the Group, among other factors; remuneration with shareholder interests and best practice companies. The TGP is benchmarked to the median, but if stretch performance is achieved for the AIP and SIP, the total • Attract and retain the talent necessary to achieve the in the retail environment. We strive to ensure that our reward package is intended to pay out at the 75th percentile. Massmart remains committed to ensuing competitive Group’s business objectives; remuneration policy supports the development and remuneration packages whilst managing costs. Annual TGP increases for Executive Directors are determined by the • Develop a sense of Group ownership and align the retention of top talent and critical skills. Its purpose is to Remuneration Committee and are aligned to individual performance and the annual salary increase percentage range as interests of employees with those of its shareholders; and ensure a workforce that is motivated to successfully develop, set for the Group. • Provide opportunities for the potential of greater financial implement and support the Group’s business strategy. The rewards to those who perform well within their job focus is on ensuring the long-term growth and success of responsibilities. the Group and the enhancement of stakeholder value.

Total Guaranteed Package TGP

Overview The Total Guaranteed Package provides a fixed remuneration package as determined to be appropriate and market-aligned for each particular MASSMART’S TOTAL REWARD OFFERING level and or role. TGPs are reviewed annually against market data and increases are awarded on TGP in July each year. The actual percentage increases awarded are determined by taking CPI, business performance, market trends and individual merit into account, whilst also considering REMUNERATION NON-FINANCIAL salary positioning against the Massmart salary structure and market data. Basic salary The basic salary is calculated from the TGP and is used as a basis for the Pensionable Salary and Annual Incentive Plan. Expatriate Total Guaranteed Package Short-term incentives Long-term incentives Leave employees working for Massmart in South Africa receive a basic salary Other employee denominated in US Dollars as well as additional non-cash benefits e.g. TGP AIP SIP benefits housing, schooling and home leave. Career development What is TGP? What is AIP? What is SIP? Training, learning Retirement All permanent employees are required to belong to a Group-approved • Basic salary • One year Annual Incentive • Performance and Restricted and development benefits retirement fund. The current Group-approved funds are all defined • Retirement and Plan (AIP) shares contribution schemes. The funds provide the employee with an Medical aid benefits • Bonus is expressed • Award is expressed as a opportunity to save for retirement. Life, disability and funeral cover • Other expatriate benefits as a multiple of basic percentage of guaranteed are also provided to all permanent employees. Alexander Forbes has monthly salary package administered the Massmart funds for a number of years. A formal service level agreement is in place that regulates this relationship. Alignment to strategy Alignment to strategy Alignment to strategy The trustees of the funds monitor fund performance on a quarterly • To achieve the Group • To recognise individual and • The Performance share basis. The Company contributes 10.5% of Pensionable Salary to the strategic priorities it Company achievement of plan is aligned to the retirement fund and related insurances. Employees contribute at is important that our financial and non-financial achievement of the least 7%. Expatriate employees are paid a cash allowance in lieu of employees are fairly objectives aligned to Group financial objectives, directly retirement benefits. rewarded for their strategy. linking this remuneration contribution to achieving • Financial objective: Group component to Company Medical aid It is compulsory for all new permanent Massmart Group employees operational and strategic operating income financial performance and benefits to join a Company-approved medical plan. The Group has the objectives. Massmart • For non-Executive the sustained creation of responsibility of ensuring that appropriate plans are offered by the has embarked on a job employees, non-financial shareholder value. Massmart Health Plan and that contribution levels are sustainable evaluation project to objectives: alignment • Financial objective: Group and affordable for all levels of employees. Expatriate employees are ensure fair and consistent to Group strategy and nominal sales and Group covered by a separate international medical insurance. The Company remuneration decision- demonstration of Group return on investment (ROI). contributes a portion of the medical aid fund contribution; the making and adherence to ethics and culture. difference is contributed by the employee. prescribed labour legislation. Car/travel Travel allowances, or company cars, are provided to nominated benefits employees to enable them to perform their duties, as required. The quantum of the allowance or company car value is determined based on the requirements of each specific level and/or role. 75 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 76

Massmart believes in rewarding employees for performance that is aligned to shareholders’ interests, in particular the sustained creation of shareholder value. In prior years, various share schemes were established to recognise and reward different levels of employees. In May 2013, the Massmart Share Incentive Plan that is more closely aligned to the Walmart approach, was Incentives approved and replaced all other share schemes. No further share options are issued from either the Massmart Holdings Limited Massmart offers both short and long-term incentives; these are further described below. Employee Share Trust; the Massmart Black Scarce Skills Trust; or the Massmart Thuthukani Empowerment Trust. Those options These performance measures are set and approved by the Remuneration Committee on an annual basis. which have not yet vested through the above-mentioned Trusts will still vest according to the relevant rules and plans.

Short-term incentives: Long-term incentives:

Annual Incentive Plan (AIP) AIP Share Incentive Plan (SIP) SIP

Purpose The AIP aims to incentivise and reward the achievement of the approved annual operating income Purpose The SIP is a long-term equity-based incentive plan. A combination of Performance Shares and targets. Massmart places particular emphasis on generous annual incentives for high performance. Restricted shares is awarded to qualifying employees. Eligibility Executives and employees from a certain staff level are able to participate in the AIP, subject to Eligibility Full-value share rights are awarded bi-annually to qualifying permanent employees. Initial Remuneration Committee approval. qualification is based on motivation by the Executive Committees of each of the Divisions. Final approval for participation is provided by the Remuneration Committee. Formula Participating employees can earn an increasing multiple of their monthly basic salary dependent Eligibility and award values have been benchmarked to the PwC-reported long-term incentive upon achievement against the agreed targets. awards and Massmart is positioned in the upper quartile. Performance Financial performance: Currently the AIP for Executive Directors is based only on Group financial Operation and Performance Shares: The performance share plan has specific performance metrics that have performance against approved operating income targets for both the Massmart Group and its instruments been designed to align with Walmart’s metrics and are measured individually against approved Divisions. As noted in the key priorities for 2017, the performance measure of the AIP has been Group-level annual nominal sales and ROI targets, over three separate years, with an equal changed to PBT for 2017. The Board is reviewing this structure with a possibility of adding specific weighting (50% nominal sales and 50% ROI). Each target has a range and the final awards are non-financial metrics in the future. calculated based on a sliding scale in the range of 50% to a maximum of 150%. Group Executives are 100% incentivised on Group Performance, Divisional CEOs are incentivised If achieved, the awards are equity-settled at the end of the third year. If performance against either on 50% of Group performance and 50% on Divisional performance, while Divisional Executives are of the targets falls below the minimum of the range, no performance share awards will be earned incentivised on 75% of Divisional performance and 25% of Group performance. against that target. Individual performance: At the lower levels of the AIP an individual metric, based on employee Restricted Shares: Restricted share grants are specifically utilised for retention purposes and vest performance, is included. on a time basis, being one third each at the end of years 3, 4 and 5. There are no performance Bonus payouts For business performance below 90% of planned operating income, no incentives are earned. conditions applicable to the restricted shares. Restricted shares are aimed at retaining of Incentives are capped at performance levels of 107% of planned operating income, unless the employees with the long-term reward linked to share price growth. Remuneration Committee has approved a super maximum target for a specific year. Mix of awards The plan provides for a mix of performance shares, which are awarded annually in March/April At Executive Director level the bonus payouts per achievement level are: and grants of restricted shares which are granted annually in September, based on the level of the employee. At Executive Director levels, the mix is 75% performance shares/25% restricted shares Threshold payout Target payout Above target payout and at other levels, 50%/50%. 6 months 12 months 18 months Value of awards Currently, at Executive Director level, the award value of the award is 100% of guaranteed package. Company performance measure basic salary basic salary basic salary Limits The cumulative total of all shares over the period of the scheme that can be offered via the scheme is 39.5 million shares. Individually, one participant may not exceed four million shares. Operating income (100% weighting) Settlement The settlement of grants and awards are done primarily through on-market share purchases. (based on 90% (based on 100% (based on 107% Discretion of the The Remuneration Committee may approve special restricted share awards to employees which achievement of target) achievement of target) achievement of target) Remuneration the Company wishes to recognise for extraordinary achievements. Committee *A super-maximum level may be agreed and approved by the Remuneration Committee. Discretion of the Outside of the AIP, the Remuneration Committee also has the option to provide discretionary Remuneration awards to reward individual performance. The discretionary awards are capped at not more than Committee 25% of target AIP. If awarded, these incentives are paid annually. 77 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 78

Executive pay mix Non-Executive Directors Proposed fees 2017 One-third of the non-Executive Directors are required to For several years only inflation-linked fee increases have been proposed for most of the sub- Anticipated contribution to total annual retire every year and Massmart Executive Directors have committee roles. Following a recent benchmarking exercise of the upper-quartile of the South African packages elected to also retire on this basis. As a result, all Directors retire market, the below-mentioned increases are proposed for the non-Executive Directors and the various The Committee believes that over an extended period and by rotation at least every three years and are then eligible to committee roles. The increases take into account the aggregate fees that each Director will earn given subject to business performance, Executives’ total annual offer themselves for re-election. In addition, shareholders their committee roles. For this reason, the proposed independent non-Executive Directors’ fees of remuneration (TAR) should comprise approximately equal must ratify the initial appointment of each Director at R400,000 are typically lower than the market (upper quartile). In addition, it was felt that the fees amounts from TGP, AIP and SIP. The amounts received the first AGM following that Director’s appointment. All for the Audit Committee Chairman and members did not represent the appropriate reward for the annually under AIP will vary depending on the achievement Committee members complete detailed self-assessments greater risks and responsibilities associated with that committee’s role. of the set targets, while those received under the SIP will covering the composition, duties, responsibilities, process 2017 Fee 2016 Fee % also vary depending on the business achievement of and effectiveness of the relevant committees. The results of Role (R’000) (R’000) Change targets and the growth of the Massmart share price. these assessments are collated by the Company Secretary Chairman of the Board 1,500.0 1,270.0 18.1% It is anticipated that about two thirds of Executives’ and sent in summarised form to the Chairman for a formal Deputy Chairman of the Board 800.0 660.0 21.2% remuneration should be variable and conditional upon written response. The summarised results, together with sustainably improving business performance. the Chairman’s written response, are included in the Board Independent non-Executive Directors 400.0 350.0 14.3% papers at the November Board meeting. Audit Committee Chairman 350.0 267.1 31.0% Potential award mix Risk Committee Chairman 275.0 267.1 3.0% The following chart shows the potential mix of TAR for Non-Executive Director fees Executive Directors: These fees remunerate the independent non-Executive Remuneration Committee Chairman 275.0 252.0 9.1% Directors for their time, responsibilities and commitment Nomination and Social and Ethics Committee Chairmen 275.0 252.0 9.1% Group CEO and CFO to Massmart. Audit Committee member 175.0 128.0 36.7% 28% 34% 38% Each independent non-Executive Director receives a Other Board Committee members 140.0 128.0 9.4% fixed fee for their services based on their Board membership Maximum performance and membership of the Board Committees. 36% 29% 35% The Board has elected to pay a fixed fee only, without the The Remuneration Committee and its role Target performance payment of additional attendance fees. This decision was Composition 49% 20% 31% taken on the basis that many Directors provide expertise Threshold that extends beyond the boardroom. The Remuneration Committee consists of three non-Executive Directors, two of whom are The remuneration of independent non-Executive independent. Meetings are held four times per year and more often if deemed necessary. The CEO Directors is reviewed annually by the Remuneration is a permanent invitee to all Committee meetings. Other nominated Executives attend meetings by TGP AIP SIP Committee and the Board after a benchmarking exercise invitation. Neither the CEO nor nominated invitees are present when matters relating to their own against market. Fees are required to be competitive remuneration are discussed. The Group General Counsel acts as secretary for the Committee. but not necessarily in the top quartile of the market. Recommendations for increases are made to shareholders Responsibilities at the AGM for consideration and approval. In accordance with the Remuneration Committee Charter, as approved by the Board, the The Walmart-appointed non-Executive Directors do not responsibilities of the Committee include: receive fees from Massmart. • Reviewing the Group remuneration strategy and policies to ensure alignment with the Group Non-Executive Directors do not qualify for participation strategic, operating and financial objectives and remuneration best practice principles; in any share plan or incentive scheme. • Evaluating the remuneration packages of the Executive Directors and Group Executive Committee members to ensure TGP is market-competitive and fair, and AIPs and SIPs are equitably related to relevant performance indicators; • Approving performance-related AIP and SIP targets; • Making recommendations to the Board on amendments to AIP and SIP schemes; • Reviewing and recommending independent non-Executive Directors’ and Board Committee members’ fees and also the fees of any Director-related entities providing services to the Group; • Reviewing Group remuneration practices and policies; and For more information on the • Selecting independent consultants to advise the Board where appropriate. Group’s remuneration policy, A full account of the role and responsibilities of the Remuneration Committee is described in the please contact the Chairman of the Remuneration Committee Charter and is available on request. Remuneration Committee. 79 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 80

Section C: Application of the remuneration policy during the year ended December 2016 Share Incentive Plan SIP The SIP was established in September 2013 and is linked to approved ROI and sales targets (refer to page 76 for more information). The first vesting of this new plan took place in September 2016. Actual payouts and increases The next vesting of performance share awards will take place in March 2017 (for performance in years 2014/5/6). This vesting, resultant of awards issued in 2014, will be as a result of the following performance achievements to Total Guaranteed Package TGP target in the subsequent three years: 108.2% for 2014, 100.1% for 2015 and 104.4% for 2016. The next vesting of restricted share grants will take place in September 2017. The Committee remains alert to the concentrated and highly competitive nature of the South African retail market, as well as a shortage of retail-specific skills, and sets remuneration levels accordingly. In 2015 the committee approved a number The illustration below shows previous performances against approved level annual nominal sales and ROI targets. of market related adjustments which were to be phased in over a few years and the 2016 annual increase average again includes a number of these market-related adjustments. * The Board believe that the sales and ROI Performance measure = achievement of approved ROI and sales targets targets which form the basis for the SIP In July 2016 increases awarded to Massmart’s Executive Directors, the Executive Committee and Divisional management Approved Group sales targets* = 2014: R75.8 billion, 2015: R86.1 billion achievement and payout calculation are teams averaged 8.72%. Approved Group ROI targets* = 2014: 17.1%, 2015: 16.9% commercially sensitive information and therefore not all targets have been disclosed.

