Dedicated to adding value

Integrated Annual Report for the year ended December 2014

2 Massmart Integrated Annual Report 2014 3

Chairman’s overview Scope of the Report Assurance The scope of the Massmart Integrated Annual Report Massmart applies a combined assurance model, The preparation of the audited Group Annual Financial On behalf of the Massmart Board includes the Group’s four divisions and key functions. With introduced by the King III Code, which seeks to optimise Statements, from which these audited summarised of Directors, I am proud to present respect to comparability, all significant items are reported in the assurance obtained from Management and internal and consolidated Annual Financial Statements were derived, was a consistent manner with the previous financial year, with no external assurance providers. The Risk Committee addresses supervised by the Chief Financial Officer, Johannes van Lierop. Massmart’s 2014 Integrated major restatements. It must be noted that the prior year was a all the significant risks facing the Group and with the help of The accounting policies and methods of computation 53-week period and for the sake of meaningful comparison, the Management, provides the Massmart Board of Directors with used in the preparation of these audited summarised Group Annual Report. pro-forma 52-week period is included. Where applicable, this assurance that it has implemented and monitored the Group’s Annual Financial Statements are consistent in all material report has been prepared in accordance with the framework risk management plan, and that it is integrated into day-to- respects with those applied in the prior year, as none of the We have a diverse range of concepts and the measurement and recognition requirements day activities. They are also responsible for monitoring and amendments coming into effect in the current financial year of International Financial Reporting Standards (IFRS), specifically implementing the necessary internal controls. have had an impact on the financial reporting of the Group. stakeholders including shareholders, IAS 34 Interim Financial Reporting, Interpretations issued by the The internal audit function, overseen by the Group’s Audit A full set of the audited Group Annual Financial Statements customers, employees, suppliers International Accounting Standards Board, the SAICA Financial Committee, assesses the effectiveness of Massmart’s system for the year-ended December 2014 can be found at: Reporting Guides as issued by the Accounting Practices of internal control the Group receives external assurance on www.massmart.co.za/iar2014/groupafs and communities, with varied Committee, the Financial Reporting Pronouncements as certain aspects of the business. For example, the Group’s The audited summarised consolidated Annual Financial issued by the Financial Reporting Standards Council, the JSE external auditors, Ernst & Young Inc. provide an opinion on the Statements for the year ended December 2014, as described information needs. This Integrated Listing Requirements and the requirements of the Companies fair presentation of the Group and Company Annual Financial above, were approved by the Board of Directors on 2 April Statements. The Group Audit Committee ensures that the Act, No. 71 of South Africa (as amended), as well as the King 2015 and signed on its behalf by: Annual Report is our primary combined assurance model is applied throughout the Group Code of Governance Principles (King III). report to stakeholders and is aimed to provide a co-ordinated approach to all assurance activities Content of the Report and the Committee also monitors the relationship between at addressing our stakeholders’ the external service providers and the Group. Guy Hayward Johannes van Lierop The Massmart Integrated Annual Report is our primary For more information regarding the Group Audit Chief Executive Officer Chief Financial Officer requirements. report to stakeholders and, as per the practice adopted last Committee’s mandate, including the Committee’s assessment year, includes summarised financial information. The following of the expertise of the Chief Financial Officer and finance Forward Looking Statements content is available on our website: function; the appropriateness of the Group and Company www.massmart.co.za, under the ‘Investor Centre’ tab: Annual Financial Statements, the accounting practices The Massmart Integrated Annual Report includes forward Kuseni Dlamini • Register documenting the assessment of all and the internal financial controls of the Group; and the looking statements which relate to the possible future Chairman 75 principles of King III; Committee’s recommendation of this Integrated Annual financial position and results of the Group’s operations. These • Corporate Governance Report; Report for approval by the Massmart Board of Directors, statements by their nature involve known and unknown risks, refer to ‘The Audit Committee’, available on the web: • Approval of the Audited Annual Financial Statements uncertainties and other important factors that could cause the www.massmart.co.za/iar2014/auditcom (including the Auditors’ Report); actual results, performance or achievements of the Group to • Group Annual Financial Statements and notes; and be materially different from the future results, performance • Company Annual Financial Statements and notes. Approval of the Integrated or achievements expressed or implied by such forward Annual Report and summarised looking statements, as they relate to events and depend on Materiality circumstances that may or may not occur in the future. consolidated Annual Financial Factors that could cause actual results to differ materially Management’s interpretation of materiality, being those from those in forward looking statements include, but are transactions, balances and information that are significant Statements not limited to, global and national economic and market in terms of Rand value, the Group’s risk profile or the Group’s The Massmart Board of Directors confirm that they have conditions, competitive conditions, the cyclical nature of strategic intent, such that Management believe omission of collectively assessed the content of this Integrated Annual the retail sector, credit and the associated risks of lending, disclosure thereof would influence the Group’s stakeholders’ Report and have approved it for release to our shareholders. inventory levels and regulatory factors. decisions, has been applied in determining the financial and This Massmart Integrated Annual Report for December The Group is not under any obligation to update or alter non-financial content and disclosure in this Report. 2014 contains audited summarised consolidated Annual any forward looking statements publicly, whether as a result Financial Statements which comprise a summary of the of new information, future events or otherwise. Investors are audited Group Annual Financial Statements prepared for the cautioned not to place undue reliance on any forward looking year ended December 2014. statements contained herein, as they have not been reviewed or reported on by the Group’s external auditors. 4 Massmart Integrated Annual Report 2014 5

What’s on Contents our website Our business at a glance In addition to the content that appears in R41.5 million Our performance highlights 6 this book, the following can be found online: to support Mission, vision and investment proposition 8 socio-economic Our business model 10 Energy development Group Annual Financial Our divisional reviews 12 efficiencies p98 Our divisional strategies map 28 Statements and notes deliver results Managing our risk 30 www.massmart.co.za/iar2014/groupafs p108 Company Annual Financial 01 Leadership review Message from our Chairman 34 Statements and notes Our CEO’s letter to our stakeholders 36 www.massmart.co.za/iar2014/companyafs Our Board 40 Five year review Our Executive Committee 42 www.massmart.co.za/iar2014/5yearreview 02 Our performance These articles are all included in the ‘Our performance’ CFO Review p46 Financial and Manufactured capital 46 section, under ‘Financial capital’ Directors’ Human capital 78 report p71 Intellectual capital 92 Full assessment of the application of King III Auditor’s Social capital 96 Relationship capital 104 www.massmart.co.za/iar2014/kingiii report p75 Natural capital 108 The Audit committee Marketside is 03 Transparency and accountability www.massmart.co.za/iar2014/auditcom launched p95 Corporate Governance 114 The Risk committee Our assessment of the principles of King III 115 www.massmart.co.za/iar2014/riskcom Our Board 116 The Nomination committee 04 Shareholder information Notice of Annual General Meeting 122 www.massmart.co.za/iar2014/nomcom Cambridge Form of proxy 129 The Executive committee Food voted most trusted www.massmart.co.za/iar2014/execcom Massmart Use this icon to refer to articles online brand p105 Compliance, transparency and accountability Use this icon to refer to articles in this report www.massmart.co.za/iar2014/compliance This icon highlights definitions These articles are all included in the ‘Transparency and accountability’ section These icons refer to the capitals that we report to: Visit our annual report website at www.massmart.co.za/iar2014

24 SMMEs in Online Human Natural manufacturing offerings Financial Intellectual on board perform Manufactured p99 p94 Social and Relationship 6 Our business at a glance Massmart Integrated Annual Report 2014 7

Our performance highlights

Dividend per share (cents):

Sales (Rm) Operating profit before foreign exchange 421.0 movements and interest (Rm) (421.0 in 2013) 78,173.2 (70,790.7 in 2013) 2,015.9 (1,933.7 in 2013) Active suppliers Earnings before interest, tax, depreciation, amortisation and impairments (Rm) 8,372 Opportunity: (8,000 in 2013) Wide variety of customers ranging Number of stores Number of employees 2,887.1 from LSM 2-10 (2,706.4 in 2013) 392 47,209 (376 in 2013) (43,876 in 2013)

Estimated annual per capita training Headline EPS Private label as investment (permanent employees) before forex a percentage of (cents): total sales R3,778.7 (R 2,935.0 in 2013) 526.2 . (545.2 in 2013) Makro online had 92% (9.2% in 2013) one million active visitors in 30 days to mid-December Estimated annualised purchased energy BBBEE: consumption intensity (KWH/GLA)/m2) Employment equity score Opportunity: Disruption in electricity 206.1 supply impacts (209.0 in 2013) Estimated water 10.5 Headline earnings before forex (Rm) negatively on foot (10.2 in 2013) consumption traffic in shopping (kl/m2) centres, but could benefit our stand-alone 1,141.4 stores 0.9 (1,182.7 in 2013) (1.7 in 2013)

The 2013 financial year was a 53-week period but, for the sake of meaningful comparison, all 2013 financial information Pages 131-132 more detail on definitions and formulas included here is shown for the pro-forma 52-week period unless indicated otherwise. 8 Our business at a glance Massmart Integrated Annual Report 2014 9

Our business at a glance

Our mission Our vision Our unique investment proposition

Massmart is a South African-based, Our customers… Strategic and structural clarity globally competitive, regionally …will regard Massmart’s wholesale • Is achieved through four focused Divisions, each a leader and retail formats as their first choice in its target market and business model, where additional managed Group, invested in when buying those categories of value is created through inter-Divisional collaboration a portfolio of differentiated, merchandise offered by these formats; and behaviour is aligned through short- and long-term complementary, focused wholesale incentives, while adhering strictly to organic and acquisitive Massmart is a managed Our community… growth criteria. and retail formats, each reliant on high …including Government, will regard portfolio of four Divisions, volumes and operational excellence Massmart as a socially accountable Management depth, quality and diversity each focused on high- corporation; • The 48 Group and Divisional Executives hold 76 as the foundation of price leadership, qualifications, of which 57 are degrees; are an average age volume, low-margin, low- in the distribution of mainly branded Our employees… of 47; and 15% are African, Coloured or Indian. consumer goods for cash. …will regard Massmart as the cost distribution of mainly preferred employer in the retail Diversification branded consumer goods for The Group actively seeks the continual industry; • Merchandise – Massmart is the second largest distributor of consumer goods in Africa, and is the leading retailer cash, through 392 stores in improvement of performance in Our investors… of general merchandise, liquor, home improvement and the portfolio and its parts, through …will regard Massmart as a portfolio building supplies, and the leading food wholesaler; 12 countries in sub-Saharan rendering superior returns relative to • Formats – trading through a variety of formats; Africa. We are a South African strategic and structural clarity, high the JSE Retail sector; and • Customers – serving all mass-market consumers; market shares, excellent management, • Geography – operating in 12 sub-Saharan African countries. Our suppliers… retailer and wholesale principle-driven ethical leadership, …will regard Massmart as a Low risk distributor, with 359 stores cost-effective technology and valued partner in accessing and • Earnings underpinned by high cash generation; sensible in South Africa and 33 stores the sharing or agglomeration of understanding their end-consumers. financial leverage; and conservative through-the-cycle store opening plans. in other countries in sub- capabilities, knowledge, resources, Our Board… influence and information. …is responsible for directing the Growth Saharan Africa. Group towards the achievement of • Continuously improving the productivity of capital, space To this end, thought-leadership, the Massmart vision and mission and and labour; whilst doing so are also accountable • Strengthening Supply Chain activities; individual and collective performance, to certain governance frameworks. • Up-weighting Group private label efforts; and collaboration throughout the • Complementing store growth through targeted acquisitions Our business… Group are appropriately rewarded, and greenfield opportunities; and …is driven by a focus to meet • Expansion into Food Retail through Cambridge Food, with executive management the expectations of all of our Food in Game and Makro Fresh. incentivised predominantly on stakeholders. In doing so we are aware that we must embrace Good governance Group performance. the requirements of the relevant • Board composition – two Executive and seven non- governance and regulatory Executive directors, four of whom are independent; frameworks, as well as corporate • Recognised record of good disclosure; best practice. • Compliant with King III and the JSE SRII; • Member of the Ethics Institute of Southern Africa; and • Founding member of the Institute of Directors. 10 Our business at a glance Massmart Integrated Annual Report 2014 11

How we structure our business Dedicated to adding value

Massmart’s strategy is to be considered a leader by all stakeholders in our Operational excellence Working towards achieving chosen markets and become sub-Saharan Africa’s most trusted retailer. everyday optimal performance. Massmart‘s business model empowers our Divisions to take trading decisions This is seen in logistics and business-to-business (B2B); stand- suited to their individual operating needs, within a strategic operating and alone store formats; innovation and ecommerce; and our private financial framework set by the Group. label portfolio.

The business model operates through the performs the Group management following four units: role and defines the strategic and broad operating principles that Growing talent Good business guide the Group’s activities. We are We work towards nurturing talent and Is what we, as Massmart employees, creating opportunities for our employees, dedicated to have committed to do in everything General Merchandise customers, suppliers and business partners we do, every day, to earn the trust of Discounter and Food Retailer through learning and career development; adding value our colleagues, employees, customers, consists of formal trading our emerging talent programme; our suppliers and business partners. and functional forums where nurturing talent campaign; and our through: ideas on collaboration across Supplier Development Fund. Massmart Divisions are shared. Warehouse Club Holdings

Home Improvement Sustainability Massmart Channel implements collaborative Retailer and Building and Shared Services agreements reached by the Channel Materials supplier We aim to champion social Forums. The most important are and environmental leadership Massmart Group supplier negotiations for all through energy efficiency; Divisions products sold across the Group. supplier advocacy; education Food Wholesaler, Retailer initiatives; school nutrition and Buying Association programmes; developing suppliers; and employee health and wellness. report directly to the Chief Executive Officer and comprise Massdiscounters, Masswarehouse, Massbuild and Masscash.

This has several advantages: As a result we: The framework guarantees Divisions are enabled to Decentralised decision-making is consistent compliance with the extract greater value from given effect through a Group Executive Grow sales, grow Embrace the requirements Advocate more sustainable Be the employer best governance standards and being part of a larger Group Committee reporting to the Group Chief profitability and increase of the relevant governance practices and product choices in of choice national legislative requirements. with greater access to goods Executive Officer (CEO). The Committee’s customer loyalty and regulatory frameworks all the business decisions we make It commits each Division to and services or negotiating members comprise the CEOs of Massmart’s implementing Massmart’s core better terms and rebates with four operating Divisions and a Group strategy of being a high-volume, suppliers and service providers. Executive from each of Massmart Holdings, low-margin distributor of quality The Divisions are differentiated Channel and Shared Services. Massmart Our desired Customers Investors and Government, academia and branded consumer goods for cash, as retail or wholesale formats Holdings’ Executive Directors are also advocate Massmart suppliers advocate civil society advocate Massmart and ensures expansion plans add that address different customer represented on each of the four Divisional outcomes: banners as ‘must-go-to’ Massmart as a ‘must as a ‘must-be-like” social and net value to the Group. and market profiles. boards as non-Executive directors. shopping destinations have’ retail partner environmental leader

For more information on good business page 114, ‘Transparency and accountability’ For more information on operational excellence pages 12-27, ‘Our divisional reviews’ 12 Our business at a glance Massmart Integrated Annual Report 2014 13

Our divisional reviews

Highlights Merchandise proposition: Massdiscounters operates through two Value proposition General retail formats: Game and DionWired. • Held or gained market shares in key categories Game’s positioning is to offer Merchandise in Game customers the widest range of • Fastest growing Formal Food Retailer in SA in 2014 discounter and branded products, at the best Food retailer price for a given set of product specifications and a quality Improvements guarantee for customers. • Significant growth in both sales and margin of our We ensure that customers Food and Liquor offering 153 are assured of the best value • Improvement in our South Africa business during Q4 stores at every logical price point. • Moved from our historical four day promotion period (143 stores in 2013) The Game trading model is to a longer 10-day period promotionally- driven, with five million copies of our bi-weekly Challenges promotional leaflets distributed • Tough South African economic environment 14,214 Game is a discount retailer of in South Africa. By working full-time employees pressurising our core middle class customer General Merchandise and non- closely with our suppliers (12,870 in 2013) • Slowing African economies from weaker global perishable and dry groceries for and benchmarking ourselves prices for resources and strong US dollar home, leisure and business use, operating throughout against competitors, we are • Planned roll-out of SAP Point-of-Sale system across South Africa and in 14 cities in sub-Saharan Africa. able to offer our customers all stores in South Africa, commencing in early 2016. Traditionally Game has been a discounter of General well-priced products Merchandise, but our format renewal, with the representing great value. introduction of fresh Food, has intentionally pushed the brand towards a multi-category format. DionWired’s main proposition Currently 66 Game stores provide a perishable is to offer the widest range of Game5-10 food offering adding further everyday value to our some of the world’s leading customers. Over the next few years, we intend to roll and discerning brands such as out perishable food to most Game stores. Game Liquor Apple, Smeg, Marantz, Bose 8-10 was included with the format renewal to complete and Onkyo to the South African DionWired our offering and increase foot traffic. We now have 39 higher-income consumer. Game Liquor stores, which are performing in line with Geographic presence: expectations. South Africa, Botswana, Ghana, BBBEE4 score Lesotho, Malawi, (Level 3 in 2013) Mozambique, Massdiscounters continues to Namibia, Nigeria, retain its recognition level with Tanzania, Uganda, an A rating. There has been an Zambia increase at the management level and a score of 14.42 out of 15 was achieved on Employment Equity. Maximum DionWired’s product scores were achieved on displays create an easy, both CSI and Enterprise exciting and interactive shopping experience, offering Development. Directorate the latest in-home entertainment, computing, video and digital photographic equipment and appliances. Guy Hayward Chairman, Robin Wright Chief Executive DionWired sells complete technological solutions, Officer,Nazim Cassim DionWired, Norman Drieselmann often demonstrating the interconnectivity of the latest Financial, Richard Fuller Store Operations, Norman Gray innovations and products in-store. The Tech experts Non-executive, John Hart Planning, Mark Huxtable IT, manning our in-store Hi-tech Smart service centres Andrew Jackson Merchandise, Rogany Ramiah are on hand to offer the best advice and onsite repairs Human Resources, Mike Spivey Non-executive, and services. Mark Turner Marketing, Alan van der Bergh Food, Johannes van Lierop Non-executive 14 Our business at a glance Massmart Integrated Annual Report 2014 15

Our divisional reviews continued

Investing in the environment Financial performance Divisional strategy Massdiscounters has embarked on a number of energy Strategic focus for 2015 is to deliver saving initiates to reduce our impact on the environment: Sales real value to our core customer by • In all new DionWired stores we have moved from delivering on our brand promise of: inefficient metal halide high bay fittings to 100% LED • Consistently low prices lighting resulting in an approximate saving of 75% in 23.0% R17,955.2m • Focused ranges – which meet all energy consumption. Up from R16,294.2m in 2013 our customers’ household needs • We have redesigned the DionWired stores and under one roof introduced ceilings to reduce the cubic volume of the • Guaranteed quality store area. This has resulted in a reduction of the cooling which is supported by: volume of 30% and a reduction of cooling capacity of 23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash • Consistent stock availability between 10% and 15%. • Well designed and merchandised • A retro-fit program is in place in Game stores where stores Investing in our community inefficient light fixtures are replaced with energy efficient Trading profit before interest and tax • Passionate and enthusiastic T5 fixtures resulting in an average saving of 280,000 kW/h customer service Massdiscounters is committed to playing a meaningful per store per year. and enabled by: role and to being a socially responsible corporate citizen. • Building Management Systems are included in all new % R180.7m • Efficient supply chain, systems This commitment is rooted in our investment in the social Game stores. Where possible skylights are also included 8.8 Down from R326.9m in 2013 and processes of omni-channel development needs of the countries in which we operate. which allows for daylight harvesting where the BMS strategy The focus of our corporate social investment is primarily system automatically switches lighting off to maintain the in education, where we assist in basic literacy, school appropriate lux levels. This results in a calculated saving of infrastructure and assistance to the poorest of the poor. 180,000 kW/h per store per year. 8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash Future outlook Key projects in 2014 which helped us change the lives of • In new stores, occupancy sensors are included in office over 100,000 children are: areas to automatically switch off lights when offices are At Game we will continue to roll-out • Game Amalunchbox unoccupied. fresh food and refurbish our stores, • Game Tools 2 Teach • Working with industry experts to design the most Product inflation Total assets while slowing the number of new • Game/Vodacom Wheelchairs efficient refrigeration systems, making use of variable store openings in South Africa • Game Fights Malaria with the Kingsley Holgate speed drives, multiplex systems and electronic expansion 3.1% R7,985.5m whilst increasing the Rest of Africa Foundation valves to drive down energy consumption by between 10 0.5% in 2013 increased from R7,718.3million in 2013. footprint. • Lungisisa Indlela Village and 15%. We will continue to consolidate the • In smaller format Game stores, refrigeration is installed Total liabilities • DionWired Smartboard Hi-Tech and Multimedia categories • The Ubuntu Community Chest with glass doors to improve the efficiency of the jumbo expanding the space allocated cabinets. +10 R7,820.9m to Food and selected Homeware Investing in our human resources We continue to look for new opportunities to improve our stores increased from R7,522.2 million in 2013. categories. A further twenty Liquor design and equipment to create the most energy efficient stores are planned. Massdiscounters received full accreditation as a training stores possible. Net capital expenditure At DionWired we intend to focus provider by the Wholesale and Retail Seta. In 2014: Key sales drivers on reinvigorating the customer • we recorded a spend of over R50 million in training black experience by focusing on our staff with more than 50% of the spend allocated to the • Product deflation/inflation R542.2m core purpose “to simplify life by development of black female staff. • Price/value perception Up by 10.7% obsessively sharing the joy of • we had a 35% representation of black females in senior • Interest rates technology”. management positions and 34% of all promotions were increased from R489.7 million in 2013. • Consumer confidence black females. and disposable income • we contributed more than a R250,000 in bursaries to the • New stores Increase in trading space children of our team and created a staff purchase facility • African economic strength which benefits more than 1,800 of our team members. 6,5% The wellness of our team is vital to our staff engagement 2 and customer engagement initiatives and the attendance of Trading area 506,188 m staff at our wellness days and use of the Employee Assistance 2 Trading area 475,331 m in 2013 Programme facilities was indeed noteworthy with many 2 DC space 178,488 m stores receiving gold stars. DC space 178,488 m2 in 2013 16 Our business at a glance Massmart Integrated Annual Report 2014 17

Our divisional reviews continued

Merchandise proposition: Value proposition Highlights Warehouse Makro’s offerings are tailor-made • Strong profit growth – now generates more than club trading in to fit a variety of customer needs R1 billion profit before interest and tax. Food, General across all our merchandising • Makro.co.za General Merchandise and Liquor online Merchandise and categories. offering launched Makro’s Food offering caters • Continued share gains as we improve our Food Liquor to a wide range of wholesale retail offering shoppers and to retail customers • Achievement of Payment Card Industry DSS looking for value across the compliance certification, to ensure on-going secure basket. Wholesalers account for credit card processing stores19 the bulk of Makro’s Food sales • Introduction of the Baby category (19 stores in 2013) and most shop during the week for the convenience of our wide Improvements The Makro model is range of good-value, quality • Fresh fruit and vegetable offering across most stores unusual in that it sells consumables. Retail Food and (16 stores) General Merchandise grocery shoppers can achieve 9,500 • Working capital and aged inventory levels improved full-time employees primarily to retail substantial savings on their across all 3 merchandise divisions (9,483 in 2013) customers while much of its Food and Liquor is sold monthly household basket too. • Mature stores’ profitability to wholesale customers, although increasingly retail Makro’s Liquor outlets, • Employment Equity profile of executive and senior customers are taking advantage of the low food immediately adjacent to the main management teams prices afforded by the model. This blend gives it a outlets, continue to increase • Use of customer and market data to better optimise robustness enabling it to trade comfortably through their range of premium brands promotional and pricing activity most economic cycles. The big-box warehouse especially in wine and whiskey. club format, with our no-frills approach, keeps costs These products are sold at a down and provides the platform for our high- low margin to maintain and Challenges 6-10 grow market share. At the same Makro primary customers volume, low-margin sales offering of quality branded • Continued aggressive trading practices from time we have maintained a merchandise. Our customer database of Makro store independent wholesale competitors strong presence of beer and cards used at the point of purchase helps us to keep • Availability of real estate for new stores track of the spending patterns of our 2.4 million budget brands is maintained 2-8 for customers looking for Makro secondary customers active members and we communicate regularly with (via trade) them through targeted promotional material. good value. Makro’s General Merchandise offering offers high- Geographic presence: quality well-priced merchandise South Africa from all major durable brands and they are often market leaders with innovative offerings and aggressive promotions. The Fruitspot provides customers with quality products at best price and very high service levels. The Fruitspot is committed to freshness at the point of purchase and prides Directorate itself on its relationships with its Guy Hayward Chairman, Doug Jones Chief Executive customers, many of which have Officer,Dean Bauer Supply Chain, Norman Gray lasted more than 20 years. Non-executive, Garry Hendry Merchandise: Food, The Fruitspot is an established Derick Kalan Merchandise: General Merchandise, wholesaler and distributor Jonathan Koff Merchandise: Liquor, Gert Lourens of fresh and cut fruit and Operations, Melanie van Rooy Marketing, vegetables, and was bought by Makro in 2012. 5 Pieter Schoeman IT and Projects, Mike Spivey Non- BBBEE score executive, Julie Wilford Financial, Donovan Wright (Level 5 in 2013) Human Resources, Johannes van Lierop Non-executive 18 Our business at a glance Massmart Integrated Annual Report 2014 19

Our divisional reviews continued

Energy saving initiatives in our new stores have made them 25-30% more energy efficient which has enabled us to Financial performance Divisional Strategy: save as much as 36,000 kWh’s of electricity a month in our The 2015 strategic focus is to latest stores. Initiatives include: Sales bring new and young stores to • Installing CO2 refrigeration systems that do not make use optimal maturity, while ensuring of ozone depleting refrigerant gases. stores leverage scale, and drive • Capturing and reusing condensate from our air- 27.6% R21,554.8m down costs. We will do this by: conditioning and refrigeration systems to irrigate our car Up from R19,271.7m in 2013 • Improving fulfilment capabilities, parks and gardens. to better serve online and • Using reclaimed heat from our refrigeration and air commercial customers conditioning plants to help heat the domestic water • Investing in the instore and online used in our stores. 23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash customer experience, whilst • Installing daylight harvesting systems that use balancing the need to achieve natural light, in tandem with LED high bay lights and scale and operate at lowest Investing in our community sophisticated lighting controllers to improve our Trading profit before interest and tax possible cost per transaction customers shopping experience while reducing the • Continuing to improve the Food Makro support the Wildlands Conservation Trust’s energy needed to light the store offering to retail customers, and Food for Life programme which has assisted more than • Implementing secondary paper, board and plastic deepen the Fresh and Butchery 250 previously unemployed community members in rural recycling initiatives across 100% of our stores, through 50.6% R1,044.3m KZN to gain skills in a range of environmental restoration Up from R939.5m in 2013 offering which we estimate approximately 70% of our operational • Growing market share in Food activities, recycling and food gardening. waste is diverted from landfill and Liquor We are committed to the upliftment and care of those • Supporting a post-consumer e-waste take back initiative • Optimising working capital in need in South Africa. We focus our corporate social in partnership with Samsung, that facilitated the investment (CSI) activities primarily on education enabling 8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash through replenishment and collection, recycling and where necessary safe disposal supply chain investments initiatives, school nutrition and infrastructure maintenance of 139 tonnes of e-waste in 2014. • Driving value through data-led projects and recently, youth sports development. Through Product inflation Total assets insights into customer behaviours our Makro CSI partnerships we are committed to making Investing in our human resources and needs an impact on the lives of the underprivileged within the • Investing in technology to better communities in which we operate. We are committed to Our internal training and development initiatives aim 5.5% R7,689m serve customers, manage our delivering on our promise of contributing at least 1% of to enhance productivity, customer service and operational increased from R7,166.8 million in 2013. 2.1% in 2013. supply chain and coordinate profit after tax to deserving causes. efficiencies. Total liabilities commercial sales and fulfilment Commitment 1: Education • An internal skills audit on lifting machine operators was completed and specialised training given to ensure • Hope Worldwide SUCCEED programme highest occupational health and safety standards. +0 R7,312.1m Future Outlook: • The Tomorrow Trust • Regular performance meetings on the Consumer stores increased from R6,587.8 million in 2013. • Kommunity Desk Protection Act were held to assess progress. Makro remains focused on Commitment 2: School Nutrition • More than 85% of our staff members are black and more bringing all customer types - retail, Net capital expenditure • The Izzi Trust than 38% are black women. Key sales drivers wholesale and commercial - the • African Children’s Feeding Scheme • A total of 11.84% permanent employees undertook products and brands which they • Product deflation/inflation various training courses last year. know and trust, at prices that save Commitment 3: Youth Sports Development • Price/value perception R70.3m them money so that they can live • Interest rates Down by 79.6% • Moving Matters better and trade more profitably. • Consumer confidence decreased from R344.8 million in 2013. At Fruitspot we will grow the and disposable income Investing in our environment business by ensuring it becomes a • New stores maturing No change in trading space supplier of choice to the retail and Masswarehouse remains an industry leader in improving hospitality industry in Gauteng and energy efficiency in the retail environment. Makro was no change in the Group. recently named a Global EIA Green Cooling Leader by the Masswarehouse’s omni-channel Environmental Investigation Agency, an independent UK 2 Trading area 195,794 m strategy is underway and growing. charity founded to address environmental issues, for their 2 Trading area 195,794 m in 2013 Our mobile solution for commercial commitment to MFC-free refrigeration. 2 DC space 51,300 m customers has been well received. 2 DC space 51,300 m in 2013 The Makro locker pilot programme is in the market and will be assessed for future extension opportunities. 20 Our business at a glance Massmart Integrated Annual Report 2014 21