2016 share vesting: Annual Incentive Plan AIP Guy Hayward 2016 performance: Sales (50% weighting) ROI (50% weighting) Total achieved (100%) As disclosed on page 75, the AIP for 2016 is linked to approved annual operating income targets for both the Massmart 2,495 Group and its Divisions and is fully aligned with Walmart’s policy. The following illustration shows the achievement to plan R72.3 billion achieved 2013* 19.4% ROI achieved 35.9% shares vested and actual payouts received by the Executive Directors. No discretionary bonuses were paid in 2016. R75.8 billion target 17.1% ROI target Performance measure = achievement of approved operating income target 2014 7,519 R78.2 billion achieved 17.0% ROI achieved 108.2% 2016 approved Group operating income target = R2.6 billion shares vested

R86.1 billion target 16.9% ROI target Threshold Above 2015 6,957 R84.7 billion achieved 17.1% ROI achieved 101.1% payout Target payout target payout shares vested Below 6 months 12 months 18 months threshold basic salary basic salary basic salary AIP PAYOUT Value of vested No. of (‘000) Target R2.6 billion shares shares 2013 2014 2015 Guy Hayward R2.6 billion achieved (101.2% of target) Payout: 12.988 months’ basic salary = R6,123.8 2013 Performance shares awarded assuming 100% target achieved 20,848 6,948 6,948 6,952 % of target achieved: 81.4% of original award 35.9% 108.2% 100.1% Johannes van Lierop R2.6 billion achieved (101.2% of target) Payout: 12.988 months’ basic salary = R4,913.1* Fully vested September 2016: actual shares vested 16,971 2,495 7,519 6,957 * US-dollar denominated salary, so Rand amounts are based on exchange rates at a point in time Value at vesting R2,150,816 2013 Restricted shares granted 6,950 First third vested September 2016: actual shares vested 2,316 2017 performance measures: Value at vesting R293,500 SIP VESTED As noted in the key priorities for 2017, the performance measure of the AIP has been changed to 100% profit before tax Total value of award and grant at vesting date R2,444,316 VALUE (PBT) for 2017. The Board supports the transparent reporting of Executive remuneration but they believe that the prospective PBT target, which forms the basis for the AIP achievement and payout calculation, is commercially sensitive information and this Johannes van Lierop had no shares vesting in 2016 as he only joined Massmart in early 2015. has therefore not been disclosed.

Performance measure = achievement of approved profit before tax

Definition of SIP performance measures: Nominal sales: total sales of the Massmart Group for a financial year. Return on investment (%): adjusted operating profit/average invested capital. Adjusted operating profit includes finance income and Definition of AIP performance measures: adds back depreciation, amortisation and rentals. Average invested capital is average total assets of continuing operations plus average Operating income: profit before interest but excluding foreign exchange gains and losses. accumulated depreciation and amortisation less average accounts payable less average accrued liabilities plus occupancy costs x8. 81 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 82

Executive Directors’ contracts and earnings The comments below provide further background and context to the figures disclosed in the tables which follow and the composition of remuneration outcomes in 2016 for the CEO and CFO are represented graphically below.

Guy Hayward Johannes van Lierop

Guy was awarded a 6.53% annual guaranteed package increase in July 2016. In terms of Massmart’s AIP, Guy received an Johannes was awarded a 2% annual salary increase on his US-dollar denominated basic salary in July 2016. In terms of incentive payment of R6.1 million (equivalent to 13.0 months of salary) based solely on the Group’s actual operating income Massmart’s AIP, Johannes received an incentive payment of R4.9 million (equivalent to 13.0 months of salary) based solely on performance against the 2016 plan. During the year to December 2016 Guy did not convert or sell any Massmart options or the Group’s actual operating income performance against the 2016 plan. During the year to December 2016 Johannes did shares. Through the Employee Share Trust, Guy holds 456,906 Massmart shares and options of which 19,912 shares are held not sell any Massmart shares. Through the SIP, Johannes was awarded 37,199 performance share awards on 18 March 2016 and by the Bluett-Hayward Trust, of which Guy is a trustee and a discretionary beneficiary. The average length of time that he 11,578 restricted share grants on 16 September 2016. Whilst Johannes does not have a fixed-term contract, he is contractually has held these is 6.25 years and the average strike price is R124.67 per share. Guy also owns 47,126 Massmart shares directly. bound by a notice period of twelve months. Through the SIP, Guy was awarded 37,719 performance share awards on 18 March 2016 and 13,953 restricted share grants on 16 September 2016. Whilst Guy does not have a fixed-term contract, he is contractually bound by a notice period of twelve months. Composition of remuneration (R’000) Composition of remuneration (R’000)* 2015 6,684 5,273 2015 6,684 5,582 ** TGP includes expatriate benefits *** Appointed with effect from 12 March 2015, 2016 6,886 6,124 2,444 TGP AIP SIP 2016 8,326*** 4,913 so prior year TGP does not relate to a full year

Details shares and share options: Details shares and share options: Number Number Award /grant Subscription of shares/ Gain on sale/ Award /grant Subscription of shares/ Gain on sale/ dates price (R) share options exercise (R’000) Expiry date dates price (R) share options exercise (R’000) Expiry date Employee Share Option Scheme Employee Share Incentive Plan Balance at December 2015 456,906 Balance at December 2015 107,678 Options exercised/shares sold – – – – Performance share award top-up* 16 Mar 2015 – 22 – 15 Mar 2018 Balance at December 2016 456,906 – Performance share awards 16 Mar 2015 – 37,199 – 17 Mar 2019 Comprising: 24 May 2007 94.25 24,444 – 23 May 2017 Restricted share grants 15 Sep 2015 – 11,578 – 15 Sep 2021 1 Apr 2008 66.91 19,912 – 31 Mar 2018 Balance at December 2016 156,477 26 May 2008 72.86 36,573 – 25 May 2018 Comprising: Performance share grants 16 Mar 2015 – 71,517 – 15 Mar 2018 27 May 2009 77.56 105,448 – 26 May 2019 Restricted share grants 16 Mar 2015 – 23,832 – 15 Mar 2021 1 Sep 2011 153.84 120,987 – 31 Aug 2021 Restricted share grants 15 Sep 2015 – 12,351 – 14 Sep 2021 16 May 2012 159.62 149,542 – 15 May 2022 Performance share awards 18 Mar 2016 – 37,199 – 17 Mar 2019 Employee Share Incentive Plan Restricted share grants 16 Sep 2016 – 11,578 – 15 Sep 2021 Balance at December 2015 113,847 * Due to performance conditions Performance shares vested/lost* 16 Sep 2013 – (20,848) – 15 Sep 2016 Restricted shares vested 15 Sep 2013 – (2,316) – 15 Sep 2016 Performance share award top-up* 17 Mar 2014 – 1,393 – 16 Mar 2017 Performance share awards 18 Mar 2016 – 37,719 – 17 Mar 2019 Non-Executive Directors’ contracts and payments Restricted share grants 16 Sep 2016 – 13,953 – 15 Sep 2021 As approved by the shareholders at Massmart’s May 2016 AGM, the following fees Balance at December 2016 143,748 were paid to non-Executive Directors in the financial year ending December 2016: Comprising: Restricted share grants 16 Sep 2013 – 4,634 – 15 Sep 2018 2016 Performance share awards 17 Mar 2014 – 34,179 – 16 Mar 2017 Role Fee (R’000) Restricted share grants 15 Sep 2014 – 11,506 – 14 Sep 2019 Chairman of the Board 1,270.0 Performance share awards 16 Mar 2015 – 27,559 – 15 Mar 2018 Deputy Chairman of the Board 660.0 Restricted share grants 15 Sep 2015 – 14,198 – 14 Sep 2020 Independent non-Executive Directors 350.0 The Directors’ interests in the Performance share awards 18 Mar 2016 – 37,719 – 17 Mar 2019 Company’s shares and options held Audit and Risk Committees Chairman 267.1 at reporting date can be found in Restricted share grants 16 Sep 2016 – 13,953 – 15 Sep 2021 Other Board Committee Chairmen 252.0 the Directors’ Report on p51 * Due to performance conditions Board Committee members 128.0 83 Our performance: Human capital Remuneration report Massmart Integrated Annual Report 2016 84

Section D: Remuneration tables

Directors’ emoluments

The following disbursements were made by Massmart Holdings Limited to Massmart’s Directors in the years ending December 2016 and December 2015 respectively: December 2016 December 2015 Fringe Gains on Fringe Gains on benefit of exercise benefit of exercise Services as interest- of share Services as interest- of share Directors of Bonuses and free loans options and Directors of Bonuses and free loans options and Massmart performance Retirement used to on shares Massmart performance Retirement used to on shares Holdings Salary and related Other and related finance purchased Holdings Salary and related Other and related finance purchased R’000 Limited allowances payments1 benefits benefits Subtotal shares2 by Directors Total Limited allowances payments1 benefits benefits Subtotal shares2 by Directors Total Executive Executive Directors Directors Hayward, GRC – 5,551 6,124 757 578 13,010 829 – 13,839 Hayward, GRC – 5,175 5,273 965 543 11,956 834 – 12,790 van Lierop, JJM – 5,660 4,913 2,666 – 13,239 – – 13,239 Zwarenstein, I4 – 671 – – 63 734 – – 734 – 11,211 11,037 3,423 578 26,249 829 – 27,078 van Lierop, JJM5 – 4,106 5,582 2,222 356 12,266 – – 12,266 – 9,952 10,855 3,187 962 24,956 834 – 25,790 Non-Executive Non-Executive Directors Directors Dlamini, KD 1,621 – – – – 1,621 – – 1,621 Dlamini, KD 1,440 – – – – 1,440 – – 1,440 Seabrooke, CS 1,432 – – – – 1,432 – – 1,432 Seabrooke, CS 1,531 – – – – 1,531 – – 1,531 Clarke, A – – – – – – – – – Broader, S6 – – – – – – – – – Gwagwa, NN 600 – – – – 600 – – 600 Clarke, A – – – – – – – – – Ostalé, E3 – – – – Gwagwa, NN 543 – – – – 543 – – 543 Kgosana, M 700 – – – – 700 – – 700 Kgosana, M7 185 – – – – 185 – – 185 Langeni, P 852 – – – – 852 – – 852 Langeni, P 795 – – – – 795 – – 795 Suarez, JP – – – – – – – – – Suarez, JP – – – – – – – – – 5,205 – – – – 5,205 – – 5,205 4,494 – – – – 4,494 – – 4,494 Total 5,205 11,211 11,037 3,423 578 31,454 829 – 32,283 Total 4,494 9,952 10,855 3,187 962 29,450 834 – 30,284

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 The Board is wholly responsible for the formulation, development and effective implementation of Group strategy. The and not amounts paid in that year Board has gained progressive insight into the definition of a ‘prescribed officer’ following the issuance of guidance from 2 Held in terms of the rules of the Company’s share scheme SAICA and, in turn, delegates operational strategy implementation and general executive management of the business to its 3 Appointed with effect from 24 February 2016 4 Resigned with effect from 12 March 2015 Executive Directors. As such, in terms of Regulation 38 of the Companies Act 2008, those previously designated as prescribed 5 Appointed with effect from 12 March 2015 officers are no longer deemed to be. 6 Resigned with effect from 9 November 2015 7 Appointed with effect from 1 September 2015 85 Massmart Integrated Annual Report 2016 86

Massmart is focused on reducing its environmental In addition to the inclusion of renewables, Massmart footprint. As part of its commitment to renewable energy, stores incorporated other energy saving technologies Makro powered by Makro operationalised two solar plants in 2016. such as daylight harvesting, energy efficient lighting, heat Makro Carnival, which opened in April, became the first reclamation and condensate harvesting to minimise their building in the Massmart Group to make use of renewable environmental footprints. Collectively these initiatives renewable energy energy. The 2,080 solar photovoltaic (PV) panels installed enabled the Group to avoid approximately 71,500 tons of on its roof have the capacity to generate almost one Greenhouse Gas (GHG) emissions in 2016. million kilowatts of electricity per annum, accounting for Following on from Makro’s successful renewable energy approximately 60-80% of the building’s electricity needs pilots, Builders Warehouse have scheduled the installation during the day and 30% of the store’s total annual energy of a third PV plant at their Northriding store for March 2017. requirements. Massmart’s efforts to reduce its impact on the environment Makro Woodmead followed in Makro Carnival’s were celebrated at the Mail & Guardian’s Greening Future footsteps by installing an even larger solar PV plant in the Awards where Makro Carnival was recognised in the Energy store’s car park. Not only is it estimated to supply roughly Efficiency and Carbon Management Award category. 20% of the store’s annual electricity needs, it offers the NATURAL CAPITAL added benefit of shaded parking for customers. OUR COMMITMENT TO REDUCING OUR ENVIRONMENTAL IMPACT 87 Our performance: Natural capital Massmart Integrated Annual Report 2016 88