Our divisional reviews continued

Merchandise proposition: Massmart, with its strategy of investing in Value proposition Highlights Home acquisitive and organic growth, previously made several acquisitions in the Home Improvement Builders Warehouse and • Twelve new stores opened in 2014, of which Improvement sector, establishing the Group as the largest Builders Express are both four were relocations, including the flagship retailer and participant and, in many respects, the leader in pioneers in introducing retail Builders Warehouse Rivonia store and Builders Building Materials this growing consumer sector, and in Building principles to the South African Warehouse Matola, the first full-size Builders Warehouse store in Mozambique, both of supplier Materials with complete project solutions. Home Improvement sector Massbuild has four store formats that cater to and attaching garden centres which have achieved exceptional results. different markets with their own personalised to hardware stores. The clean, • 553 new jobs created in 2014 feel and service offerings. friendly and uncluttered • Continued growth in operating profit in The Massbuild formats consist of: look and feel of our stores Builders Warehouse and Builders Express stores100 offers customers a shopping (92 stores in 2013) experience not traditionally Improvements associated with the sector. Our stores aim to introduce “retail • Improvements in productivity and transport theatre” where lighting, colour contributed to savings in the Gauteng Builders Superstores and ambience enhance the Distribution Centre 10,187 focus on underserved full-time employees shopping experience, signage • Conversion of the Western Cape facility into markets around the (8,882 in 2013) is clean and bold and product a regional distribution centre resulted in a country. The stores are displays are enticing. significantly higher throughput situated in dense residential, township, rural Several of our private brands and developing areas, and conveniently have become household names Challenges located near commuter nodes. with our customers assured of • The economic environment and slowing stringent quality control and government expenditure on infrastructure Builders Warehouse best supplier practices. follows the big box or • Availability of real estate for new stores Builders Trade Depot’s 5-10 warehouse retail format. Builders Warehouse value proposition to customers Builders Warehouse offers in both the residential an extensive range of competitively priced and commercial property products with a large garden centre display markets, is our unique ability 5-10 and Builders’ supply yard. Builders Express to consistently deliver an appropriate, professional range at highly competitive 4-8 prices underpinned by trade Builders Trade Depot credit and combined with Builders Trade Depot exceptional contractor support caters mostly for medium services in a relationship-driven to large sized contractors environment. Builders2-6 Superstore and tradesmen engaged in building, maintenance and renovation Builders Superstore focuses on the lower-income Geographic presence: projects. The chain mainly focuses on servicing the needs of construction population. Their range of South Africa, entrepreneurs who require trade credit, products and location of stores Botswana, telephonic ordering and building materials make it a favourable destination. Mozambique in bulk, delivered from low-cost outlets. Directorate Guy Hayward Chairman, Llewellyn Walters Builders Express, which Chief Executive Officer, Norman Gray Non-executive, caters to the home owner BBBEE5 score Neville Hatfield Merchandise, Diane Hoffman and DIY enthusiast, focuses (Level 5 in 2013) Supply Chain, Chris Lourens Operations, on a convenient location, a Massbuild’s BBBEE score for 2014 Zandile Manana Marketing, Lizelle Petersen customer friendly store layout with pleasing is estimated to be 57.96 Financial, Alex Rymaszewski Store Development, displays, and personalised service and advice, Mike Spivey Non-executive, Andre Steyn Builders making it a “one-stop” shopping experience. Express and Builders Trade Depot, Chris Tugman IT, Johannes van Lierop Non-executive 22 Our business at a glance Massmart Integrated Annual Report 2014 23

Our divisional reviews continued

Mayibuye Primary School in Tembisa received a donation of 120 desks and chairs. Protea Glen and Illinge Secondary Financial performance Divisional strategy: Schools each received a donation of R50,000 toward their • New store roll-out; grow South construction requirements. Another R50,000 was donated to Sales Africa and Africa store footprint. Cosmo City West Primary School to be used towards their • Optimise Builders Trade Depot kitchen makeover. by focussing on inventory range 13.8% R10,822.8m and leveraging IT platform. Investing in our environment Up from R9,441.3m in 2013 • Optimise Superstore offering and grow the brand. We are committed to minimise our impact on the • Extend and optimise the supply environment by: chain network. • Using natural light and efficient LED lighting systems to 23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash • Builders’ single brand alignment save energy rollout – rebranding effort • Investing in air-conditioning technologies that do not in Builders Trade Depot and emit greenhouse gases • Recycling our bulk packaging, paper and plastic Trading profit before interest and tax Builders Express. Investing in our community • Focus on Trade Customer and Our new Rivonia store has been fitted with high bay Business-to-Business Massbuild aims to make a relevant and notable LED lights that have reduced consumption per light by R537.6m • Private label expansion: contribution to the social development agenda by investing 60%. The roof is fitted with daylight harvesting domes that 26.1% Up from R467.6m in 2013 continue with roll out of key in early childhood development, education and training, will eliminate the necessity to have all the lights burning in programmes. women’s empowerment and nutrition. the store. A state of the art Building Management System • Omni-channel. Build a classroom has been installed to regulate the switching on of lights in the store when the daylight harvesting domes do not have We embarked on an ambitious venture to build 15 8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash sufficient light inside the store. The system will also control Future outlook: classrooms at schools throughout the country and managed the air conditioners in the store and regulate the temperature. to complete nine in 2014. Since its inception in January 2014, This will also alleviate maximum demand spiking . Product inflation Total assets Massbuild has now entered an this project has seen an investment in excess of R2 million. accelerated growth phase with the Ripples for Good Investing in our human resources aim of increasing its footprint by We teamed up with the non-profit organisation, R5,027.7m opening new stores in South Africa Massbuild believes in building a sustainable business 5.9% Ripples for Good in 2011 and this engagement has evolved 4.1% in 2013. decreased from R5,212 million in 2013. and southern Africa. Furthermore by continually investing in its human capital. In 2014 a total from assisting with maintenance projects in schools to the division is intent on increasing of R29.8 million was spent on Learning and Development. Total liabilities undertaking school refurbishments. In 2014 we managed to its market penetration through its Focus is on Leadership interventions where Managers reach 100 schools. fourth format, Builders Superstore. are enrolled on programmes through either Massmart R4,730.6m Massbuild’s objective remains Store openings Corporate University or other external tertiary institutions. +8 decreased from R4,857.4 million in 2013. stores to be South Africa’s market leader We celebrated our new stores by adopting a school We also capitalise on SETA-funded leadership programmes. in Home Improvement, DIY and in each community where a new store was opened. For Skills are also imparted onto Management through online Net capital expenditure Building Materials. example, when the new Rivonia store opened, Sefikeng interventions. Key sales drivers Primary School received a cash donation to assist with the We have had 216 people on various 12-month Learnership • Residential property prices upkeep of their veggie tunnel donated by Massbuild in 2012. Programmes. and housing growth R296.8m Business finance courses are also run for all levels of the • Price/value perception Up by 7.9% organisation ranging from junior non-supervisory level to • Interest rates increased from R275.1 million in 2013. senior management level (455 attended). For team members • Consumer confidence and in non-management roles, the focus is on specialist product disposable income Increase in trading space training. In order to ensure the business adheres to good • New stores governance, training is also conducted in the areas of Compliance and Anti-corruption; Ethics; Employment Equity; 6,3% and Orientation. Trading area 436,538 m2 Priority is given to the advancement of women in the Trading area 410,546 m2 in 2913 operations’ environment and to this purpose the Massbuild DC space 61,733 m2 CEO’s Women’s Council Mentoring Programme, in which 15 DC space 61,733 m2 in 2013 mentors and 13 mentees attended various workshops and interventions throughout the year, was established in 2014. New mentees will be added to the programme annually. 24 Our business at a glance Massmart Integrated Annual Report 2014 25

Our divisional reviews continued

WHOLESALE & RETAIL

Merchandise proposition: Masscash consists of a Wholesale Division with cash Value proposition Highlights Food Wholesaler, and carry food and cosmetics’ businesses, and a Retail Division which consists of food outlets which target the Masscash Wholesale offers Wholesale Retailer and buying lower LSM groups. Our Wholesale Division consists of wholesale customers the • 11% growth of Retail franchise outlets association CBW, Jumbo Cash and Carry, Trident and Shield. ability to trade under national • Successful product range extension to fruit, vegetables and retail brands such as Saverite, meat; enabling customers a wider choice and increased Multisave, Powersave convenience Liquorland and Club 10 Retail Taverns. Our marketing • Improved store-opening processes, delivered three Wholesale73 stores team offers support to these successful store openings with Cambridge Evaton achieving (75 stores in 2013) supermarkets and bottle the biggest store opening to date stores, assisting owners with • Successful rollout of new Private Label ranges marketing initiatives such as 47 designing of leaflets, signage Improvements Retail stores and implementing national (47 stores in 2013) television and radio advertising Wholesale campaigns. • Significantly improved Wholesale customer delivery processes, resulting in higher order fill rates, and improved On the retail side, outlets customer satisfaction are consolidated under the 12,863 CBW and Trident wholesale food, liquor, groceries • Improvements in store standards and food safety; ensuring a full-time employees Cambridge Food or Rhino and cosmetics in bulk to independent dealers, better shopping experience (12,238 in 2013) brands. Cambridge Food’s Retail Government feeding schemes, franchise members, mission is to help its customers small traders and hawkers in peri-urban and rural areas • Improvement in profitability in both Gauteng and Kwazulu- save money every day so that Natal Retail regions within southern Africa. they can live better. Food Jumbo sells mainly cosmetics, toiletries and hair- Retail service departments, care products to individual customers and independent consisting of an on-site bakery, Challenges general dealers. Shield is a voluntary buying association butchery and fresh fruit and Wholesale and Retail that buys products in bulk on behalf of 523 members vegetable offering form an • Consumers have low disposable income who own wholesale or retail businesses in South Africa, Wholesale2-5 important component of our • Higher inflation in Food and fuel Botswana, Namibia and Swaziland. Cambridge Food retail offering. • Weak job growth at lower-income levels

Retail2-6 Wholesale5 BBBEE score Level Geographic presence: 5 in 2013 South Africa, Botswana, Lesotho, Mozambique, 8 Namibia, Swaziland Retail BBBEE score Cambridge Food’s first assessment Wholesale Directorate (Level 5 in 2013) Guy Hayward Chairman, Neville Dunn Chief Executive Officer, Jane Bruyns Human Resources, Norman Gray Non-executive, Dino Holmes Financial, Pearl Maphoshe Non-executive, Andrew Mardon Merchandise, Mike Spivey Non-executive, Cambridge sell a hand-picked range of high-quality Robin Wright Non-executive, Johannes van Lierop Non-executive national brands, plus goods that they source and pack Retail Directorate themselves under their own brand label, across all Guy Hayward Chairman, Kevin Vyvyan-Day Chief Executive major categories. Officer,Bronwynne Bester Human Resources, Norman Gray Non-executive, Chris Knight Regional Gauteng, Eben Mare Financial, Mike Marshall Commercial, Mike Spivey Non-executive, Andrew Stein Marketing, Craig Surmon Regional KZN, Johannes van Lierop Non-executive 26 Our business at a glance Massmart Integrated Annual Report 2014 27

Our divisional reviews continued

WHOLESALE & RETAIL Retail Financial performance Divisional strategy • Variety of energy-saving measures implemented including skylights and LED lights Wholesale • Multiplex refrigeration system, reduces electrical Sales consumption and the heat exchange unit generates hot • Re-organise buying structure water for the store • Optimise store portfolio • Automated monitoring and adjusting of lighting levels to • Improve Supply Chain and R27,840.4m reduce electrical consumption 35.6% Logistics capability Up from R25,783.5m in 2013 • Alarms to minimise energy wastage on fridges • Focus on Saverite franchise • Passive ventilation system reduces dependence on air Retail conditioning in-store • Grow profitable regions 23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash • Improve fresh food assortment Investing in our human resources • Roll-out single platform on SAP Investing in our community Wholesale Trading profit before interest and tax The Group’s partnership with Impilo Wellness Programme Future outlook Wholesale provides healthcare support for 2,920 employees. It offers Masscash Wholesale, through donations and active disease management strategies, psychological counselling, 14.5% R299.1m Wholesale involvement, invested in education and nutrition initiatives general well-being services, financial and legal support and Up from R260.4m in 2013 We anticipate a continuation during the year. trauma counselling. of the aggressive trading from Building on our previous success, Masscash Wholesale Retail the corporate food retailers donated a further 15 container kitchens to our school feeding • Launched Gauteng Store of Learning to develop a serving the low-income initiative. The 79 kitchens provide a hygienic space for the pipeline of managers 8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash customer but are cautiously preparation of meals for approximately 58,000 learners. • KZN Store of Learning, placed 54 learners in 2014 optimistic about our growth We support the inner city Day Care Centres in central • Implemented first Cadet programme in Gauteng, seven over the next year. The LSM Johannesburg, through the Metropolitan Evangelical learners achieved 13 distinctions in the first semester Product inflation Total assets 2-6 market remains highly Services. This ensures that young children have a safe place fragmented. Masscash is well to go during the day. Furthermore young street adults can be R8,529.8m positioned to offer new retail rehabilitated and equipped with skills that will enable them 4.8% formats and to expand our 4.2% in 2013 decreased from R8,665.5 million in 2013. to access the workplace. current footprint to better supply We invested in literacy programmes allowing 1,086 Total liabilities food, cosmetics, liquor, cigarettes scholars to enjoy access to a school library, donated to the and cellular services to this Empumalanga Primary School in Motherwell, Eastern Cape. market. To ensure future growth, -2 R7,882m Retail stores increased from R7,838.6 million in 2013. we will expand the wholesale range to include meat, fruit • R1.6 million donation of stock to Foodbank, a 16% and vegetables and grow the increase over 2013. Net capital expenditure Key sales drivers franchise formats and expand Container kitchen donated to the Vosloorus community. into southern Africa. • Food inflation, particularly Investing in our environment commodities R269.9m Retail Up by 40.0% • Social grants Cambridge Food has a solid Wholesale store roll-out plan over the next • New stores increased from R192.8 million in 2013. We supported the KwaZulu-Natal Wildlands Food For two years, with an anticipated 10 • Rate of employment Trees project. The project encourages unemployed adults new store openings in 2015 and Increase in trading space and school learners to grow indigenous trees, and exchange 10 in 2016, them for food tokens from Wildlands. Over 35,000 trees to strengthening its fresh were bartered and they are used for reforestation projects operating model, to its roll-out 0,3% controlled by Wildlands. Trading area 400,775 m2 of significant IT projects, and A 3-year programme to upgrade all stores with energy Trading area 399,637 m2 in 2013 developing store management efficient lighting is expected to reduce our energy DC space 36,654 m2 to provide leverage consumption by 15%. DC space 32,292 m2 in 2013 for this future growth. 28 Our business at a glance Massmart Integrated Annual Report 2014 29

Our divisional strategies map

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

South Africa Rest of Africa 3 (129 in 2013) (14 in 2013) 137 16 E-commerce • Focus on Game SA brand • Improve IT and Supply Chain • Makro online launched April promise – lowest prices, focused efficiencies (General Merchandise) and October ranges and quality guarantee • Continue roll-out of fresh Food 2014 (Liquor) • Improve in-store shopping • Increase Game Liquor stores • Trialling Makro convenience locker experience access, for later roll-out to SASOL service station forecourts

2014 South Africa 19 (19 in 2013) 2 1 • Get new stores to trading • Increase number of commercial 4 2015 maturity customers Builders Superstores: Expand our footprint • Enhance Food Retail offering, • Supply Chain and Inventory Owned store sales 1 in Africa and invest in and refine Fresh and Butchery optimisation 8 in 2014 (2 in 2013) • 30.7% of total sales in Improve profitability new retail formats and offering • Leverage CRM • Opened 6 more low-income 2014 (27.3% in 2013) • Gain market share in Food and • Refocus on low cost, high volume categories Home Improvement stores in • Focus on owning Liquor business model South Africa more of our stores. 2 • Widen Baby category • Re-launch web site in support of 2 omni-channel strategy Grow Builders and Retail Food in South Open more low- Africa income home improvement stores in South Africa South Africa Rest of Africa 3 (88 in 2013) (4 in 2013) 95 5 Grow into Africa • Grow southern Africa store • Focus on Trade Customers and 1 3 footprint Business-to-Business • Optimise Builders Trade Depot African footprint 4 Launch new • Optimise Superstore offering and ecommerce offerings grow the brand 33 stores Grow online in our brands • Leverage RDC infrastructure in the Rest of Africa (30 in 2013) 4 For more information on our strategic priorities Focus on owning more page 38 ‘Our CEO’s of our stores letter to our stakeholders’ South Africa Rest of Africa 1 108 (110 in 2013) 12 (12 in 2013) Expand our footprint 1 Wholesale Retail 16 net new stores Retail Food • New store roll-out in South Africa • New store roll-out in South Africa +9 Game stores • Expand into southern Africa • Expand into southern Africa +1 DionWired stores 132 stores • Operate for less whilst improving • Grow profitable regions +1 Builders Warehouse stores with Retail Food (Makro, customer experiences • Close smaller or less profitable +5 Builders Express stores Game and Cambridge Food) • Review store portfolio stores -4 Builders Trade Depot stores (110 in 2013) • Improve Supply Chain and • Fresh food assortment +6 Builders Superstore stores Logistics capability -2 Masscash Wholesale stores • Focus on Saverite franchise 30 Our business at a glance Massmart Integrated Annual Report 2014 31

Managing our risk 4 6 9 Maximum Failure to address in-store Food Safety and Hygiene Insufficient progress with health and safety issues Transformation Financial and 1 1 3 2 including store or DC fire 4 2 Reputational impact Reputational impact 5 4 Reputational impact 7 5 Chief Ethics and Compliance Officer’s / Group Executive Committee 9 8 Chief Ethics and Compliance Officer / Divisional CEOs responsibility responsibility Divisional CEO’s responsibility 10 Mitigation Mitigation Mitigation Supplier compliance audits. Use of QA Will set appropriate targets and 6 Increase executive, staff and customer tests by third parties (Food Consulting expectations in the context of new awareness in-stores. Internal Audit Services). Food safety management codes and to maximise the visibility 8 system audited by Diversey. of initiatives such as the Supplier 7 reviews. Use of professional third 3 6 parties to assess in-store health and Formulated product-recall procedure. Development Fund, even if these safety issues, including legislative and Internal audit focus. initiatives do not directly influence the IMPACT 1 Risk in order 9 of priority regulatory compliance. Supply chain scorecard. Transformation is an agenda 10 focus to reduce inventory volumes. item at all Divisional and Group Board Risk All Makro stores ASIB compliant. High 7 meetings and a senior executive at awareness across Group, ongoing Massmart has overall responsibility for Inefficient or ineffective Risk after monitoring of system maintenance delivering the strategy. supply chain or a failure in mitigation and testing. Replacement of roof insulation with appropriate fire the supply chain retardant insulation in Massbuild 10 Financial impact stores. Work with external risk Ineffective cost control assessors and insurance brokers. Focus Group CEO’s / Divisional CEO’s Minimum Maximum PROBABILITY on storage of flammable products. responsibility Financial and Operational Proper location and management of impact electricity generators. Mitigation 1 2 3 Dedicated Supply Chain executives, Group Executive Committee with Group Forum. Optimisation of responsibility Poor strategic execution Talent retention and succession Competitor attack on our 5 regional distribution centres (RDC’s). Mitigation major merchandise categories Business continuity plans in place Financial impact Financial and Operational impact Complexity of the Group’s for RDC’s. Stable forecasting and Ongoing cost control through African operations replenishment systems. Ongoing monitoring, benchmarking, review and Group Executive Committee Ongoing area of focus Financial impact Difficult to predict review and clearing of dated product. innovation. Executives incentivised on responsibility Group CEO / Human Capital Executive Financial and PBIT growth. RDC and supply chain Mitigation responsibility Group CEO / Divisional CEOs Operational impact strategy. Reduce cost and waste. responsibility 8 Improve effectiveness and efficiency The Group insists on strategic clarity at Mitigation Group CEO / Divisional CEOs in procurement and inventory the Divisions and Massmart Corporate. responsibility This remains a major focus area. Mitigation Volatility of key management. Eliminate unnecessary The strategies of all Divisions and The Executive Committee actively Maintain a relevant and competitive Mitigation economic variables complexity. Careful new store roll-outs. the Group are formally documented monitors the progress, development product offering that offers affordable Careful pre-selection of countries Collaborate with Walmart / ASDA on and are reviewed annually at and possible succession plans for value to our customers. Invest in Financial and for new stores, with a thorough We Operate for Less programmes. Divisional level, at Group Executive the ‘Top 200’ employees, as well as brand awareness and loyalty. Manage Operational impact evaluation of customs, tax, exchange Committee level and then by the monitoring a further 200 employees. low-cost efficient operations. Ensure control and business legislation. Board. A Division’s strategies dictate There are in-house education suppliers believe that our stores and CFO responsibility Regular repatriation of cash. Dedicated management’s operational tactics and programmes prepared and presented associated supply chain offer an ideal executives across several functions Mitigation priorities. The annual budget process in conjunction with local and route to market. Optimise our store monitor and manage the African All direct foreign exchange import is an output of these reviews and on- international business schools that locations, and ensure regular store operations. Keep supply chain as short liabilities are forward covered. going monthly monitoring of annual focus on developing middle and junior refurbishments and format renewal. financial results and comparison to executives, and there is an in-house as practical. Develop relationships Interest rates on the Group’s medium- budget at Divisional Boards and Group graduate recruitment programme with key government and regulatory term debt have been fixed. Executive Committee level takes place. in place. Annual ‘fire-side chats’ are authorities in those countries. Property lease escalation rates are held with each executive in the negotiated as low as possible. The Group, which are attended by that Group continually explores means of person’s superior and a third executive. keeping the net assets of its African The Group’s remuneration policy, operations to a minimum, thereby incorporating short- and longer-term reducing the translation effect of any incentives, is designed to reward currency movement. This includes significant out-performance. The Definitions of each risk can be found at repatriating cash profits as frequently Share Scheme is intended to act www.massmart.co.za/iar2014/riskdef as possible and settling cross-border as a retention mechanism. liabilities timeously. 01 Leadership review

Massmart adds and delivers sustainable value to our customers, our shareholders, our suppliers and our employees. We achieve this through Message from our Chairman 34 our deep and relentless focus on operational Our CEO’s letter to our stakeholders 36 excellence, good business, sustainable business Our Board 40 and growing our talent on an ongoing basis. Our Executive Committee 42 34 Leadership review Massmart Integrated Annual Report 2014 35

Message from our Chairman

At the end of what was an eventful The business environment over the past year was very In 2014, we continued our focus on growth and expansion Dedicated to adding value difficult and challenging for most businesses, including of our footprint in Africa which is key to our strategy year for Massmart, it is an immense Massmart. South Africa held its general elections which going forward. The growing trends towards urbanisation, The context in which publicly listed multinational saw the ruling African National Congress gaining over 60% industrialisation, an expanding middle class and a youthful companies operate continues to be in a state of flux. privilege to introduce the 2014 of the vote and the emergence of a new political party, the population, augur well for the future of our business across The different markets in which we operate pose unique Massmart Integrated Annual Economic Freedom Fighters, which got 6.4% of the vote. Africa. economic, competitive, technological, regulatory, societal The issues of social transformation, service delivery, poverty, We continued our focus on growing our fresh food and environmental challenges of varying degrees of Report. Massmart adds and delivers unemployment and inequality dominated the election offering through its introduction in some of our Game complexity. The role of business in society beyond narrow campaign. stores and the ongoing roll out of Cambridge Foods. This financial returns is becoming a key theme, especially in sustainable value to our customers, Global economic growth remained largely anaemic. is an area of opportunity for growth that will continue to emerging markets such as ours. Massmart will continue to be our shareholders, our suppliers and While the American economy showed signs of recovery, receive our increased focus. We will continue to invest for a positive force for good in all our markets. Europe and China, both of whom are major trading partners future growth in current and new markets in South Africa Our core focus in helping people save money so that they our employees. We achieve this for South Africa and other African markets where we operate, and sub-Saharan Africa. live better is key to the sustainable growth and development experienced slowing growth. The impact of this was felt by of the different markets in which we operate. This is partly through our deep and relentless most of our sub-Saharan African markets, where the growth Board and Executive changes enabled by our relentless focus on responsible sourcing, focus on operational excellence, picture was mixed, although encouragingly, still higher than supplier development and mutually beneficial partnerships some regions elsewhere in the world. The year saw significant and well-managed changes with small, medium and micro enterprises. good business, sustainable business The South African economy experienced an at Board and Executive levels. The former Chairman The rollout of our ethics and compliance programme is unprecedented wave of protracted strikes with a mining of the Board, Mark Lamberti, stepped down and I was key to our responsibility as a trusted corporate citizen that is and growing our talent on an strike that lasted for months and a metal industry strike honoured to be appointed to replace him. The former a champion and a catalyst for good behaviour in the markets ongoing basis. that took weeks to resolve. The retail sector was impacted CEO, Grant Pattison, was replaced by Guy Hayward. David in which we operate. Our focus and emphasis on ethics and directly by these strikes given the systemic importance of Cheesewright, President and Chief Executive Officer of compliance require ongoing vigilance to ensure that they are both industries to the economy in general and to consumers’ Walmart International resigned and was replaced by Shelley at all times entrenched as part and parcel of our culture. disposable incomes in particular. Broader, President and CEO of Walmart EMEA. Andy Clarke, This is also linked to our commitment to sustainability of South Africa needs a joint effort to create and maintain CEO of ASDA, was appointed to the Board as a replacement not only our business but also the economies and societies productive industrial relations that are key to the stability for Jeff Davis, Walmart America CFO, who resigned from the in which we invest. Sustainability remains core to Massmart required to grow and expand the economy, create Board. Most recently Johannes van Lierop was appointed as a leading retailer in sub-Saharan Africa. and maintain jobs and promote the country’s global to the Board as CFO, following the resignation from the Our success is inextricably intertwined with the success competitiveness. This requires strategic and purposeful Board of Ilan Zwarenstein. of the countries and communities in which we operate. collaboration between government, business and trade We continue to invest in talent development, community unions, underpinned by a common commitment to make Group performance development, supplier development, education, job South Africa work for all. creation, entrepreneurship and the environment as ways of The comprehensive performance of the Group, which The energy situation continued to present another promoting sustainability. is described in detail throughout this Report, was solid and key challenge for the South African economy with load satisfactory, especially considering the tough environment shedding being implemented for the first time since 2008 under which the management team had to operate. We Appreciation when the country’s energy crisis first began. The stability view performance from a strategic, operational, financial and of the national electricity grid is key to the growth of the Over the past year, all our Divisions faced a very social perspective. economy on a sustained basis. Eskom needs to be stabilised challenging socio-economic environment. Notwithstanding All of our Divisions performed well, with the exception and repositioned for operational efficiency for it to play the they delivered pleasing results. In addition to that, good of Massdiscounters, which showed encouraging signs of pivotal role it has in ensuring reliable supplies of electricity. progress has been made with the integration process and improvement towards the end of the financial year. The focus started shifting towards leveraging off the skills and Board is very confident that the management team is expertise of our major shareholder. Strategy appropriately focussed on the challenges and opportunities The success of the Group is underpinned by its The key focus of our strategy is about bringing value to in its operating environment. exceptional talent and executive bench, commitment by all our customer on an ongoing basis. We do this by embracing Massmart people to our customers and the outstanding and innovation, focusing on cost containment and proactively Governance unwavering support of Walmart. identifying and dealing with areas of under-performance My thanks are due to Guy Hayward and every member The Group’s commitment to good corporate governance across the business. of Massmart’s management and staff; to all at Walmart is informed by our awareness of our responsibilities to all who continue to be very generous with their expertise and stakeholders and our commitment to ensure the highest warmth; and to my colleagues on the Board, whose counsel standards of governance. and oversight continues to be of immense value to the The Board adopted a policy which outlines the engagement Business and its stakeholders. process with our majority shareholder, Walmart, on key issues and clarifies expectations appropriately. The process for engagement with them is working well and Massmart continues to derive value from the skills and expertise of Kuseni Dlamini Walmart as a majority shareholder. Chairman Kuseni Dlamini 2 April 2015 Group Chairman 36 Leadership review Massmart Integrated Annual Report 2014 37 Our CEO’s letter to our stakeholders

The 2014 South African consumer economy was Financial performance Game SA’s trading profit before interest and tax grew marked by two distinct halves to the year – the first was Total sales up by ahead of sales in the second-half of 2014. The roll-out of the compromised by the five-month labour strike in the The Group’s financial performance is covered in useful Fresh offer continues with 66 Game stores in South Africa Mining sector which rippled, directly and indirectly, into detail in the Chief Financial Officer’s review but is summarised and Africa now offering this category. Food and Liquor sales associated service industries and communities. This period 10.4% briefly here. For the year to December 2014 (52 weeks) comprise 19.4% of Game total sales and Food and Liquor’s was probably also subdued from the after-shocks of the (R78,173 million) Massmart reported total sales of R78.2 billion, an increase growth in these comparable stores remains strong at 19.4%. collapse of unsecured credit lending. The second half was of 10.4% compared to the previous year, with comparable Game Africa’s total Rand sales, and sales in local currencies, noticeably stronger, as seen in the national sales data and EBIDTA before forex up by stores’ sales growth of 7.5% and product inflation of 4.8%. increased by 18.2% and 16.6% respectively. Profit growth was reports from South African retailers. This was likely as a Good management of gross margins and an increased below sales growth due to operational challenges, currency result of the absence of a negative, rather than the presence participation of higher-margin sales in Massbuild saw devaluation and the impact of our new stores opened in of a new or positive, impetus. Low economic growth, slightly higher Group gross margins in 2014 at 18.6% (Dec Nigeria in 2013-2014. The latter two issues impacted profit by 6.7% 2013: 18.4%). inadequate job creation and persistent inflation remain a (R2,887 million) R40 million; most of this in the second-half of 2014. pressure point for many South African consumers. Upper- As a result of the significant investment in new stores DionWired’s total sales growth was 13.2%. The brand and capacity in the last three years, total expenses grew income consumers remained resilient however, reflected in Operating profit before forex and interest up remains the destination store within its category. The robust sales in Makro and Builders Warehouse. by 11.7% which was ahead of sales growth. Within the core DionWired online offering now comprises 2.3% of total The 2014 African economy, similarly, experienced two business, expenses were well controlled and comparable DionWired sales (December 2013: 1.8%). halves to the year – the first was positive but the second expenses grew by only 7.1%. EBITDA of R2.9 billion, before affected by US Dollar strength and the decline in prices of 4.3% foreign exchange movements, grew by 6.7%, while Anti-competitive challenges oil and other key commodities. This caused several African (R2,015 million) Operating profit, excluding foreign exchange movements For the past two years we have defended several legal economies to weaken and some were affected by currency and interest, increased by 4.3%. actions filed against our Massdiscounters/Game division devaluations, causing some profit pressure on our non- Higher net interest paid from funding several significant by three of the major food retailers in South Africa and South African businesses that represent 8.1% of Group sales. property acquisitions in 2013-14, and an adverse movement a prominent property fund also located in South Africa. in foreign exchange translations, resulted in headline These interdictory actions for injunctive relief are based earnings decreasing by 10.2%. Excluding foreign exchange on contractual and delictual theories of law relating to movements, headline earnings declined by 3.5%. exclusivity and restrictive usage clauses in separate lease agreements between the relevant landlord and Game on Operational highlights the one hand, and one or more of the major food retailers on the other. These disputes arise when one or more of • Excellent performances from Makro, Builders Warehouse these retailers are co-located in a particular shopping centre and Builders Express. Achieved through leveraging skills, with a Game store that seeks to offer a limited fresh food scale, SAP and supply chain. Profit growth accelerated in offering. Along with other legal defences, we have asserted the second half • Game South Africa - good second half, growing profit that the blanket enforcement of these clauses by the major however Game Africa declined from weaker economies, food retailers contravenes South African competition law. new stores and currency devaluations In October 2014, Massmart lodged a formal complaint with • Game Food Retail growth continues: now R3.2 billion; the South African Competition Commission and requested positive impact on General Merchandise sales the Commission to initiate a formal investigation into this • Margin recovery in Masscash Wholesale through focus behaviour. In December 2014, the Commission notified on direct distribution and larger stores us that they would proceed with a formal investigation • Great performance by new Builders Warehouse stores in of our claims, together with similar complaints raised by southern Africa other stakeholders. The various proceedings, including the • High consumer brand affiliation for Cambridge Food; Commission’s investigation, are on-going. If the conclusion strong trading performance of these proceedings is not in our favour--in whole or in part- • Successful launch of Makro ecommerce site offering -then a key Group strategy in certain localities in South Africa General Merchandise and Liquor could be delayed or curtailed. Masswarehouse Divisional operational review Makro’s total sales for the year increased by 11.8%. Massdiscounters Comparable sales increased by 10.7% with product inflation of 5.5%. Makro’s trading profit before interest and tax Total sales for the year increased by 10.2%. Comparable increased by 11.2% as the business traded superbly in a sales grew by 4.8% with product inflation of 3.1%. Game challenging Wholesale Food environment. It outperformed South Africa had a better second-half and an especially in Liquor and General Merchandise. Further it extracted strong fourth quarter where comparable sales grew by 8.1%. value from the new stores opened in 2011-2012. Our Food The weak performance for much of the 2014 financial year business continues to benefit from increased sales to retail however, caused pressure on overall profitability resulting customers. Importantly, we have gained additional share in in Massdiscounters’ trading profit before interest and tax the Retail and Wholesale Liquor markets. Guy Hayward decreasing by 44.7%. Group CEO 38 Leadership review Massmart Integrated Annual Report 2014 39

Our CEO’s letter to our stakeholders continued

The General Merchandise and Liquor online offerings, Walmart I welcome Johannes van Lierop, Ilan’s successor, to launched in March and October 2014 respectively, are trading Massmart and the Board, and look forward to his contribution. above expectations but are not without their logistical It is almost five years since we first met Walmart and Johannes has extensive multinational experience in Africa challenges, especially over the Christmas rush. almost four since its 52% ownership of Massmart formally where he has lived in three different countries and covered The Fruitspot grew sales and profit, and compared to began in June 2011. over 20 countries at various times over the last 18 years. In December 2013 has doubled its intra-Group sales. Net trading space Net trading space Becoming part of a multinational spanning the globe was particular, he was with Diageo from 2000 to 2011 where he increased by 30,857m² increased by 25,992m² initially challenging, particularly as Massmart was already an worked in various roles including Finance, Supply Chain and Massbuild (6.5%) (6.3%) African multinational organisation. Since then, all functional Planning, finishing as CFO of the Diageo-subsidiary Guinness Massbuild grew total sales for the year by 14.6%. and operational relationships between Walmart and Game DIY, Home Improvement Nigeria in 2011. He joins Massmart from Bharti Airtel Africa in Comparable sales increased by 9.1% with product inflation 130 stores and Building Materials Massmart have found the appropriate business owners and Kenya where he was CFO from 2011 to 2014. of 5.9%. Massbuild’s trading profit before interest and tax are useful and constructive. I echo the remarks made by Kuseni Dlamini concerning (11 opened - 2 in Africa, Builders Warehouse increased by 15.0%. There are now multiple points of contact between the our new non-Executive Directors. 2 closed) 35 stores Builders Warehouse and Builders Express performed businesses – these are not limited to executive level and (3 opened, 2 closed - exceptionally, and are clearly market leaders in their categories. General Merchandise stretch from: speaking to ASDA about the intricacies of effectively 2 relocations) Our people We are particularly encouraged by the success of our five stores discounter and Food the Fresh supply chain, attending ecommerce discussion Trades in South in Botswana and Mozambique. The new store in Maputo, retailer with Walmart.com, attending meetings to lower store Our Group’s success and sustainability depends on Africa, Botswana and Mozambique opened in July 2014. It is enjoying strong trading Trades in South Africa, construction costs, or our Divisional management attending the five Divisional CEOs, and the over 47,000 colleagues Mozambique and as a result we are actively exploring sites in other southern Botswana, Ghana, Lesotho, a two-week deep-dive with the Walmart Canada supply employed across all our businesses, in stores, distribution African countries. Malawi, Mozambique, Builders Express chain team. Much of the value-transfer from Walmart to centres, offices, processing plants and across 12 countries. Builders Trade Depot struggled, likely due to some of the Namibia, Nigeria, Tanzania, 41 stores Massmart is in the form of intellectual property and retail Many have a significant length of service with Massmart success and dominance of Builders Warehouse and Builders Uganda and Zambia (7 opened - including skills. while others have recently joined. I thank all of them for their hard work, dedication, customer service and loyalty. Express. The new Superstore format continues to exceed DionWired 3 converted from BTD, A strategic benefit however, is the significantly lower costs expectations. We are now committed to expanding this store 23 stores 2 closed) of international IT licences including SAP. This, for example, format beyond the Gauteng province, South Africa. (2 opened, 1 closed) Trades in South Africa has enabled Massmart to plan SAP implementations across Prospects Masscash Hi-tech retailer Builders Trade Depot Cambridge and Game that will transform the retail execution For the 13 weeks to 29 March 2015, total sales increased by 16 stores in those businesses over the longer-term. In the extremely competitive South African Wholesale Trades in South Africa 9.5% and comparable sales increased by 7.4%. Recent sales (1 opened, 5 closed and trends in were adversely affected by the 21 March public and Retail Food environments, total sales increased by 8.0%. converted to BEX & BSS) This was impacted by slowing inflation in our categories. Transformation holiday falling on a Saturday this year, rather than the Friday Trades in South Africa as was the case in the prior year. Allowing for this, the level Comparable sales increased by 6.3% with product inflation For a business to be sustainable over the long-term it Builders Superstore of sales growth is similar to that seen in the latter part of of 4.8%. Masscash’s trading profit before interest and tax must be instinctively responsive to the nature, needs and 8 stores 2014, and so may be indicative of future sales levels for the increased by 14.9%. direction of the society within which it operates. We believe (6 opened - including short-term. We remain concerned however, by the relatively Sales growth of 2.7% in our South African Wholesale that diversity makes a business stronger, more resilient and 2 converted from BTD) fragile South African consumer economy and we are business was affected by severe challenges at our two largest more responsive. As a major South African Group, our focus Trades in South Africa cautious about the impact of lower oil prices on those larger stores; adjusting for these saw acceptable sales growth of 5.3%. remains steadfast on the Transformation of our employee Sales growth in our non-South African Wholesale businesses African countries with some dependency on oil revenues. body, especially at senior- and executive-management Regardless, we remain focused on our strategic priorities to was 8.0%. We remain excited at the potential of Wholesale and levels. Similarly, through our involvement with the Supplier Hybrid formats in southern Africa. improve sustainably Group profitability and to grow in our Trades in South Africa Net trading space Development Fund, we are making progress in the core businesses and markets. Masscash Retail performed very well, reporting comparable Transformation of the South African FMCG supply chain. Our Makro increased by 1,138m² (0.3%). The financial information on which this outlook sales of 9.7%, improving profitability and strong customer progress in both these areas is described in greater detail on 19 stores Wholesale statement is based has not been reviewed or reported on by price-perception. Both the Cambridge and Rhino brands pages 79-80 and 99-101 respectively. receive strong customer support and loyalty. (no store changes) 73 stores the Company’s external auditors. Warehouse-club trading in (2 closed) The Board Strategic priorities Food, General Merchandise Trades in South Africa, Conclusion Our areas of strategic focus remain unchanged. We and Liquor Botswana, Lesotho, My Board colleagues are a source of great counsel Our appreciation and gratitude is due to all our will continue to improve on Group profitability through a Fruitspot Mozambique, Namibia and and support, with the occasional challenge too. Each stakeholders for their contribution and commitment to continued focus on sales, operating margin and expenses. Established wholesaler and Swaziland Board member contributes to me in my role as CEO and, Massmart during this period. We will always be prepared to invest profit into price, to drive distributor of fresh and cut Retail formally and informally, I have ready access to skills and sales and the productivity loop. We aim to achieve this through: fruit and vegetables. 47 stores experience across diverse areas including international retail, • Driving the growth and profitability of the core South (3 opened, 3 closed) multinationals, corporate governance and risk, South African politics and transformation. This counsel, of course, extends African business over the medium-term. This is a priority Trades in South Africa and we are making good progress beyond me to my Executive Committee colleagues and Guy Hayward • Expanding further into Food Retail and Fresh in our Shield buying senior management. Chief Executive Officer existing formats and Masscash Retail association After assisting with the transition of the new CFO, Ilan 2 April 2015 • Expansion in sub-Saharan Africa. This remains a priority and Trades in South Africa, Zwarenstein resigned from Board on 12 March 2015. Ilan has in the next two years we anticipate opening 13 new stores Botswana, Namibia and been with Massmart for nine years and was Group Finance representing African space growth of about 50% Swaziland Director from 2012. His contribution to Massmart has been • We will continue to expand and improve our significant at many levels and beyond Finance too, and the ecommerce offerings Board and I acknowledge and thank him for this. 40 Leadership review Massmart Integrated Annual Report 2014 41

Our Board

The Board of Massmart

is responsible for directing JP Suarez (51) Guy Hayward (49) the Group towards Senior Vice President of Realty Chief Executive Officer achieving Massmart’s Design, Construction and Appointed 15 May 2001 Strategy for Walmart US BCom, CTA (UCT), CA(SA) Appointed 20 June 2011 vision and mission. E R SE BA (Hons) (Tufts University) JD (University of Pennsylvania) SE Johannes van Lierop (48) Chief Financial Officer Appointed 12 March 2015 Hotel and Catering Management rs Degree, Bachelor of Business to Ex Andy Clarke (51) c e Economics, RA (Amsterdam) re cu i t President and Chief D iv e e E R v Executive Officer of ASDA ti D u ir Appointed 16 July 2014 c e e c x t E o - r n s

o

n I t n n d Kuseni Dlamini (46)

e e

d p

e

n Chairman of the Board

n e d

p Appointed 10 April 2014

e e

n

d BA (Hons) (KZN), MPhil (Oxon)

t

n

i

n -

o Shelley Broader (50) n N M

n o

-

N

President and Chief Executive E

x

Officer of Walmart’s EMEA region e

c

u

t

Appointed 16 July 2014 i

v

e

BA (Washington State University)

D

i

r Chris Seabrooke (62) e

c

N M t

o

r

s Deputy Chairman of the Board

Appointed 1 February 2000 BCom, BAcc, MBA, FCMA A M R N

Phumzile Langeni (40) Dr Nolulamo (Lulu) Gwagwa (56) Appointed 25 August 2004 Appointed 1 November 2006 BCom (Natal), BCom Hons (UNISA) MSc (KZN), MSc (LSE), PhD (UCL) SE A R A R A Audit

E Executive

M Remuneration

N Nomination

R Risk For the complete and detailed CVs of the Board members, SE Social and Ethics please visit www.massmart.co.za/iar2014/CVs 42 Leadership review Massmart Integrated Annual Report 2014 43

Our Executive Committee

The Massmart Executive Ilan Zwarenstein (40) Guy Hayward (49) Committee is the Group Finance Director (outgoing) Chief Executive Officer Appointed 2012 most senior executive BCom, BAcc, CA(SA) Appointed 2001 decision-making body BCom, CTA (UCT), CA(SA) Robin Wright (59) R SE

in the Group. Divisional Chief Executive of Massdiscounters Johannes van Lierop (48) Appointed 1998 BCom (Natal), CA(SA) Chief Financial Officer Appointed 2015 Hotel and Catering Management Llewellyn Walters (51) Degree, Bachelor of Business Economics, RA (Amsterdam) Divisional Chief Executive of Massbuild R Chairman of the Supply Chain and Africa Forums Appointed 2008 Neville Dunn (46) BA, LLB (Wits) Divisional Chief Executive of Masscash Wholesale Appointed 2002 Kevin Vyvyan-Day (50) BCom (Natal), CA(SA) Divisional Chief Executive of Cambridge Food and Chairman of the General Merchandise Forum Norman Gray (58) Appointed 2005 Chief Ethics and BCom, BAcc (Wits), CA(SA) Compliance Officer Appointed 2015 MBA (UK), FCMI (UK), Dip Llewellyn Steeneveldt (46) Mgmt (UK), CRMA and Certified Ethics Officer Group Commercial Executive Chairman R of the Real Estate Committee Chairman of the TIP and Operations Forums Doug Jones (42) Appointed 2009 BSc Eng (Phys Met), GDE (Industrial), MBA Divisional Chief Executive of Masswarehouse, Chairman of the Food Forum Chairman of Fruitspot and Makro Logistics Services Chairman of Massmart Corporate University’s Mike Spivey (51) School of Management Development Massmart General Counsel Appointed 2012 Appointed 2011 BCom, PGDA (UCT), CA(SA) BSc and Juris Doctorate (University of Arkansas), Master’s in Law in International Banking and Finance (Boston University) Brian Leroni (50) R Group Corporate Affairs Executive Pearl Maphoshe (46) Appointed 2007 Group Human Capital Executive, BA (Wits), MPhil (Stellenbosch) Chairperson of the HR Forum and member SE of the Social and Ethics Committee Appointed 2007 R Risk BA (Hons), HDipEd (Durban-Westville), MA (London) For the complete and detailed CVs of the Executive Committee, SE Social and Ethics please visit www.massmart.co.za/iar2014/CVs 02 Our performance

We have structured this Financial and manufactured capital 46 section to demonstrate our performance against Human capital 78 the six types of capitals. Intellectual capital 92 These capitals represent Social capital 96 an important picture Relationship capital 104 of our organisation’s value creation. Natural capital 108 46 Our performance Massmart Integrated Annual Report 2014 47

Increased Decreased capital depreciation, Massmart defines financial capital as employment expenditure levels and finance excluding property acquisitions the funds available to and utilised by the costs Group. Manufactured capital is defined Reduced growth in as our Divisional structure through which occupancy we sell our products and services. costs

Financial and Comparable Real volume costs were growth well-controlled manufactured in sales capital

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

Johannes van Lierop Definition:Earnings before interest, tax, CFO depreciation, amortisation and impairments. 48 Our performance Massmart Integrated Annual Report 2014 49

Chief Financial Officer’s reviewcontinued

Our year at a glance Impact of the 53rd week Summary Consolidated Income Statement During the year, the South African economy continued In line with most international retailers, Massmart runs its 52 weeks 52 weeks 53 weeks to struggle as labour in a number sectors went on strike internal accounting and administrative timetable using the December December December forcing the level of unemployment to around 25%. In retail calendar which treats each financial year as an exact 52- 2014 2013 52 week 2013 addition, fluctuating fuel costs, the country’s power crisis, week period. This has the effect of a day per year being ‘lost’ Rm (Audited) (Pro forma) % change (Audited) the weakening Rand and some Food commodity deflation which is then caught up every seventh year by including in the second half of the year, exacerbated the already fragile a 53rd week in that financial year. This is not an ‘artificial’ Revenue 78,319.0 71,035.3 10.3 72,512.9 trading environment. The slowdown in credit extension, week – the Group’s earnings and cash are higher as a result Sales 78,173.2 70,790.7 10.4 72,263.4 specifically unsecured credit, coupled with an increase in of trading during this extra week. The pro forma financial Cost of sales (63,610.8) (57,733.8) (10.2) (58,926.4) the level of household debt to disposable income, led to effects, for which the Directors of Massmart are responsible, Gross profit 14,562.4 13,056.9 11.5 13,337.0 moderate growth in consumer spending. These factors are provided for illustrative purposes only, to show the effect Other income 145.8 244.6 (40.4) 249.5 affected all consumers, but the lower- and middle-income of the additional week of trading in the prior year on the Depreciation and amortisation (846.6) (731.1) (15.8) (731.1) consumers were most impacted. financial information of Massmart, allowing for a comparison Impairment of assets (24.6) (41.6) 40.9 (41.6) These challenging conditions for consumers resulted in of the 52-week periods. The pro forma financial effects have strong performances in Massbuild and Makro being offset been prepared using accounting policies that comply with Employment costs (6,109.0) (5,357.5) (14.0) (5,423.5) by a lesser performance in Game SA and difficult trading IFRS and the financial effects have been compiled from Occupancy costs (2,678.8) (2,544.5) (5.3) (2,555.3) conditions in Wholesale Food. the audited financial information for the 53 weeks ended Other operating costs (3,033.3) (2,693.1) (12.6) (2,750.3) 2014 was an important year from an investment December 2013. In deriving our 52-week comparative, Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 2,084.7 perspective as we continued to acquire properties out of we have excluded the 53rd week. The pro forma 52-week Foreign exchange (loss)/gain (49.8) 67.8 67.8 which our key stores operate; we expanded our Food Retail period results have been reviewed by independent external Operating profit before interest 1,966.1 2,001.5 (1.8) 2,152.5 offering in our existing structure across three divisions; and auditors, Ernst & Young Inc. and their unmodified review -- Finance costs (386.8) (278.4) (38.9) (283.8) increased our African footprint. These investments resulted report is available for inspection at the Company’s registered in increased employment, depreciation and finance costs office. The review was performed in accordance with ISAE -- Finance income 41.5 28.6 45.1 28.7 and reduced the growth in occupancy costs. 3420 Assurance Engagements to Report on the Compilation Net finance costs (345.3) (249.8) (38.2) (255.1) During the year, the relationship with Walmart has of Pro Forma Financial Information Included in a Prospectus Profit before taxation 1,620.8 1,751.7 (7.5) 1,897.4 continued to deliver great benefits to Massmart which for the year ended 29 December 2013. Taxation (483.4) (512.6) 5.7 (555.3) are unique and will assist Massmart to form a competitive Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1 advantage. As a shareholder, Walmart has greatly assisted On a high level, the estimated impact of the the Group with its strategic journey into Food Retail; the 53rd week was as follows: Profit attributable to: roll out of our supply chain and logistics strategy; and the -- Owners of the parent 1,079.8 1,180.0 (8.5) 1,283.0 introduction of Every Day Low Price (EDLP). Sales -- Non-controlling interests 57.6 59.1 (2.5) 59.1 Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1

R1,472.7 million Basic EPS (cents) 497.8 543.9 (8.5) 591.4 Operating profit before foreign exchange movements Diluted basic EPS (cents) 492.9 538.1 (8.4) 585.1 and interest of Dividend (cents): -- Interim 146.0 146.0 - 146.0 R151.0 million -- Final 275.0 275.0 - 275.0 -- Total 421.0 421.0 - 421.0 Profit before taxation R145.7 million Headline earnings of R103.0 million 50 Our performance Massmart Integrated Annual Report 2014 51

Chief Financial Officer’s reviewcontinued

Sales Inflation Total Group sales for the December 2014 financial year Aligning to our strategy of owning key Product inflation was 4.8% suggesting real comparable volume growth of 2.7% increased by 10.4% to R78.2 billion and comparable stores’ properties, owned store sales as a December December sales growth was 7.5%. A store is considered comparable in percentage of total sales have increased to th 2014 2013 its 13 month of trading and is removed from the calculation 52 weeks 53 weeks of comparable sales from the first day of the month of Rm (Audited) (Audited) closure. 30.7% Other than Cellular, the Group maintained or grew market (Dec 2013: 27.3%) Group product inflation 4.8 2.7 share in each major category in which it trades during the year. Food and Liquor inflation 5.1 4.1 Owned store sales Home Improvement inflation 5.9 3.7 Total Group sales increased by 10.4% Leased store sales General Merchandise inflation 3.6 0.1

(DecR78.2 2013: R70.8 billion) billion

Total comparable sales

(Dec7.5 2013:% 3.8%)

Africa sales in Rands grew by 16.2% becoming 8.1% of total sales (Dec 2013: 7.7%) Gross profit Operating expenses and other income 8.1% The movement in operating expenses has largely been The Group’s gross profit % increased to driven by the acquisition of some of our key stores and the roll out of new stores during the year, the proliferation of our Food Retail offering and the expansion of our African footprint. (Dec18.6 2013: 18.4%)% During the year, 28 stores were opened and 12 were 2014 closed, resulting in a total of 392 stores at December 2014. The increase in gross profit is as a result of a combination Net trading space increased by 3.9% to 1,539,295m². of an increased contribution from Game Africa and For more information on the store activities within the improved margin performance in Massbuild, Masscash four Divisions, refer to pages 12 - 27 in this Integrated Annual 91.9% Retail and Makro. These were partially offset by a soft gross Report. margin performance in Masscash Wholesale due to some . 7 7% commodity deflation; difficult trading conditions in Game; Comparable operating expenses and a greater Food contribution at lower margins across the well controlled and increased by Group. The Group’s gross margin is dependent upon the sales mix across the Divisions and the trading aggression 7.1% 2013 occasioned by competitor activity. In a positive economic (Dec 2013: 7.2%) cycle, it should increase marginally owing to the increased This was lower than the comparable sales growth of 7.5% contribution from the higher-margin Massbuild Division, as well as a higher proportion of General Merchandise sales. Total operating expenses increased by The opposite would be the case in a negative economic 92.3% cycle. Gross profit also includes rebates and other forms of income earned from suppliers as well as on-going revenue higher11.7 than% the sales growth of 10.4% from sales of cellular products and airtime. SA Sales DEC DEC DEC Rest of Africa sales 2012 2013 2014 Further information on the Group’s sales can be found in note 5 of the Group Annual Financial Statements www.massmart.co.za/iar2014/groupafs 52 Our performance Massmart Integrated Annual Report 2014 53

Chief Financial Officer’s reviewcontinued

Operating profit before interest (Rm) • Operating profit before interest and forex of R1,933.7 million 0 0,500 1,000 1,500 2,000 2,500 3,000 3,500 2013 • Total Group sales for the December 2014 financial year increased by 10.4% 1 A strong trading performance in Makro and Massbuild; offset by: 2013 2 • Greater Food contribution across the Group 1,933.7 • A softer margin performance in Massdiscounters attributable to clearance activities • Deflation in some of our Food commodities • Comprises royalties and franchise fees from in-store third parties, third party rental income, fair value Sales-related 3 movements on investments carried at fair value, dividend income, management and administration fees, 1 gross margin distribution income, and general commission 1,357.9 • Prior year included insurance proceeds • Other income is shown in more detail in note 5 of the Group Annual Financial Statements: www.massmart.co.za/iar2014/groupafs Price-and-mix- • Total increase of 14.0% / Comparable increase of 8.5% related gross 4 • 48.1% of total operating expenses / 7.8% of sales

2 margin 147.6 • Increase in staff (Full-Time Equivalents) of 7.6% to +/- 47,000 FTE’s • Includes an IFRS 2 Share-based Payment charge of R127.9 million (2013: R126.2 million). Incremental cost of the new scheme introduced in the second half of 2013 was R50.9 million. The Group’s Employee Share Incentive Schemes are described in more detail in note 29 of the Group Annual Financial Statements: www.massmart.co.za/iar2014/groupafs Other income • Total increase of 5.3% / Comparable increase of 3.6% 3 (98.8) 5 • 21.1% of total operating expenses / 3.4% of sales • 3.9% increase of net new trading space to a total of 1,539,295m • Electricity, rates and taxes increased by approximately 15% • Property acquisitions resulting in a reduction in the growth of occupancy costs Employment • Includes operating lease expense of R1.9 billion. The Group’s operating lease commitments are 4 costs described in more detail in note 32 of the Group Annual Financial Statements: (751.5) www.massmart.co.za/iar2014/groupafs • Depreciation growth of 15.8% is greater than sales growth of 10.4% 6 • 6.9% of total operating expenses / 1.1% of sales Occupancy • The opening of new stores, DC’s and the acquisition of key properties is driving the increase. Rate of 5 costs increase should reduce significantly from 2015 (134.3) • The impairment of assets in the current year relates to the impairment of tangible assets in the Masscash Division as a result of store closures. The impairment also includes the write-down on reclassification to non-current assets classified as held for sale of a Masscash store for which a sales agreement had been Depreciation, entered into at year end. Further details on this impairment can be found in note 6 of the Group Annual Amortisation Financial Statements: www.massmart.co.za/iar2014/groupafs and Impairment 6 of Assets (98.5) • Total increase of 12.6% / Comparable increase of 7.8% 7 • 23.9% of total operating expenses. 3.9% of sales • Credit card commission increased by 15.5% • Includes insurance, bad debts, travel, credit card commission, repairs and maintenance, pre-opening Other operating costs, security costs, IT research and maintenance costs, professional fees, advertising and marketing, costs stationery and consumables. Combined, this category represents the most manageable or variable costs. 7 This category of expenses will continue to receive intense management focus (340.2) • Also included is the cost of the bank intercharge fee which has now been decreased by the SARB and should result in a saving of approximately R55 million in 2015. Significant items, included in other operating costs, can be found in note 8 of the Group Annual Financial Statements: www.massmart.co.za/iar2014/groupafs 2014 • Operating profit before interest and forex of R2,015.9 million 2,015.9 2014 • Increase of 4.3% 54 Our performance Massmart Integrated Annual Report 2014 55

Chief Financial Officer’s reviewcontinued

Annualised benefit of property acquisitions made over the last 2 years

Saving on lease payments: R210 million

Less finance costs:R109 million

Less depreciation costs: R36m

Net savings: R65 million

Foreign exchange (loss)/ gain Reconciliation between Trading profit before interest and The Group is primarily exposed to foreign exchange Whilst the weakening of the Rand against the average Operating profit before foreign exchange movements and interest losses and gains through its foreign currency and Rand basket of African currencies resulted in a foreign exchange 52 weeks 52 weeks 53 weeks denominated loans to its African subsidiaries, and its gain in the African subsidiaries, it was the strengthening of December December December US Dollar denominated current liability to Walmart. The the US Dollar against the average basket of African currencies 2014 2013 % 2013 Group hedges all firm commitments relating its foreign that resulted in a net loss on the Group’s loans to its African Rm (Audited) (Pro forma) change (Audited) denominated trading liabilities by taking out foreign subsidiaries. exchange contracts (FEC’s). The Group naturally hedges its Further detail on the Group’s foreign exchange risk Trading profit before interest 2,061.7 1,994.4 3.4 2,145.4 African loans by lending to its subsidiaries in various African management can be found in note 40 of the Group’s Impairment of assets (24.6) (41.6) 40.9 (41.6) countries in various African currencies, thereby spreading Annual Financial Statements: Loss on disposal of business - (1.8) - (1.8) its foreign exchange exposure across a broad basket of www.massmart.co.za/iar2014/groupafs currencies. In addition, the Group limits its exposure to any Further details regarding the Group’s foreign exchange BEE transaction IFRS 2 charge (21.2) (17.3) (22.5) (17.3) one currency by funding a portion of the African subsidiaries’ exposure can be found in note 7 of the Group’s Annual Operating profit before foreign exchange movements and start-up capital via in-country bank loans. Financial Statements: interest 2,015.9 1,933.7 4.3 2,084.7 www.massmart.co.za/iar2014/groupafs EBITDA and EBITDAR Breakdown of foreign exchange (loss)/gain December December December 2014 2013 2013 December December 52 weeks 52 weeks % 53 weeks 2014 2013 Rm (Audited) (Pro forma) change (Audited) 52 weeks 53 weeks Rm (Audited) (Audited) Operating profit before foreign exchange movements and interest 2,015.9 1,933.7 4.3 2,084.7 Foreign exchange (loss)/gain arising from loans to African operations (35.0) 73.1 Depreciation and amortisation 846.6 731.1 15.8 731.1 Foreign exchange gain arising from an investment in a trading and logistics structure 4.8 22.3 Impairment of assets 24.6 41.6 40.9 41.6 Foreign exchange loss arising from the translation of foreign creditors (19.6) (27.6) EBITDA 2,887.1 2,706.4 6.7 2,857.4 Total (49.8) 67.8 Occupancy costs 2,678.8 2,544.5 5.3 2,555.3 EBITDAR 5,565.9 5,250.9 6.0 5,412.7 56 Our performance Massmart Integrated Annual Report 2014 57

Chief Financial Officer’s reviewcontinued

Net finance costs The main reason for the rate being above the standard Summary Consolidated Statement of Comprehensive Income 28% is the fact that we have continued to adopt a conservative approach to our tax as well as the fact that the 52 weeks 52 weeks 53 weeks Net finance costs increased by old Employee Share Incentive Scheme cost is a disallowable December December December expense. We expect Massmart’s future effective tax rate to 2014 2013 52 week 2013 remain just below 30%. Rm (Audited) (Pro forma) % change (Audited) 38.2% Massmart is unconcerned about any specific element Profit for the year 1,137.4 1,239.1 (8.2) 1,342.1 Higher average borrowings at of historical tax risk in the Group, but there remains the uncertainty that material adjustments arising from Items that will not subsequently be re-classified to the potentially unfavourable tax assessments of previous tax income statement: (8.9) 5.7 5.7 returns, some of which have not yet been assessed by SARS (DecR2.9 2013: R2.0 billion)billion and other African tax authorities, could impact future tax Post retirement medical aid actuarial (loss)/gain (8.9) 5.7 5.7 charges. Net additional medium-term funding obtained in 2014 Items that will subsequently be re-classified to the More information relating to taxation can be found in income statement: (55.6) 55.8 55.8 note 10 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs Foreign currency translation reserve (53.7) 47.2 47.2 R1.2 billion Cash flow hedges 1.4 7.0 7.0 In addition to the main drivers already highlighted, Deferred taxation Revaluation of listed shares (3.7) 4.7 4.7 the increase in finance costs is also attributable to higher Income tax relating to components of other comprehensive income 0.4 (3.1) (3.1) interest rates, the acquisition of some of the remaining non- The deferred taxation asset arises primarily from controlling interest in entities within the Masswarehouse numerous temporary differences, including tax deductions Total other comprehensive (loss) / income for the year, net of tax (64.5) 61.5 61.5 and Masscash Divisions, and the payment of contingent on trademarks, the operating lease liability arising from the Total comprehensive income for the year 1,072.9 1,300.6 (17.5) 1,403.6 consideration on historic business combinations in the lease-smoothing accounting policy, and unutilised assessed losses. This net asset will reduce over time as the associated Masscash Division. Total comprehensive income attributable to: Further details regarding the Group’s finance costs and tax benefits are utilised. Net deferred tax increased from -- Owners of the parent 1,015.3 1,241.5 1,344.5 interest rate risk exposure and management can be found R585.5 million at December 2013 to R600.9 million at -- Non-controlling interests 57.6 59.1 59.1 in note 9 and note 40 of the Group’s Annual Financial December 2014. More information relating to deferred taxation can be Statements respectively: Total comprehensive income for the year 1,072.9 1,300.6 (17.5) 1,403.6 found in note 18 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs www.massmart.co.za/iar2014/groupafs Further information on the movements in other comprehensive income can be found in note 23 of the Group’s Annual The Group’s gearing ratio (debt:equity) increased to 44.5% Financial Statements: www.massmart.co.za/iar2014/groupafs (Dec 2013: 29.7%). Further details regarding the Group’s capital risk Headline earnings management can be found in note 40 of the Group’s Annual Financial Statements: The main reason for the decrease in earnings and Headline Earnings www.massmart.co.za/iar2014/groupafs headline earnings is the increase in employment, occupancy, 52 weeks 52 weeks 53 weeks depreciation and amortisation, and interest costs already December December December discussed. 2014 2013 52 week 2013 Dilutive headline EPS is determined after taking into Rm (Audited) (Pro forma) % change (Audited) Taxation and tax rate reconciliation account potentially dilutive shares of 2.1 million (Dec 2013: 2.3 million shares) that arose due to the higher weighted- Reconciliation of profit for the year to headline earnings December December average Massmart share price during this financial year in Profit for the year attributable to owners of the parent 1,079.8 1,180.0 (8.5) 1,283.0 2014 2013 comparison to the exercise price of the Employee Share -- Impairment of assets 24.6 41.6 41.6 Rm (Audited) (Audited) Incentive Scheme grants. -- Loss on disposal of tangible and intangible assets 1.4 11.9 11.9 The impairment of assets in the current year relates to the The rate of taxation is impairment of tangible assets in the Masscash Division as -- Loss on disposal of business - 1.8 1.8 reconciled as follows: a result of store closures. The impairment also includes the -- Total tax effects of adjustments (0.3) (3.8) (3.8) Standard corporate taxation rate 28.0 28.0 write-down on reclassification to non-current assets held for Headline earnings 1,105.5 1,231.5 (10.2) 1,334.5 Non-taxable income and sale of a Masscash store for which a sales agreement had been Headline earnings before foreign exchange (taxed) 1,141.4 1,182.7 (3.5) 1,285.7 disallowed expenses 2.8 (2.0) entered into at year end. Further details on this impairment can Allowances on lease premiums be found in note 6 of the Group Annual Financial Statements: Headline EPS (cents) 509.7 567.7 (10.2) 615.2 and improvements (0.1) (0.3) www.massmart.co.za/iar2014/groupafs Headline EPS before foreign exchange (taxed) (cents) 526.2 545.2 (3.5) 592.7 Headline earnings is described in more detail in note 12 Diluted headline EPS (cents) 504.7 561.6 (10.1) 608.6 Assessed loss not utilised 2.0 1.4 of the Group’s Annual Financial Statements: Diluted headline EPS before foreign exchange (taxed) (cents) 521.1 539.4 (3.4) 586.4 Other - including foreign tax www.massmart.co.za/iar2014/groupafs adjustments (2.9) (2.2) Effective tax rate 29.8 29.3 58 Our performance Massmart Integrated Annual Report 2014 59