Working in consultation with WWF:SASSI and our suppliers, we have formulated a canned-tuna policy to transition all sourcing Environmental to International Seafood Sustainability Foundation (ISSF) performance Natural capital participants. Our poultry welfare programme assesses bird welfare indicators dimensions such as access to food and water, ventilation, The inclusion of water consumption data from temperature control and general bird health. These assessments additional facilities has are conducted by a specialist poultry veterinarian who has been 0.5 resulted in an increase Estimated water appointed by Massmart. in reported water usage consumption intensity We have, together with Conservation South Africa, built on for the period. (kWh/m2) our hardwood timber screening process. This has included Currently, 89% of all stores are actively engaged in Minimise the Group environmental combining chain of custody information, local legislation and 2015: 0.4, 2014: 0.6, separating and recycling their waste, resulting in an species population health to develop a more rigorous hardwood 2013: 1.7, 2012: 2.6, footprint estimated 25,000 tons of waste being diverted from landfill rating tool to assist buyers to make sustainable sourcing decisions. 2011: 2.6 Water conservation in 2016. Those stores not recycling are located in areas Continued roll-out of where we are, at present, unable to find reliable vendors to independent energy We have continued to prioritise water conservation Packaging rationalisation project perform this function. meters and energy across our standalone facilities, expanding rainwater We completed a private label packaging rationalisation audit 194.6 efficiency initiatives has During the year, Makro and Massbuild successfully Store purchased and condensate harvesting initiatives to a total of 85 covering six product categories across our Makro, Builders resulted in a Group wide negotiated national waste management contracts that energy intensity Builders Warehouse and Makro stores. To identify further Warehouse and Game formats. External packaging consultants improvement in energy have seen the number of waste service providers reduced (kWh/m2) efficiency. opportunities to minimise our water usage we have were engaged to assess private label packaging using a by 86%. In Makro alone, associated cost savings have rolled out independent water meters to a further 27 sites. packaging scorecard. Packaging dimensions covered included: 2015: 215.3, 2014: 203.5, amounted to approximately R2 million. We estimate that Makro and Builders Warehouse saved recyclability; safety; functionality; and resource efficiency. 2013: 209, 2012: 184, approximately 20 million litres of water during 2016. Overall, the review indicated that the quality and sustainability 2011: 178 To further improve our understanding of water-related Enable sustainable supply and of private label packaging is consistently high. Opportunities Benchmark 369* risk, we completed a desktop water risk assessment of our consumerism to improve pack performance and recyclability were identified stores using the WWF’s online Water Risk Filter. We will, across our detergents and food packaging ranges. One example where necessary, develop additional water conservation Environmental supplier advocacy of this is our decision to reduce the inclusion of colour additives 0.6 Scope 1 emissions Scope 1 and 2 guidelines based on the outcomes of this assessment. For the last seven years, Massmart has facilitated an in our private label detergent packs. Implementing cost-effective emissions are externally intensity (tCO₂e/Rm environmental supplier advocacy programme which solutions in these areas, along with identifying opportunities to checked by GCX Africa Energy efficiency includes supplier environmental profiling, screening standardise and consolidate divisional packaging procurement, total sales) consultants. Scope 1 Format-specific energy targets along with the on-going of high risk products (such as timber and seafood) and will be our priority in 2017. 2015: 0.6, 2014: 0.7, emissions relate to direct installation of energy-saving technologies continue to environmental assessments. Since the project’s inception, 2013: 0.6, 2012: 0.4, emissions resulting Environmentally sensitive merchandise from company-owned form part of our energy efficiency strategy. In 2016, a we have reviewed the sustainability practices of 1,200 2011: 0.5 vehicles, generators further 18 stores transitioned to LED lighting solutions, suppliers, 340 of whom participated in assessments relating We realise that we are well positioned to play a role in offering our Benchmark 1.18* and fugitive emissions while 10 installed daylight harvesting modules and to sustainable seafood, timber, poultry and environmental customers products which reduce their environmental footprints across the Group in building management systems. These initiatives along practices during the year. and save them money. South Africa and Africa. with improved operational energy monitoring, resulted in Survey highlights indicate that 11.1% more suppliers During 2016, Builders, Makro and Game sold in excess of 0.02 Scope 2 figures are Scope 1 emissions derived from Divisional Group electricity efficiency improving by 10%. 1.4 million energy-saving light bulbs, which we estimate, help are focussing on improving the sustainability attributes 2 grid-tied electricity save our customers 98.9 million kWh of electricity a year. We have intensity (tCO₂e/m ) Aligned with our commitment to pilot commercially of their products, while more than 63% of our suppliers consumption figures. viable renewable energy alternatives, two solar PV plants are prioritising energy efficiency in their operations. significantly expanded our range of renewable energy products 2015: 0.02, 2014: 0.03, Energy consumption were erected in 2016. These plants, one situated at Makro However, disclosure of environmental indicators including to include solar chargers, small scale solar and inverter packages, 2013: 0.03, 2012: 0.02, data is annualised and Carnival and the other at Makro Woodmead, have the energy usage, emissions and waste generation needs and solar security lighting solutions. Last year we indicated that 2011: 0.02 normalised (outlying potential to generate approximately 2 million kWh of improvement. we would expand our range of water-saving products. We have data excluded). Margin of done this, achieving sales of R119.3 million in 2016. error is consequently 10% electricity a year. These plants will help reduce energy To recognise the efforts of those suppliers who – 15%. Eskom scope 2 costs whilst also lowering energy related carbon emissions are making an industry leading effort to implement 5.2 Post-consumer e-waste recycling Scope 2 emissions emissions factor updated at these stores by approximately 30%. A third installation sustainability programmes within their businesses, we to 1.00. Total Group sales Electronic waste (e-waste) presents risks to both human health intensity (tCO₂e/Rm is scheduled to be completed at Builder’s Warehouse hosted our third Environmental Supplier Awards ceremony are used to calculate and the environment if not recycled and disposed of correctly, total sales) Northriding in March 2017. We will explore further in October 2016. Distell Group was recognised as our Scope 1 and 2 emissions’ this has prompted the Department of Environmental Affairs to list intensity per Rand million opportunities to introduce additional renewable energy Environmental Supplier of the Year for their investment in 2015: 4.8, 2014: 4.8, it as a priority waste stream in South Africa. (Rm). Water usage projects in 2017. water conservation and renewable energy which will see 2013: 5.3, 2012: 5.0, Since 2008, Makro, first in partnership with Fujitsu Siemens and has been calculated them treat 200 million litres of water and generate more 2011: 5.3 from the cost of water currently Samsung, has facilitated South Africa’s most successful Operational waste recycling than 2 million kWh of renewable energy annually. Benchmark 9.46* consumed divided by Our objective remains to reduce waste to landfill by retail-led, post-consumer e-waste take back programme. Makro regional commercial prioritising the separation and recycling of paper, plastic Priority product screening offers e-waste take back across 20 sites countrywide that, in 2016, tariff averages. Square and board at our stores and distribution facilities. We have As part of our supply chain focus, we have prioritised enabled the collection of 106 tons of post-consumer e-waste. 0.18 meterage (m²) is reported Scope 2 emissions as a function of gross made considerable effort to improve our recycling rates by products that are potentially vulnerable to exploitation We estimate that since inception, the project has resulted in intensity (tCO₂e/m2) lettable area (GLA). circulating online waste assessments, working closely with and unsustainable utilisation. While sustainable timber and the recycling of 845 tons of e-waste ranging from laptops and waste service providers and monitoring waste generation fresh and frozen seafood sourcing remain a high priority, printers to washing machines and cellular phones. 2015: 0.22, 2014: 0.21, *Comparative data across our facilities. we have expanded our focus to include canned tuna and A recent Massmart assessment of our e-waste service provider’s 2013: 0.21, 2012: 0.18, represents best available facilities in Cape Town, Gauteng and KZN, revealed that requisite 2011: 0.18 performance as disclosed poultry welfare. by comparable South record keeping processes were in place and environmental best Benchmark 0.37* African retailers. practices were being followed. 89 Massmart Integrated Annual Report 2016 90

For the last eight years, Massmart has, through Game and Since inception it is estimated that more than 151 million Masscash, provided primary school children across South meals have been prepared in these kitchens, making a Bringing nutrition Africa with the opportunity to receive a hygienically positive impact on the education prospects of 200,000 prepared, hot, nutritious meal everyday though its mobile children each year. This is in keeping with Massmart’s social kitchen project. investment focus on education and nutrition. and dignity to In 2016, Game invested R1.3 million in the project, Each mobile kitchen is fitted with a four-plate gas burner, providing a further eight schools with mobile kitchens and a double bowl sink, stainless steel counters, shelving, four equipment to make the preparation of these meals possible. 100-litre cooking pots, serving spoons, tumblers, plates and 200,000 South African Research undertaken by the World Food Programme spoons for every child. has found that the provision of a cooked meal to under- For Massmart it is not just about providing a hygienic children a year nourished children at schools not only provides more food preparation area but also ensuring that food safety sustained energy, but also results in better school and storage standards are met and sustained, that hot attendance and an increase in classroom participation. meals are provided regularly and that learners are the There are currently 300 mobile kitchens in place across recipients of a service that promotes nutrition, education SOCIAL AND RELATIONSHIP CAPITAL South Africa, one hundred of which were supplied by the and eating with dignity. OUR COMMITMENT TO CHAMPION SOCIAL Walmart Foundation (as part of the Nelson Mandela 94 The on-going success of the project is thanks to the EQUALITY INITIATIVES IN OUR BUSINESS AND initiative) and a further 80 were provided by Masscash. ingredients supplied by the Department of Education THROUGH OUR SUPPLY CHAIN, AS WELL AS Schools Nutrition programme and the incredible efforts THE VALUE ADDED TO OUR BUSINESS THROUGH of the educators and volunteers who prepare and serve INCLUSIVE OUR RELATIONSHIPS WITH OUR STAKEHOLDERS the meals. 91 Our performance: Social and Relationship capital Massmart Integrated Annual Report 2016 92

Social and Relationship capital

Broad-Based Black Economic Total procurement Empowerment (BBBEE) BBBEE performance from SDP participants Massmart achieved an Empowerdex verified score of 58.3 indicators has grown ten-fold in in 2016, for the BBBEE measurement period from January to December 2015. This decrease from 68.3 achieved for 2014 the last four years – is associated with the introduction of the amended Broad- Ownership recognition total procurement Based Black Economic (BBBEE) Codes of Good Practice. 8.98 up from 6.32 in 2015. Ownership Despite this drop in score, we achieved full scorecard from beneficiaries recognition for investment in Supplier Development, 2015: 6.3, 2014: 5.7, 2013: 6.0, surpassed R139 million Enterprise Development and Socio-economic Development, 2012: 7.6, 2011: 14.8, while improving our performance in the areas of Benchmark 20.0* in 2016 compared to Management Control and Ownership. R13.8 million in the Unfortunately, our preferential procurement score 8.8 SDP’s first full year of dropped by 8.4 points, largely as a result of significantly Management control increased procurement targets. To achieve full points against operation. these targets would, for example, require us to procure a 2015: 4.1, 2014: 5.1, 2013: 4.5, total of R23.0 billion from qualifying and emerging suppliers 2012: 5.2, 2011: 5.2 compared with the R4.0 billion we currently procure. Benchmark 8.85* Despite a drop We remain focused on identifying and exploring in preferential opportunities to improve our contribution to Broad-Based 24.4 procurement Black Economic Empowerment. Skills development recognition, Massmart achieved full points Supporting small local manufacturers 2015: 11.4, 2014: 12.5, 2013: 11.0, for supplier and 2012: 12.2, 2011: 10.6 enterprise development The Massmart Supplier Development Programme (SDP) Benchmark 20.0* investment. provides small and emerging suppliers with access to the Group’s supply chain. The Massmart SDP gives preference, but not exclusivity, to black and black woman owned- 24.4 enterprises, who received 81% of the funds disbursed in 2016. Enterprise development The core focus of the SDP is developing General 15.0 in 2015, 15.0 in 2014, 15.0 in Merchandise manufacturers in categories in which we are 2013, 15.0 in 2012, 15.0 in 2011, market leaders. Benchmark 26.2* The SDP portfolio consists of 32 suppliers, eight of whom are female-owned businesses, who manufacture a variety of products including mosaics, hollow-core doors, bricks, 5.0 office furniture, textiles, adhesives, cooler-boxes and paints. Socio-economic development The SDP typically involves assisting suppliers to 5.0 in 2015, 5.0 in 2014, 5.0 in 2013, meet product quality standards, investing in bespoke 5.0 in 2012, 5.0 in 2011, manufacturing equipment to build capacity and providing Benchmark 5.0* retail and business management training. We have seen encouraging sales traction through the programme, with Harry Montjane, owner of total procurement surpassing R139 million in 2016, 10 times 58.3 Kurhula Paints and supplier to Builders Warehouse more than the R13.8 million achieved in our first full year BBBEE score *Comparative data represents best available of operation. 68.3 in 2015, 68.8 in 2014, 66.3 in performance as disclosed 2013, 72.8 in 2012, 75.9 in 2011, by comparable South Benchmark 75.0* African retailers. 93 Our performance: Social and Relationship capital Massmart Integrated Annual Report 2016 94