Chief Financial Officer’s reviewcontinued

Summary Consolidated Statement of Financial Position Acquisition of businesses Investments and other financial assets December 2014 December 2013 % During this same period, the Group also acquired two During February 2014, the Group’s participation in an Rm (Audited) (Audited) change Liquor businesses in the Massdiscounters Division. Both international treasury, shipping and trading business of of these acquisitions were aligned to the Group’s strategy R117.4 million terminated, and as a result, the investment was Assets of rolling out Retail Food and Liquor. Together these realised. Non-current assets 11,018.3 10,111.8 acquisitions amounted to a net cash purchase price of R2.9 The Group sells extended warranties and places general Property, plant and equipment 7,239.2 5,988.1 20.9 million and gave rise to goodwill of R2.4 million. insurance through vehicles facilitated by Mutual & Federal. Goodwill and other intangible assets 2,958.7 2,928.8 During the current year, final payments of R90 million, In addition, the Group will sell credit life insurance through a Investments and other financial assets 158.2 522.8 included in working capital movements, were made to vehicle by arrangement with Guardrisk. This cell arrangement settle contingent consideration liabilities raised on historical was capitalised in the current year with no life products sold Deferred taxation 662.2 672.1 business combinations in the Masscash division. during the current financial year. The Group’s investments in Current assets 17,870.1 16,036.1 insurance cell captives amounted to R125.2 million (Dec 2013: Other current financial assets 229.3 - Tangible and intangible assets R100.3 million) at year end. Inventories 11,228.8 10,115.5 11.0 The Group also holds other listed and unlisted investments Trade, other receivables and prepayments 4,288.3 3,712.5 15.5 Increased by to the value of R10.1 million (Dec 2013: R14.2 million). Taxation 56.3 12.0 More information relating to investments can be found Cash and bank balances 2,067.4 2,196.1 in note 16 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs Non-current assets classified as held for sale 18.0 - 14.4% At year end, interest-free Employee Share Trust Loans Acquisition of key strategic Total 28,906.4 26,147.9 of R37.6 million (Dec 2013: R46.7 million) are owed by properties of the Group for participants in terms of the old Massmart Employee Share Equity and liabilities Incentive Schemes, R15.1 million of which is reflected in other Total equity 5,527.2 5,369.6 R784.9 million current financial assets in the current year. Equity attributable to owners of the parent 5,334.4 5,173.0 3.1 The finance lease deposit of R21.9 million was reversed during the 2014 financial year, upon acquisition of one of Non-controlling interests 192.8 196.6 Completed construction of our flagship Mozambique Builders Warehouse store for the property companies referred to earlier, that houses the Non-current liabilities 3,236.8 2,206.4 Makro Strubens Valley store. Interest-bearing liabilities 2,133.9 1,178.7 At year end the property loan of R215 million raised in 2013 Deferred taxation 61.3 86.6 R91.7 million was transferred from non-current investments and other financial assets to other current financial assets. During the Other non-current liabilities and provisions 1,041.6 941.1 Impairment to property, plant prior financial year the Group purchased a property where Current liabilities 20,142.4 18,571.9 and equipment of transfer was not effected at year end. Due to the delay, the Trade, other payables and provisions 18,518.9 17,101.2 8.3 Group placed the purchase price on deposit with the seller Taxation 208.3 331.3 honouring the transaction. Upon transfer, during February Bank overdrafts 584.0 607.8 R24.6 million 2015, the property was recorded by the Group as land and Other current liabilities 831.2 531.6 Goodwill increase of buildings and the loan asset was paid to the seller. More information relating to investments and other Total 28,906.4 26,147.9 financial assets can be found in note 17 and 17.1 of the Group’s Annual Financial Statements: dueR10.9 to the acquisition million of Fresh and Liquor businesses www.massmart.co.za/iar2014/groupafs partially offset by foreign exchange movements More information relating to the fair value of the above Acquisition of subsidiaries and properties investments can be found in note 39 of the Group’s Annual During the current year, aligned to our strategy of owning The net cash purchase price of the Fresh Food business, Financial Statements: our key properties, the Group acquired control of 15 key of R11.5 million, gave rise to goodwill of R9.7 million. No No impairment www.massmart.co.za/iar2014/groupafs properties which had previously been leased by the Group. contingent consideration liabilities were raised on any of to goodwill in the current year The cash consideration paid amounted to R784.9 million and these acquisitions and none of these acquisitions changed the acquisitions were accounted for as asset acquisitions. In the Group’s store profile. More information relating to property, plant and addition the Group acquired control of an entity within the Acquisition of subsidiaries are described in more detail equipment, goodwill and intangible assets can be found Masscash Division that held a Fresh Food business. in note 4 of the Group’s Annual Financial Statements: in note 13, 14 and 15 respectively of the Group’s Annual www.massmart.co.za/iar2014/groupafs Financial Statements: www.massmart.co.za/iar2014/groupafs 60 Our performance Massmart Integrated Annual Report 2014 61

Chief Financial Officer’s reviewcontinued

Fair value hierarchy Inventories Composition of Total of Inventories total inventories (%) (%): For financial instruments traded in an active market (level 1), fair value is determined using stock exchange quoted prices. For other financial instruments (level 2), appropriate valuation techniques, including recent market transaction and other Inventory days increased to 16.1 valuation models, have been applied and significant inputs include market yield curves and exchange rates. For non- 29.7 current assets classified as held for sale (level 3) fair value has been determined based on the sale agreement. The table Food below reflects financial instruments and non-current assets classified as held for sale carried at fair value, and those financial (Dec64.4 2013: 63.7 days)days instruments and non-current assets classified as held for sale that have carrying amounts that differ from their fair values, Liquor in the Statement of Financial Position. Increased by 2014 General merchandise Home improvement

December 8.8 Dec 2014 2013 ahead11.0 of sales% growth, mainly due to opening new stores in 45.4 Rm (Audited) Level 1 Level 2 Level 3 (Audited) Level 1 Level 2 Level 3 the second half of the year Composition of Total Inventories (%) Assets Inventory was well managed within the Group other Financial assets at fair value through profit 18.9 155.1 - 155.1 - 235.4 - 235.4 - than the over-stocked position in Massdiscounters given the or loss 28.2 -- Investments in cell captives and other 125.2 - 125.2 - 217.7 - 217.7 - slower comparable store sales in Game SA. As a percentage of total inventory, General Merchandise of R5.1 billion (Dec -- FEC asset 29.9 - 29.9 - 17.7 - 17.7 - Food 2013: R4.6 billion) is marginally lower than last year at 45.4% Liquor Designated cash flow hedge 13.7 - 13.7 - 8.8 - 8.8 - (Dec 2013: 45.5%). The Massdiscounters overstocked position General merchandise -- FEC asset 13.7 - 13.7 - 8.8 - 8.8 - is in this category. Food at R3.3 billion (Dec 2013: R2.9 billion) 2013 Food Home improvement Loans and receivables 30.3 - 30.3 - 34.9 - 34.9 - is the second largest inventory category in the Group but Liquor with the fastest stock-turns. 7.4 -- Employee share trust loans 30.3 - 30.3 - 34.9 - 34.9 - General merchandise Available-for-sale financial assets 8.4 8.4 - - 12.1 12.1 - - More information relating to inventories can be found in note 19 of the Group’s Annual Financial Statements: 45.5 Home improvement -- Other listed investments 8.4 8.4 - - 12.1 12.1 - - www.massmart.co.za/iar2014/groupafs Non-current assets classified as held for sale 22.0 - - 22.0 - - - - 229.5 8.4 199.1 22.0 291.2 12.1 279.1 -

Liabilities Financial liabilities at amortised cost 2,653.0 - 2,653.0 - 1,724.8 - 1,724.8 - -- Medium-term loan, bank loans and 2,653.0 - 2,653.0 - 1,724.8 - 1,724.8 - capitalised finance leases Financial liabilities at fair value through profit 4.5 - 4.5 - 1.9 - 1.9 - or loss -- FEC liability 4.5 - 4.5 - 1.9 - 1.9 - Total trade, other receivables Designated cash flow hedge 2.2 - 2.2 - 0.8 - 0.8 - -- FEC liability 2.2 - 2.2 - 0.8 - 0.8 - and prepayments 2,659.7 - 2,659.7 - 1,727.5 - 1,727.5 - Excluding the timing impact of closing our retail year Debtors’ days remain well controlled at There were no transfers of financial instruments between Level 1 and Level 2 fair value measurements during the year ended December 2014, and end a day ahead of that of the prior year; the fair value no transfers into, or out of, Level 3. movement of our open foreign exchange contracts; and More information relating to the fair value measurement of these assets and liabilities reflected above can be found in the increase in amounts due from Walmart, trade and other 9 days note 39 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs receivables increased in line with sales. There is no significant Increase of concentration of trade debtors. Trade debtors is a key area of focus for management. Trade, other receivables and prepayments are described is15.5 ahead of sales% in more detail in note 20 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs Allowance for doubtful debt More information on the Group’s credit risk exposure and management can be found in note 40 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs of5.2 total trade% receivables (Dec 2013: 5.0%) 62 Our performance Massmart Integrated Annual Report 2014 63

Chief Financial Officer’s reviewcontinued

Non-current liabilities Other current liabilities Interest-bearing liabilities include medium-term bank Included within other current liabilities are medium- Medium-term loan of loans and medium-term loans. This balance increased term loans of R249.7 million (Dec 2013: R152.7 million), the Included within other current liabilities are substantially during the financial year as two sets of majority of which relates to foreign variable-rate bank loans. medium-term loans of R500 million five-year, fixed-rate loans were raised at rates Also included is the current portion of medium-term R600 million of 8.4% and 8.6% respectively and a R600 million five-year, bank loans and capitalised finance lease liabilities of R576.7 (Dec 2013: R600 million) fixed rate loan was raised at 8.2%. The largest non-interest- million (Dec 2013: R374.3 million). R249.7 million (Dec 2013: R152.7 million) More information relating to ‘other current liabilities’ Medium-term bank loans of bearing liability is the net operating lease liability of R912.5 million (Dec 2013: R822.2 million) arising from the lease- can be found in note 28 of the Group’s Annual Financial smoothing adjustment and which will be released over Statements: www.massmart.co.za/iar2014/groupafs R1,521.7 million the remaining period of the Group’s operating leases. The (Dec 2013: R562.1 million) increase in the operating lease liability is in most part due Contingent liabilities to the renewal of existing leases during the current year at The Group and our subsidiaries are party to a variety Capitalised finance leases of higher rates and the roll-out of new stores. of legal, administrative, regulatory and government More information relating to non-current liabilities can be proceedings, claims and inquiries arising in the normal found in note 24 of the Group’s Annual Financial Statements: course of business. While the results of these proceedings, R12.2 million www.massmart.co.za/iar2014/groupafs claims and inquiries cannot be predicted with certainty, (Dec 2013: R16.6 million) More information relating to the Group’s liquidity risk management believes that the final outcome of the management can be found in note 40 of the Group’s foregoing will not have a material adverse effect on the Operating lease liability arising from Annual Financial Statements: Group’s financial position. the lease-smoothing adjustment of www.massmart.co.za/iar2014/groupafs At year end, the actuarial valuation of the Group’s potential Lease exclusivity unfunded liability arising from post-retirement medical aid For the past two years we have defended several legal R912.5 million actions filed against our Massdiscounters/Game division (Dec 2013: R822.2 million) contributions owed to current and future retirees amounted to R101.7 million (Dec 2013: R84.2 million), R2.7 million of by three of the major food retailers in South Africa and which has been reflected as a current provision. a prominent property fund also located in South Africa. Commitments The Group’s onerous lease provision decreased from These interdictory actions for injunctive relief are based More information relating to these capital expenditure R18 million to R16 million at the end of the current year. on contractual and delictual theories of law relating to commitments can be found in note 31 of the Group’s Annual Further information relating to non-current provisions exclusivity and restrictive usage clauses in separate lease Financial Statements: can be found in note 25 of the Group’s Annual Financial agreements between the relevant landlord and Game on www.massmart.co.za/iar2014/groupafs Statements: www.massmart.co.za/iar2014/groupafs the one hand, and one or more of the major food retailers on the other. These disputes arise when one or more of Massmart has the right of first refusal on the sale of any these retailers are co-located in a particular shopping shares by the non-controlling interest holders in various Trade and other payables and center with a Game store that seeks to offer a limited fresh Masscash stores. Historically Massmart has exercised provisions food offering. Along with other legal defences, we have this right. All capital commitments will be funded using asserted that the blanket enforcement of these clauses current facilities. The figure is representative of the Group’s supplier terms. by the major food retailers contravenes South African December December More information relating to trade and other payables can be competition law. In October 2014, Massmart lodged a 2014 2013 found in note 26 of the Group’s Annual Financial Statements: formal complaint with the South African Competition 52 weeks 53 weeks www.massmart.co.za/iar2014/groupafs Commission and requested the Commission to initiate a Rm (Audited) (Audited) Contingent liabilities raised on historical business formal investigation into this behaviour. In December 2014, acquisitions settled during the current financial year the Commission notified us that they would proceed with Commitments in respect amounted to R90 million. a formal investigation of our claims, together with similar of capital expenditure Trade creditor days The Supplier Development Fund, a separate entity created complaints raised by other stakeholders. The various approved by Directors: decreased from 76 days to in line with the judgement of the Competition Appeal Court proceedings, including the Commission’s investigation, Contracted for 864.1 1,249.3 are on-going. If the conclusion of these proceedings is at the time of the Walmart transaction, had a closing balance Not contracted for 1,155.1 783.4 not in our favour – in whole or in part – then a key Group 75 days of R157.2 million (Dec 2013: R202.5 million) and is reported 2,019.2 2,032.7 on annually to the Competition Tribunal highlighting our strategy in certain localities in South Africa could be delayed or curtailed. expenditure and achievements. More information relating to current provisions and other can be found in note 27 of the Group’s Annual Financial Statements: www.massmart.co.za/iar2014/groupafs 64 Our performance Massmart Integrated Annual Report 2014 65

Chief Financial Officer’s reviewcontinued

Summary Consolidated Statement of Changes in Equity Equity Working capital movements Capital Expenditure Acceleration Ordinary Other attributable Non- December December share Share general Retained to owners controlling 2014 2013 Rm capital premium reserves profit of the parent interests Total 52 weeks 53 weeks 120.0 Balance as at December 2012 (Audited) 2.2 752.1 323.3 3,662.1 4,739.7 175.6 4,915.3 Rm (Audited) (Audited) 3.3 Dividends declared - - - (913.4) (913.4) - (913.4) 14.4 Total comprehensive income - - 61.5 1,283.0 1,344.5 59.1 1,403.6 Net movement in 2.7 working capital (295.1) 752.6 2.7 Changes in non-controlling interests - - 3.8 - 3.8 (7.2) (3.4) 2.5 Increase in inventories (1,112.4) (424.0) Distribution to non-controlling interests - - - - - (30.9) (30.9) 2.3

Increase in trade receivables (697.8) (30.7) 907.5 IFRS 2 charge and Share Trust transactions - - 129.0 (121.8) 7.2 - 7.2 2.2 876.6 Treasury shares acquired - (8.8) - - (8.8) - (8.8) Increase in trade payables 1,658.3 1,254.6 2.1 84.0 383.6 1.8 Balance as at December 2013 (Audited) 2.2 743.3 517.6 3,909.9 5,173.0 196.6 5,369.6 Decrease in provisions (143.2) (47.3) 1.9 1.6

Dividends declared - - - (914.0) (914.0) - (914.0) 310.9 Businesses acquired (Rm) Total comprehensive income - - (64.5) 1,079.8 1,015.3 57.6 1,072.9 The reduction in working capital is primarily as a result of 526.7 430.6 Property acquisitions (Rm) Changes in non-controlling interests - - (27.6) - (27.6) (11.0) (38.6) the 53 week comparative, the effect of which in the prior and 651.7 120.0 Distribution to non-controlling interests - - - - - (50.4) (50.4) current year is approximately R500 million. 787.6 Investment to expand operations (Rm)

3.3 711.9 IFRS 2 charge and Share Trust transactions - - 125.1 (27.4) 97.7 - 97.7 Net capital expenditure amounted to 2.8% (Dec 14.4 2013: Investment to maintain operations (Rm) 3.3%) of sales. Net capital expenditure excluding business Treasury shares acquired - (9.9) (0.1) - (10.0) - (10.0) 2.7 and2.7 property acquisitions amounted to 1.6% (Dec 2013: 1.8%) Total capex as a % of sales 824.9

2.5 752.1 52 weeks ended December 2014 (Audited) 2.2 733.4 550.5 4,048.3 5,334.4 192.8 5,527.2 of sales. 629.4 Total capex as a % of sales excluding

2.3 453.8 Due to the high levels of trading experienced over the 362.3 business and property acquisitions 907.5 December 2.2holiday period, the Group banks a large amount876.6 DEC DEC DEC DEC DEC of2.1 cash in the month, while majority of the payments to 2011 2012 2013 2014

84.0 2010 Summary Consolidated Statement of Cash Flows 383.6 1.8 suppliers only occur after 1.9year-end. This explains the large 52 weeks 53 weeks cash and bank balances reflected in the Statement1.6 of 310.9 December 2014 December 2013 Financial Position in both 2014 and 2013. Businesses acquired (Rm)

Rm (Audited) (Audited) The Group continually refurbishes its 526.7 older stores and, 430.6 Property acquisitions (Rm) where possible, builds its 651.7 own stores. In doing so the 787.6 Investment to expand operations (Rm) Operating cash before working capital movements 2,983.4 2,984.0 Group incurred expenditure of R2,179.5 million (Dec 2013: R2,087711.9 million). Of this, R857.4 million (Dec 2013: R780.2 Investment to maintain operations (Rm) Working capital movements (295.1) 752.6 million) was replacement capital expenditure, while the Cash generated from operations 2,688.3 3,736.6 Total capex as a % of sales balance of R1,322.1 million (Dec 2013: R1,306.8 million)824.9 752.1 Taxation paid (683.4) (732.8) was invested in new capital629.4 assets, including new stores Total capex as a % of sales excluding 453.8 Net interest paid (345.3) (255.1) and362.3 distribution centres. The increase in expansionary business and property acquisitions Investment income - 79.2 capitalDEC assetsDEC can largelyDEC be attributedDEC to the propertyDEC Dividends paid (914.0) (913.4) 2010acquisitions already2011 mentioned,2012 as well2013 as the construction2014 of our flagship Mozambique Builders Warehouse store for Cash inflow from operating activities 745.6 1,914.5 R91.7 million. Segmental review Investment to maintain operations (857.4) (780.2) Capital expenditure, excluding property acquisitions for The Group is organised into four Divisions for operational the next 12 months is budgeted to slow down as we begin Investment to expand operations (1,322.1) (1,306.8) and management purposes, being Massdiscounters, to realise some of the benefits of the investments we have Investment in subsidiaries (14.4) - Masswarehouse, Massbuild and Masscash. Massmart reports made during the last few years. We will continue to invest its operating segment information on this basis. The principal Proceeds on disposal of property, plant and equipment 32.5 25.6 in line with the Group’s strategic drive to: own more of our offering for each Division is as follows: Proceeds on disposal of assets classified as held for sale - 2.5 key stores; roll out Food Retail stores; grow online; increase • Massdiscounters (Game, DionWired) - General Other net investing activities 14.9 (247.4) our rate of expansion in Africa; and open more lower-income Merchandise discounter and Food retailer Cash outflow from investing activities (2,146.5) (2,306.3) Home Improvement stores in South Africa. • Masswarehouse (Makro and The Fruitspot) - Warehouse Further information relating to the movements in the club trading in Food, General Merchandise and Liquor Cash inflow from financing activities 1,349.7 293.0 Statement of Cash Flows can be found in note 38 of the • Massbuild (Builders Warehouse, Builders Express, Builders Group’s Annual Financial Statements: Trade Depot, Builders Superstore) - Home Improvement Net decrease in cash and cash equivalents (51.2) (98.8) www.massmart.co.za/iar2014/groupafs retailer and Building Materials supplier Foreign exchange movements (53.7) 47.2 • Masscash (Cash and Carry, Cambridge Food, Shield) - Opening cash and cash equivalents 1,588.3 1,639.9 Food wholesaler, retailer and buying association Closing cash and cash equivalents 1,483.4 1,588.3 No single customer represented more than 10% of any of one of the Divisions’ revenue in the current or prior financial year. 66 Our performance Massmart Integrated Annual Report 2014 67

Chief Financial Officer’s reviewcontinued

Operating segments Mass- Mass- Rm Total Other discounters warehouse Massbuild Masscash Mass- Mass- Rm Total Other discounters warehouse Massbuild Masscash For the 53 week year ended December 2013 For the 52 week year ended December 2014 Sales 72,263.4 - 16,740.6 19,675.1 9,583.6 26,264.1 Sales 78,173.2 - 17,955.2 21,554.8 10,822.8 27,840.4 Operating profit before interest and taxation 2,152.5 (37.9) 449.0 988.1 505.3 248.0 Operating profit before foreign exchange movements and interest 2,015.9 (30.6) 180.7 1,044.3 537.6 283.9 Trading profit before interest and taxation 2,145.4 - 366.6 990.2 507.6 281.0 Trading profit before interest and taxation 2,061.7 - 180.7 1,044.3 537.6 299.1 Net finance (costs)/income (255.1) (349.6) 34.0 38.5 29.2 (7.2) Net foreign exchange (loss)/ gain (49.8) (48.4) (5.8) - 2.5 1.9 Operating profit before taxation 1,897.4 (387.5) 483.0 1,026.6 534.5 240.8 Net finance (costs)/income (345.3) (211.0) (29.4) 44.4 (63.2) (86.1) Trading profit before taxation 2,239.9 - 400.6 1,028.7 536.8 273.8 Operating profit before taxation 1,620.8 (290.0) 145.5 1,088.7 476.9 199.7 Inventory 10,115.5 12.6 3,647.3 2,618.2 1,597.0 2,240.4 Trading profit before taxation 1,716.4 (211.0) 151.3 1,088.7 474.4 213.0 Total assets 26,147.9 (2,614.7) 7,718.3 7,166.8 5,212.0 8,665.5 Inventory 11,228.8 30.5 3,984.9 2,845.7 1,785.6 2,582.1 Total liabilities 20,778.3 (6,027.7) 7,522.2 6,587.8 4,857.4 7,838.6 Total assets 28,906.4 (325.6) 7,985.5 7,689.0 5,027.7 8,529.8 Net capital expenditure 2,061.4 759.0 489.7 344.8 275.1 192.8 Non-current asset held for sale 18.0 15.0 - - 3.0 - Depreciation and amortisation 731.1 33.9 256.4 145.4 121.2 174.2 Total liabilities 23,379.2 (4,366.5) 7,820.9 7,312.1 4,730.6 7,882.0 Impairment losses 41.6 - - 2.1 - 39.5 Net capital expenditure 2,147.0 967.8 542.2 70.3 296.8 269.9 Non-cash items other than depreciation and impairment 138.0 458.0 23.3 (352.2) 13.6 (4.7) Depreciation and amortisation 846.6 43.2 293.1 171.6 154.0 184.7 Cash flow from operating activities 1,914.5 399.4 990.1 273.9 356.9 (105.8) Impairment losses 24.6 9.4 - - - 15.2 Cash flow from investing activities (2,306.3) (1,424.0) (490.6) (385.2) (275.2) 268.7 Non-cash items other than depreciation and impairment 146.1 (16.2) 112.0 46.9 12.6 (9.2) Cash flow from financing activities 293.0 819.4 (621.6) 209.3 1.4 (115.5) Cash flow from operating activities 745.6 (446.2) 473.4 (103.8) 707.4 114.8 Inventory days 64 - 109 59 92 35 Cash flow from investing activities (2,146.5) (980.8) (545.0) (70.1) (296.8) (253.8) Number of stores 376 - 143 19 92 122 2 Cash flow from financing activities 1,349.7 1,163.0 112.9 161.8 (369.3) 281.3 Trading area (m ) 1,481,308 - 475,331 195,794 410,546 399,637 2 Inventory days 64.4 - 107.6 57.1 84.6 37.1 Trading area (m ) increase on June 2012 (excluding re-measurements) 4.8% - 7.7% 9.3% 3.7% 0.6% Number of stores 392 - 153 19 100 120 Average trading area per store (m2) 3,940 - 3,324 10,305 4,462 3,276 Trading area (m2) 1,539,295 - 506,188 195,794 436,538 400,775 Distribution centre space (m2) 323,813 - 178,488 51,300 61,733 32,292 Trading area (m2) increase on 2 December 2013 3.9% - 6.5% - 6.3% 0.3% Distribution centre space (m ) increase on December 2012 11.4% - - - 108.4% 3.2% Average trading area per store (m2) 3,927 - 3,308 10,305 4,365 3,340 Distribution centre space (m2) 328,175 - 178,488 51,300 61,733 36,654 Distribution centre space (m2) increase on December 2013 1.3% - - - - 13.5%

• The ‘other’ column includes consolidation entries and various corporate functions. • All intercompany transactions have been eliminated in the above results. • Trading profit before taxation is earnings before corporate net interest, asset impairments, BEE transaction IFRS 2 charges, foreign exchange movements, loss on disposal of business, and assets classified as held for sale. • Net capital expenditure is defined as capital expenditure less disposal proceeds. 68 Our performance Massmart Integrated Annual Report 2014 69

Chief Financial Officer’s reviewcontinued

Geographic segments Decrease is due to: are recorded off-balance sheet, to on-balance sheet assets • The reduction in the Group’s profitability (measured or liabilities. Significantly, the Group acquired 12 Masscash Total South Africa Rest of Africa Total South Africa Rest of Africa by ROS) coupled with the Group’s strategic significant stores and one property in Masswarehouse, Massbuild December December December December December December investment in Food Retail, owned stores and supply and Corporate alike. The acquisition of these properties 2014 2014 2014 2013 2013 2013 has been covered in the ‘Acquisition of subsidiaries and Rm 52 weeks 52 weeks 52 weeks 53 weeks 53 weeks 53 weeks chain were the main causes of the lower Group ROE. The Group’s on-going investment in new stores, owned properties’ paragraph, previously referred to. • Investment in new trading formats in East and West Sales 78,173.2 71,822.4 6,350.8 72,263.4 66,676.1 5,587.3 stores and new businesses increased the size of the net asset value. As the Group’s profitability improves, and Africa, increased roll-out of Food Retail and opening more Segment assets (Total) 21,764.8 20,226.3 1,538.5 19,238.5 18,320.0 918.5 as the new stores, RDCs and businesses begin to trade lower-income home improvement stores in South Africa. Segment assets (Non-current) 10,197.9 9,576.5 621.4 8,916.9 8,418.7 498.2 optimally, the ROE is likely to improve to higher levels. As regards to financing any future acquisition of properties Net capital expenditure 2,147.0 1,936.6 210.4 2,061.4 1,891.9 169.5 The Divisions are responsible for delivering operational and businesses, depending on the target company’s cash returns, being their returns to their net working capital and profile and cash generation ability, this gearing ratio may be The Group’s four Divisions operate in two principal geographical areas - South Africa and the Rest of Africa. non-current assets. In addition to these operational returns, increased. Massmart, through the Board and Executive Committee, is responsible for delivering investment returns that will Dividend cover also include the book value of intangibles (specifically The Board believes that the current ratio is appropriate, More information relating to segmental reporting Decrease is due to: goodwill arising from the acquisition of businesses), as well as given the Group’s current and forecast cash generation, can be found in note 41 of the Group’s Annual Financial • Lesser performance in Game SA. Game SA sales were setting the Group’s gearing levels that will influence returns plannedDividend capital cover expenditure and gearing levels. Statements: www.massmart.co.za/iar2014/groupafs affected by the slowdown of the middle-income to shareholders and the overall risk profile. Depending consumer spending, the global slowdown in General on the purchase price, Retail and Wholesale acquisitions 1.8 Return on sales (ROS) Merchandise, particularly electronics, and some of subsidiaries tend to generate significant accounting 1.6 goodwill owing to the relatively low net asset values of these 1.4 This ratio combines all of the key Income Statement insufficient operating discipline, including poor in-stock business models. 1.2 elements, being sales, gross margin, supplier income, and levels. The Divisions are recapitalised bi-annually by Massmart 1.0 expenses (including depreciation and amortisation), but • Difficult trading conditions in the Wholesale Food sector. with interest-free shareholder funds that are equivalent 0.8 excludes foreign exchange translation gains and losses. In The presence of strong independent traders in the to the book value of non-current assets in each Division. 0.6 addition, the largest asset investment in the Divisions is net Wholesale Food sector has resulted in a continued tough Each Division is funding its net working capital position 0.4 working capital (being inventory and trade receivables), and competitive environment during 2014. through cash or interest-bearing debt, depending on 0.2 less the associated funding liability (in trade payables). The • Increased Depreciation and Employment costs. the characteristics of that business model. This process 0.0 relative success of management’s impact on net working Depreciation and Employment costs comprised 6.9% enables divisional returns to be evaluated and compared capital will therefore be reflected in changes to net finance and 48.1% of total operating expenses respectively and on a consistent basis across the Group, and from one year DEC DEC DEC DEC DEC costs or income from one year to the next. The reason the high increases are a consequence of: the Group’s 2010 2011 2012 2013 2014 to the next. foreign exchange translation gains and losses are excluded annualisation of RDCs in 2013; the acquisition of key 1.51 1.24 1.13 1.46 1.21 is because they are largely beyond management’s control, properties; the roll-out of new stores; and the continued roll-out of Food Retail in three Divisions. Gearing (or leverage) areROS volatile, and do not reflect the sustainable profitability of All periods are 52-week periods, Dec 2013 is for 53 weeks. the Division or Group. 5.5 Return on equity (ROE) 45 40 Related-party transactions 4.5 Massmart is committed to delivering superior returns to 35 shareholders over the longer term. Related-party transactions comprise: 3.5 ROE 30 • Transactions between the Company and its subsidiaries, 25 which have been eliminated on consolidation and are 2.5 40 20 thus not disclosed in this review 35 1.5 15 • Compensation of key-management personnel 30 • Transactions between the Group and Wal-Mart Stores, 10 0.5 25 Inc. (its ultimate holding company) 5 20 • The Group holds cash reserves on behalf of the Group’s 0 DEC DEC DEC DEC DEC 15 2010 2011 2012 2013 2014 previous Chairman’s Lamberti Education Foundation 2010 2011 2012 2013 2014 10 19.1% 21.6% 22.7% 29.7% 44.5% Trust 4.2% 3.8% 3.5% 2.9% 2.6% 5 • Loans to Executive Directors and Executive Committee 0 All periods are 52-week periods, Dec 2013 is for 53 weeks. members All periods are 52-week periods, Dec 2013 is for 53 weeks. • The post-retirement medical aid liability, Massmart DEC DEC DEC DEC DEC Pension Fund and Massmart Provident Fund which are 2010 2011 2012 2013 2014 Increase is due to: 35.4% 24.5% 27.6% 25.9% 21.7% managed for the benefit of past and current employees • The acquisition during the year of stand-alone, key of the Group strategic properties previously leased. This change does All periods are 52-week periods, Dec 2013 is for 53 weeks. More information on related-party transactions can not represent a major financial shift, however, it will result be found in note 34 of the Group’s Annual Financial in converting fixed long-term lease commitments, which Statements: www.massmart.co.za/iar2014/groupafs 70 Our performance Massmart Integrated Annual Report 2014 71