Socio-economic development In 2016, additional focus was placed on engaging domestic import and manufacturing facilities and piloting In 2016, we invested R24.1 million, representing 1.8% a programme whereby recognised third-party audits CSI performance indicators of profit after tax, in CSI initiatives focused primarily on (rather than only Walmart-specific ones) were accepted nutrition, Early Childhood Development (ECD), and school as part of the responsible sourcing programme. Presently, maintenance and infrastructure. 55% of all Massmart domestic import facilities have either 1.8 % During the year we expanded the Game amaLunchbox Total Massmart Group R5.8 million been subjected to Walmart responsible sourcing audits Total investment in nutrition school nutrition project in partnership with the Department CSI spend as a % of profit or submitted acceptable third-party audits. Our priority programmes (Rm) after tax of Basic Education (DBE) and Makro’s ECD initiative with in 2017 will be to secure complete audit reports for the 2015: 6.3, 2014: 5.2, 2013: 28.2, Hope Worldwide. We also continued to provide food 2015: 1.7, 2014: 2.0, 2013: 3.1, remaining domestic import facilities and for a select 2012: 26.2, 2011: 7.8 donations, through Game and Cambridge, to vulnerable number of domestic manufacturers. 2012: 3.1, 2011: 2.0 communities in collaboration with FoodBank SA. Decreased as a result Of those initiatives undertaken in 2016, we are most proud Engaging our stakeholders Total Group CSI million of the completion of our mobile kitchen project which provided for the efficient, investment up from million R2.7 of the Builders R24.1 Total investment in safe and hygienic preparation of approximately 40 million Understanding the views of the people and organisations R20.4 million in 2015. Total Massmart Group Warehouse build a infrastructure and school who are impacted by our activities and in turn have an contribution (Rm) classroom project. meals supplied by the DBE school nutrition programme. maintenance (Rm) In addition to the donations made by our operating influence on us, is central to the way we do business. 2015: 20.4, 2014: 23.1, 2015: 5.9, 2014: 6.0, 2013: 3.8, divisions, and emergency relief aid provided in association Aligned to this is our desire to contribute to social 2013: 41.7, 2012: 37.4, 2012: 0.5, 2011: 0 with the Gift of the Givers, we donated a total of R1.5 million sustainability initiatives that create opportunities, foster 2011: 0 to Council for the Advancement of the South African growth and promote socio-economic inclusivity. Constitution (CASAC), the Helen Suzman Foundation In the course of doing business we engage with a wide million variety of people and organisations on a range of topics. million R4.1 and Section 27 for the purpose of Constitutional rights R27.8 Total investment in early To help us identify relevant issues we use the following Total Massmart Group, advocacy. It is our expectation that this financial support childhood developments forms of engagement: including supplier and staff will, hence forth, be provided on an on-going annual basis. (Rm) 1. Conduct desktop research to identify topics of interest in contributions (Rm) 2015: 4.0, 2014: 7.3, 2013: 5.2, Responsible sourcing the broader public discourse; 2015: 20.8, 2014: 24.2, 2. Track media coverage to understand leading public 2012: 1.2, 2011: 0 With Walmart’s assistance, Massmart initiated a responsible 2013: 42.3, 2012: 46.4, Increase in viewpoints; 2011: 24.4 discretionary sourcing programme for our private label, direct import and 3. Assess the materiality of these issues to the Group spend, due in part, to exclusive brand products in 2013. As part of the programme, through workshops and engagement with subject R9.8 million R1.5 million Massmart Total investment in suppliers are assessed by independent auditors on a broad matter experts and interested parties; and donation to CASAC, Divisional discretionary Helen Suzman and range of dimensions that include fair labour practices 4. Review alignment to broader Walmart objectives and projects (Rm) Section 27. and compliance with health, safety and environmental priorities. standards and regulations. Post implementation of the 2015: 3.7, 2014: 3.5, 2013: 4.3, responsible sourcing programme, all direct import facilities 2012: 9.5, 2011: 10.6 have the required audits in place and supplier audit status is verified prior to the placement of orders.

Key stakeholder discussions

Topics of interest in 2016 LEGISLATORS STATE DEPARTMENTS GOVERNMENT ENVIRONMENTAL NGOS PUBLIC INTEREST INDUSTRY SUPPLIERS LOCAL EMPLOYEES included the proposed AND MINISTRIES AGENCIES AND SOCIAL ASSOCIATIONS COMMUNITIES (e.g. Portfolio (e.g. Conservation SUSTAINABILITY sugar tax, industry waste committees) (e.g. Economic (e.g. National South Africa) NGOS (e.g. Consumer Goods (e.g. Magaliesig management plans, Development Regulator for Council of South Africa, Action Forum) (Section 27) amendments to the Department and Compulsory National Business National Liquor Act, water Industrial Development Specifications, SABS) Initiative) scarcity, food inflation, Corporation) product safety, product screening and labour rights. Once identified, these issues lead us to a Providing input Partnering on policy Obtaining guidance Developing Reviewing public Industry challenges Product innovation Understanding Workplace range of discussions with into proposed implementation on implementation environmental interest issues, and operational opportunities, potential satisfaction and various stakeholders. legislation, and fostering of regulatory product screening taking guidance responses, joint customer operational engagement, In 2016 they included identifying public-private sector standards and approaches, policy on the operational projects and proposed engagement impacts and business objectives the following: opportunities for cooperation identifying development and disbursement of and existing legislation and cooperating identifying and strategy, alignment with opportunities to environmental issue social development on corporate mitigation and and career Government work together in prioritisation funding, identifying social investment partnership development priorities the public interest opportunities to initiatives opportunities opportunities support social justice initiatives 95 Our performance: Social and Relationship capital Massmart Integrated Annual Report 2016 96

Proactive engagement Reactive engagement

Aligned to the topics identified on the previous page, we had a number of engagements over the course of the year, some of which are highlighted below:

Stakeholders Our engagement activities Insights Responses

Research has found that globally only 30% Employees indicated a clear understanding Departmental employee feedback 26,000 of all employees are actively engaged in the of the organisation’s objectives but felt that sessions have been facilitated to employees workplace. To better understand employee the business was not sufficiently responsive assist in improving responsiveness perspectives and facilitate higher levels of to their ideas and suggestions. to employee concerns and fostering engagement, we conduct a regular employee dialogue around issues of interest. Sustainable tuna sourcing engagement survey. WWF:SASSI has red-listed select Skipjack tuna fisheries, a significant species supplied in canned-tuna products. South Africa ranked 67th out 175 countries The number of people who felt they could Through the Ethics Institute we are In consultation with the WWF:SASSI and our canned tuna in Transparency International’s most recent get by without paying bribes increased by exploring opportunities to provide suppliers, we have developed a sustainable tuna sourcing policy 4,553 to ensure adherence with the amended seafood standards. citizens across Corruption Perception Index. We partnered 27% as compared with 2015 feedback. The on-going feedback concerning public five provinces with, the Ethics Institute of South Africa to leading reasons to pay bribes were to obtain perceptions of bribery to the relevant Sustaining bee population health assist with evaluating how South Africans driving licenses and to avoid traffic offenses. authorities. from different income levels and walks of life A consumer journalist engaged with Massmart regarding perceive corruption. reports of declining honey bee populations in South Africa. Upon engaging with the South African Bee Industry Organisation (SABIO), it was noted that a lack of suitable forage is threatening Selected low income More than 20% of South Africans are The focus groups highlighted that low We will closely monitor the pricing of South African bee populations. We have, at SABIO’s request, customers (LSM 3-6) considered to be vulnerable to food income customers rely heavily on a small key product lines to ensure affordability raised this concern with Sappi and Mondi, who have indicated insecurity. To better understand the grocery range of core products to meet their and price competitiveness. a willingness to assist the bee industry by allowing bee keepers shopping preferences and challenges faced nutritional requirements. Participants access to their plantations for forage. by our most vulnerable customers, we showed strong national brand loyalty, Promoting responsible consumerism facilitated a series of focus groups to help primarily based on perceptions of quality. identify opportunities to assist customers to Massmart was approached by Water Shortage South Africa optimise their household grocery budgets. who highlighted concerns regarding the sale of portable pools at stores located in areas subject to municipal water restrictions. Retailers are often criticised for failing to Suppliers rated our divisions highly on both We have conducted follow up calls We have issued in-store notices informing customers that maintain constructive relationships with ethics and brand custodianship. However, with select suppliers to explore the use of portable play pools is prohibited in terms of water 1,000 restriction regulations. suppliers their suppliers. We ask suppliers to evaluate openness to supplier business ideas was opportunities for better strategic us annually on factors that include business noted as an area for improvement. partnering. Farm animal welfare ethics, distribution efficiency, brand The Humane League, an international NGO that focuses on custodianship and responsiveness. farm animal welfare, has requested that Massmart transition to sourcing only cage free eggs. We have shared our existing welfare audit standard with the It has been reported that businesses are 50% of suppliers surveyed are engaged We benchmarked overall supplier Humane League and will continue to engage with the poultry responsible for nearly two thirds of all in improving their operational energy environmental performance and 340 industry on welfare standards. suppliers post-industrial age GHG emissions. To foster efficiency. However, disclosure of material circulated environmental reporting awareness and advocate sustainable supply environmental indicators was mostly guidance to participating suppliers. Enterprise development chain practices we profile the environmental insufficient. As part of a programme to stimulate economic growth activities of our suppliers on, for example, in townships, the Gauteng Department of Economic waste management, energy efficiency, water development requested Massmart’s help to pilot a spaza conservation and environmental disclosure. shop enterprise development model. We assisted with the design and layout of the shops, and provided a once-off donation of start-up stock to assist one of the stores to trade. 97 Our performance: Social and Relationship capital Massmart Integrated Annual Report 2016 98

Food safety Consumer Food safety is one of the platforms that we use to build trust. Protection Act To ensure food safety, regular supplier compliance audits Social and Ethics performance are conducted and our management system is audited by reputable third parties. Massmart has robust recall procedures indicators in place. There is high compliance, health and safety awareness Committee report This 64% annual increase across the Group. We also make use of professional third parties is attributed to a new data for the year ended December 2016 standard that now includes to assess in-store food, health and safety issues. 9,832 food related complaints Customer data, in addition to General Massmart’s consumer protection and complaints re Merchandise. product safety programme product safety Phumzile Langeni, Chairman of the Social and Ethics Committee and quality The Massmart Consumer Protection and Product Safety programme has been enhanced by the implementation of 2015: 5,978, new standards and controls across the businesses. Our research Members of the Massmart Social and Ethics Committee are the Massmart CEO and two The Social and 2014: 5,079 An anomalous increase of efforts that serve both in alignment of our business with future non-Executive Directors. The Committee is chaired by an independent non-Executive pricing and marketing related Director. An independent external advisor, the Chief Ethics and Compliance Officer, the Ethics Committee complaints. This is mainly international and national policy, as well as the influence of these attributed to a new data policies, position our organisation in good stead for the future. Group Ethics Officer, the Group Corporate Affairs Executive, the Group General Counsel comprises: 11,329 standard that now includes This has served as an effective catalyst in balancing our ethos of and the Group Human Capital Executive attend meetings by invitation. Customer Food related complaints Everyday Low Price with higher levels of product safety and quality, The Committee is governed by a charter and monitors Group performance in terms complaints data, in addition to General of defined Social and Ethics performance indicators that have been formulated with which leads the markets. As the programme continues to roll-out Ms Phumzile Langeni regarding Merchandise. reference to Regulation 43(5) of the Companies Act. into the operational community, the rights and value proposition Chairman consumer These indicators, which include but are not limited to, OECD anti-corruption of our customers will continue to be honoured and improved. (Independent non-Executive protection guidelines, United Nations Global Compact principles, the Employment Equity Act, Director) (e.g. price errors, Johannesburg Stock Exchange Responsible Investment Index criteria and Broad-based Mr Guy Hayward false adverts etc.) A pleasant decrease of 94% of Black Economic Empowerment elements, are reviewed by the Committee, on a rotational (CEO) product liability claims. This or core agenda basis. 2015: 625, highlights the improving collective Mr JP Suarez The charter is currently undergoing review in order to ensure alignment to the 2014: 2,093 efforts of the Merchant and Food safety (Non-Executive Director) Product Safety teams in offering indicators requirements of the King IV Code of Corporate Governance, which will be adopted during safer and higher quality products The increase is due to the fourth quarter of 2017. 10 in our markets. new store openings The Committee met twice during the year ended December 2016, at which meetings SE Liability claims and increase in performance in the following areas was reviewed, in response to the requirements of the To build trust and heighten 1,503 frequency of audits (incl. product customer awareness of the In-store food being conducted. Companies Act: safety /defective CGSO, Massmart rolled-out new safety audits • Ethics and anti-corruption compliance; good claims signage across all stores informing 2015: 996 • Consumer and product safety; (GM only) customers that alternate dispute The increase is due to • Responsible sourcing; resolution is freely available and new DC’s opening and 2015: 167, 2014: 39 endorsed by the Company. Despite • Human capital management; increase in frequency • Regulatory and compliance matters; a 73% increase in submitted 18 of audits being complaints in 2016, efforts are Distribution Centre conducted. • Stakeholder relations; progressing towards a higher food safety audits • Broad-Based Black Economic Empowerment (BBBEE) and socio-economic 121 internal complaint closure rate. Customer 2015: 8 This slight decrease is development; and 0.5% of all customer complaints due to consolidation • Environmental impact. complaints at received and managed internally of some Divisional The Committee monitored the Company’s activities, having regard to the relevant CGSO/NCC/NCT* are actually elevated to the CGSO. private label products Company policies, any relevant legislation, other legal requirements or prevailing codes 2015: 70, 2014: 103 1,132 to Group private label Annual increase of 100% of Private label of best practice with regard to matters relating to good ethical conduct, with reference to product recalls and quarantines. products. the Group’s Code of Ethical Conduct, related policies and accepted best practice. Majority of the 96 reflects minor products tested quality related quarantines, that 2015: 1,248 These meetings were supplemented by regular management briefings to the 96 Committee Chairman regarding key topics including: Massmart’s response to the impact Product recalls and were expedited as a precautionary The number of measure. This indicates a more environmental testing of drought on food prices, high priority product recalls, transformation progress within quarantines More information on the responsible culture and effective was increased at store Massmart, the #FeesMustFall campaign’s implications, Greenpeace Africa renewable Social and Ethics Committee’s (GM only) 12,982 execution of early detection of In-store environmental level to enhance the energy focus, World Wide Fund (WWF) for Nature red-listing of Skip Jack tuna and impact roles and responsibilities can 2015: 48, 2014: 60 consumer product safety and validation of the Food be found on p108 quality related risk. tests (surface swabs, hand Safety Management of American Fowl Brood disease on local honey production, amongst others. swabs, product tests, system at store level. The Committee confirms that no material issues were identified by the Social and Ethics A 61% decrease in the number water tests, drain swabs) Committee during the 2016 reporting period. of product tests done in an 9 2015: 5,700 investigative nature where Random product product risk to consumers is high. tests (GM only) Naturally this translates into fewer Increase number customers incidents with high of recalls due to 2015: 23, 2014: 22 34 potential risk. This is aimed at the Products recalled increased number of testing and supplier Phumzile Langeni verification of continued levels of 2015: 24 product safety and quality. awareness. Chairman of the Social and Ethics Committee 31 March 2017

* NCT is National Consumer Tribunal, CGSO is Consumer Goods and Services Ombud and NCC is National Consumer Commission. 99 100

Ever growing access to the Internet and increased This allows our customers to search and browse for ownership of smartphones is changing the way customers products, view price and check stock availability at store A world-class shop. Starting with increased awareness, right through to level, and either click and collect in store or have products the purchasing process, digital channels are playing an delivered to site. increasing role in every step of the customer journey. This platform supports our value proposition of being online offering for Customers are demanding flexibility in how and where the customers’ first choice, providing convenient shopping they shop, making the growth of online one of Massmart’s hours and locations, with the widest range of quality Builders’ customers key strategic objectives. In 2016 Massbuild launched a branded products, project complete solutions and best world-class online offering to complement the existing advice. It has allowed for an expanded product offering Builders’ shopping experience and enhance our position and extended our reach to customers who previously did as Africa’s leading DIY, Home Improvement and Building not have access to the various Builders’ formats due to their Materials retailer. location. Enriched digital content displayed on the website The Builders Online store has been rolled out in stages. gives the customer enhanced product advice and is seen About 400 trade customers at four Johannesburg stores as a differentiator. participated in the limited release first phase of Builders Builders Online is seen as a new sales channel where Online. During this phase 10,000 frequently-purchased innovation opportunities can be explored before being INTELLECTUAL CAPITAL trade products and yard items were made available. The sent to stores. As space becomes more scarce and HOW, THROUGH INNOVATION, WE PASS second phase of this project is now available to the broader expensive, the platform gives Massbuild an opportunity EXCELLENCE ON BENEFITS TO OUR CUSTOMERS customer base across South Africa. to reduce space and use existing spaces to introduce new categories or expand more profitable categories. 101 Our performance: Intellectual capital

Intellectual capital

Ecommerce/online Whether through product innovation, world class social media or website platforms off which our customers can In order to remain relevant to a rapidly evolving and digitally not merely view product range, but also engage directly connected Customer 2.0, Massmart must understand and with us. With our Camp Master and Trojan repair centres we stay in touch with the technology innovations impacting are unrivalled in the space of post-purchase customer care. retail formats, and the increasingly complex omnichannel Private label has a number of benefits to Massmart: paths to purchase. We recognise that smartphone it builds trust; supports Everyday Low Cost (EDLC) and penetration and declining costs of bandwidth are creating Everyday Low Price (EDLP); drives customer loyalty; creates a digitally-connected customer that will be ubiquitous in and drives differentiation; increases profitability; and now, every market segment we serve. Put simply, the internet with the Walmart relationship, we are able to leverage and mobile phone have created new dimensions in retail opportunities and collaboration. We are continually that enable us to raise the bar on convenience, service, searching for new products, brands and initiatives that both choice and communication. fulfil our customers’ needs and give Massmart Private Label To take advantage of the opportunity to win, serve and a sustainable advantage. retain customers in new ways, we must become literate in Retail is largely driven off innovation and on-trend the new dimensions of retail, acquire new competencies product and packaging development. The last quarter of and adapt existing assets, in order to retain and advance our 2016 saw the launch of the new ‘colour range’ under our leadership in the categories we trade, and market segments Garden Master brand. We have an exciting gardening we serve. To this end we have spent time in various Walmart range in pink, lime and turquoise that were developed off markets around the world to understand the context, world colour trends in the gardening category. Significant trends, best practices and competency gaps impacting growth has been seen since the launch of this colour range retail operations like ours, in order to inform our strategic innovation. choices. We have identified the need to evolve our formats to synthesise the physical and digital elements of retail, 04 Makro Pick-Up Lockers in ways that create compelling new value propositions for customers, and to align with their expectations of Makro now has 28 Pick-Up Lockers which allow customers Transparency and a digitally-augmented shopping experience; and new to collect their online orders at a convenient time and place, standards for convenience, choice and service. as well as a further 42 lockers within the DSV Distribution Whilst the strategic choices and directions are clear, network. This has proved a popular fulfilment option, accountability online shopping adoption in the markets we serve has allowing broader access to the Makro value proposition for been relatively slow. Consequently there is no burning professional and retail customers alike. platform driving an online shopping agenda. We therefore have the time to develop important foundation Collecting a parcel at a Makro Pick-Up Locker competencies and implement new systems in a phase CORPORATE GOVERNANCE OVERVIEW 103 of omnichannel readiness. In support of this, all of our operating divisions have brought strong focus to the OUR ASSESSMENT OF THE PRINCIPLES 104 acquisition of these competencies, and the development OF KING III of supporting systems required to prepare their operations OUR BOARD 105 for omnichannel. OUR BOARD COMMITTEES 107 Private label BOARD AND COMMITTEE ATTENDANCE 109 Private label has always been an important focus for our business, as can been seen from the innovation in product, point of sale and packaging execution of the brands. We strive for brand excellence through customer centric decisions in everything we do; these decisions should excite and delight our customers at every contact point. 103 Transparency and accountability Massmart Integrated Annual Report 2016 104

Corporate governance overview Corporate governance approach In addition to this corporate governance framework, the At Massmart, we aim to be the most trusted Group is committed to complying with all legislation, wholesale and retail Group in sub-Saharan Africa, The primary South African corporate governance regulations and best practices relevant to our business, in framework is the King Report on Governance for South every country where we conduct business. delivering exceptional value to mass market Africa and King Code of Governance Principles (King III, The Board endorses and accepts responsibility for consumers. As such, good business is at the which has since been replaced by King IV adopted on achieving the four values underpinning good governance 1 November 2016). The King Code on Corporate Governance advocated by King III, namely: fairness, responsibility, centre of everything we do. forms the backbone to Massmart’s own corporate transparency and accountability and further embraces governance framework. In addition, Massmart applies high the concept of integrated thinking encapsulated in ethical standards to its operating environment as reflected King IV which underpins corporate citizenship, stakeholder Kuseni Dlamini, Group Chairman in the Group’s Code of Ethical Conduct. While we continued inclusivity, sustainable development and integrated to apply the King III recommendations in line with the reporting. The Board and its Committees regularly review JSE Listings Requirements, Massmart is in full support of Massmart’s governance structures and processes to ensure We believe in making well-considered and informed choices to shape a King IV and will apply its recommendations progressively that the Board exercises effective and ethical leadership, better future for our business and stakeholders alike. We are fully committed ahead of the effective date of 1 April 2017. An initial conducts its affairs as a good corporate citizen and takes to sustainable business practices and continuously monitor and measure our assessment of the King IV recommendations has been decisions to ensure sustainability. impact on the planet, people and our communities at large. Our Board is actively completed in preparation for their integration into Massmart’s Executive Committee has established a engaged and encourages management to profitably grow Massmart in the best Massmart’s internal controls and policies, and the Board’s sub-committee to focus on Ethics and Compliance. This interest of all stakeholders. terms of reference and overall governance processes. sub-committee meets every other month to consider a Massmart believes that the first steps towards good corporate governance legal update; an ethics review; specific areas of focus that must include embracing the requirements of the relevant governance and Massmart’s compliance team manage closely; feedback regulatory frameworks, as well as corporate best practice. More than this, from Internal Audit; and ethics and compliance in general. Massmart believes that sustainable and effective corporate governance is best demonstrated through a consistent pattern of doing the right thing regardless of the circumstances. ETHICAL AND Our assessment of the principles of King III RESPECTFUL I am pleased to report that Massmart continues to respond appropriately to For the year ended December 2016, apart from the exceptions outlined below, the Board confirms that the Group complied these requirements. At Massmart, good with the Code of Governance Principles as set out in King III: business is at the centre of everything we do Not applied

Principle 2.25: The Company remunerates its Directors and executives fairly. Practice: Non-executive Directors' fees comprise both a base fee and an attendance fee per meeting.

Our response: The Board does not believe that Directors should earn attendance fees in addition to a base fee. Many Directors add significant value to the Group outside of the formal Board and Committee meetings, sometimes greater value than they might do within the confines of a formal meeting. Partially applied

Principle 9.3: Sustainability reporting and disclosure should be independently assured. Practice: The integrated report discloses the scope and methodology of independent assurance of the sustainability report, as well as the name of the assurer.

Our response: Massmart’s sustainability report has not been audited by an external assurance provider in its entirety. The following key sustainability metrics have been independently assured: • Emissions data – assured by Moore Stephens • Massmart’s BBBEE scorecard – assured by Empowerdex • Key Human Capital, CSI, and Consumer Protection Act score card performance indicators – assured by Massmart Audit Services (MAS). A copy of the agreed upon procedures report is available at the registered offices of the Company.

A register documenting the assessment of all 75 principles of King III is available online www.massmart.co.za/iar2016/KingIII 105 Transparency and accountability Massmart Integrated Annual Report 2016 106

Directors have unrestricted access to any Executive, manager or employee in the Group. Annually in October, the Nomination Committee facilitates a comprehensive Our Board formal performance evaluation of the CEO, comprising a questionnaire evaluating the CEO by every non-Executive Director, and an appraisal of the CEO by each of his direct reports using a different questionnaire. The Board Chairman provides the The Board is responsible for directing the Group towards achieving Massmart’s 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. vision and mission. The Board is therefore accountable for the development When considering vacancies, the Board, by and through its nominating process, shall and execution of the Group’s strategy, operating performance and financial consider its target of appointing 40% of women to open independent non-Executive Board composition Director positions but not less than two in number; and/or request from its majority results, as well as being the custodian of the Group’s corporate governance. shareholder, Walmart, to consider recommending and supporting appointments of The Board appreciates that strategy, risk, performance and sustainability are women to the Board. In the event that at any time the Board does not constitute at inseparable elements of value creation. least two female Directors, then the Board will endeavour to make an appointment of a woman from its independent non-Executive Directors within 12 months. At the same time, all Board members and permanent invitees complete a detailed Board self-assessment, covering the composition, duties, responsibilities, Balance process and effectiveness of the Board. Similarly, all Board Committee members and Board composition objectively from the perspective of a reasonable and permanent invitees complete detailed self-assessments covering the same aspects informed third party, could be unduly influenced or of their Committees. The results of these assessments are collated by the Company The role of all Directors is to bring independent judgement compromised, or may appear to be compromised, by this Secretary and sent in summarised form to the respective Board and Committee and experience to the Board’s deliberations and decisions. length of service; Chairmen for discussion and review by that Committee. The summarised results are At the time of this report, the Board comprises two included in the Board papers at the November meeting. • whether the Director is a representative of a major 55.6% Executive Directors, five independent non-Executive shareholder; and Independent non-Executive Finally, all Board members formally assess the Chairman’s performance. The Deputy Directors and two non-Executive Directors. • whether the proportion of that Director’s shareholding in Chairman provides feedback from this process to the Chairman. The Board’s diversity is one of Massmart’s strengths. From Massmart (if any), or Director’s fees, represent a material 22.2% Assessments are approached in a constructive manner and provide valuable input Non-Executive global retail experience to race, gender, business experience part (10% or more) of their wealth or income. that enhances the effectiveness of the Chairman, the Board and its Committees. and length of service, Massmart’s Board is well-positioned The Board’s authority is devolved sequentially through the Massmart Executive The two Walmart-appointees are not considered 22.2% to add value to the business. During the reporting period, Executive Committee, the Divisional Boards and the Divisional Executive Committees, as the Board adopted a gender equality and diversity policy independent. The Committee also believes that none of formally prescribed by the Massmart Delegation of Authority. In addition, the to guide its future appointment of Directors in accordance the five independent non-Executive Directors, or entities Board has delegated certain specific responsibilities to five Board Committees, with the amended JSE Listings Requirements on the associated with or controlled by them, owns shares in described over the page. These Committees assist the Board and Directors in promotion of gender diversity (paragraph 3.84(k)). The Board Massmart which, relative to their personal wealth or income, discharging their duties and responsibilities pursuant to King III and the Delegation of is committed to proactively monitoring the Company’s are sufficiently material to affect his/her independence. Authority. Full transparency of the Committees’ deliberations is encouraged and the performance in meeting the standards outlined in this At least one-third of the non-Executive Directors are minutes of all Committee meetings are included in the formal Board papers at the policy which will include an annual review of the objectives required to retire every year and Massmart Executive Gender diversity ensuing Board meeting. All Directors are welcome to attend any Board Committee set by the Board, and its progress in achieving them. Directors have elected to also retire on this basis. As a result, meeting or Divisional Board meeting. The role and duties of the non-Executive Chairman are all Directors retire by rotation at least every three years The Board has also adopted a policy which describes Walmart’s access to the Massmart separated from those of the Chief Executive Officer and are and, if eligible and available, their names are submitted for business. A summary of this policy is published on the Company’s website under FAQ. clearly defined. re-election by the shareholders at the AGM. In addition, shareholders must ratify the initial appointment of each Director at the first AGM following that Director’s 77.8 % Our Executive Committee Male Director independence appointment. As a result of these requirements, at the 25 The Executive Committee is chaired by the CEO (Guy Hayward) and comprises the CFO Annually, the Nomination Committee facilitates a May 2017 AGM, Lulu Gwagwa, Phumzile Langeni, JP Suarez 22.2% (Johannes van Lierop), the Group Human Capital Executive (Jane Bruyns), the Chief questionnaire aimed at gauging the independence status and Johannes van Lierop retire by rotation. Being eligible, Female Ethics and Compliance Officer (Norman Gray), the Group Financial Services Executive of each non-Executive Director. This is completed by each they all offer themselves for re-election. (Gerhard Hayes), the Group Supply Chain & Logistics Executive (Richard Inskip) who non-Executive Director and returned to the Nomination joined the Group in January 2017, the Group Corporate Affairs Executive (Brian Leroni), Committee, which then considers each Director’s Board process and evaluation the five Divisional Chief Executives (Neville Dunn, Doug Jones, Kevin Vyvyan-Day, independence. The Nomination Committee feels that the Llewellyn Walters and Albert Voogd), Group Legal Executive, General Counsel and following aspects are important in assessing each non- The Board meets four times a year and on an adhoc basis Company Secretary (Joe Ralebepa, who joined the Group in November 2016 and has Executive Director’s independence: should a particular issue demand its attention. In addition, replaced Mike Spivey) and the Group Commercial Executive (Llewellyn Steeneveldt). • whether the Director had been employed in an Executive the Board meets annually to formally consider and approve The CEO and CFO are the most senior Executive decision-making Executives in capacity in the Group during the preceding three the strategies of the Massmart Divisions and Group. Race diversity the Group. With the help of the Committee they deliberate, take decisions or make financial years; During the year, the Board focused on strategy; structure; recommendations on all matters of strategy and operations. Within the parameters • whether the Director had been the designated external operational and financial performance; corporate citizenship, described by the Board-approved Delegation of Authority, the decisions or auditor or a member of the audit team of an external stakeholder engagement; ethics and compliance; risk; recommendations are sometimes referred to the Board or its relevant Committee audit firm responsible for performing the statutory audit governance; and any other key activities of the Group. for final approval, while in other cases the power to take decisions is delegated to for Massmart; Formal Board papers are prepared for every discussion item the CEO and CFO. The Executive Committee assists the CEO and CFO with specific • whether the Director had served on the Board for longer on the meeting’s agenda and are distributed timeously 55.6% responsibilities, inter alia: White than nine years. In this case, the Committee considers to Board members. Directors are encouraged to take • monitoring and measuring the structures, trends and performance of markets independent advice, at the Company’s cost, for the proper whether that Director’s independence, judgement and 44.4% and competition; contribution to the Board’s deliberation, when assessed execution of their duties and responsibilities. Black • strategic planning; 107 Transparency and accountability Our Board Massmart Integrated Annual Report 2016 108