Chief Financial Officer’s reviewcontinued Directors’ report for the year ended December 2014

Directors’ emoluments and how the The year ahead Directors’ responsibilities Shares in issue Group measures performance The new year is proving to be an exciting one, as we The Directors acknowledge The movement in ordinary and preference shares for the A detailed breakdown can be found in the continue to implement our strategic priorities and tackle our year under review were as follows: Remuneration Report on page 82 of this Integrated Annual strategic, environmental and operational risks head-on. Our responsibility for the preparation focus on targeting new customer groups; experimenting Report. The ‘Directors’ emoluments’ information can also be Ordinary Shares with new formats; increasing our Private Label offering; of the Group Annual Financial found in note 35 of the Group’s Annual Financial Statements: Balance at December 2012 216,910,195 www.massmart.co.za/iar2014/groupafs reducing the cost of our value-chain; increasing our property portfolio; and reducing the cost of our new store openings, is Statements, which, in their opinion, Converted preference shares1 198,849 Accounting policies, critical judgements looking promising as total sales for the 13 weeks to 29 March fairly present the results and cash Balance at December 2013 217,109,044 increased by 9.5% (comparable sales increased by 7.4%). Converted preference shares1 9,028 and key sources of estimation A priority for us in the upcoming year is the regeneration flows for the year ended December uncertainty of Game, despite its many challenges. We are confident Ordinary shares in issue at that the introduction of Food Retail, the appointment of 2014 and the state of affairs of December 2014 217,118,072 These audited summary consolidated year end results experienced key personnel, and the revision of our store Massmart Holdings Limited and its ‘B’ Preference Shares have been prepared in accordance with the framework segmentation and merchandise range will shrink the current concepts and the measurement and recognition overstock position and improve Game’s profitability. subsidiaries at the end of the year. Balance at December 2012 12,461,675 requirements of IFRS, its interpretations issued by the IFRS As we continue to establish our Retail Food proposition Converted to ordinary shares (198,849) Interpretations Committee, the SAICA Financial Reporting in the market, the cyclicality experienced on General The external auditors are responsible Residual shares automatically Guides as issued by the Accounting Practices Committee Merchandise and Wholesale Food platforms will reduce. To redeemed (9,395,053) and Financial Pronouncements as issued by the Financial for reporting on the fair presentation date, our competitors’ reactions to our growth in Food Retail Balance at December 2013 2,867,773 Reporting Standards Council, presentation and disclosure suggests that we are on-track to becoming a major player of these financial statements. Converted to ordinary shares (9,028) as required by International Accounting Standard (IAS) in this market. 34 Interim Financial Reporting, the JSE Limited Listings Our goal to aggressively roll-out our Massbuild formats, Preference shares in issue at The Company and its subsidiaries have maintained Requirements and the requirements of the Companies Act expand our African footprint and grow our online offering December 2014 2,858,745 satisfactory accounting records and an effective system of 71 of 2008 of South Africa. The accounting policies and will require extensive capital investment for which we are 1The preference shares relate to Massmart’s Black Scarce Skills Trust internal controls to ensure the integrity of the underlying methods of computation used in the preparation of the well positioned. information. Appropriate accounting policies, supported by audited summary consolidated results are in terms of IFRS We remain optimistic about the consumer environment Directorate and secretary sound and prudent managerial judgments and estimates, and are consistent in all material respects with those applied in the upcoming year, although we are ever cognisant of the have been consistently applied. The current Directorate of the Group is shown on in the most recent annual financial statements, as none of fragility of our market. the amendments coming into effect in the current financial The Group’s Audit Committee reviews the financial pages 40 to 41. The Board comprises nine Directors of whom seven are year have had an impact on the financial reporting of the Appreciation information presented and ensures that there has been Group. In the process of applying the Group’s accounting adherence to IFRS. Internal and external auditors of Group non-Executive and four are independent. In addition, each policies, management has made certain critical judgements The Group is tremendously grateful to Ilan Zwarenstein companies have unrestricted access to the Committee. Board committee is chaired by an independent Director. that have a significant effect on the amounts recognised in for his significant contribution over the past decade, and The Company Secretary provides a central source of the financial statements. especially the past three years, and for his management and Group financial results guidance and advice to the Board, and within the Company, development of a resilient and competent Finance team. on matters of ethics and good governance. The Company More detail on the Group’s accounting policies, critical The financial results of the Group are set out in the This team maintains the robust financial control environment Secretary is Philip Sigsworth, CA(SA), whose business and judgments and key sources of estimation uncertainty is Income Statement, Statement of Comprehensive Income, long established across the Group and continues to deliver postal addresses are the same as that of the Company. Philip provided in note 1 and 2 of the Group’s Annual Financial the Statement of Cash Flows and the Statement of Changes high standards in reporting. It is already clear to me that Ilan’s was appointed on 7 May 2012. Statements: www.massmart.co.za/iar2014/groupafs in Equity. The financial position of the Group is set out in the significant influence will be missed and I am grateful to him In March 2014, Mark Lamberti was appointed CEO of Statement of Financial Position and accompanying notes. A for leaving in place a strong Finance organisation, making my Imperial Holdings Limited and consequently resigned as Going concern assertion full set of the audited Group Annual Financial Statements transition into the role of Chief Financial Officer that much Chairman of Massmart. Kuseni Dlamini was appointed the for the year-ended December 2014 can be found at: The Board has formally considered the going concern easier. new Chairman of Massmart with effect from 10 April 2014. www.massmart.co.za/iar2014/groupafs assertion for Massmart and its subsidiaries and believes that The contribution and efforts of the Group’s Finance teams, Grant Pattison resigned as CEO with effect from 1 June it is appropriate for the forthcoming financial year. both at the Divisions and the Corporate Office, has again 2014 and Guy Hayward, previously Chief Operating Officer, The going concern assertion can be found in the been outstanding. I want to express my deep appreciation Dividend was appointed to succeed him. Directors’ report on page 73 of this Integrated Annual for their continued commitment to the high standards Massmart has maintained the dividend at the same level On 10 December 2013 Wal-Mart Stores, Inc. announced Report. they have set for themselves, and their determination in as the prior year. The dividend has been declared out of the promotion of David Cheesewright to President and CEO delivering those at all levels of the Group, to the benefit of income reserves and will be subject to the Dividend Tax rate of Walmart International. The promotion of Shelley Broader all of our stakeholders. of 15%. With regard to the final distribution to shareholders, to succeed him as President and CEO of Walmart EMEA was the Directors resolved to distribute to shareholders announced on 30 May 2014. registered in the books of the Company on 20 March 2015, a final cash dividend of 275 cents (December 2013: 275 cents).

Johannes van Lierop Chief Financial Officer 2 April 2015 72 Our performance Massmart Integrated Annual Report 2014 73

Directors’ report continued

Subsequent to these changes, David resigned from the At least one-third of the non-Executive Directors are At the date of this Report, the Directors’ beneficial holdings were as follows: Board and Shelley was appointed in his place. Shelley has required to retire every year and Massmart Executive April 2015 April 2014 responsibility for Walmart’s Retail operations and business Directors have elected to also retire on this basis. As a result, Options/ Options/ development across Europe, the Middle East, Sub-Saharan all Directors retire by rotation at least every three years and Non-executive Directors Shares Share Awards Shares Share Awards Africa and Canada. She was previously CEO of Walmart are then eligible for re-election. In addition, shareholders 1 Canada. must ratify the initial appointment of each Director at the MJ Lamberti - - - - 2 In addition, Jeff Davis resigned following a change in his first Annual General Meeting following that Director’s K Dlamini 9,800 - - - role in Walmart, and in his place Andy Clarke was appointed appointment. As a result of these requirements, at the 27 CS Seabrooke - - - - to the Board. Andy is the President and CEO of ASDA Stores May 2015 Annual General Meeting Kuseni Dlamini, Phumzile S Broader3 - - - - Ltd, the United Kingdom’s second-largest supermarket Langeni and JP Suarez retire by rotation; while Shelley D Cheesewright4 - - - - Broader, Andy Clarke and Johannes van Lierop will resign, retailer. A Clarke3 - - - - The appointments of Shelley and Andy and the as required by the Memorandum of Incorporation. Being JA Davis4 - - - - resignations of David and Jeff were all effective 16 July 2014 eligible, they all offer themselves for re-election. NN Gwagwa 9,800 - 9,800 - Following the August 2014 announcement of the intended resignation of Ilan Zwarenstein from his role as P Langeni - - 8,800 - Group FD, the Massmart Board announced the appointment JP Suarez - - - - of Johannes van Lierop as CFO of Massmart with effect from Executive Directors 12 March 2015, at which date Ilan accordingly resigned. GM Pattison5 - - 596,473 243,877 GRC Hayward 222,894 342,619 222,894 298,327 J van Lierop6 - - - - Interests of Directors in the Company’s shares I Zwarenstein7 - - - 184,343 At December 2014, certain Directors owned, directly or indirectly, ordinary shares or options over ordinary shares in the There were no non-beneficial interests in either of these periods. Company. These holdings were all beneficial and are aggregated in the table below: 1 Resigned with effect from 10 April 2014 5 Resigned with effect from 28 December 2014, and as such his December 2014 December 2013 2 Appointed with effect from 10 April 2014 number of shares are not shown in the above table 3 Appointed with effect from 16 July 2014 6 Appointed with effect from 12 March 2015 Options/ Options/ 4 Resigned with effect from 16 July 2014 7 Resigned as Group FD with effect from 12 March 2015, and as Non-executive Directors Shares Share Awards Shares Share Awards such his number of shares are not shown in the above table MJ Lamberti1 - - - - K Dlamini2 9,800 - - - Subsidiaries Going concern CS Seabrooke - - - - As at the date hereof, the following companies are The Directors are of the opinion that the business will be S Broader3 - - - - principal subsidiaries of the Company: a going concern in the year ahead. In reaching this opinion, D Cheesewright4 - - - - Massbuild Proprietary Limited the Directors considered the following factors: 3 A Clarke - - - - 2004/035206/07 • strong positive cash flows from trading; 4 • no recurring operating losses at Divisional and Group JA Davis - - - - Masscash Holdings Proprietary Limited level; NN Gwagwa 9,800 - 9,800 - 1997/014716/07 • well-controlled working capital and good quality P Langeni - - 9,800 - Massmart International Holdings Limited inventory; JP Suarez - - - - (incorporated in Mauritius) • approved short- and long-term financing, with sufficient 47902 C1/GBL additional short-term borrowing capacity if required; Executive Directors Massmart Management and Finance Company • key executive management in place; GM Pattison 643,473 196,877 596,473 243,877 Proprietary Limited • there have been no material changes that may affect GRC Hayward 222,894 342,619 222,894 298,327 1992/004084/07 the Group in any of its customer, product or geographic J van Lierop5 - - - - Masstores Proprietary Limited markets; and • budgets to December 2015 reflect a continuation of the I Zwarenstein6 - 201,029 - 184,343 1991/006805/07 above positive issues. Wild Developments Proprietary Limited 1 Resigned with effect from 10 April 2014 5 Appointed with effect from 12 March 2015 1973/000178/07 2 Appointed with effect from 10 April 2014 6 Resigned as Group FD with effect from 12 March 2015 3 Appointed with effect from 16 July 2014 The principal subsidiaries above are determined 4 Resigned with effect from 16 July 2014 based on the Group’s cross-surety arrangement. These subsidiaries represent the group for which the respective covenants shall be maintained. Details of the Company’s interests in principal subsidiaries are set out in note 37 in the Group Annual Financial Statements: www.massmart.co.za/iar2014/companyafs 74 Our performance Massmart Integrated Annual Report 2014 75

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

Borrowing powers Massmart address To the Shareholders of Massmart Opinion In terms of the Memorandum of Incorporation, the The Company’s registered office and postal address are Holdings Limited In our opinion, the summary consolidated financial Group has unlimited borrowing powers. At December 2014, as follows: statements derived from the audited consolidated Annual The summary consolidated financial statements of borrowings were R3.6 billion (December 2013: R2.3 billion). Financial Statements of Massmart Holdings Limited for the Registered office: Postal address: Massmart Holdings Limited, incorporated in the ‘Chief year ended 28 December 2014 are consistent, in all material Direct and ultimate holding companies Massmart House Private Bag X4 Financial Officer’s Review’, which comprise the summary respects, with those consolidated financial statements, 16 Peltier Drive Sunninghill consolidated statement of the financial position as at in accordance with the requirements of the JSE Limited The Company’s direct holding company is Main Street Sunninghill Ext 6 2157 28 December 2014, the summary consolidated income Listings Requirements for abridged reports, set out in the 830 Proprietary Limited, incorporated in South Africa and the Sandton, 2146 South Africa statement, summary consolidated statements of ‘Approval of the Integrated Annual Report and summarised Company’s ultimate holding company is Wal-Mart Stores, Inc, South Africa comprehensive income, changes in equity and cash flows for consolidated Annual Financial Statements’ on page 3, and incorporated in the United States. the year then ended on pages 58, 49, 57 and 64 respectively, the requirements of the Companies Act as applicable to Company Secretary certificate and related notes on pages 60-70, are derived from the summary financial statements. Subsequent events audited consolidated Annual Financial Statements of In terms of section 88(e) of the Companies Act No. 71 of Massmart Holdings Limited for the year ended 28 December Other reports required by the There were no significant subsequent events after the 2008, as amended (“Companies Act”), I, Philip Sigsworth, in my 2014. We expressed an unmodified audit opinion on those Companies Act year-end, apart from the movement in Directors already capacity as Company Secretary of Massmart Holdings Limited, consolidated financial statements in our report dated spoken to. confirm that, to the best of my knowledge and belief, in respect The “other reports required by the Companies Act” 2 April 2015. Our auditor’s report on the audited consolidated of the year under review, Massmart Holdings Limited has filed paragraph in our audit report dated 2 April 2015 states that financial statements contained an Other Matters paragraph: On behalf of the Board with the Companies and Intellectual Property Commission all as part of our audit of the consolidated Annual Financial “Other reports required by the Companies Act” (refer below). such returns and notices as are required of a public company in Statements for the year ended 28 December 2014, we have terms of the Companies Act and that all such returns and notices The summary consolidated financial statements do read the Directors’ Report, the Audit Committee’s Report appear to be true, correct and up to date. not contain all the disclosures required by IFRS and the and the Company Secretary’s Certificate for the purpose requirements of the Companies Act as applicable to annual of identifying whether there are material inconsistencies Philip Sigsworth financial statements. Reading the summary consolidated between these reports and the audited consolidated Annual Company Secretary financial statements, therefore, is not a substitute for reading Financial Statements. These reports are the responsibility 2 April 2015 the audited consolidated Annual Financial Statements of of the respective preparers. The paragraph also states that, Massmart Holdings Limited. based on reading these reports, we have not identified material inconsistencies between these reports and the Audit Committee report Directors’ responsibility for the summary audited consolidated Annual Financial Statements. The paragraph furthermore states that we have not audited for the year ended December 2014 consolidated financial statements The Directors are responsible for the preparation these reports and accordingly do not express an opinion on of the summary consolidated financial statements in these reports. The paragraph does not have an effect on the The Audit Committee met three times during the 52 • The Committee is satisfied that the internal financial summary consolidated financial statements or our opinion accordance with the requirements of the JSE Limited weeks ended December 2014. The internal and external controls of the Divisions and Group operated effectively thereon. auditors presented formal reports to the Committee and throughout the 52 weeks ended December 2014 and can Listings Requirements for abridged reports, set out in the attended these meetings by invitation. In response to the be relied upon. In addition, the Committee is satisfied ‘Approval of the Integrated Annual Report and summarised requirements of the Companies Act, King III and in terms of with the Group’s accounting policies and that these have consolidated annual financial statements’ on page 3, and the requirements of the Companies Act of South Africa as its charter, the Committee can report as follows: been appropriately and consistently applied throughout Per: Allister Carshagen applicable to summary financial statements, and for such • The scope, independence and objectivity of the external the 52 weeks ended December 2014; Director internal control as the directors determine is necessary auditors was reviewed; • The Committee reviewed this Integrated Annual Report Registered Auditor to enable the preparation of the summary consolidated • The audit firm Ernst and Young Inc. and audit partner and recommended it to the Board for approval; 2 April 2015 Allister Carshagen, are, in the Committee’s opinion, • As at the date of this Report, no complaints have been financial statements that are free from material misstatement, independent of the Company. They have been proposed received relating to accounting practices and internal whether due to fraud or error. 102 Rivonia Road to the shareholders for approval to be the Group’s auditor audit of the Company or to the content or auditing of the Auditor’s responsibility Johannesburg for the 2015 financial year; Company’s financial statements, or to any related matter; Gauteng • On an on-going basis, the Committee reviews and and Our responsibility is to express an opinion on the South Africa approves the fees proposed by the external auditors; • The Massmart website (www.massmart.co.za) has a link summary consolidated financial statements based on our • The appointment of the external auditor complies with enabling the general public to lodge complaints with the procedures, which were conducted in accordance with the Companies Act and with all other legislation relating Committee. Since establishing this functionality in 2009, International Standard on Auditing (ISA) 810, Engagements to the appointment of external auditors; no complaints have been received. to Report on Summary Financial Statements. • The nature and extent of non-audit services provided by the external auditors has been reviewed to ensure that the fees for such services do not become so significant as to call into question their independence; Chris Seabrooke • The nature and extent of future non-audit services have Chairperson of the Audit Committee been defined and pre-approved; 2 April 2015 • No reportable irregularities were identified and reported by the external auditors to the Committee; 76 Our performance Massmart Integrated Annual Report 2014 77

Value added statement Shareholder analysis

The value we added: The following analysis of shareholders was extracted December 2014 December 2013 52 weeks 53 weeks from the shareholder register as at December 2014: Rm Rm Number Number of holders % of shares % Sales, royalties, franchise fees, rentals and management 86,779.9 82,650.9 5.0% Shareholder spread and adminisitration fees (inclusive of VAT) Shareholder Spread (%) 1 - 1,000 shares 4,232 85.0 841,823 0.4 Cost of sales (63,610.8) (58,926.4) 7.9% 1,001 - 10,000 shares 521 10.5 1,581,549 0.7 Interest and investment income 66.3 40.7 62.9% 10,001 - 100,000 shares 146 2.9 4,709,637 2.2 Net costs of services and other operating expenses (5,771.1) (5,279.3) 9.3% 100,001 - 1,000,000 shares 53 1.1 17,420,328 8.0 Value added 17,464.3 18,485.9 -5.5% 1,000,001 shares and over 24 0.5 192,564,735 88.7 4,976 100.0 217,118,072 100.0

Public/non-public shareholders Non-public shareholders: Walmart subsidiary: 1 - 113,859,293 52.4 Main Street 830 Proprietary Limited Directors and Group 4 0.1 838,967 0.4 Executives of the Company Public/Non-public Shareholders (%) Share trusts 1 - 194,765 0.1 Public shareholders 4,970 99.9 102,225,047 47.1 . 4,976 100.0 217,118,072 100.0 R17Here’s how we shared it: 5 billion Distribution of shareholders Walmart subsidiary: 1 - 113,859,293 52.4 Main Street 830 Proprietary Limited Unit Trusts/Mutual Funds 77 1.5 48,739,296 22.4 Pension Funds 75 1.5 29,180,660 13.4 Other Managed Funds 49 1.0 8,446,937 3.9

Sovereign Wealth 13 0.3 6,023,147 2.8 To Government

as taxation To employees as salaries, Custodians 15 0.3 4,193,454 1.9

wages and other benefits Private Investors 16 0.3 2,026,985 0.9 Hedge Fund 1 - 1,431,489 0.7 To shareholders Depreciation Distribution of Shareholders (%) To lenders as dividends and amortisation as interest Net earnings Non-controlling Charities 9 0.2 1,378,003 0.6 retained interests CSI Insurance Companies 5 0.1 866,537 0.4 Exchange-Traded Fund Total 3 0.1 473,338 0.2 BEE 1 - 100,271 - Investment Trusts 2 - 86,936 - 51.4% 35.1% 5.2% 4.8% 2.2% 0.9% 0.3% 0.1% Local Authorities 2 - 87,889 - American Depositary 2 - 95,239 - R8,969.0 m R6,109.0 m R914.0 m R846.6 m R386.8 m R165.9 m R57.6 m R15.4 m Receipt University 1 - 70,220 - R10,705.3 m R5,423.5 m R913.4 m R731.1 m R283.8 m R351.7 m R59.1 m R18.0 m Remainder 4,704 94.7 58,378 0.4 57.9% 29.4% 4.9% 4.0% 1.5% 1.9% 0.3% 0.1% 4,976 100.0 217,118,072 100.0 in 2013 in 2013 in 2013 in 2013 in 2013 in 2013 in 2013 in 2013

Custodians and managers holding 3% or more The following custodians and managers held beneficially, directly or indirectly, equal to or in excess of 3% of the Company’s shares: Aberdeen Asset Management Group 9,381,191 4.3 Public Investment Corporation 15,724,370 7.2 Walmart subsidiary: Main Street 830 (Pty) Ltd 113,859,293 52.4 Massmart Integrated Annual Report 2014 79

Estimated % employees Massmart defines with medical benefits human capital as our 63.7% commitment 2013: 53.6% Unionised Staff to our people. 38.8% 2013: 36.0%

The objective of the Group human capital function is to facilitate the execution of Massmart’s business strategy through people Black management as a % of all management and Human professionals Estimated annual per capita training investment 74.8% in line with prior year capital R3,778.66 2013: R2,935

The retail industry is a fast and We believe that each of our people brings a unique set at large. We share people-centric values that define our of skills, experiences, perspectives and ideas that gives us behaviour and shape our culture, allowing us to: service our exciting business. It deals with a vast the competitive edge. We believe people drive their own customers; show respect for the individual; and strive for development, but it is our duty to provide an environment excellence and integrity. Our adherence to these principles amount of suppliers, service providers that is conducive for nurturing their talent and creating has created a unique work culture within our business. These and diverse communities. opportunities for them. are built on a foundation of integrity where the principles of We offer an authentic retail experience which encourages honesty, fairness and objectivity guide how we apply these a spirit of entrepreneurship. We recognise that a diverse and values in the workplace. inclusive workforce is crucial for sustained business growth. Massmart offers diverse career choices such as: The Group actively seeks the continuous improvement Marketing, Business Intelligence, Accounting, Information of performance in the portfolio and its parts, through Systems and Business Processes, Supply Chain, Operations, strategic and structural clarity, high market shares, excellent Legal, Compliance, Human Capital, Merchandising and management, principle-driven ethical leadership, cost- International Commerce; to name but a few. This is what effective technology and the sharing or accumulation differentiates us and strengthens our value proposition to of capabilities, knowledge, resources, influence and our employees. We aspire to be the most trusted retailer in information. Africa and the ultimate home of the career retailer. This goal To this end, thought-leadership, individual and collective can only be achieved when excellence is demonstrated performance, and collaboration throughout the Group are through inspired and engaged people. appropriately recognised, valued and rewarded. Our vision as For more information on our human capital an organisation is to deliver value to our customers, suppliers, pages 12 to 27, Our divisional reviews employees, investors, communities and other social partners 80 Our performance Massmart Integrated Annual Report 2014 81

continued Human capital Human capital performance indicators

Talent management and succession Diversity and inclusion 63.66% Estimated % employees planning Massmart is committed to responsible, fair and with medical benefits 53.6 in 2013, 48.4 in 2012, 41.9 in 2011, 41.0 in 2010, 19.0 comparative The objective of the Group human capital function is enlightened employment practices. This includes building to facilitate the execution of Massmart’s business strategy and nurturing a diverse workforce that brings together through people. We do this by enabling the business with the the very best in local talent with world-class retail practice. leadership and technical capability required to competitively Through diversity, we are building a business that is attractive to both young talented job-seekers and the 38.75% deliver on its strategy and value proposition. In particular, Unionised Staff there is a need to manage the business risk associated with seasoned professionals. 36.0 in 2013, 36.2 in 2012, 37.3 in 2011, 35.0 in 2010, 33.3 comparative core and critical skills, and to identify and develop competent leaders at all levels throughout the organisation. CEO’s Council of Women Leaders The Massmart executive succession management process To promote gender equality and foster female mentoring, is a key component in achieving this objective. 12.17% we launched our CEO’s Council of Women Leaders in 2012. Estimated staff Bi-annual talent reviews of the most senior leadership The Council is chartered to advise senior leadership and turnover 10.2 in 2013, 10.0 in 2012, 10.2 in 2011, 9.4 in 2010, 17.3 comparative talent across the organisation ensure that high potential act as a catalyst in the identification development, retention leaders are identified, developed and retained for future and advancement of women to more senior leadership opportunities. roles. It consists of influential senior woman leaders across all functional areas in our operating divisions. These leaders 36.96% Flexi-timers Graduate Development Programmes are required to act as advisors and catalysts for women’s 37.5 in 2013, 33.9 in 2012, 32.1 in 2011, 33.0 in 2010, 67.6 comparative Massmart offers two distinct programmes for newly initiatives across Massmart. The Council partners with key qualified graduates. The Graduate Development Programme leaders across the organisation to align all our efforts to (GDP) focuses on attracting and selecting newly qualified achieve our Corporate Mission. university graduates with a minimum qualification of a degree. 5.83% HIV Prevalence These graduates are placed in different functional areas within Impilo 5.5 in 2013, 6.6 in 2012, 5.6 in 2011, 5.5 in 2010, 10.0 comparative** the organisation at head office level such as supply chain, Massmart offers its employees a comprehensive marketing, finance, human resources, information systems, workplace wellness programme called IMPILO. IMPILO Prevalence has decreased and remains well below the national prevalence rate. corporate affairs, general merchandise. Wellness Program was launched in 2006 and initially offered The Store Operations Development Programme (SODP) ARV treatment and VCT for all permanent employees and has been designed to specifically attract and select graduates spouses. It has evolved into a fully integrated well-being This indicates the percentage of from universities of technology to fill our store talent programme. An educational information session provides local management in our African pipeline. Trainees typically have a minimum of a Diploma employees with lifestyle and health risks assessments. The 87.46% operations outside of South Africa. in areas including business management, retail operations, screening service includes tests for diabetes, cholesterol, Local management in non- entrepreneurship, supply chain and other related fields of blood pressure, TB and BMI and each employee is given their South African operations as a 90.5 in 2013, 89.3 in 2012, 86.7 in 2011, 87.0 in 2010, comparative N/A study. The store operations’ trainees are typically high energy own Health Card. % of total management individuals who are keen to develop as career retailers. They enjoy customer interaction and rolling up their sleeves to get There has been a slight decrease % in black the job done. management as the Company is aligning 61.69% with globally recognised job evaluation Black management as a and grading processes. The Massmart Corporate University % of all management and Massmart Corporate University was developed to create a professionals 74.8 in 2013, 78.5 in 2012, 77.7 in 2011, 77.0 in 2010, 53.7 comparative*** robust, flexible and diverse workforce. Kevin Wheeler defines a corporate university as “a chief vehicle for disseminating an organisation’s culture and fostering the development of not only job skills, but also core skills like leadership, creative thinking and problem solving”. EstimatedR3,778.66 annual per capita training AverageR3,108.00 monthly Minimum Wage (R) Through this virtual institution Massmart aims to: investment – permanent (R) • build a strong talent pipeline, R 2,688.00 in 2013, R2,953 in 2012, • retain key talent, R2,935.00 in 2013, R3,012 in 2012, R1,879 in R2,859 in 2011, R2,555 in 2010, • facilitate best in-class training and development solutions, 2011, R1,574 in 2010, R1,204 comparative R2,456 comparative* • align the learning agenda with business strategy, and • maximise our return on learning and development Human capital data is based on Group and Divisional payroll data. Due to the large number and geographical positioning of stores, testing investment. is not conducted at all stores every year. Data is internally audited prior to publication. Comparative data represents the best available The university is tailored to suit industry best practice performance disclosed by South African retailers, except otherwise noted. HIV prevalence is based on Healthy Choices VCT testing figures. and to address the strategic objective of Massmart group. *Source: Sectoral Determination for Wholesale and Retail Sectors We offer functional acumen, strategic thinking, leadership, **Source: published national prevalence rate according to Statistics South Africa Mid-year population estimates 2013 problem-solving and personal mastery. ***Source: 2012 – 2013 Commission for Employment Equity Annual Report 82 Our performance Massmart Integrated Annual Report 2014 83