• defining, configuring, financing and structuring the Group’s portfolio of Our Board Committees assets; • shaping and approving the competitive While the Committees will continue to operate within its terms of strategies, growth and operating plans reference and ensure that the meetings address all regular matters and budgets of the Divisions and reserved for their consideration. functional departments; • measuring, monitoring and taking Audit Risk Remuneration Nomination Social and Ethics proactive corrective action on Committee Committee Committee Committee Committee Divisional performance; • ensuring adequate risk management, A R M N SE internal controls, governance, compliance and ethical behaviour throughout the Group; and M Kgosana, M Kgosana, CS Seabrooke, K Dlamini, P Langeni, • shaping and approving succession K Dlamini*, NN Gwagwa N Gray, NN Gwagwa, K Dlamini and E Ostalé E Ostalé and CS Seabrooke G Hayward and JP Suarez plans and senior executive and P Langeni G Hayward, P Langeni, management appointments. NJ Ralebepa and J van Lierop Our Company Secretary Meets 3 times per year Meets twice a year Meets four times a year Meets four times a year Meets twice a year The Board is comfortable that it meets the King III principle of having an arm’s length Key focus areas in 2016 Key focus areas in 2016 Key focus areas in 2016 Key focus areas in 2016 Key focus areas in 2016 relationship with the Company Secretary • Overseeing the effectiveness of • Reviewing and monitoring • On-going deliberation about • Succession planning – this is a • Assists the Group with its responsibility and confirms that the Company Secretary is the Group’s internal control systems the significant risks non-financial Annual Incentive topic that remains relevant and towards sustainability with respect to not a Director of any of the main operating • Evaluating the independence impacting the Group Plan (AIP) metrics with the aim of was discussed to ensure future practices that are consistent with good companies within the Group. Based on the and effectiveness of the • Considering the adequacy improving alignment of Massmart’s Executive succession corporate citizenship outcome of a formal assessment of the external auditors of risk management remuneration policy to the King IV • Robust discussions about • Considering the Group’s standing in Company Secretary, which was completed • Reviewing the scope and strategies, disclosures and recommendations transformation and gender terms of consumer relationships, with by the Chairman of the Board, the CEO, effectiveness of the internal and plans for the significant risks • Reviewed and approved the Group’s diversity at Board level particular attention to the United the CFO and the Chairman of the Audit external audit functions facing the Group recruitment and retention strategies Committee focus for 2017 Nations Global Compact Principles Committee, the Board confirms that it has • Ensuring that adequate accounting • Reviewing and reporting on for key executive management The following additional and the OECD recommendations assessed and is happy with the qualification, records have been maintained the Group’s application of roles e.g. Executive fireside chats are key activities are expected concerning corruption competence and expertise of the Company • Ensuring the appropriate King III underway and to date have been to require the Committee’s • Monitoring the Group’s activities Secretary, the role which was until accounting policies have been • Monitored Group ethics and very positive and informative attention during 2017: relating to labour and employment, the September 2016 held by Philip Sigsworth adopted and consistently applied compliance • Succession planning – this is a • Continue to engage with environment, health and public safety, • Overseeing the quality and topic that remains relevant and was and consumer relationships who was succeeded by Joe Ralebepa in Committee focus for 2017 shareholders on best practice integrity of the Annual Financial discussed to ensure future • Considering the Group’s contribution November 2016. For the interim period The following additional remuneration and enhanced Statements and the Integrated Executive succession to social and economic development between September 2016 and October key activities are expected remuneration reporting Annual Report • Robust discussions about within our communities 2016, Julie Wilford competently served as to require the Committee’s • Monitor developments around • Testing that the Group’s going transformation and gender diversity • Reviewing the Group’s compliance Company Secretary. attention during 2017: fair, responsible and transparent concern assertion remains at Board level in terms of ethics and The Company Secretary assists the • Information and technology remuneration appropriate anti-corruption standards Board in fulfilling its functions and is governance Committee focus for 2017 empowered by the Board to perform her or Committee focus for 2017 • Reviewing and monitoring The following additional key Committee focus for 2017 his duties. The Company Secretary, directly The following additional key the Group’s risk and activities are expected to require the The following additional key activities or indirectly: activities are expected to require the opportunity management Committee’s attention during 2017: are expected to require the Committee’s • assists the Chairman, CEO and CFO with Committee’s attention during 2017: • Tax risk assessment and • Continue to engage with attention during 2017: the induction of new Directors; • Application of the Combined governance shareholders on best practice • Application of the Group’s Code of • assists the Board with Director Assurance model pursuant to King IV remuneration and enhanced Ethical Conduct, related policies and orientation, development • Monitoring overall implementation remuneration reporting. accepted best practice and education; of King IV and its impact on • Monitor developments around • The Group’s remuneration • ensures that the Group complies with the business fair, responsible and transparent practises with specific reference to all legislation applicable/relevant to it; remuneration social considerations • monitors the legal and regulatory • The Group’s transformation Mr Chris Seabrooke was the Chairman and Mr Chris Seabrooke was the Chairman commitments as described in the environment and communicates new a member of the Audit Committee until his and a member of the Risk Committee legislation, and any changes to existing resignation from the Committee on 31 August 2016 until his resignation from the BBBEE plans, including progress against legislation, relevant to the Board and * Kuseni Dlamini was appointed an alternate Committee on 31 August 2016 employment equity targets the Divisions; and member of the Committee • provides the Board with a central in August 2016 source of guidance and assistance. 109 Transparency and accountability

Board and Committee attendance

The table below reflects the Board members’ attendance at the meetings for the year ended December 2016:

A R M N SE Status/Position Board AGM Board members K Dlamini Independent non–Executive 4/4C 1/1C – – 4/4 4/4C – CS Seabrooke Independent non–Executive 4/4 1/1 2/21 2/21 4/4C 4/4 – A Clarke 2 Non–Executive 3/4 0/1 – – – 1/1* – NN Gwagwa Independent non–Executive 4/4 1/1 3/3 2/2 – – – GRC Hayward Executive 4/4 1/1 3/3* 2/2 4/4* 4/4* 2/2 M Kgosana Independent non–Executive 4/4 1/1 3/3C 2/2C – – – P Langeni Independent non–Executive 4/4 1/1 3/3 2/2 – – 2/2C E Ostalé Non–Executive 4/4 1/1 – – 3/3 3/3 1/1* JP Suarez Non–Executive 2/4 0/1 – – – – 1/2 JJM van Lierop Executive 4/4 1/1 3/3* 2/2 – – – Management 05 J Bruyns Human Capital Executive – – – – – – 2/2* Chief Ethics and Compliance Shareholder N Gray Officer – 1/1 3/3* 2/2 – – 2/2* B Leroni Corporate Affairs Executive – 1/1 – – – – 2/2* information D Moodley Chief Audit Executive – 1/1 3/3* 2/2 – – – NJ Ralebepa 3 Company Secretary 2/2* – 2/2* 1/1* 1/1* 1/1* – P Sigsworth 4 Company Secretary 3/3* 1/1 2/2* 2/2 – – – NOTICE OF ANNUAL GENERAL MEETING 111 M Spivey 5 General Counsel 4/4* 1/1 3/3* 2/2 4/4* 4/4* 2/2* FORM OF PROXY 116 NOTES TO THE FORM OF PROXY 117 No. of meetings 4 1 3 3 4 4 2 DEFINITIONS AND FORMULAS 118

C Chairman * Invitee 1 Resigned from the Audit and Risk Committees with effect from 31 August 2016 and as such was only invited to meetings prior to that date in the 2016 financial year 2 Resigned with effect from 22 February 2017 3 Appointed with effect from 1 November 2016 and as such was only invited to meetings post that date in the 2016 financial year 4 Resigned with effect from 20 September 2016 and as such was only invited to meetings prior to that date in the 2016 financial year 5 Resigned with effect from 1 January 2017 111 Shareholder information Massmart Integrated Annual Report 2016 112

In terms of the Act, more than 50% of the voting rights 7.5 the authority hereby granted will be valid until the exercised on this resolution must be cast in favour of Company’s next AGM, provided that it will not extend ordinary resolution number 5 for it to be adopted. beyond 15 months from the date on which this Notice of Annual resolution is passed; and Ordinary Resolution Number 6 7.6 once shares representing, on a cumulative basis “Resolved that the following persons be and are hereby within the period contemplated in 7.5 above, 5% General Meeting appointed, each by way of a separate vote, as members of or more of the Company’s issued ordinary and/or the Audit Committee: preference shares prior to that issue, have been issued, 6.1 Moses Kgosana (Chairman) the Company shall publish an announcement in 6.2 Kuseni Dlamini (alternate member) accordance with the JSE Listings Requirements.” 6.3 Lulu Gwagwa* Pursuant to the JSE Listings Requirements, the Company will 6.4 Phumzile Langeni* Notice is hereby given that the Annual General Meeting Ordinary business only be entitled to implement this general authority to allot (AGM) of holders of all classes of shares of the Company * Subject to their re-election as Directors pursuant to ordinary and issue ordinary shares for cash if this ordinary resolution will be held on Thursday, 25 May 2017 at 09h00 at Massmart The audited summary consolidated Annual Financial resolutions number 1 and number 2.” number 7 is passed by a majority of 75% or more of the Statements of the Company and the Group (as approved House, 16 Peltier Drive, Sunninghill Ext 6, Sandton, for In terms of the Act, more than 50% of the voting rights votes cast by all shareholders present or represented by by the Directors of the Company), including the Directors proxy at the AGM, excluding any votes cast by the Massmart purposes of: exercised on each of these resolutions must be cast in 1. Transacting the following business: report and Independent Auditors report, the Audit Holdings Limited Employee Share Trust. Committee report and the Social and Ethics Committee favour of each of ordinary resolution numbers 6.1, 6.2, 6.3 i. presenting the audited consolidated Group Annual and 6.4 for such resolutions to be adopted. Ordinary Resolution Number 8 Financial Statements of the Company and its report for the year ended December 2016, circulated subsidiaries (Group) for the year ended December together with this notice of AGM, are presented to the Ordinary Resolution Number 7 “Resolved that, by way of a non-binding advisory vote, the shareholders for their consideration. remuneration policy of the Company, as outlined in the 2016, and the associated Directors’ report and “Resolved that, subject to the JSE Limited (JSE) Listings Independent Auditors report, the Audit Committee Remuneration Report on pages 71 to 84 of the Integrated Requirements (JSE Listings Requirements), the Directors be report and the Social and Ethics Committee report; Ordinary resolutions Annual Report, is endorsed.” and are hereby authorised to issue ordinary shares in the ii. electing Directors in the place of those resigning As this is a non-binding advisory vote, no minimum and retiring in accordance with the Company’s Ordinary Resolution Number 1 authorised but unissued shares of the Company (or to issue voting threshold is required. Nevertheless, for record Memorandum of Incorporation; “Resolved that Dr Nolulamo (Lulu) Gwagwa, who retires by options or convertible securities convertible into ordinary purposes, in terms of the King Report on Governance for iii. the election and appointment of Ernst & Young rotation and has offered herself for re-election, be and is shares) for cash to such person or persons on such terms and South Africa (King III) more than 50% of the voting rights Inc. (with Roger Hillen) as the Company’s external hereby re-elected to the Board of Directors of the Company.” conditions as they may deem fit, subject to the following: exercised on this resolution must be cast in favour of auditors for the ensuing financial year; and In terms of the Act, more than 50% of the voting rights 7.1 the securities shall be of a class already in issue, or ordinary resolution number 8 for it to be adopted. This iv. such other business as may be transacted at an exercised on this resolution must be cast in favour of convertible into a class already in issue; non-binding advisory vote allows shareholders to express annual general meeting. ordinary resolution number 1 for it to be adopted. 7.2 the securities shall be issued to public shareholders their views on the remuneration policies adopted by the Company and on their implementation. 2. Considering and, if deemed fit, passing, with or Ordinary Resolution Number 2 (as defined in the JSE Listings Requirements) and without modification, the below mentioned ordinary not to related parties (as defined in the JSE Listings “Resolved that Phumzile Langeni who retires by rotation and special resolutions. Special resolutions and has offered herself for re-election, be and is hereby re- Requirements); The Board of Directors of the Company has determined, elected to the Board of Directors of the Company.” 7.3 the issues of securities in the aggregate under the Special Resolution Number 1 in accordance with section 59 of the Companies Act 71 of authority of this resolution during the period in In terms of the Act, more than 50% of the voting rights Resolved, as a special resolution, that the Company and/or 2008, as amended (Act), that the respective record dates 7.5 below shall not exceed 5% of the number of exercised on this resolution must be cast in favour of its subsidiaries be and are hereby authorised to generally for shareholders to be recorded as shareholders in the securities of that class already in issue as at the date ordinary resolution number 2 for it to be adopted. repurchase the ordinary and/or preference shares in the securities register of the Company in order to: (i) be entitled of this notice of AGM, being 217,136,334 ordinary issued shares of the Company from such shareholder/s, at to receive this notice of AGM is Friday, 7 April 2017; and (ii) be Ordinary Resolution Number 3 shares, determined in accordance with the relevant such price, in such manner and subject to such terms and entitled to attend, participate and vote at the AGM is Friday, “Resolved that JP Suarez, who retires by rotation and has provisions of the JSE Listings Requirements, provided conditions as the Directors may deem fit, but subject to the 19 May 2017. The last date to trade to be entitled to attend, offered herself for re-election, be and is hereby re-elected to that: Memorandum of Incorporation of the Company, the Act participate and vote at the AGM is Tuesday, 16 May 2017. the Board of Directors of the Company.” 7.3.1 any equity securities issued under the authority In terms of the Act, more than 50% of the voting rights and the JSE Listings Requirements, and provided that: exercised on this resolution must be cast in favour of during the period contemplated in 7.5 below must be 1.1 the authority hereby granted will be valid until the ordinary resolution number 3 for it to be adopted. deducted from such number in 7.3 above; and Company’s next AGM or for 15 months from the date 7.3.2 in the event of a sub-division or consolidation of this special resolution, whichever period is shorter; Ordinary Resolution Number 4 of the issued equity securities during the period 1.2 repurchases may not be made at a price greater than “Resolved that Johannes van Lierop, who retires by rotation contemplated in 7.5 below, the existing authority 10% above the weighted average of the market value and has offered himself for re-election, be and is hereby re- must be adjusted accordingly to represent the same for the shares determined over the 5 business days immediately preceding the date that the repurchase elected to the Board of Directors of the Company.” allocation ratio; In terms of the Act, more than 50% of the voting rights is effected (or, if no shares of the Company have been 7.4 the maximum discount at which the shares may be exercised on this resolution must be cast in favour of traded in that period, subject to a ruling by the JSE); The audited summary consolidated Annual issued shall be 10% of the weighted average traded Financial Statements for the year ended December ordinary resolution number 4 for it to be adopted. 1.3 repurchases in the aggregate in any one financial year 2016 are set out in the Chief Financial Officer’s price of the shares of the Company measured over shall not exceed 15% of that class of the Company’s Review on p39-49 Ordinary Resolution Number 5 the 30 business days prior to the date that the price issued shares; The audited consolidated Group Annual Financial “Resolved that Ernst & Young Inc. (with Roger Hillen as the of the issue is agreed between the Company and the 1.4 the repurchase of shares will be effected through the Statements for the year ended December 2016 can Audit Partner) be and are hereby elected as the Company’s party subscribing for the shares (or, if no shares of the order book operated by the JSE trading system and will be be found on the Company website at: external auditors for the ensuing financial year to hold Company have been traded in that period, subject to done without any prior understanding or arrangement www.massmart.co.za/iar2016/groupafs office until the Company’s next AGM, as approved by the a ruling by the JSE); between the Company and the counterparty; Audit Committee and recommended to shareholders.” 113 Shareholder information Notice of Annual General Meeting Massmart Integrated Annual Report 2016 114