Remuneration report

Introductory statement by the Its purpose is to ensure a workforce that is motivated to Responsibilities Overview of remuneration successfully develop, implement and support the Group’s In accordance with the Remuneration Committee Chairman of the Remuneration business strategy. The focus is on ensuring the long-term Massmart remains committed to ensuing competitive Charter, as set out by the Board, the responsibilities of the growth and success of the Group and enhancement of remuneration packages whilst managing costs. Massmart Committee Committee include: stakeholder value. participates in a number of annual industry surveys to The Remuneration report is intended to provide • Reviewing the Group remuneration strategy and policies Primary objectives of the remuneration programmes: ensure the remuneration, benefits and incentives on offer to ensure alignment with the Group strategic, operating stakeholders with an understanding of Massmart’s • Provide competitive and equitable remuneration, based are maintained at market-competitive levels. Remuneration and financial objectives and remuneration best practice remuneration philosophy and practices and how these have on an employee’s skills, performance and contributions to packages as a whole are regularly measured against the principles; been designed to support Massmart’s mission and vision. the Group, among other factors; national market with additional comparisons within the • Evaluating the remuneration packages of the Executive The information provided in this report has been approved • Attract and retain the talent necessary to achieve the retail industry and against similar-sized South African listed Directors and Group Executive Committee to ensure by the Board on the recommendation of the Remuneration Group’s business objectives; companies. Committee. base pay and benefits are market-competitive and • Develop a sense of Group ownership and align the fair, and STI’s and LTI’s are equitably related to relevant Guaranteed remuneration interests of employees with those of its shareholders; and performance indicators; • Provide opportunities for the potential of greater financial • Approving performance-related STI and LTI targets; Annual salaries rewards to those who perform well with their job • Making recommendations to the Board on amendments Salaries are reviewed annually against market data and Chris Seabrooke responsibilities. to STI and LTI schemes; increases are awarded on basic salary. The actual percentage Chairman of the Remuneration Committee Massmart is committed to maintaining market-related • Reviewing and recommending independent non- increases awarded are determined based on both market 2 April 2015 pay levels that reflect a job’s worth to the Group. This Executive Directors’ and Board committee members’ fees trends and on individual merit, taking salary positioning includes incentives that recognise and reward individuals for and also the fees of any director-related entities providing against the Massmart salary structure into account. The Remuneration report business and individual performance against targets. services to the Group; The Committee is alert to the concentrated and highly Massmart’s total reward offering comprises the following • Reviewing Group remuneration practices and policies; and competitive nature of the South African retail market, as well The report details information applicable to Massmart’s elements: • Selecting independent consultants to advise the Board as a shortage of retail-specific skills, and sets compensation remuneration policy and practice for Executive and non- • Guaranteed package, specifically basic salary and benefits where appropriate. levels accordingly. Executive Directors and Prescribed Officers. It sets out the including motor vehicles, retirement funding and medical A full account of the role and responsibilities of the In July 2014, increases awarded to Massmart’s Execucom actual payments, accruals and awards for the year ended aid; Remuneration Committee is described in the Remuneration and Divisional Directorates averaged 7.2%, however this 28 December 2014. The Remuneration report is aligned • STI’s, represented as multiples of basic monthly salary Committee Charter and is available on request. average includes market-related adjustments for six of with the Remuneration guidelines of the King Code of linked to the achievement of targets and / or personal the Executive team members. If the market adjustments Governance Principles (King III). It is fully compliant with performance; and Key decisions taken in 2014 for these six executives are excluded from the metrics, the the Companies Act. • LTI’s, represented as a percent of guaranteed package in a average annual increase percentage awarded to these The report seeks to provide the following: mix of Performance and Restricted share awards. • Retirement date change: The retirement age for all Executives amounts to 6.6%. The average percentage • A summary of the Group’s remuneration philosophy, The total reward offering of guaranteed package, STI’s employees was increased from 60 to 65. The decision increase to salaries across the Group was 6%. strategy and policy; and LTI’s is intended to provide value to employees at a was taken to provide an additional five years employment to retain employee skills whilst providing further Motor vehicle benefits • The Remuneration Committee and its role; minimum of the 75th percentile of the market, dependent opportunity for employees to save for retirement. Travel allowances, or company cars, are provided to • Key remuneration decisions taken during the 2014 on achievement of goals against targets. Regular reviews of • Remuneration structure: Massmart introduced a formal nominated employees to enable them to perform their financial year; remuneration against market ensure that the total reward and uniform salary structure in the business during 2014. duties as required. The quantum of the allowance or • Key remuneration priorities for the 2015 financial year; offering remains competitive. This structure will be used to measure employee basic company car value is determined based on the requirements • Guaranteed remuneration; Each year at the Annual General Meeting, in accordance salaries and ensure internal and external parity, and is of each specific role. with King III, the Group remuneration policy is put to a non- • Short term incentives (STI’s); linked to the Hay process noted below. binding advisory vote. This non-binding advisory vote allows Retirement funding • Long term incentives (LTI’s); • Job grading and profiling: the Hay Group job evaluation shareholders to express their views on the remuneration • Executive Directors’ contractual arrangements, pay-mix system was formally implemented and is currently All employees are required to belong to either a pension policies adopted by the Group and on their implementation. and payments; and being rolled-out across the Group. Each Executive role or provident fund. The current Group-approved funds are • Independent non-Executive Directors’ contracts and has been evaluated using the Hay Guide Chart® Profile all defined contribution schemes. The remainder of funds payments. Remuneration Committee and its role Method of Job Evaluation, to enable accurate, objective comprise those funds that have been incorporated into and consistent monitoring of pay and benefits against the Group through acquisitions. These are in the process of Remuneration philosophy, strategy Composition relevant market levels. being incorporated into the Group-approved funds through and policy The Remuneration Committee consists of three non- Section 14 transfers. The distribution of employees across Executive Directors, two of whom are independent. Key priorities for 2015 the various Massmart funds is noted in the table below. The purpose of Massmart’s remuneration philosophy Meetings are held four times per year and more often if • Review of the competitive positioning of the Massmart Fund Name % of Employee Base is to establish fair and equitable reward levels that will deemed necessary. The CEO is a permanent invitee to all Annual Incentive Plan and Share Incentive Plan to better attract, motivate and retain high calibre employees. This is in Committee meetings. Other nominated Executives attend Massmart Pension Fund 15 align the plans to Massmart’s business requirements. keeping with the Group’s culture and values, whilst aligning meetings by invitation. Neither the CEO nor nominated • Continue the development of job descriptions, the Massmart Provident Fund 73 remuneration with shareholder interests and best practice. invitees are present when matters relating to their own evaluation of all jobs and the formalisation of grade levels SACCAWU National Provident Fund 8 We strive to ensure that our remuneration policy supports remuneration are discussed. The Group General Counsel acts throughout the Group through to store level. the development and retention of top talent and critical skills. as secretary for the Committee. Other* 4 • Review of employee participation in the medical schemes to assess the feasibility of providing health care benefits to * Funds currently undergoing Section 14 transfers all permanently appointed employees. 84 Our performance Massmart Integrated Annual Report 2014 85

Remuneration report continued

Alexander Forbes has administered the Massmart funds Health Plan is regulated in terms of the Medical Schemes Act Short-term Incentives awards will be provided against that target. Performance for a number of years. A formal service level agreement is and the Council for Medical Schemes. The Scheme has been against target has resulted in the release of performance Massmart places particular emphasis on generous annual in place that regulates this relationship. The trustees of the audited by PWC and has been found to be compliant with all shares equivalent to 35.9% (2013) and 108.2% (2014). incentives for high performance. The Annual Incentive Plan funds monitor fund performance on a quarterly basis. required submissions. Restricted share grants are specifically utilised for (AIP) categorises a range of performance incentives linked Affordable and accessible private health cover has been an retention purposes and vest on a time basis, being one third to the approved annual operating income targets for both on-going objective for Massmart since 2009, and Massmart each at the end of years 3, 4 and 5. Fund Name December 2014 has consistently been able to increase its coverage targets Group and Divisions. In order to align with the Walmart As is the case with the AIP, this is only the second year since year-on-year. In 2014, Massmart achieved an estimated 65% metrics, performance against planned operating income plan inception; therefore there is not enough information Portfolio Gross targets was selected as the performance measure. For value annualised healthcare coverage of permanent employees and in the to provide trends on plan performance. The intention is Rm returns same year introduced a Network option which currently business performance below 90% of planned operating to include this information in subsequent remuneration covers almost 1,600 employees. Massmart is on a journey to income, no incentives are earned. At the lower levels of the reports. MRF Balanced 3 ,181.8 12.1% achieving affordable and sustainable healthcare for all of its AIP, an individual metric based on employee performance is MRF Conservative 151.0 11.4% employees. included. Massmart Employee Share Trust Participating employees can earn an increasing multiple MRF Aggressive 107.2 12.3% The current strategy is to be able to offer employees Prior to 2013, qualifying Massmart employees were a broad range of good benefits at affordable rates within of their monthly basic salary dependent upon achievement eligible to receive a share option allocation, which was Investment Solutions Performer 283.0 11.5% the Massmart Health Plan and reduce reliance on open against these agreed targets. subject to a Group performance target set at CPI plus 5% Outside of the AIP, the Committee also has the option Investment Solutions Banker 89.0 7.9% schemes due to the challenges that open schemes have of growth in Headline Earnings per Share (HEPS). Performance anti-selection, retiree buy-downs and broker commission, to provide discretionary awards to reward individual hurdles had to be met in order for employees to receive an Other Investment Solutions 51.3 resulting in cross subsidisation by younger and healthier performance. The discretionary awards are capped at not allocation. Options vest in equal amounts over four years Portfolios* members. Open schemes therefore tend to have higher more than 25% of target AIP. If awarded, these incentives are commencing on the second anniversary of the grant date. Total 3,863.3 annual contribution increases and benefit restrictions in paid annually. Options expire five years after the last vesting date, at which order to manage these risks. With this being only the second year since plan inception, time any unexercised options are returned to the Scheme. *Other Investment Solutions Portfolios are made up of IS Current company-approved medical aid plans for all new there is not enough information to provide trends on plan During 2012, the final allocation was awarded under the Conserver, IS Real Return and IS Prescient Pensioner permanent employees from 2015: performance. The intention is to provide this information in scheme, which was subsequently replaced by the Massmart subsequent remuneration reports. Share Incentive Plan. No options have been awarded under Medical plan Employees Fund Name December 2013 the Trust since. Ocsacare (Employee only option) Long-term Incentives 3,898 Portfolio Gross (Occupational health offering) The Massmart Share Incentive Plan (SIP) is a long-term Massmart Black Scarce Skills Trust value annualised The Black Scarce Skills Trust is a share-scheme used Massmart Health Plan - Choice equity incentive plan that ensures alignment of reward with Rm returns 3,135 to attract and retain skilled African, Coloured and Indian (Company’s closed scheme) shareholders’ interests, in particular the sustained creation MRF Balanced 2,775.7 24.7% of shareholder value. Full-value shares rights are awarded employees. The Executive Committees of each of the Massmart Health Plan - Network 1,633 bi-annually to qualifying permanently employed individuals. divisions and the Massmart Remuneration Committee MRF Conservative 148.4 12.1% (Company’s closed scheme) Initial qualification is based on a minimum earning criteria as submit their nominations to the Black Scarce Skills Trust MRF Aggressive 80.6 24.3% Africa-approved well as motivation by the Executive Committees of each of trustees for approval, upon which allocations are made bi- 37 the Divisions. Final approval for participation is provided by annually in April and October of each year. A beneficiary is Investment Solutions Performer 263.8 25.5% (Africa expatriate employees) the Remuneration Committee. only eligible for a single allocation. Investment Solutions Banker 101.3 6.5% Total 8,703 Share award parameters Executive pay mix Other Investment Solutions The medical aid schemes below are closed to new 62.6 At Executive level, the value of the award ranges between Portfolios membership however existing members can remain on 40 – 100% of guaranteed package. At other levels, the award Anticipated contribution to total annual these. Different company subsidies exist on these schemes Total 3,432.4 is based on 25% of guaranteed package. The plan provides due to historic employer / employee commitments. packages for a mix of performance shares, which are awarded annually The Committee believes that over an extended period Medical plans Medical plan Employees in March and grants of restricted shares which are granted and subject to business performance, Executives’ annual annually in September, based on the level of employee. At It is compulsory for all new permanent Massmart Group Resolution Health package should comprise approximately equal amounts 3,026 Executive levels, the mix is 75% performance shares and 25% employees to join a Company-approved medical plan. The (closed 1 January 2014) from basic salary, Annual Incentives (AIP) and Share restricted shares, and at other levels, 50% / 50%. Group has the responsibility of ensuring that the appropriate Incentives (SIP). The amounts received annually under AIP Compcare NetworX The performance share metrics have been designed to plans are offered to employees and that the contribution 2,579 will vary on business performance, while those received (closed 1 January 2015) align with Walmart’s metrics and are measured individually levels are sustainable and affordable for all levels of under the SIP will also vary on business performance and against approved annual nominal sales and ROI targets over employees. Other 418 growth of the Massmart share price. It is anticipated that three separate years with an equal weighting. Both targets The current Massmart Health Plan offers employees Total 6,023 about two thirds of Executives’ compensation should a broad range of options with good benefits at very have ranges and the final awards are calculated based on be variable and conditional upon sustainably improving a sliding scale between the ranges 50%-150%. If achieved, competitive rates and so aims to reduce reliance on business performance. Total employees on medical schemes 14,726 the awards are equity-settled at the end of the third year. If open schemes. The current Group subsidy is 50% of total performance against either of the targets does not achieve contribution for principal member and spouse. The Massmart at least the minimum of the range, no performance share 86 Our performance Massmart Integrated Annual Report 2014 87

Remuneration report continued

Executive Directors’ contracts and earnings Actual values paid in 2014 Ilan Zwarenstein All Committee members complete detailed self- assessments covering the composition, duties, The comments below provide further background and The Remuneration Committee awarded Ilan a 6.5% responsibilities, process and effectiveness of the relevant context to the figures disclosed in tables which follow. increase on his basic salary in July 2014. In terms of Massmart’s AIP, Ilan received an incentive committees. The results of these assessments are collated by Guy RC Hayward payment of R 2,8 million (equivalent to 14.2 months of salary). the Company Secretary and sent in summarised form to the Guy was appointed as CEO in June 2014 following the During the 52 weeks ended December 2014 Ilan did not Chairperson for a formal written response. The summarised resignation of Grant Pattison. The Remuneration Committee convert any Massmart options. results, together with the Chairperson’s written response, 52.1% 47.9% awarded Guy a 36.5% increase in basic salary commensurate Through the Employee Share Trust, Ilan holds 167,331 are included in the Board papers at the November Board with his new position following a third party executive options. The average length of time that he has held these meeting. remuneration analysis. is 3.15 years and the average strike price is R 151.44 per share. In terms of Massmart’s AIP, Guy received an incentive CEO Through the SIP, Ilan was awarded 16,686 performance Payments made to non-Executive payment of R5,9 million (equivalent to 14.2 months of salary). awards on 17 March 2014. Directors During the year to December 2014 Guy did not convert or In August 2014, Ilan announced his intention to resign sell any Massmart options or shares. as Group Finance Director. At the request of the Board he The Walmart-appointed non-Executive Directors do not Through the Employee Share Trust, Guy holds 456,906 remained in his role until 12 March 2015. Having tendered receive fees from Massmart. Massmart shares and options of which 19,912 shares are held his resignation, he received no restricted share grants on 15 Each independent non-Executive Director receives a by the Bluett-Hayward Trust, of which Guy is a discretionary September 2014. fixed fee for their services based on their board membership beneficiary. The average length of time that he has held and membership of the Board sub-committees. The Board these is 4.26 years and the average strike price is R124.67 per Johannes van Lierop has elected to pay a fixed fee only, without the payment of share. Guy also owns 36,517 Massmart shares directly. 49.6% 50.4% Following the resignation of Ilan Zwarenstein from his additional attendance fees. This decision was taken on the Through the SIP, Guy was awarded 32,786 performance role as Group Finance Director, Johannes van Lierop was basis that many Directors provide expertise that extends share awards on 17 March 2014 and 11,506 restricted share appointed as Chief Financial Officer of Massmart with effect beyond the boardroom. GROUP from 12 March 2015. The remuneration of non-Executive Directors is grants on 15 September 2014. FD Guy is contractually bound by a notice period of twelve Top three executives’ salaries reviewed annually by the Remuneration Committee and months. the Board, after a benchmarking exercise against market. With the exception of the Executive Directors’ Fees are required to be competitive but not in the top Grant M Pattison remuneration, the Board has made the decision not to quartile of the market. Recommendations for increases are Grant resigned and stepped down as CEO at the end of disclose the individual salaries of the top three executives made to shareholders at the Annual General Meeting for May 2014 and agreed to remain on the Massmart Board as an but has instead, disclosed the aggregate salaries of the consideration and approval. Executive Director until the end of December 2014. Having three Executives concerned. This decision was taken due Non-Executive Directors do not qualify for participation tendered his resignation in February 2014, Grant was not to the specialised retail skills of these executives, their value in any share or incentive scheme. eligible for and did not receive a salary increase, AIP payment 17.5% 41.0% to Massmart and the highly competitive South African retail The following fees for the non-Executive Directors will be or shares under the SIP. environment. proposed at the May 2015 Annual General Meeting for the During the year to December 2014 Grant converted During the 52 weeks ended December 2014, the top period from 28 May 2015, to the date of Massmart’s Annual 47,000 Massmart options and settled loans on 183,750 shares PRESCRIBED OFFICERS* three Executives’ combined salaries (comprising basic salary, General Meeting in respect of its financial year ending from the Employee Share Trust. motor vehicle allowances, medical aid, retirement benefits December 2015: For the year ended December 2014, through the and bonuses and performance-related payments) were 2015 2014 Employee Share Trust, Grant held 453,271 Massmart shares R34.7 million (December 2013: R23.6 million). and options of which 42,202 shares and 158,603 options Chairman of the Board 1,200,000 871,000 are held by the Pattison Family Trust, of which Grant is a Non-Executive Directors contracts Deputy Chairman 625,000 625,000 discretionary beneficiary. The average length of time that 41.5% Directors 275,000 259,000 he has held these shares is 6.23 years and the average strike and policies Committee Chairpersons 252,000 252,000 price is R95.31 per share. In addition, the Pattison Family Trust One-third of the non-Executive directors are required Committee Members 128,000 120,000 and a related company, GPAM, own an additional 348,805 * Average of total Guaranteed Package to retire every year and Massmart Executive Directors have shares. remuneration for elected to also retire on this basis. As a result, all Directors Prescribed Officers AIP retire by rotation at least every three years and are then Gain on exercise eligible to offer themselves for re-election. In addition, of share options shareholders must ratify the initial appointment of each Director at the first Annual General Meeting following that Director’s appointment. 88 Our performance Massmart Integrated Annual Report 2014 89

Remuneration report continued

Directors’ emoluments

Gains on exercise Fringe of share Fringe Gains on benefit of options benefit of exercise Services as Bonuses interest- and on Services as interest- of share directors of and per- free loans shares directors of Bonuses and free loans options and Massmart formance Retirement used to purchased Massmart performance Retirement used to on shares Holdings Salary and related Other and related finance by Holdings Salary and related Other and related finance purchased Limited allowances payments1 benefits benefits Subtotal shares2 directors Total Limited allowances payments benefits benefits Subtotal shares2 by directors Total R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 R000 For the 52 weeks ended For the 53 weeks ended December 2014 December 2013 Executive directors Executive directors Pattison, GM3 - 5,215 - 692 365 6,272 1,365 15,788 23,425 Pattison, GM3 - 5,215 1,304 772 365 7,656 1,413 - 9,069 Hayward, GRC - 4,443 5,916 667 337 11,363 844 - 12,207 Hayward, GRC - 3,560 916 686 249 5,411 814 - 6,225 Zwarenstein, I - 2,603 2,827 103 162 5,695 - - 5,695 Zwarenstein, I - 2,447 561 113 153 3,274 1 1,863 5,138 - 12,261 8,743 1,462 864 23,330 2,209 15,788 41,327 - 11,222 2,781 1,571 767 16,341 2,228 1,863 20,432 Non-executive directors Non-executive directors Lamberti, MJ4 359 - - - - 359 - - 359 Lamberti, MJ4 1,213 - - - - 1,213 - - 1,213 Seabrooke, CS 1,491 - - - - 1,491 - - 1,491 Seabrooke, CS 1,256 - - - - 1,256 - - 1,256 Cheesewright, D5 ------Cheesewright, D5 ------Davis, JA5 ------Davis, JA ------Gwagwa, NN 512 - - - - 512 - - 512 Gwagwa, NN 451 - - - - 451 - - 451 Langeni, P 758 - - - - 758 - - 758 Langeni, P 689 - - - - 689 - - 689 Dlamini, KD 892 - - - - 892 - - 892 Suarez, JP ------Suarez, JP ------3,609 - - - - 3,609 - - 3,609 Broader, S6 ------Prescribed Officers Clarke, A6 ------Prescribed Officer A - - - - - 9,712 370 2,702 12,784 4,012 - - - - 4,012 - - 4,012 Prescribed Officer B - - - - - 6,161 - - 6,161 Prescribed Officers Prescribed Officer D - - - - - 3,694 6 5,904 9,604 Prescribed Officer A - - - - - 13,683 293 - 13,976 Prescribed Officer E - - - - - 4,327 - - 4,327 Prescribed Officer B - - - - - 8,115 - - 8,115 Prescribed Officer F - - - - - 7,756 - 389 8,145 Prescribed Officer D - - - - - 4,703 - - 4,703 Prescribed Officer G - - - - - 2,530 229 - 2,759 Prescribed Officer E - - - - - 6,089 - - 6,089 Prescribed Officer I - - - - - 2,831 43 719 3,593 Prescribed Officer F - - - - - 13,718 - 2,300 16,018 Prescribed Officer K - - - - - 2,979 - - 2,979 Prescribed Officer G - - - - - 4,476 239 - 4,715 Prescribed Officer L - - - - - 2,930 - - 2,930 Prescribed Officer I - - - - - 4,913 11 209 5,133 Prescribed Officer M - - - - - 2,582 73 - 2,655 Prescribed Officer K - - - - - 4,787 - - 4,787 - - - - - 45,502 721 9,714 55,937 Prescribed Officer L - - - - - 3,912 - - 3,912 Total 3,609 11,222 2,781 1,571 767 65,452 2,949 11,577 79,978 Prescribed Officer M - - - - - 4,630 76 - 4,706 - - - - - 69,026 619 2,509 72,154 1 In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect Total 4,012 12,261 8,743 1,462 864 96,368 2,828 18,297 117,493 of each year and not amounts paid in that year. 2 Held in terms of the rules of the Company’s share scheme. 1 In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect 3 Resigned with effect from 31 December 2014. of each year and not amounts paid in that year. 4 Resigned with effect from 10 April 2014. 2 Held in terms of the rules of the Company’s share scheme. 5 Resigned with effect from 16 July 2014. 3 Resigned with effect from 31 December 2014. 4 Resigned with effect from 10 April 2014. 5 Resigned with effect from 16 July 2014. 6 Appointed with effect from 16 July 2014 90 Our performance Massmart Integrated Annual Report 2014 91

Remuneration report continued

Details of Directors’ shares and share options per Director: Gain Gain Market on sale/ Market on sale/ Subscription price Number of shares/ exercise Subscription price Number of shares/ exercise Relevant date price (R) (R) share options (R 000’s) Expiry date Relevant date price (R) (R) share options (R 000’s) Expiry date Pattison, GM Employee Share Awards Scheme Employee Share Option Scheme Balance at December 2012 - Balance at December 2012 684,021 Performance share awards 16 September 2013 - - 20,848 - 15 September 2016 Options exercised / Restricted share grants 16 September 2013 - - 6,950 - 15 September 2018 shares sold - - - - - Balance at December 2013 27,798 Balance at December 2013 684,021 - Performance share awards 17 March 2014 - - 32,786 - 16 March 2017 Options exercised 1 April 2005 42 120 (47,000) 1,969 Restricted share grants 15 September 2014 - - 11,506 - 14 September 2019 Shares sold 23 May 2006 54 120 (183,750) - Balance at December 2014 72,090 Balance at December 2014 453,271 Comprising: Comprising: 23 May 2006 54 183,750 22 May 2016 Performance share awards 16 September 2013 - - 20,848 - 15 September 2016 24 May 2007 94 26,948 23 May 2017 Restricted share grants 16 September 2013 - - 6,950 - 15 September 2018 26 May 2008 73 41,768 25 May 2018 Performance share awards 17 March 2014 - - 32,786 - 16 March 2017 27 May 2009 78 42,202 26 May 2019 Restricted share grants 15 September 2014 - - 11,506 - 14 September 2019 1 September 2011 154 158,603 31 August 2021 Zwarenstein, I Employee Share Awards Scheme Employee Share Option Scheme Balance at December 2012 - Performance share awards 16 September 2013 - - 28,705 - 15 September 2016 Balance at December 2012 182,659 Restricted share grants 16 September 2013 - - 9,569 - 15 September 2018 Options exercised 1 April 2008 67 196 (2,742) 354 Balance at December 2013 38,274 Options exercised 26 May 2008 73 196 (5,234) 644 Share awards / Share grants ------Options exercised 27 May 2009 78 196 (7,352) 871 Balance at December 2014 38,274 Balance at December 2013 167,331 1,869 Comprising: Options exercised ------Performance share awards 16 September 2013 - - 28,705 - 15 September 2016 Balance at December 2014 167,331 Restricted share grants 16 September 2013 - - 9,569 - 15 September 2018 Comprising: 26 May 2008 73 - 8,037 25 May 2018 27 May 2009 78 - 3,677 26 May 2019 Hayward, GRC 1 September 2011 154 - 63,941 31 August 2021 16 May 2012 160 - 91,676 15 May 2022 Employee Share Option Scheme Balance at December 2012 456,906 Employee Share Awards Scheme Options exercised / Balance at December 2012 - shares sold ------Performance share awards 16 September 2013 - - 12,759 - 15 September 2016 Balance at December 2013 456,906 - Restricted share grants 16 September 2013 - - 4,253 - 15 September 2018 Options exercised / Balance at December 2013 17,012 shares sold - - - - - Performance share awards 17 March 2014 - - 16,686 - 16 March 2017 Balance at December 2014 456,906 - Balance at December 2014 33,698 Comprising: 24 May 2007 94 - 24,444 23 May 2017 Comprising: 1 April 2008 67 - 19,912 31 March 2018 Performance share awards 16 September 2013 - - 12,759 - 15 September 2016 26 May 2008 73 - 36,573 25 May 2018 Restricted share grants 16 September 2013 - - 4,253 - 15 September 2018 27 May 2009 78 - 105,448 26 May 2019 Performance share awards 17 March 2014 - - 16,686 - 16 March 2017 1 September 2011 154 - 120,987 31 August 2021 16 May 2012 160 - 149,542 15 May 2022 Read more: Shares and options at reporting date Read more: More detail on the Employee Share Incentive can be found in the ‘Directors’ Report’ on page 72 Schemes can be found in the ‘Remuneration Report’ on page 85 92 Our performance Massmart Integrated Annual Report 2014 93

New private label offering launch: Massmart defines intellectual

capital as how we pass on intoMarketside Fresh, Bakery and Butchery benefits to our customers

ShieldOnline: 351,809 orders placed

ShieldOnline sales: Every Day Low Price:

TheR3.78 country’s largest pure B2B bn ecommerce business EDLP Intellectual Plumb Pride Geyser which has been held at DionWired online: the same selling price for four years. capital 4m page views: up 100%

In order to remain relevant to Ecommerce / online Whilst the strategic choices and directions are clear, online shopping adoption in the markets we serve has been a rapidly evolving and digitally We recognise that smartphone penetration and declining relatively slow. Consequently there is no burning platform costs of bandwidth are creating a digitally-connected driving an online shopping agenda. We therefore have connected Customer 2.0, Massmart customer that will be ubiquitous in every market segment the time to develop important foundation competencies we serve. Put simply, the internet and mobile phone have and implement new systems in a phase of omni-channel must understand and stay in touch created new dimensions in retail that enable us to raise the readiness. bar on convenience, service, choice and communication. In support of this, all of our operating divisions with the technology innovations To take advantage of the opportunity to win, serve and have brought strong focus to the acquisition of these retain customers in new ways, we must become literate in competencies, and the development of supporting systems impacting retail formats, and the the new dimensions of retail, acquire new competencies required to prepare their operations for omni-channel: and adapt existing assets, in order to retain and advance our • Massdiscounters has added the Game catalogue to its increasingly complex omni-channel leadership in the categories we trade, and market segments DionWired online store, allowing customers to research we serve. products before making a purchase paths to purchase. To this end we have spent time in various Walmart markets • Masswarehouse launched Makro’s online store with around the world to understand the context, trends, best a complete General Merchandise offering in March, practices and competency gaps impacting retail operations followed shortly by Liquor, allowing customers the like ours, in order to inform our strategic choices. We have convenience of collecting in store or having purchases identified the need to evolve our formats to synthesise the delivered. physical and digital elements of retail, in ways that create • Masscash continues to invest in its ShieldOnline trading compelling new value propositions for customers, and portal, upgrading mobile interfaces, and extending the to align with their expectations of a digitally-augmented portal to cash and carry stores. shopping experience; and new standards for convenience, • Massbuild has invested in master data governance choice and service. systems and processes in parallel with an ecommerce system implementation, and will focus initially on the trade customer. 94 Our performance Massmart Integrated Annual Report 2014 95

Intellectual capital continued

Performance of our online offerings in 2014 Private label

Sales up Website visitors in peak period: Sales up Website visitors since Shared private label has always been an important April 2014 launch: focus for our business, as can been seen from the growth numbers across our Campmaster and Gardenmaster brands, 44% 1.1 million 14.7% as well as small exercise equipment under the Trojan brand. Website visitors: Increase in website visitors: Orders placed: , We strive for brand excellence whether through product 97 million innovation, world class social media or website platforms off Makro which our customers can not merely view product range, 1.5 million 23% 351,809 Since the launch of Makro website but also engage directly with us. With our Campmaster and DionWired Game Shield from April 2014, the site attracted 9.7 Trojan health repair centres we are unrivalled in the space of million visitors of which 4.5 million post-purchase customer care. • 2.3% contribution to total Christmas came early for Game’s ShieldOnline is a pure B2B model were unique visitors. The private label space in our Food business is very DionWired sales online visitors with a new look Game interfacing directly between suppliers Makro Ecommerce went live in April exciting right now with the recent launch of Marketside into • 1.5m website visitors website launching in early December. and retailers. The online platform is used 2014. During the 30 days between Fresh, Bakery and Butchery and the Equate brand into Health • 0.45% conversion rate The fully responsive Game website was by our suppliers, our internal call centre as mid-November and mid-December, the and Beauty. DionWired, experienced designed to allow for simple, intuitive well as customers, to place orders. site saw a surge in unique visitors to one Shared private label has a duel role: it excites and delights solid growth for a fourth year navigation across all devices from All sales orders in Shield are placed on million. During this period we also ran our customers with an outstanding brand encounter; and it in a row. User visits were up desktop PC to mobile phones. the system. The site has recently been a successful online campaign named allows our business to leverage our strength in terms of joint 26% to 400,000 visitors for the Other key enhancements included: adapted to perform on tablets. Pricegate on the 5th of December 2014. buying, expansion of brand footprint and ultimately being peak period (November and • New look design built on global best ShieldOnline has automated interfaces Majority of Makro site visitors accessed able to bring our customer more-for-less. We are continually December), page views were practise while maintaining Game’s to accept incoming electronic orders from the site through Desktop (65%) and the searching for new products, brands and initiatives that both up over 100% to four million brand identity both suppliers and customers, as well as remainder accessed the site through fulfil our customers’ needs and give Massmart Private Label for the period and an average • Interactive store finder with full an outgoing interface to suppliers and is mobile (24%) and tablets (11%). Various a sustainable advantage. online basket size of R3,300 was Google map integration capable of customer pricing downloads. changes were made to optimise the achieved during this period. • Improved product information At R3,78 billion in sales and in the cate- website and also to improve user • Improved search and site navigation gories we trade in, as far as we are aware experience. The website proved extremely Shield runs the country’s largest pure B2B popular with Game customers with ecommerce business. 1.1 million of them visiting the site over the peak period.

Every Day Low Price (EDLP) EDLP is Massmart’s simple, transparent approach to Results: shifting consumer behaviour in an uncertain economic • A quarterly independent price survey of 150 products showed climate. It strengthens loyalty and protects the trust that May 2013 that Builders Warehouse consumers have for Massmart. consistently aligned with the 4 best in the market 1 April 2015 • EDLP initiatives have enabled us July 2012 April 2012 Price communication changed to increase promotional margin to fulfill these objectives: 5 on adverts, while still offering 1 2 February 2013 • build price trust consumers excellent value for • increase price visibility Another Price Lock money and gaining price trust Maximised month-end promotion Changed price communication 3 • simplicity campaign launched • Excellent success stories across Cancelled mid-month promos, increased • implemented price rounding • consistency • Following on from multiple price categories such as month-end promos to three weeks • developed unique price device Do more for less Cancellation of birthday excellent results of first the Plumb Pride Geyser, which • minimised amount of products • dropped the “was” and “now” with Builders campaign and launch of the campaign - 48 products has been held at the same selling promoted in adverts and increased size pricing and use of “best buy” on • new positioning Price Lock campaign for an initial locked for six months price for four years of pictures selected items message period of six months yielding a growth of 75%

Massbuild’s EDLP journey to date 96 Our performance Massmart Integrated Annual Report 2014 97

Massmart defines social R23.6million invested in nutrition projects capital as our commitment to champion social equality initiatives in our business 27 million and our supply chain. meals served to learners through the Amalunchbox and Econo mobile kitchen projects

Investment in social projects: R41.5million Social (equivalent to 3.6% PAT) capital R71.2m invested in developing small suppliers since the inception of the Supplier Development Fund

At the heart of our social sustainability Prioritising social equality initiatives targets small manufacturing and agricultural suppliers. During the period under review, 60 suppliers from 9 To this end, we are working with 24 manufacturers and countries including Bangladesh, China, India, Brazil and approach is a desire to support social All our social equality initiatives are vetted against 146 small holder farmers distributed across six provinces. Thailand were subjected to independent responsible stringent assessment criteria including legislation, These enterprises supply a diverse range of manufactured sourcing audits. Although 38% of participants were found equality initiatives in our business and commercial relevance to Massmart’s global sustainability products, fresh produce and meat. to be fully compliant, 62% of suppliers were required to supply chain. We believe that nurturing commitments and reputational benefit. More information For the 15 months ending 28 December 2014, Massmart remedy minor infringements which included, among other can be found online. disbursed more than R50 million in funding to SMME things, displaying appropriately warning and emergency talent and creating opportunities Supporting small business development suppliers. Altogether, approximately R43.4 million was exit signage. As a result of this process, two suppliers were disbursed as grants and R6.7 million as loan guarantees. The removed from Massmart’s supply chain for non-negotiable for our employees, and emerging Massmart has established an in-house small supplier remainder was utilised, primarily, on support services. 47% of infringements. suppliers is fundamental to realising development unit comprising a team of nine professionals. funding was invested in manufacturing with the remainder In 2015, we aim to ensure that all direct import facilities The team is tasked with identifying and facilitating small and being deployed to assist small holder farmers. have been audited. In addition, we will be focussing on this significant objective. medium local supplier access to opportunities within the building the capacity of our domestic manufacturers Massmart supply chain. Because retail is customer demand- Facilitating responsible sourcing to meet Walmart Global Standards for Suppliers. This driven, the programme applies a demand-driven strategy, Under Walmart’s guidance Massmart established, in 2013, capacity building will include responsible sourcing training, placing emphasis on structural supply shortages in areas a responsible sourcing programme focusing on private conducting one-on-one visits and providing advice, on of demonstrated customer demand within the Massmart label, direct import and exclusive brand products. In terms areas such as the development of corrective action plans, to supply chain. of the programme, participating suppliers are assessed by factories that require additional support. In addition, we have Our overall focus is on assisting small and medium independent auditors on a broad range of human rights prioritised training buyers on our global responsible sourcing For more information on our social capital enterprises, with a maximum turnover of R50 million. and safety dimensions that include, among other things; programme and putting controls in place for product and pages 12 to 27, Our divisional reviews Preference, but not exclusivity, is given to women–owned fair labour practices and compliance with health, safety and supplier listing. and black-owned enterprises. The programme currently environmental regulations. 98 Our performance Massmart Integrated Annual Report 2014 99

Social capital continued Supplier Development Fund

Promoting Broad-based Black Economic Honouring Nelson Mandela’s legacy Empowerment In honour of Nelson Mandela’s 94th birthday in 2012, In 2014, we maintained our level 4 Broad-based Black Massmart on behalf of the Walmart Foundation committed Economic Empowerment (BBBEE) Contributor status to providing 94 mobile kitchens to 94 primary schools achieving a 2.5 point improvement in our 2013 score, around the country. 2014 saw the completion of the project due largely to better performance in the areas of skills when we delivered the final Walmart Foundation funded container kitchen to Dikgabane Primary School in Soweto. development and employment equity. Supplier We were also delighted to have exceeded our original goal by We are particularly pleased by the role that the Massmart Development delivering 101 kitchens, versus the 94 originally committed. Fund Supplier Development Fund (SDF) is playing in developing On 9 February 2015 we marked A proud initiative Further, Game, Masscash and the Walmart foundation have black manufacturers and producers. The SDF is currently donated 280 mobile kitchens to government schools across the two-year point in the working with 19 black-owned manufacturers and 146 South Africa since the project was launched in 2008. These smallholder farmers, who supply products including: bricks; kitchens enable the hygienic preparation of approximately implementation of the Massmart steel doors and window frames; paint; cooler boxes; tea; 27 million meals each year. Supplier Development Fund lampshades; mosaic tiles; cosmetics; fruit juice; biscuits; This year we initiated a process to assess the effectiveness clothing; maize meal; ceramic pots; insecticides; adhesives; of the mobile kitchen project. The assessment, which took the (SDF), under the condition of the vegetables; and beef to Massmart’s stores. Some of the form of engagement with mobile kitchen recipients through participants in our Supplier Development programme can site visits and telephonic interviews, revealed the need to Competition Appeal Court (CAC) be seen on pages 100 and 101 of this report. ensure that these kitchens receive ongoing maintenance. We Order. The Fund has reached Whilst we continue to prioritise BBBEE as a key are currently exploring options for facilitating this. performance area, we anticipate that our group BBBEE several significant milestones contributor status will decline in 2015 when the amended Group highlights Codes of Good Practise come into effect. Builders Warehouse continued its nutrition and school over this period. maintenance initiatives, investing R4 million in basic Empowering Women maintenance programmes at 101 schools. Since 2011 Builders Walmart has prioritised the empowerment of women Warehouse have, through this project, helped maintain 205 across their operations and supply chains. As part of this schools and Early Childhood Development Centres (ECD’s) initiative, and as a first step towards identifying opportunities around South Africa. to support and work with our majority women owned Makro, in partnership with HOPE Worldwide, provided suppliers, Massmart conducted a supply chain assessment funding to 41 ECD’s in disadvantaged communities. The to identify businesses that have a minimum of 25% women assistance offered through this initiative includes providing ownership. The assessment was distributed to over 1,426 training to teaching staff and facilitating the renovation and suppliers, 59 of whom indicated that they had more than 25% registration of these centres. In 2014 the project directly R71.2 million women ownership. Our focus for 2015, will involve engaging benefited 3,274 children below the age of five. The actual disbursements to and on behalf of suppliers as with our divisional buying teams to identify opportunities to Game, together with the Kingsley Holgate Foundation, at end December 2014. This represents 36% of the planned optimise procurement from these identified suppliers. supplied insecticide-treated mosquito nets to combat direct spend with beneficiaries of the R200 million. Within our own business, we continue to support Malaria in Botswana, Malawi, Mozambique and Zambia. the progression of woman through the Massmart Chief Since 2012, Game have donated 39,200 mosquito nets to Executive Officers Council of Woman Leaders and the assist in preventing the spread of this potentially deadly Massmart Corporate University. Although not focused disease. While over and above their Econokitchen project Masscash, in 2014, invested approximately R0,5 million in It has not just been about getting funding out the door The Fund also provided market access to 139 smallholder solely on woman, our Corporate University has in excess and Massmart has worked hard to ensure that it is creating vegetable farmer beneficiaries in 2014 and commenced its of 265 woman participants. Our Graduate Development feeding schemes across Mozambique, Botswana, Namibia and Lesotho. Notwithstanding the investments made by sustainable opportunities for small, medium and micro- first red meat sourcing pilot with smallholder farmers in the Programme represents another avenue through which we enterprises (SMMEs). Eastern Cape. attract and retain talented women, and we are encouraged our divisions, Massmart Holdings participated in a variety of projects, which included contributing food to the SANDF The greatest excitement over the previous financial year In 2015 the focus will be on maximising sales for listed that of the 127 female graduates who have participated in has been the take-off of the SDF’s manufacturing portfolio. SMME suppliers and prioritising even higher impact the programme since its inception in 2007, 106 remain in the goodwill parcel project, donating generators and equipment to support the South African National Department of The SDF closed the year with 24 manufacturing SMMEs opportunities in assembly and import replacement. business today. Health’s efforts in responding to the Ebola outbreak in West on-board all supplying a range of retail products. Africa, and donating R1 million to the Nelson Mandela Centre Supporting socio-economic development The following two pages include some of the suppliers who have been supported by the Supplier Development Fund. of Memory. Massmart’s corporate social investment is focused on In 2015 our objective is to implement an operating school nutrition, early childhood development (ECD), school framework that will synergise our social development maintenance and infrastructure. We remain committed to efforts with those of key suppliers who are engaged in investing a minimum of 1% Profit after Tax (PAT) in social complimentary activities, specifically in the primary schools projects. We typically exceed this target and in 2014, we education arena. invested R41.5 million which is equivalent to 3.6% PAT. 100 Our performance Massmart Integrated Annual Report 2014 101

Supplier Development Fund continued

XChem Chemicals Rivoningo Steel and Design Biscotti Nkuleko Bricks

stores Builders Warehouse stores stores stores 36 supplied Builders Superstore 19 supplied Massbuild 19 supplied Makro 4 supplied Massbuild

Through the SDF’s support, XChem has Rivoningo is a strong example of how The Supplier Development Fund is The Supplier Development Fund is grown from just a handful of stores to a women-owned businesses can break into working with Biscotti to grow their supporting the development of regional national presence in Massbuild. XChem is steel manufacturing and steel products presence throughout the Massmart SMME brick suppliers such as Nkuleko now listed through the Massbuild RDC and supply, for the home construction industry. Divisions. The project kicked-off in Makro to be able to meet Massbuild’s growing has total sales in excess of R2.0 million. Rivoningo has grown from just a single store listing a year ago, at the end of November 2014 and there demand for quality clay bricks. The Massmart SDF started working with Angela Chris Pitsi to 19 Massbuild stores today. The total sales from the business has been strong early sales uptake. Nkuleko Bricks, based in Balmoral Mpumalanga, is a 50% are now close to R3.0 million having grown from a base of of XChem in 2012, by supporting her through supplying her The Supplier Development Fund provided a finance Black-owned company. They specialise in the manufacturing R500,000. products in five Pretoria based Builders Warehouse stores. guarantee into Bheki Zondo’s acquisition of Biscotti. The of mainly face and semi-face clay bricks with a current Rivoningo Steel Designs, owned by Nomhle Ndlovu, is a In 2014 XChem demonstrated proof of concept with an Fund also assisted the business with food safety compliance capacity of two million bricks a month. 100% black woman owned manufacturer of steel window increase in sales. Full execution of a national rollout plan support and some limited factory upgrades. and door frames. Rivoningo was established with the sole Challenges: followed with strong SDF and buyer support. This included: Biscotti Biscuits was a family owned and run biscuit purpose of actively participating in the steel industry. The • In-store merchandising support manufacturing business in Vereeniging that came up for sale. • The current brick firing capacity is insufficient to grow company is dedicated to delivering high quality products • Listing with the Massbuild Regional Distribution Centre, a Bheki Zondo has since purchased the company and is now production and craftsmanship. move from own distribution to single delivery the new owner of the biscuit factory. Biscotti make a range of • Maintaining a consistent, more efficient and Challenges: biscuits from entry level to premium level biscuits. environmentally sustainable drying and firing Challenges: • Addressing ISO compliance and certification needs • Listing their entire range • Inadequate factory plant: the business currently operates Challenges: from a 600m2 factory with a height of 3.5 meters which Opportunities: • Packaging and compliance support • Bringing the factory into improved compliance limits them from installing larger equipment. • Expanding into other Massmart formats • Taking production capacity higher than the current 33% The project will increase their capacity with another • Rivoningo requires assistance with accessing equipment 1.7 to two million stock bricks per month, thereby doubling Opportunities: to improve efficiencies and ISO compliance and Opportunities: output. An additional 35 jobs will be created. certification needs. In 2015 the SDF is sponsoring Angela to attend a Biscotti is set to expand into the other Massmart Group They will also be able to manufacture and supply comprehensive business management training programme Opportunities: formats with opportunities in product range extensions and Massbuild with Quantum bricks used in RDP projects. that is run in conjunction with the Gordon Institute of supplying private label. Once complete, Massbuild will buy an additional Business Science’s Enterprise Development Academy. While Grow production to optimal capacity. Extend store 1.5 million bricks per month. XChem is set to graduate from the SDF’s funding support, presence. Investment in equipment and ISO compliance and sales will be closely tracked, merchandising support will certification. There is an opportunity for funding assistance continue for an additional 12-month period and new cross- for a better facility. With the ensuing growth, all efforts listing opportunities will be sought within the Massmart are geared towards empowering Rivoningo to become a Group. preferred and trusted supplier to Massbuild. 102 Our performance Massmart Integrated Annual Report 2014 103

CSI performance indicators BBBEE performance indicators

% Ownership5.67 15.03 3.6Total Massmart Group CSI spend as Preferential Procurement a % of Profit After Tax 6.0 in 2013, 7.6 in 2012, 14.8 in 2011, 14.8 in 2013, 15.0 in 2012, 12.9 in 2011, 3.1 in 2013, 3.1 in 2012, 2.0 in 2011, 1.6 in 2010 6.6 in 2010, 19.13 comparative 12.2 in 2010, 17.53 comparative 5.09 15.0 R41.55Total Massmart Group Contribution million Management Control Enterprise Development (Rm) 4.5 in 2013, 5.2 in 2012, 5.2 in 2011, 15.0 in 2013, 15.0 in 2012, 15.0 in 2011, 41.7 in 2013, 37.4 in 2012, 0 in 2011, 0 in 2010 5.6 in 2010, 9.7 comparative 15.0 in 2010, 15.0 comparative

Supplier and Staff contributions amounted to R1,1 million for the period and comprised funds 10.54 5.0 R42.65Total Massmart Group, Supplier million Employment Equity Socio-Economic Development raised through initiatives such as casual day, and Staff Contribution (Rm) 10.2 in 2013, 12.6 in 2012, 12.3 in 2011, 5.0 in 2013, 5.0 in 2012, 5.0 in 2011, Massmart’s BBBEE figures are slipper day and the SANDF goodwill project. 42.3 in 2013, 46.4 in 2012, 24.4 in 2011, 20.6 in 2010 11.5 in 2010, 12.71 comparative 5.0 in 2010, 5.0 comparative calculated externally by Empowerdex Economic Empowerment Rating Agency. These figures are based on actual staff numbers (not estimates). BBBEE scores are calculated 12.5 68.83 retrospectively, therefore the data R23.6 million Skills Development BBBEE Score Total Investment In Nutrition reported is based on the scorecard Programmes (Rm) 11.0 in 2013, 12.2 in 2012, 10.6 in 2011, 66.3 in 2013, 72.8 in 2012, 75.9 in 2011, compiled in February 2014 for the 28.2 in 2013, 26.2 in 2012, 7.8 in 2011, 4.3 in 2010 10.4 in 2010, 12.12 comparative 66.1 in 2010, 77.2 comparative period January – December 2013.

Infrastructure and school maintenance: spend R6.0Total Investment In millionInfrastructure in this area has increased, with the bulk of the investment coming from our Massbuild division. Social and Ethics Committee Report and School Maintenance (Rm) for the year ended 28 December 2014 3.8 in 2013, 0.5 in 2012, 0 in 2011, 0 in 2010

The Massmart Social and Ethics Committee was • JSE Socially Responsible Investment Index; Investment in Early Childhood Developments: constituted in June 2011 and comprises the Massmart CEO • Anti-corruption Compliance; Makro have through their partnership with and two non-Executive Directors. The Committee is chaired • Consumer and Product Safety; R7.28Total Investment in Early million Childhood Hope World Wide increased their spend on early by a non-Executive Director. An independent external • Human Capital Management; Developments (Rm) childhood development programmes advisor, the Group Chief Compliance Officer, the Group • Regulatory and Compliance Matters; 5.2 in 2013, 1.2 in 2012, 0 in 2011, 0 in 2010 Chief Ethics Officer, the Group Corporate Affairs Executive, • Stakeholder Relations; the Group General Counsel and the Group Human Capital • Socio-Economic Development; and Executive attended meetings by invitation. • Environmental Impact. Divisional Discretionary Projects: The bulk of the Groups The Committee is governed by a charter and monitors These meetings were supplemented by bi-monthly R3.51Total Investment in Divisional million discretionary expenditure was made by Massmart, and Group performance in terms of defined Social and Ethics management briefings by the Group Corporate Affairs Discretionary Projects (Rm) included a R1.0 million donation to the Nelson Mandela performance indicators that have been formulated with Executive to the Committee Chairperson regarding Fund Centre of Memory and a R1.3 million donation to reference to Regulation 43(5) of the 2008 Companies Act. on-going operational items of relevance including the 4.3 in 2013, 9.5 in 2012, 10.6 in 2011, 10.2 in 2010 the National Education Collaboration Trust. These indicators, which include but are not limited Group’s response to the Ebola epidemic in West Africa, to, OECD anti-corruption guidelines, United Nations product re-calls, feedback from stakeholder meetings and Global Compact principles, the Employment Equity Act, transformation progress. • CSI data is based on actual Group expenditure figures which have • Investment in Early Childhood Development (ECD) includes Game’s Johannesburg Stock Exchange Socially Responsible Index The Committee confirms that no material issues were been internally audited. Tools 2 Play ECD kits and Tools 2 Teach stationary hampers, as well as criteria and Broad-based Black Economic Empowerment identified during either the formal review or the briefing • Government beneficiaries include the Department of Basic Education, Makro’s contributions to ECD partners such as HOPE Worldwide. the South African National Defence Force and the South African • Investment in infrastructure and school maintenance is primarily elements, are reviewed by the Committee, on a rotational or process. Police Service. Support is provided through the provision of school based on a Builders Warehouse project that provides schools with core agenda basis. container kitchens, school building and infrastructure maintenance, equipment and supplies for basic repair and maintenance. The Committee met twice during the 52 weeks ended library containers, food hampers and assistance with service delivery. • Investment in discretionary projects includes donations to 28 December 2014, at which meetings performance in • Investment in feeding schemes includes spend on container kitchens, Community Chest, Vodacom Wheelchair Fund and ad hoc requests. the following areas were reviewed, in response to the vegetable gardens, NGO and government feeding schemes and requirements of the Companies Act: Foodbank contributions. Phumzile Langeni Chairperson of the Social and Ethics Committee 2 April 2015 104 Our performance Massmart Integrated Annual Report 2014 105

Cambridge Food rated the Massmart defines relationship most capital as the value added trusted Massmart brand in a study conducted to our business through our with customers. relationship with stakeholders. 18,000 face-to-face interviews with customers

Supplier advocacy: 494 Relationship suppliers profiled on 35 Direct feedback from capital different environmental indicators since 2011. 26,000 employees

We aim to create transparent trust-based relationships Engaging our stakeholders Responding to Stakeholder Feedback with our stakeholders. We believe that understanding Our stakeholder engagement programme covers a range Surveys and workshops are supplemented by informal of key topics. It enables customers, suppliers, civil society and discussion and one-on-one meetings as required. The their perspectives in areas of mutual interest can employees to provide input and feedback in areas of interest engagement process in its entirety resulted in a number of including: follow-up actions examples of which are indicated below: positively influence our actions, enabling us to make 1. Customer satisfaction: covering price competitiveness, • In response to the results of the BUA survey, the Massmart thoughtful choices for a better future. product quality and safety, product availability and CEO tasked divisional leaders to drive management- Consumer Protection Act Compliance. lead feedback sessions to engage employees further on 2. Supplier partnering: dealing with supply chain ethics, feedback and derive corrective measures where needed. To enable this, we practice an open-door policy with brand custodianship, logistics efficiency and operational • In recognising efforts to drive customer satisfaction, practices. Massmart acknowledged the Cambridge Food team for all our stakeholders. We host workshops, undertake 3. Employee engagement: including management style, being rated the most trusted Massmart brand in a study career management, equal opportunities and work conducted with customers. surveys and facilitate one-on-one meetings to environment. • Relational feedback received from suppliers was 4. Environmental sustainability: covering waste supplemented by a divisional merchant leaders’ debrief understand our stakeholders’ views and to test the management in the supply chain, energy efficiency, and direct follow ups with suppliers who had indicated validity of our corporate accountability approach. sustainable seafood and timber sourcing. dissatisfaction in their response were conducted. 5. Socio-economic development: involving our • We recognised topics such as nation-building and corporate social investment priorities, our BBBEE greening the supply chain as areas of mutual interest with progress and our approach to supplier development. suppliers over and above our commercial relationship. 106 Our performance Massmart Integrated Annual Report 2014 107

Relationship capital continued

What we learned from our Stakeholders To this end, we hosted an information sharing session commitment to sustainable supply chain management. with suppliers who have indicated a desire to work more This year Mondi South Africa was identified as the overall closely with us on social and environmental initiatives. winner. Our various engagement activities Our stakeholders’ responses What we need to do better • In response to the National Business Initiative’s (NBI) • At the request of WWF: SASSI we facilitated a sustainable interest in engaging our suppliers to identify energy seafood site visit with our suppliers, Pioneer Foods, where savings opportunities in the supply chain we used we reviewed Pioneer Foods’ practices and sustainability 26,000 Employees are satisfied with They have indicated that permanent and non- feedback from our annual environmental survey to link approach. WWF: SASSI were impressed with Pioneer the level of support they more active engagement permanent employees the NBI with suppliers who indicated that they were Food’s efforts and suggested that as a further action receive from managers and feel in career planning is completed the 2014 empowered to make decisions focussed on implementing energy efficiency initiatives. Pioneer, as well as other Massmart suppliers, consider Employee needed. BUA-Massmart Employee in the workplace. • Following Conversation South Africa’s recommendation adopting the WWF: SASSI Ensure Trawl Bycatch Programme. Engagement feedback that we do more to acknowledge suppliers who have On the basis of our stakeholder engagement over performed exceptionally well in our supplier advocacy the course of 2014, we are satisfied that our existing surveys, we hosted Massmart ‘s first Environmental accountability and stakeholder priorities remain relevant Supplier Awards ceremony where we recognised 18,000 Our relationships with suppliers Our supplier called for us within the context of the broader public narrative and our face-to-face interviews suppliers who have demonstrated an industry-leading remains positive, in particular, to respond more rapidly commercial goals. with customers were the ethical practices of our to new opportunities. conducted on topics ranging merchants continue to be highly Customer from satisfaction and trust to regarded by our suppliers. e-commerce trends. feedback Consumer Protection Act performance indicators

330 Our relationships with suppliers Our supplier called for us * The period has seen a Indicative of a higher suppliers completed the remains positive, in particular, to respond more rapidly declining trend in our amount of product supplier relationship survey. 5,079 32 the ethical practices of our to new opportunities. Number of customer complaints which could Number of Product Recalls testing and higher It covered distribution, store merchants continue to be highly complaints involving be related to improved in Food and Liquor internal standards. operations and merchant Supplier regarded by our suppliers. product quality (not safety consumer protection 21 in 2013, 22 in 2012 relations. feedback related) or warranty claims practices in the business 5,499 in 2013, 6,110 in 2012 Increase is due to the 494 268 60 application of more The period has seen a Number of Product Recalls stringent product safety suppliers suppliers Our suppliers have made More effort needs to declining trend in our in General Merchandise standards and an increase profiled on participated respectable progress in driving be invested in driving 2,093 Number of customer complaints which could and Home Improvement in testing rates. 35 different in the recent innovation and piloting climate change impact complaints involving be related to improved environmental environmental environmentally-focused mitigation initiatives. 45 in 2013, 31 in 2012 Supplier promotional claims, consumer protection indicators since advocacy product improvement initiatives. 2011. survey. advocacy insufficient stock or practices in the business marketing errors Random product testing , provides a basis for 3,318 in 2013, 2,704 in 2012 Number2 065 of random product Attended by The Black ensuring product safety. tests conducted on private The increased testing Management Forum; South Our perspective is that Social It is recommended we The increasing label products rate is indicative of a African Human Rights NGOs hold positive views more closely align our trend is currently heightened focus in Commission; National African on the progress we have efforts with existing 39 2,426 in 2013, 1,269 in 2012 Number of customer being investigated this area. Federated Chamber of made in developing small impactful activities of complaints involving to understand the Commerce; Foodbank; suppliers through our supplier NGOs in the areas of product liability claims circumstances thereof. National Business Initiatives; Socio-economic development programme. skills development and and product safety claims South African NGO Coalition development community development. and the South African Foodlab. workshop 138 in 2013, 24 in 2012

Addressing customer complaints *Makro data for product quality and insufficient stock has Attended by: Earthlife Africa, is a priority for Massmart and we been annualised as a result of a system change which was Conservation South Africa, 103 completed in 2014. Consumer protection Act data is based Our perspective is that We were encouraged Number of complaints are pleased that according to Greenpeace South Africa, environmental NGOs are to more aggressively at national consumer the Consumer Goods Services on actual Group and Divisional figures which have been Endangered Wildlife Trust, World internally audited. Consumer Protection Act figures are satisfied with the level of investigate the commission / tribunal Ombud (CGSO), we have been Wildlife Fund South Africa, believed to be 100% accurate at time of publication. detail covered in our supplier implementation of recognised as the fastest retailer Marine Stewardship Council, 29 in 2013, 122 in 2012 Customer complaints refer to those logged through the advocacy processes as renewable energy within in responding to customer central complaints system and exclude those at stores Forestry Stewardship Council, well as our environmental our operations. Environmental complaints. which are resolved immediately at the store. The Wildlife and Environment accountability priorities. Society of South Africa. workshop 108 Our performance Massmart Integrated Annual Report 2014 109

Waste management: Energy efficiency: First new generation Builders Warehouse Massmart defines natural launched with LED , sales floor lighting capital as our commitment additional24 tons000 of waste diverted from landfill to collectively reduce our Water conservation: environmental footprint and 7,750kl to enable sustainable supply harvested across 75 sites chain and consumerism. Operational cost avoidance: R52 million delivered by energy saving initiatives

Recycling: 74% 74% of all Massmart Natural stores recycling and separating waste JSE Socially Responsible Investment Index capital In 2014, Massmart achieved ‘best practice’ status in the area of environmental performance and climate change

Our environmental initiatives are Minimising Massmart’s environmental Massmart’s energy intensity is currently 18.6% below the Makro, Builders Warehouse and Cambridge stores. Based Group’s modelled Business As Usual (BAU) consumption. on this more accurate data, Builders Warehouse and Makro driven by an understanding that footprint These energy saving initiatives have resulted in an estimated were confirmed as the highest water users within the Group. Our priorities are energy efficiency, waste management operational cost avoidance of R52 million in 2014. This reinforces our prior decision to prioritise water-saving advocating more sustainable and minimisation and water conservation. Massmart’s While we are encouraged by the progress achieved initiatives including rainwater harvesting and condensate corporate accountability initiatives are identified and in improving energy efficiencies, so far we have been capture within these two formats. Our water harvesting practices and product choices is prioritised on the basis of stakeholder feedback and with unsuccessful in achieving our goal to pilot test a commercially initiatives in these two formats now cover 75 sites, which we reference to set assessment criteria. More information viable proof of concept Photo-voltaic (PV) pilot at one of our estimate have combined, helped us to save 7,750kl of water. fundamental to our commitment standalone stores. Despite this, we remain optimistic about regarding the criteria we use and the prioritisation of our Operational waste recycling to enable sustainable supply and initiatives can be found online. the opportunities presented by renewable technologies and will continue working towards identifying potential In 2013 we confirmed our commitment to minimising the consumerism. In this context we Energy efficiency solutions. Our initial analysis indicates that PV projects, based volume of operational waste we send to landfill. Our priority By December 2020 we will reduce the per square meter on a power purchase model, hold considerable promise. remains the separation and recycling of board, plastic and recognise that minimising our energy intensity of our stores by 10% (as compared with our Identifying grid-tied solutions, which operate on a power- paper produced at our stores and Distribution Centres 2010 baseline stores). We will achieve this by implementing a purchase model, will therefore be our key focus for the future. The results of our most recent waste assessment own environmental footprint is the survey indicate that 74% of all Massmart stores are actively range of energy efficiency interventions aimed at maximising Water efficiency nucleus around which we develop energy savings. separating and recycling their waste. This corresponds In 2014 we opened our first new generation Builders In 2013 we communicated our intention to more to a 15% increase in the number of sites that recycle and credibility for our advocacy with our Warehouse store that makes use of 100% LED sales floor accurately quantify our Group operational water approximately an additional 24 000 tonnes of waste diverted lighting, daylight harvesting and evaporative cooling. consumption. As a result, in 2014 we re-focussed our water from landfill. suppliers and customers. Introduced Building Management Systems, that leverage consumption tracking to cover kilolitres consumed rather 2014 highlights include: a 16% increase in the number of the ASDA Energy Bureau, to remotely monitor and than rand cost of water consumed. We also improved Builders Warehouse stores that recycle, and an estimated manage energy consumption across 12 Cambridge stores. tracking of actual consumption by expanding the installation 70% of Makro’s waste diverted from landfill. Completed the rollout of independent electricity meters of independent water check meters to include selected across all Masscash stores. 110 Our performance Massmart Integrated Annual Report 2014 111