2017 Fee 2016 Fee Role (R’000) (R’000) 1.5 the Company may only appoint one agent, at any • the assets of the Company and the Group will be in 2.1 Chairman of the Board 1,500.0 1,270.0 point in time, to effect the repurchases on the excess of the liabilities of the Company and the Group Company’s behalf; for a period of 12 months after the date of this notice 2.2 Deputy Chairman of the Board 800.0 660.0 1.6 neither the Company nor its subsidiaries may of AGM, such assets and liabilities being recognised and 2.3 Independent non-Executive Directors 400.0 350.0 repurchase shares during a prohibited period (as measured in accordance with the accounting policies 2.4 Audit Committee Chairman 350.0 267.1 defined in the JSE Listings Requirements) unless a used in the Annual Financial Statements of the Company 2.5 Risk Committee Chairman 275.0 267.1 repurchase programme is in place where the dates and the Group for the year ended December 2016; 2.6 Remuneration Committee Chairman 275.0 252.0 and quantities of shares to be traded during the • the issued share capital and reserves of the Company relevant period are fixed (not subject to any variation) and the Group will be adequate for ordinary business 2.7 Nomination and Social and Ethics Committee Chairmen 275.0 252.0 and has been submitted to the JSE in writing prior purposes for a period of 12 months after the date of this 2.8 Audit Committee member 175.0 128.0 to the commencement of the prohibited period. notice of AGM; and 2.9 Other Board Committee members 140.0 128.0 The Company will instruct an independent third • the working capital available to the Company and the party, which makes its investment decisions in Group will be adequate for ordinary business purposes In terms of the Act, at least 75% of the voting rights exercised Before this limit may be exceeded shareholder approval relation to the Company’s securities independently for a period of 12 months after the date of this notice on each of these resolutions must be cast in favour of special under section 45 of the Act would again have to be sought. of, and uninfluenced by, the Company, prior to the of AGM. resolution numbers 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 for In the event that the Company provides financial commencement of the prohibited period to execute such resolutions to be adopted. The Remuneration Report assistance to its subsidiary companies in the form of loans, the repurchase programme submitted to the JSE; The general authority to repurchase the ordinary and/or for the year ended December 2016 can be found on pages the Company’s solvency and liquidity will not be impaired 1.7 an announcement complying with paragraph 11.27 of preference shares in the issued shares of the Company is 71 to 84 of the Integrated Annual Report. as the Company will raise an asset in its books for the the JSE Listings Requirements will be published by the limited to 1.1 to 1.4 above. equivalent amount then due by that subsidiary. Company when the Company and/or its subsidiaries The following additional information, which appears Special Resolution Number 3 Notice to shareholders of the Company in terms of have cumulatively repurchased 3% of the Company’s in the Integrated Annual Report of which this notice of Resolved, as a special resolution, to the extent required in section 45(5) of the Act of a resolution adopted by the initial number of issued ordinary and/or preference AGM forms part, is provided in terms of the JSE Listings terms of, and subject to the provisions of, section 45 of the Board authorising the Company to provide direct or shares at the time that the general authority from Requirements for purposes of special resolution number 1: Act, that the shareholders hereby approve of the Company indirect financial assistance. shareholders is granted and for each 3% in aggregate of • major shareholders page 25; providing, at any time and from time to time during the By the time this notice of AGM is delivered to shareholders, the initial number of that class acquired thereafter; and • material changes page 113; period of 2 years commencing on the date of this special the Board of Directors will have adopted a resolution 1.8 a resolution by the Board of Directors that it authorises • share capital of the Company page 51; and resolution, any direct or indirect financial assistance as (Section 45 Board Resolution) authorising the Company such repurchase, that the Company and its subsidiaries • responsibility statement page 113. contemplated in such section of the Act to any one or to provide, at any time and from time to time during the have passed the solvency and liquidity test as set out more related or inter-related companies or corporations period of 2 years commencing on the date on which special in section 4 of the Act and that since the application The Directors, whose names are set out on page 35 of the (as defined in the Act) of the Company that are currently resolution number 3 is adopted, any direct or indirect by the Board of Directors of the solvency and liquidity Integrated Annual Report, collectively and individually, or in the future have become subsidiaries (whether local financial assistance as contemplated in section 45 of the test, there have been no material changes to the accept responsibility for the accuracy of information or foreign) of the Company on such terms and conditions Act to any one or more related or inter-related companies financial position of the Group, has been passed. contained in this statement and certify that, to the best as the Board of Directors of the Company, or by any one or corporations of the Company and/or to any one or more of their knowledge and belief, there are no other facts, or more persons or committees authorised by the Board members of any such related or inter-related company or Statement by the Board of Directors the omission of which would make any statement false of Directors of the Company from time to time for such corporation and/or to any one or more persons related to In accordance with the JSE Listings Requirements, the or misleading and that they have made all reasonable purpose, deems fit, provided that any such financial any such company or corporation, provided that any such Directors state that: enquiries in this regard. assistance shall not in the aggregate exceed an amount of financial assistance shall not in the aggregate exceed an (a) the intention of the Directors is to utilise the authority Other than the facts and developments reported in R15 billion in any financial year. amount of R15 billion in any financial year. given under special resolution number 1 at a future the Integrated Annual Report, to which this notice of In terms of the Act, at least 75% of the voting rights The Section 45 Board Resolution will be effective only if and date, provided that the cash resources of the Company AGM is attached, there have been no material changes exercised on this resolution must be cast in favour of to the extent that special resolution number 3 is adopted are in excess of its requirements. In this regard, in the financial or trading position of the Company and special resolution number 3 for it to be adopted. by the shareholders, and the provision of any such direct the Directors will take into account, inter alia, an its subsidiaries since the publication of the audited The following direct and/or indirect financial assistance or indirect financial assistance by the Company, pursuant appropriate capitalisation structure for the Company consolidated Group Annual Financial Statements for the was provided by the Company to related and/or inter- to such resolution, will always be subject to the Board of and the long-term cash needs of the Company, and year ended December 2016. related companies and/or corporations of the Company as Directors being satisfied that (i) immediately after providing will ensure that any such utilisation is in the interests of In terms of the Act, at least 75% of the voting rights at the financial year ended December 2016: such financial assistance, the Company will satisfy the the shareholders; exercised on this resolution must be cast in favour of special solvency and liquidity test as referred to in section 45(3) (b) having considered the effect of the maximum resolution number 1 for it to be adopted. Rbn (b)(i) of the Act, and that (ii) the terms under which such number of ordinary and preference shares that may be Cross suretyships in respect of banking facilities 11.8 acquired pursuant to the authority given under special Special Resolution Number 2 financial assistance is to be given are fair and reasonable to Loans to subsidiary companies 2.4 resolution number 1: Resolved, as a special resolution, that the following Directors’ the Company as referred to in section 45(3)(b)(ii) of the Act. • the Company and the Group will in the ordinary course of remuneration (payable to the applicable non-Executive Total 14.2 In as much as the Section 45 Board Resolution business be able to pay its debts for a period of 12 months Directors for services to be rendered by them in their contemplates that such financial assistance will in the after the date of this notice of AGM; capacities as such), be and is hereby approved, each by way of It is anticipated that such financial assistance will increase aggregate exceed one tenth of one percent of the a separate vote, for the period commencing on 26 May 2017 to during the period of 2 years commencing on the date Company’s net worth at the date of adoption of such the date of the Company’s next AGM. of special resolution number 3, mainly as a result of resolution, the Company hereby provides notice of the the Group’s expansion plans but that the total financial Section 45 Board Resolution to shareholders. Such notice assistance after such anticipated increase will not exceed will also be provided to any trade union representing any R15 billion in any financial year. employees of the Company. 115 Shareholder information Notice of Annual General Meeting Massmart Holdings Limited JSE share code MSM Form of proxy Incorporated in the Republic ISIN ZAE000152617 of South Africa (‘Massmart’ or Registration number ‘the Company’) • A proxy appointment must be in writing, dated and General 1940/014066/06 signed by the shareholder appointing a proxy and, Identification, voting and proxies subject to the rights of a shareholder to revoke such Shareholders are entitled to attend, speak and vote at the appointment (as set out below), remains valid only until AGM. the end of the AGM. For use by certificated and dematerialised shareholders who have ‘own name’ registration of shares on Friday, 19 May 2017 at the AGM In terms of section 63(1) of the Act, any person attending • A proxy may delegate the proxy’s authority to act on to be held on Thursday, 25 May 2017 at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, Sandton. behalf of a shareholder to another person, subject to or participating in the AGM must present reasonably I/We (Please PRINT full names) satisfactory identification and the person presiding at the any restrictions set out in the instrument appointing AGM must be reasonably satisfied that the right of any the proxy. of (address) being the • The appointment of a proxy is suspended at any time person to participate in and vote (whether as a shareholder holders of ordinary shares/‘B’ preference shares, hereby appoint (see note 3), or as proxy for a shareholder) has been reasonably verified. and to the extent that the shareholder who appointed 1. or failing him/her, Forms of identification include valid identity documents, such proxy chooses to act directly and in person in the drivers licences or passports. exercise of any rights as a shareholder. 2. or failing him/her, • The appointment of a proxy is revocable by the Shareholders holding dematerialised shares, but not the Chairman of the AGM as my/our proxy to participate in, speak and vote for me/us on my/our behalf at the AGM which will be in their own name, must furnish their Central Securities shareholder in question cancelling it in writing, or making a later inconsistent appointment of a proxy, held for the purpose of considering and, if deemed fit, passing the ordinary and special resolutions to be proposed and at each Depository Participant (CSDP) or broker with their adjournment of the AGM and to vote for or against the ordinary and special resolutions or to abstain from voting in respect of the and delivering a copy of the revocation instrument to instructions for voting at the AGM. shares in the issued capital of the Company registered in my/our name/s, in accordance with the instructions as set out in note 4. If your CSDP or broker, as the case may be, does not obtain the proxy and to Computershare. The revocation of a For Against Abstain instructions from you, it will be obliged to act in accordance proxy appointment constitutes a complete and final OS PS OS PS OS PS with your mandate furnished to it, or if the mandate is silent cancellation of the proxy’s authority to act on behalf of Ordinary resolutions in this regard, complete the form of proxy attached. the shareholder as of the later of: (i) the date stated in the 1. Unless you advise your CSDP or broker, in terms of the revocation instrument, if any and (ii) the date on which Re-election of Lulu Gwagwa to the Board of Directors agreement between you and your CSDP or broker by the the revocation instrument is delivered to Computershare 2. Re-election of Phumzile Langeni to the Board of Directors cut-off time stipulated therein, that you wish to attend the as required in the first sentence of this paragraph. 3. Re-election of JP Suarez to the Board of Directors AGM or send a proxy to represent you at the AGM, your • If the instrument appointing the proxy or proxies has been 4. Re-election of Johannes van Lierop to the Board of Directors CSDP or broker will assume that you do not wish to attend delivered to Computershare, as long as that appointment 5. Election of Ernst & Young Inc. as the Company’s auditors the AGM or send a proxy. remains in effect, any notice that is required by the Act 6. Appointment of the Audit Committee members: If you wish to attend the AGM or send a proxy, you must or the Company’s Memorandum of Incorporation to be 6.1 Moses Kgosana request your CSDP or broker to issue the necessary letter delivered by the Company to the shareholder, must be 6.2 Kuseni Dlamini of authority to you. Shareholders holding dematerialised delivered by the Company to: (i) the shareholder or (ii) the 6.3 Lulu Gwagwa proxy or proxies, if the shareholder has: (a) directed the shares, and who are unable to attend the AGM and wish 6.4 Phumzile Langeni Company to do so in writing and (b) paid any reasonable to be represented thereat, must complete the form of 7. Authorisation for the Directors to issue ordinary shares for cash, not exceeding 5% of the shares proxy attached in accordance with the instructions therein fee charged by the Company for doing so. in issue • Attention is also drawn to the Notes to the form of proxy. and lodge it with or mail it to the transfer secretaries, 8. Endorsement of the Company’s remuneration policy • The completion of a form of proxy does not preclude any Computershare Investor Services Proprietary Limited Special resolutions shareholder from attending the AGM. (Computershare). 1. Authorisation for the Company and/or its subsidiaries to repurchase its own shares Shareholders may participate (but not vote) electronically A form of proxy (which is attached) must be dated and 2. Approval of non-Executive Directors’ remuneration signed by the shareholder appointing a proxy and should in the AGM. Shareholders wishing to participate in the AGM electronically should contact the Company Secretary on 2.1 Chairman of the Board be forwarded to reach Computershare by no later than 2.2 Deputy Chairman of the Board 09h00 on Tuesday, 23 May 2017. Before a proxy exercises [email protected] or +27 11 517 0000 not less than five business days prior to the AGM and are required to provide 2.3 Independent non-Executive Directors any rights of a shareholder at the AGM, such form of proxy 2.4 Audit Committee Chairman must be so delivered. identification reasonably satisfactory to the Company 2.5 Risk Committee Chairman In compliance with the provisions of section 58(8) (b) (i) Secretary for purposes of verifying that shareholders right 2.6 Remuneration Committee Chairman of the Act, a summary of the rights of a shareholder to be to participate. Access to the AGM by way of electronic 2.7 Nomination and Social and Ethics Committee Chairmen represented by proxy, as set out in section 58 of the Act, is participation will be at the shareholders expense. Only set out immediately hereunder: persons physically present at the AGM or represented by 2.8 Audit Committee members • A shareholder entitled to attend and vote at the AGM a valid proxy shall be entitled to cast a vote on any matter 2.9 Other Board Committee members may appoint any individual (or two or more individuals) put to a vote of shareholders. 3. Authorisation to provide financial assistance as a proxy or as proxies to attend, participate in and vote Indicate with an ‘X’ or the relevant number of ordinary or ‘B’ preference shares, in the By order of the Board at the AGM in the place of the shareholder. A proxy need applicable space, how you wish your votes to be cast (see note 4). If you return this form OS – Ordinary shares not be a shareholder of the Company. duly signed, without any specific directions, the proxy will vote as he/she thinks fit. PS – ‘B’ Preference shares

Signed at on 2017

NJ Ralebepa Signature Assisted by me (where applicable) Company Secretary 31 March 2017 Tel Cell Email

Completed forms of proxy must be lodged with Computershare Investor Services Proprietary Limited, not less than 48 (forty- eight) hours before the time for holding the AGM, i.e. by no later than 09h00 on Tuesday, 23 May 2017. Please read the notes on the reverse side of this form of proxy. 117 Shareholder information 118

Notes to the Definitions and formulas form of proxy Employment costs Sales per FTE (R000) Return on capital employed (%) Includes the IFRS 2 share-based Sales Operating profit before payment expense. FTEs asset impairments Average of opening and closing Net finance costs Sales per trading m2 (R000) capital employed balances Interest received less interest paid. Sales Trading m2 The Group defines capital employed 1. A form of proxy is only to be completed by those 5. A shareholder or his/her proxy is not obliged to use all EBITDA as the average of opening and closing equity shareholders who are: the votes exercisable by the shareholder or by his/her Earnings before interest, taxation, Sales for Shield, CellShack, Saverite 1.1 holding shares in certificated form; or proxy, but the total of the votes cast and in respect of and Kangela are excluded as they do depreciation, amortisation and asset Return on invested capital (%) 1.2 recorded on the sub-register of the Company in which an abstention is recorded may not exceed the impairments. not have stores. dematerialised electronic form in ‘own name’ on total of the votes exercisable by the shareholder or by Adjusted operating profit the record date for attending, participating and his/her proxy. EBITDAR Net asset turn Average invested capital voting at the AGM. 6. Forms of proxy must be received by the transfer Earnings before interest, taxation, Sales 2. If you have already dematerialised your shares through secretaries, Computershare Investor Services Net assets Adjusted operating profit includes a Central Securities Depository Participant (CSDP) or Proprietary Limited (Computershare), Rosebank Towers, depreciation, amortisation, asset finance income and adds back impairments and occupancy costs. broker and wish to attend the AGM, you must request 15 Biermann Avenue, Rosebank, 2196, South Africa The Group defines net assets as depreciation, amortisation and your CSDP or broker to provide you with a letter of (PO Box 61051, Marshalltown 2107) by no later than occupancy costs. Trading profit before interest and taxation total equity and interest-bearing representation or you must instruct your CSDP or 09h00 on Tuesday, 23 May 2017. LT liabilities. broker to vote by proxy on your behalf in terms of the 7. The completion and lodging of this form of proxy will Earnings before interest, taxation, Average invested capital is average agreement between yourself and your CSDP or broker. not preclude the relevant shareholder from attending total assets of continuing operations asset impairments, the BEE Gross margin (%) 3. A shareholder may insert the name of a proxy or the the AGM and speaking and voting in person at such IFRS 2 charge, foreign exchange plus average accumulated names of alternative proxies of the shareholder’s choice meeting to the exclusion of any proxy appointed in movements, loss on disposal of Gross profit depreciation and amortisation in the space/s provided, with or without deleting ‘the terms of this form of proxy. business and assets classified as held Sales less average accounts payable less Chairman of the AGM’ but any such deletion must be 8. Documentary evidence establishing the authority of for sale and Walmart-related costs. average accrued liabilities plus initialled by the shareholder. The person whose name a person signing this form of proxy in a representative Operating margin (%) occupancy costs x8. stands first on this form of proxy and who is present at capacity or other legal capacity must be attached Comparable sales Operating profit the AGM will be entitled to act as proxy to the exclusion to this form of proxy unless previously recorded by Sales figures quoted for stores that Sales Debt : Equity (%) of those whose names follow. Computershare or waived by the Chairman of the AGM. have traded, and will trade, for all 12 Average debt 4. Please insert an ‘X’ in the relevant space according to 9. Any alterations or corrections made to this form of months of the current and prior year. Trading profit before interest and taxation Average of opening and closing margin (%) how you wish your votes to be cast. However, if you proxy must be initialled by the signatory/ies. equity attributable to equity holders wish to cast your votes in respect of a lesser number 10. A minor must be assisted by his/her parent or guardian FTE (full-time equivalents) Trading profit before of the parent of shares than you own in the Company, insert the unless the relevant documents establishing his/her interest and taxation Includes all permanent employees number of shares held in respect of which you wish to legal capacity are produced or have been registered by Sales Debt comprises non-current vote. Failure to comply with the above will be deemed Computershare. and the permanent equivalent of temporary employees and interest-bearing liabilities. to authorise the proxy to vote or to abstain from voting 11. The Chairman of the AGM may accept any form of EBITDA margin (%) at the AGM as he/she deems fit in respect of all the proxy which is completed other than in accordance contracted workers. EBITDA Cash earnings cover shareholders’ votes exercisable at the AGM. with these notes if the Chairman is satisfied as to the 2 Sales manner in which the shareholder wishes to vote. Trading space (m ) Operating cash flow per share 12. If any shares are jointly held, the first name appearing Trading space excludes parking, Headline earnings per share Effective tax rate (%) in the register shall, in the event of a dispute, be taken yard, warehouse space, office space as a shareholder. and receiving areas. Taxation Net cash to total equity (%) Profit before tax Cash and cash equivalents, 2 net of borrowings Regional distribution centre space (m ) The tax rate reconciliation Total equity at the end Distribution centre space excludes can be found on p41 Transfer secretaries parking and yard space. of the financial year Computershare Investor Services Proprietary Limited Sales per store (R000) Return on average shareholders’ equity (%) Current ratio Rosebank Towers Sales Headline earnings Current assets 15 Biermann Avenue Number of stores Average of opening and closing Current liabilities Rosebank 2196 equity attributable to equity PO Box 61051, Marshalltown 2107 Sales for Shield, CellShack and holders of the parent Quick ratio Telephone: 011 370 5000 Kangela are excluded as they do not Current assets excluding inventory Call Centre: 086 110 09818 have stores. Current liabilities 119 Shareholder information Definitions and formulas

Inventory days Headline earnings per share Cash generated from operations before We strive to provide useful and frequent Registered Name working capital movements per share Massmart Holdings Limited Inventory number of days Headline earnings disclosure to our shareholders. Cash generated from operations Total cost X traded in the Weighted average number Company Secretary before working capital movements of sales financial year of shares in issue Massmart reports formally to shareholders twice a year NJ Ralebepa Weighted average number of shares (in February and August) when its full-year and half-year Contact details in issue Inventory turn Diluted headline earnings per share results, together with a thorough Executive overview, Registered office are announced and issued to shareholders and the Massmart House,16 Peltier Drive Total cost of sales Headline earnings Operating cash flow per share Diluted weighted average number of media. On both occasions the CEO, CFO and certain Sunninghill Ext 6, Sandton, 2146, South Africa Inventory Net cash flow from operating activities shares in issue Group Executives give presentations to institutional Postal address Weighted average number of shares investors, analysts and the media. Payable days Private Bag X4, Sunninghill, 2157, South Africa Attributable earnings per share in issue Early in January and July, shortly after the conclusion Trade payables number of days Net cash flow from operating of the full-year and half-year trading periods, on release Telephone number excluding VAT X traded in the Earnings attributable to the equity activities, excludes dividends paid. of the Integrated Annual Report and at the Group’s + 27 11 517 0000 Total cost of sales financial year holders of the parent AGM in May, Massmart releases sales updates reporting Facsimile number Weighted average number of shares Net asset value per share on the Group’s year-to-date sales performance. In + 27 11 517 0020 in issue Asset turn Closing equity attributable to equity addition, annually in May, the CEO and CFO host a Website day-long visit by institutional analysts and investors to Sales Dividends/distribution per share holders of the parent www.massmart.co.za Total number of shares in issue Massmart stores. A sales update is released along with Total assets Distribution to shareholders this visit. Company registration number 1940/014066/06 (incorporated in South Africa) Total number of shares in issue Dividend cover During the year, apart from closed periods, the CEO Total liabilities to total equity and CFO together meet regularly with institutional JSE share code Current and non-current liabilities Headline earnings per share shareholders and, in addition, are available for meetings MSM Total equity Interim and final dividend per share or conference calls with analysts and any existing or ISIN prospective Massmart shareholder.. ZAE000152617

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JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Objektiv, Roger Jardine Analyst presentation and preliminary announcement • Transfer secretaries Final dividend declared • Computershare Investor Services Proprietary Limited Cape Town institutional investor road show • 15 Biermann Avenue, Rosebank, 2196 Johannesburg institutional investor road show • Principal bankers Final dividend paid • ABSA Bank Limited Share data: First National Bank Publication of Integrated Annual Report • 28 December 2015 – 25 December 2016 (A division of FirstRand Bank Limited) Annual General Meeting • Closing price, 23 December 2016 R122.59 Investec Bank Limited Analyst presentation and preliminary announcement • Share price (52 weeks high) R156.46 Nedbank Group Limited Interim dividend declared • Share price (52 weeks low) 99.36 The Standard Bank of South Africa Limited Market Cap (billions) 26.6 Cape Town institutional investor road show • Auditors Shares in issue (millions) 217.1 Ernst & Young Inc. Johannesburg institutional investor road show • Shares traded (millions) 115.1 Interim dividend paid • Percentage of shares traded 53.0 Corporate law advisors Cliffe Dekker Hofmeyr United States institutional investor road show • Earnings yield (%) 4.9 Edward Nathan Sonnenbergs United Kingdom institutional investor road show • Dividend yield (%) 2.4 Reuters MSMJ.J Lead sponsor Financial year-end • Bloomberg MSM SJ Deutsche Securities (SA) Proprietary Limited Saving our customers money so they can live better www.massmart.co.za www.massmart.co.za/iar2016 Massmart values your feedback Do you have any questions or suggestions regarding Massmart’s 2016 Integrated Annual Report? Email: [email protected]