Natural capital continued

However, accurately calculating the volume of waste simplify the separation and recycling process for consumers Helping consumers to recycle e-waste Eco-label advocacy generated by our operations remains a challenge. In 2014 and in so doing, reduce recyclable materials finding their way Rapidly rising volumes of electronic (e-waste) presents a In line with our commitment in 2014 to increase the we embarked on a waste diversion validation process to landfill. growing environmental concern both globally and locally. penetration of energy rating labels on major appliances together with Walmart to improve the accuracy of our waste E-waste, made up of electronic consumer items, is now one sold in our stores, we have, through engagement with the data reporting. The process which, was lead by Walmart Local supplier advocacy of the fastest growing waste streams worldwide. It contains Department of Energy (DOE) and our suppliers, formalised a consultants UL Environment, found no evidence to indicate Massmart proactively promotes responsible potentially hazardous and polluting substances which need group wide approach to energy efficient appliance labelling. that the diversion rates reported by Massmart are materially environmental practices within our supply chain. Since the to be disposed of carefully to avoid disrupting soil ecology, Key to this is an undertaking to enforce a discipline that inaccurate. launch of Massmart’s supplier advocacy process in 2009 micro-organisms and polluting ground water supplies. requires major appliance manufacturers to apply energy We also conducted our first due diligence review of third we have engaged and benchmarked the environmental In 2008, Makro launched its first e-waste recycling project efficiency ratings labels on their products in accordance with party waste service providers to ensure that they were suitably practices of over a 1,000 suppliers through focused with Fujitsu-Siemens and electronic recycling specialists the standards set out by the DOE. qualified to responsible manage and dispose of the waste environmental advocacy surveys. We are intent on playing DESCO. Initially piloted at Makro’s Woodmead store, it Recognising that we have made indifferent progress produced by our stores. One unanticipated consequence of a hands-on role in encouraging more sustainable supply was rolled out to ten Makro stores in South Africa. In 2013 toward implementing this undertaking, we have prioritised this review was that we identified opportunity to improve chain practices, to this end we expand the survey process Makro and DESCO, together with new partners Samsung it as a key focus in 2015. Through our Sustainable Timber efficiencies and service effectiveness by rationalising the to include site visits to verify survey responses and better Electronics expanded the e-waste project to 18 Makro stores Sourcing survey and one-on-one engagement with suppliers, number of waste service providers contracted to the group. understand our suppliers’ environmental performance. Our across the country. It is now South Africa’s largest retail-led we have learned that 68% of the suppliers we surveyed in This will be a key focus in 2015. current advocacy process includes a generic environmental e-waste collection programme, Makro-Samsung e-Waste 2014, offer Forest Stewardship Council (FSC) certified timber survey that is supplemented with focused seafood, timber programme is available across 18 Makro stores. So far an products. However, these suppliers have indicated that Enabling sustainable supply and and palm oil advocacy surveys. In the area of seafood alone, excess of 596 tons of e-waste has been processed. However, there continues to be a lack of consumer understanding of consumerism we have conducted environmentally orientated site visits despite increasing bin numbers, in late 2014 we noticed a FSC labelled products. To address this, our objective in 2015 with suppliers who comprise over 61% of our annual seafood reduction in e-waste collection figures. We are investigating is to engage more closely with the FSC to develop proactive Offering our customers products that have been procurement. the cause and will work with Samsung to generate greater marketing strategies that will increase consumer awareness of responsibly sourced and manufactured is fundamental to consumer participation in this project. the label. enabling sustainable supply and consumerism. However, Environmental advocacy supply chain survey we recognise that to achieve this, we must screen findings potentially high risk products, such as seafood and timber, • 20% of respondents launched products that appeal to and proactively advocate more sustainable practices to environmentally aware consumers Climate change and environmental performance indicators members of our supply chain. • 31.8% of respondents utilise energy saving practices and Rationalising primary packaging technologies to improve operational energy efficiency • 31% of respondents implement in-house waste reduction The decrease in Scope We recognise that many consumers are concerned with We continue to refine processes 1 emissions intensity is over-packaging of products sold by retailers. With this in 0.59 our water reporting, 0.03 On the basis of our engagement with suppliers over Estimated water Scope 1 emissions as result of the inclusion mind Massmart initiated in 2012 a review of our private label this process has the last four years, we were pleased that we were in a consumption (KL/m2) intensity (CO /GLA) of Contractor truck fuel packaging. Initially, our efforts centered around exposing revealed that we 2 position to host Massmart’s first Environmental Supplier 1.7 in 2013, 2.6 in 2012, 0.03 in 2013, 0.02 in 2012, usage under Scope 3 our buyers, through packaging rationalisation workshops, have overestimated Awards ceremony to recognise top performing suppliers 2.6 in 2011, 1.6 in 2010 0.02 in 2011, 0.01 in 2010 emissions and not Scope to packaging approaches that emphasised recyclability, our water intensity in who have demonstrated an industry-leading commitment 1 as previously reported resource efficiency, and product waste minimising. A key previous years to sustainable supply chain management. Our finalists, outcome of these workshops was the development of a Decreased intensity representing multiple local industries, were selected based Group packaging evaluation scorecard, which enabled us 203.53 can be attributed 4.77 on survey feedback, input from leading environmental Purchased energy Scope 2 emissions to more critically appraise our private label packaging and to the energy NGOs and site inspections by a three person Massmart consumption (kWh/GLA) intensity (CO /Rm) pinpoint the area’s most in need of improvement. efficiency initiatives 2 environmental team. Altogether 9 finalists were identified 209 in 2013, 184 in 2012, 5.3 in 2013, 5.0 in 2012, In 2014, subsequent to the completion of a Group-wide implemented across resulting in our awarding Mondi the accolade of Massmart 178 in 2011, 181 in 2010 5.3 in 2011, 5.6 in 2010 private label packaging rationalisation audit, we were pleased our formats to see a marked improvement in the quality, recyclability Supplier of the year. Looking forward to 2015, our goal is and suitability of the Group’s private label packaging. to intensify our supplier site visit programme and increase Specifically we have noted that our buyers are more adept our efforts to educate and promote sustainable fishery 0.70 0.21 Scope 1 emissions Scope 2 emissions at specifying environmentally intelligent packaging options. management practices amongst our smaller seafood intensity (CO /Rm) intensity (CO /GLA) Whilst we recognise that there is still considerable room suppliers. 2 2 for improvement we are pleased with progress to date 0.6 in 2013, 0.4 in 2012, 0.21 in 2013, 0.18 in 2012, which includes: the introduction of doypacks to the M JSE Socially Responsible Investment Index 0.5 in 2011, 0.4 in 2010 0.18 in 2011, 0.19 in 2010 brand snack range; the rationalisation of the Builders Pride Massmart qualified for inclusion in the JSE Socially nut and bolt range; and through the inclusion of child-safe Responsible Investment Index (Equivalent of FTSE4good). Scope 1 and 2 emissions figures are calculated externally by GCX Africa consultants. Scope 1 emissions relate to direct emissions resulting from closures across the entire Builders pride solvents range, We are proud to have been members of the Index since company-owned vehicles, generator use and refrigerant gas emissions. Scope 2 figures are based on Divisional electricity consumption figures. Energy consumption data is annualised and normalised (outlying data is excluded). Consequently the margin of error on reported data is considered to which on their own will impact one million packs supplied its inception. This year we achieved ‘Best Practise’ status to customers in 2015. Further progress was made when we, between 10%-15%. Electricity consumption and Scope 2 emissions figures include only Masscash African operations. Scope 2 emissions factor has been in the area of environmental performance and climate updated from 1.00 to 1.03. The total Group sales are used to calculate Scope 1 and 2 emissions’ intensity per Rand million (Rm). Water usage has been in collaboration with our peers in the retail sector, launched change, within the medium impact category. Massmart derived with reference to the cost of water consumed. Water consumption is based on Rand Water Tariff for retail customers. a more customer-centric packaging recycling logo. The new met 64 of the 65 indicators that measure environmental on pack recycling logo, which has been launched on our governance and sustainability practices. Builders Warehouse Private Label packaging, is intended to For more information on our natural capital pages 12 to 27, Our divisional reviews 03 Transparency and accountability

Massmart believes that the first steps towards Corporate Governance 114 good corporate governance must include Our assessment of the principles of King III 115 embracing the requirements of the relevant Our Board 116 governance and regulatory frameworks, as Our Board committees 118 well as corporate best practice. Board and committee attendance 119 114 Transparency and accountability Massmart Integrated Annual Report 2014 115

Corporate Governance Our assessment of the principles of King III

Our Chairman’s Corporate The purpose of King III For the year ended December 2014, apart from the exceptions Governance overview The philosophy of King III revolves around leadership, outlined below, the Board confirms that the Group complied with sustainability and corporate citizenship. To facilitate an Massmart believes that the first steps towards good understanding of the thought process, debate and changes the Code of Governance Principles as set out in King III. corporate governance must include embracing the in King III, the following key aspects are highlighted: requirements of the relevant governance and regulatory • Good governance is essentially about effective frameworks, as well as corporate best practice. leadership. Leaders should rise to the challenges of More than this, Massmart believes that sustainable and modern governance. Such leadership is characterised Principle 2.25: The Company remunerates its Directors and Executives fairly effective corporate governance is best demonstrated through by the ethical values of responsibility, accountability, a consistent pattern of doing the right thing regardless of the fairness and transparency and based on moral duties that Non-executive Directors’ fees comprise both a base fee and an attendance fee per meeting. circumstances. find expression in the concept of Ubuntu. Responsible The Board does not believe that Directors should earn attendance fees in addition to a I am pleased to report that Massmart has responded Not applied leaders direct company strategies and operations with base fee. Many Directors add significant value and apportion significant time to the Group appropriately to these requirements. a view to achieving sustainable economic, social and outside of the formal Board and Committee meetings, sometimes greater value than they environmental performance. might do within the confines of a formal meeting. Corporate Governance approach • Sustainability is the primary moral and economic imperative of the 21st century. It is one of the most The primary South African corporate governance important sources of both opportunities and risks framework is the King Report on Governance for South Africa for businesses. Nature, society, and business are and King Code of Governance Principles (King III), which forms interconnected in complex ways that should be Principle 3.4: The Audit Committee oversees integrated reporting. the backbone to Massmart’s own corporate governance understood by decision-makers. Most importantly, framework. In addition Massmart applies high ethical The Audit Committee recommends to the Board to engage an external assurance provider current incremental changes towards sustainability are over material elements of the sustainability reporting within the integrated report. The standards to its operating environment as reflected in the not sufficient – we need a fundamental shift in the way Audit Committee evaluates both the independence and quality of the external providers of Group’s Code of Ethical Conduct. companies and directors act and organise themselves. assurance on sustainability. Massmart believes that these guides to corporate decision • The concept of corporate citizenship flows from the fact making are essential for any governance framework to achieve that the company is a person and should operate in a Principle 9.3: Sustainability reporting and disclosure should be independently assured. desired outcomes consistent with our Group values. In sustainable manner. Sustainability considerations are Partially applied The integrated report discloses the scope and methodology of independent assurance addition to this corporate governance framework, the Group rooted in the South African Constitution which is the of the sustainability report, as well as the name of the assurer. Sustainability reporting is is committed to complying with all legislation, regulations basic social contract that South Africans have entered independently assured in accordance with a formal assurance process established. and best practices relevant to our business, in every country into. The Constitution imposes responsibilities upon where we conduct business. A register documenting the individuals and juristic persons for the realisation of the Massmart’s sustainability report has not been audited by an external assurance provider assessment of all 75 principles of King III is available on the web: most fundamental rights. but verification of the key sustainability metrics have been obtained through agreed upon www.massmart.co.za/iar2014/kingiii procedures performed by internal audit. A copy of the agreed upon procedures report is Massmart’s Executive Committee has established a available at the registered offices of the Company. subcommittee to focus on Ethics and Compliance. This subcommittee meets every other month to consider a legal update; an ethics review; specific areas of focus that Principle 8.6: The Board should ensure that disputes are resolved effectively and as Massmart’s compliance team manage closely; feedback from expeditiously as possible. Internal Audit; and ethics and compliance in general. The Board has adopted formal dispute resolution processes for internal and external disputes. The Board does not have a formal dispute resolution process as it believes that the existing processes within the Group operate satisfactorily and do not require a more formal and Partially applied separate mechanism. The Group Legal Executive and General Counsel is responsible for managing and advising the Board of significant disputes that arise within the Group. This individual manages a group of attorneys who supervise, manage or advise the business on external legal disputes within the Group. Internal disputes are managed through subject- specific policies and procedures. The General Counsel reports to the Board all significant legal exposures and disputes within the Group. 116 Transparency and accountability Massmart Integrated Annual Report 2014 117

Our Board

The Board of Massmart is responsible • whether the Director had been employed in an executive At least one-third of the non-Executive Directors are The Board has also adopted a policy which describes capacity in the Group in the previous three years; required to retire every year and Massmart Executive Walmart’s access to the Massmart business. This policy is fully for directing the Group towards • whether the Director had served on the Board for longer Directors have elected to also retire on this basis. As a result, described on the Company’s website under FAQ. achieving Massmart’s vision and than nine years. In this case, the Committee considers all Directors retire by rotation at least every three years and The Board works to a formal agenda that covers strategy, whether that Director’s independence, judgement are then eligible for re-election. In addition, shareholders structure, operating performance, growth initiatives, mission. The Board is therefore and contribution to the Board’s deliberation could be must ratify the initial appointment of each Director at the sustainability, investor relations, risk and governance, and any compromised, or may appear to be compromised, by this first Annual General Meeting following that Director’s other key activities of the Group. An annual agenda structure accountable for the development length of service; appointment. As a result of these requirements, at the 27 ensures that other areas including IT and compliance are and execution of the Group’s strategy, • whether the Director is a representative of a major May 2015 Annual General Meeting Kuseni Dlamini, Phumzile addressed. Formal Board papers are prepared for every shareholder; and Langeni and JP Suarez retire by rotation; while Shelley discussion item on the meeting’s agenda and are distributed operating performance and financial • whether the proportion of that Director’s shareholding Broader, Andy Clarke and Johannes van Lierop will resign, timeously to Board members. results, as well as being the custodian in Massmart (if any) or Director’s fees represent a material as required by the Memorandum of Incorporation. Being Directors are encouraged to take independent advice, at part (10% or more) of their wealth or income. eligible, they all offer themselves for re-election. the Company’s cost, for the proper execution of their duties of the Group’s corporate governance. and responsibilities. The three Walmart-appointees are not considered Directors have unrestricted access to any Executive, The Board appreciates that strategy, independent. The Committee also believes that none of Board process and evaluation manager or employee in the Group. the four independent non-Executive Directors, or entities risk, performance and sustainability The Board meets four times a year and on an ad hoc basis Annually in October, the Nomination Committee associated with or controlled by them, owns shares in should a particular issue demand its attention. In addition, facilitates a comprehensive formal performance evaluation Massmart which, relative to their personal wealth or income, are inseparable. the Board meets annually to formally consider and approve of the CEO, comprising a questionnaire evaluating the CEO are sufficiently material to affect his/her independence. the strategies of the Massmart Divisions and Group. by every non-Executive Director, and an appraisal of the CEO The Board is comfortable that it meets the King III principle The Board is responsible for its own composition, the The Board’s authority is devolved sequentially through the by each of his direct reports using a different questionnaire. of having an arm’s-length relationship with the Company appointment of the Chairman and CEO, and the constitution Massmart Executive Committee, the Divisional Boards and The Board Chairman provides the summary and feedback of Secretary and confirms that the Company Secretary is not a and composition of its Committees. The Board has a the Divisional Executive Committees, as formally prescribed the above to the CEO, and he is encouraged to probe and Director of any of the main operating companies within the charter setting out its policies, roles and responsibilities in by the Massmart Delegation of Authority (described debate any aspect of the evaluation with the Board. Given Group. The Company Secretary, Philip Sigsworth, CA (SA), the execution of its mandate described above. Each Board below). In addition, the Board has delegated certain specific his appointment earlier in the year, CEO Guy Hayward did not was the Financial Director of JSE listed company, Austro Committee also has a charter that is formally signed off by responsibilities to five Board Committees, described more have a performance evaluation in 2014. Group Limited (Austro Group), prior to joining Massmart, the Board. Annually, the Committees and Board review, and fully below. These Committees assist the Board and Directors At the same time, all Board members and permanent amend if necessary, the respective charters to ensure their where he also performed company secretarial work. The in discharging their duties and responsibilities under King invitees complete a detailed Board self-assessment, covering relevance. Board confirms that it has assessed and is happy with the III and the Delegation of Authority. Full transparency of the the composition, duties, responsibilities, process and qualification, competence and expertise of the Company Committees’ deliberations is encouraged and the minutes effectiveness of the Board. Similarly, all Board Committee The role and appointment of Directors Secretary. of all Committee meetings are included in the formal members and permanent invitees complete detailed self- The Company Secretary assists the Board in fulfilling its Board papers at the ensuing Board meeting. All Directors assessments covering the same aspects of their committees. and the Company Secretary functions and is empowered by the Board to perform his are welcome to attend any Board Committee meeting or The results of these assessments are collated by the duties. The Company Secretary, directly or indirectly: Divisional Board meeting. The role of all Directors is to bring independent Company Secretary and sent in summarised form to the • assists the Chairman, CEO and CFO with the induction of The Massmart Delegation of Authority describes the judgement and experience to the Board’s deliberations and respective Board and Committee Chairpersons for discussion new Directors; specific levels of authority and required approvals for all decisions. The Board comprises two Executive Directors, and review by that Committee. The summarised results are • assists the Board with Director orientation, development major decisions at both Group and Divisional level. It clarifies four independent non-Executive Directors and three non- included in the Board papers at the November meeting. and education; which executive position, Committee or Board needs to be Executive Directors. Finally, all Board members formally assess the Chairman’s • ensures that the Group complies with all legislation consulted prior to taking the decision, which body makes the Annually, the Nomination Committee prepares and performance. The Deputy Chairman provides feedback from applicable/relevant to it; decision and which bodies should thereafter be informed of circulates a questionnaire aimed at gauging the independence this process to the Chairman. Assessments are approached • monitors the legal and regulatory environment and the decision. Where appropriate, it now includes Walmart’s status of each non-Executive Director. This is completed by in a constructive manner and provide valuable input that communicates new legislation, and any changes to position on the decision. each non-Executive Director and returned to the Committee, enhances the effectiveness of the Chairman, the Board and existing legislation, relevant to the Board and the which then considers each Director’s independence. The its Committees. Divisions; and Committee feels that the following aspects are important in • provides the Board with a central source of guidance and assessing a non-Executive Director’s independence: assistance. 118 Transparency and accountability Massmart Integrated Annual Report 2014 119

Our Board committees Board and committee attendance

Nomination Committee The table below reflects the Board Committee members’ Meets 4 times per year meeting attendance for the 52 weeks ended December 2014 • Assessment, recruitment and nomination of new executive and non- Social and executive directors. Status / Position Board AGM Audit Risk Nomination Remuneration Ethics • Making recommendations as to the composition of the Board. Board Members Risk Committee • Formulating succession plans for Remuneration Committee Independent 1 C C Meets twice per year the approval of the Board for the Meets 4 times per year K Dlamini non-Executive 3/3 1/1 - - 3/3 3/3 - • Reviewing and reporting on appointment of new executive and • Designing, monitoring and Independent compliance with King III. non-executive Directors, including communicating the Group’s MJ Lamberti2 non-Executive 1/1C - 1/1 1/1 1/1C 1/1 - • Overseeing the Group’s risk the Chairperson, CEO and the Group’s remuneration policies. Independent management programme as Executives. • Considering and approving executive CS Seabrooke non-Executive 4/4 1/1C 3/3C 2/2C 4/4 4/4C - contemplated in King III. remuneration including short- and long- 3 Kuseni Dlamini, S Broader Non-Executive 2/2 - 2/2* 1/1* 2/2 2/2 2/2* term incentives. Chris Seabrooke, Shelley Broader, Chris Seabrooke D Cheesewright4 Non-Executive 0/2 0/1 - - 0/2 0/2 - Norman Gray, Lulu Gwagwa, Chris Seabrooke, A Clarke3 Non-Executive 1/2 ------Guy Hayward, Phumzile Langeni, Shelley Broader, Kuseni Dlamini JA Davis4 Non-Executive 2/2 1/1 1/1* 1/1* 1/1* 1/2* - Mike Spivey, Johannes van Lierop* N Independent NN Gwagwa non-Executive 4/4 1/1 3/3 2/2 1/1* - - R M GRC Hayward5 Executive 4/4 1/1 3/3* 2/2 4/4* 4/4* 1/1 Independent Social and Ethics Committee P Langeni non-Executive 4/4 1/1 3/3 2/2 1/1* - 2/2C GM Pattison5 Executive 2/4 1/1 - - 1/1* 1/4* 0/1 E SE Meets twice per year

• Assists the Group with its responsibility JP Suarez Non-Executive 3/4 0/1 - - - 1/4* 1/2 A I Zwarenstein6 Executive 4/4 1/1 3/3* 2/2 1/1* - - Executive Committee towards sustainability with respect to practices that are consistent with good Management Meets monthly corporate citizenship. Chief Compliance • Deliberating and taking decisions • Considers the Group’s standing in T Doorasamy Officer - - 1/1* 2/2* - - 1/2* or making recommendations on all terms of consumer relationships, with matters affecting Group strategy, growth, Audit Committee particular attention to the United Nations Chief Audit performance and operations, including N Gray Executive - 1/1* 3/3* 2/2 - - - Meets 3 times per year Global Compact Principles and the OECD risk management, and executive and Corporate Affairs • Overseeing the effectiveness of the recommendations concerning corruption. senior management succession. B Leroni Executive ------2/2* Group’s internal control systems. • Considers the Group’s contribution to the social and economic development within Human Capital Guy Hayward, • Reviewing the scope and effectiveness our communities. P Maphoshe Executive ------2/2* Johannes van Lierop*, Neville Dunn, of the external and internal audit • Monitoring the Group’s activities Norman Gray, Doug Jones, Brian Leroni, functions. P Sigsworth Company Secretary 4/4* 1/1* 3/3* 2/2* - - - relating to labour and employment, the Pearl Maphoshe, Mike Spivey, • Ensuring that adequate accounting M Spivey General Counsel 4/4* 1/1* 3/3* 2/2 4/4* 4/4* 1/2* environment, health and public safety, and Llewellyn Steeneveldt, Kevin Vyvyan-Day, records have been maintained. Divisional Chief consumer relationships. Llewellyn Walters, Robin Wright, • Ensuring the appropriate accounting L Walters7 Executive Massbuild - - - 1/1 - - - Ilan Zwarenstein* policies have been adopted and Phumzile Langeni , Financial Director consistently applied. Guy Hayward, JP Suarez J Wilford7 Masswarehouse - - - 1/1 - - - • Overseeing the quality and integrity of the annual financial statements. • Testing that the Group’s going-concern assertion remains appropriate. C Chairperson * Invitee Chris Seabrooke, 1 Appointed on 10 April 2014 and as such was only invited to meetings post that date in the 2014 financial year Lulu Gwagwa, Phumzile Langeni 2 Resigned on 10 April 2014 and as such was only invited to meetings prior to that date in the 2014 financial year 3 Appointed on 16 July 2014 and as such was only invited to meetings post that date in the 2014 financial year 4 Resigned on 16 July 2014 and as such was only invited to meetings prior to that date in the 2014 financial year * Ilan Zwarenstein resigned as Group More information on the activities and responsibilities of the Audit, Risk, Nomination and 5 Following Grant Pattison’s resignation as CEO, Guy Hayward, his successor, was appointed to the Social and Ethics Committee FD with effect from 12 March 2015, Executive Committees can be found on the web at www.massmart.co.za/iar2014/t&a with effect from 1 June 2014 at which time Johannes van Lierop More information on the activities and responsibilities of the Remuneration and Social and 6 Ilan Zwarenstein resigned as Group FD on 12 March 2015, at which time Johannes van Lierop was appointed as CFO of Massmart was appointed as CFO of Massmart. Ethics Committees can be found on p82 and p103 respectively. 7 At the end of their rotation, a decision was made that divisional participation in the Risk Committees was no longer necessary Notice is hereby given that the Annual General Meeting of holders of all classes of shares of the Company will be held on Wednesday, 27 May 2015, at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, 04 Shareholder Sandton. information

Notice of AGM 122 Schedule 1 - Proposed amendments to Memorandum of Incorporation 128 Form of proxy 129 Notes to the form of proxy 130 122 Shareholder information Massmart Integrated Annual Report 2014 123

Notice of the Annual General Meeting for the year ended December 2014

Notice is hereby given that the Ordinary resolutions Ordinary resolution number 7 30 business days prior to the date that the price of the issue is agreed between the Company and the party “Resolved that Ernst & Young Inc. (with Mr Allister Biographical details of the Directors resigning and retiring subscribing for the shares; Annual General Meeting of holders Carshagen as the Audit Partner) be and are hereby elected below can be found on pages 40 to 41 and in more detail 9.5 the authority hereby granted will be valid until the as the Company’s auditors for the ensuing financial year to of all classes of shares of the Company on the Company’s website at: Company’s next Annual General Meeting, provided that hold office until the Company’s next Annual General Meeting, massmart.co.za/iar2014/cvs it will not extend beyond 15 months from the date on will be held on Wednesday, 27 May as approved by the Audit Committee and recommended to Ordinary resolution number 1 shareholders.” which this resolution is passed; and 2015, at 09h00 at Massmart House, In terms of the Act, more than 50% of the voting rights 9.6 once shares representing, on a cumulative basis within “Resolved that Shelley Broader, who resigns as required by the period contemplated in 9.5 above, 5% or more of 16 Peltier Drive, Sunninghill Ext 6, the Memorandum of Incorporation and has offered herself exercised on this resolution must be cast in favour of ordinary resolution number 7 for it to be adopted. the Company’s issued ordinary and/or preference shares Sandton, for purposes of: for re-election, be and is hereby re-elected to the Board of prior to that issue, have been issued, the Company shall Directors of the Company.” Ordinary resolution number 8 publish an announcement in accordance with the JSE In terms of the Act, more than 50% of the voting rights Listings Requirements.” 1. Transacting the following business: exercised on this resolution must be cast in favour of ordinary “Resolved that the following persons be and are hereby 1.1 presenting the audited Annual Financial Statements resolution number 1 for it to be adopted. appointed, each by way of a separate vote, as members of the Pursuant to the JSE Listings Requirements, the Company of the Company and its subsidiaries (Group) for the Audit Committee: will only be entitled to implement this general authority 8.1 Chris Seabrooke (Chairman) year ended December 2014, and the associated Ordinary resolution number 2 to allot and issue ordinary shares for cash if this ordinary 8.2 Lulu Gwagwa Directors’ report and External Auditors’ report, the Audit “Resolved that Andy Clarke, who resigns as required by the resolution number 9 is passed by a majority of 75% or more 8.3 Phumzile Langeni* Committee report and the Social and Ethics Committee Memorandum of Incorporation and has offered himself for re- of the votes cast by all shareholders present or represented * Subject to her re-election as Director pursuant to ordinary report; election, be and is hereby re-elected to the Board of Directors by proxy at the Annual General Meeting, excluding any votes resolution number 5. 1.2 electing Directors in the place of those resigning of the Company.” cast by the Massmart Holdings Limited Employee Share In terms of the Act, more than 50% of the voting rights and retiring in accordance with the Company’s In terms of the Act, more than 50% of the voting rights Trust. exercised on each of these resolutions must be cast in favour Memorandum of Incorporation; and exercised on this resolution must be cast in favour of ordinary of each of ordinary resolution numbers 8.1, 8.2 and 8.3 for such Ordinary resolution number 10 1.3 such other business as may be transacted at an annual resolution number 2 for it to be adopted. resolutions to be adopted. “Resolved that, by way of a non-binding advisory vote, general meeting. Ordinary resolution number 3 2. Considering and, if deemed fit, passing, with or without Ordinary resolution number 9 the remuneration policy of the Company, as outlined in the “Resolved that Johannes van Lierop, who resigns as Remuneration Report on pages 82 to 91 of the Integrated modification, the below mentioned ordinary and “Resolved that, subject to the JSE Limited (JSE) Listings special resolutions. required by the Memorandum of Incorporation and has Annual Report, is endorsed.” offered himself for re-election, be and is hereby re-elected to Requirements (JSE Listings Requirements), the Directors be As this is a non-binding advisory vote, no minimum The Board of Directors of the Company has determined, the Board of Directors of the Company.” and are hereby authorised to issue ordinary shares in the voting threshold is required. Nevertheless, for record in accordance with section 59 of the Companies Act 71 of In terms of the Act, more than 50% of the voting rights authorised but unissued shares of the Company (or to issue purposes, in terms of King III more than 50% of the voting 2008, as amended (Act), that the respective record dates for exercised on this resolution must be cast in favour of ordinary options or convertible securities convertible into ordinary rights exercised on this resolution must be cast in favour shareholders to be recorded as shareholders in the securities resolution number 3 for it to be adopted. shares) for cash to such person or persons on such terms and of ordinary resolution number 10 for it to be adopted. This register of the Company in order to: (i) be entitled to receive conditions as they may deem fit, subject to the following: non-binding advisory vote allows shareholders to express 9.1 the securities shall be of a class already in issue, or this notice of Annual General Meeting is Friday, 17 April 2015; Ordinary resolution number 4 their views on the remuneration policies adopted by the convertible into a class already in issue; and (ii) be entitled to attend, participate and vote at the “Resolved that Kuseni Dlamini, who retires by rotation and Company and on their implementation. Annual General Meeting is Friday, 22 May 2015. The last date has offered himself for re-election, be and is hereby re-elected 9.2 the securities shall be issued to public shareholders to trade to be entitled to attend, participate and vote at the to the Board of Directors of the Company.” (as defined in the JSE Listings Requirements) and Special resolutions Annual General Meeting is Friday, 15 May 2015. In terms of the Act, more than 50% of the voting rights not to related parties (as defined in the JSE Listings exercised on this resolution must be cast in favour of ordinary Requirements); Special resolution number 1 resolution number 4 for it to be adopted. 9.3 the issues of securities in the aggregate under the Ordinary business authority of this resolution during the period in 9.5 “Resolved, as a special resolution, that the Company and/ The audited summarised consolidated Annual Financial Ordinary resolution number 5 below shall not exceed 5% of the number of securities or its subsidiaries be and are hereby authorised to generally repurchase the ordinary and/or preference shares in the Statements of the Company and the Group (as approved by “Resolved that Phumzile Langeni, who retires by rotation of that class already in issue as at the date of this notice issued shares of the Company from such shareholder/s, at the Directors of the Company), including the Directors’ report and has offered herself for re-election, be and is hereby re- of Annual General Meeting, being 217,123,982 ordinary such price, in such manner and subject to such terms and and External Auditors’ report, the Audit Committee report and elected to the Board of Directors of the Company.” shares, determined in accordance with the relevant conditions as the Directors may deem fit, but subject to the the Social and Ethics Committee report for the year ended In terms of the Act, more than 50% of the voting rights provisions of the JSE Listings Requirements, provided Memorandum of Incorporation of the Company, the Act and December 2014, circulated together with this notice of Annual exercised on this resolution must be cast in favour of ordinary that: the JSE Listings Requirements, and provided that: General Meeting, are presented to the shareholders for their resolution number 5 for it to be adopted. 9.3.1 any equity securities issued under the authority consideration. during the period contemplated in 9.5 below must 1.1 the authority hereby granted will be valid until the The audited summarised consolidated Annual Financial Ordinary resolution number 6 be deducted from such number in 9.3 above; and Company’s next Annual General Meeting or for Statements for the year ended December 2014 are set out “Resolved that JP Suarez, who retires by rotation and has 9.3.2 in the event of a sub-division or consolidation of 15 months from the date of this special resolution, in the “Chief Financial Officer’s Review” on pages 46 to 70 of offered himself for re-election, be and is hereby re-elected to the issued equity securities during the period whichever period is shorter; the Integrated Annual Report. A full set of the audited Group the Board of Directors of the Company.” contemplated in 9.5 below, the existing authority 1.2 repurchases may not be made at a price greater than Annual Financial Statements for the year ended December In terms of the Act, more than 50% of the voting rights must be adjusted accordingly to represent the 10% above the weighted average of the market value 2014 can be found on the Company’s website at: exercised on this resolution must be cast in favour of ordinary same allocation ratio; for the shares determined over the 5 business days massmart.co.za/iar2014/groupafs resolution number 6 for it to be adopted. 9.4 the maximum discount at which the shares may be immediately preceding the date that the repurchase issued shall be 10% of the weighted average traded is effected (or, if no shares of the Company have been price of the shares of the Company measured over the traded in that period, subject to a ruling by the JSE); 124 Shareholder information Massmart Integrated Annual Report 2014 125

Notice of the Annual General Meeting continued for the year ended December 2014

1.3 repurchases in the aggregate in any one financial year • the Company and the Group will in the ordinary course of R 2015 2014 It is anticipated that such financial assistance will increase shall not exceed 15% of that class of the Company’s business be able to pay its debts for a period of 12 months during the period of 2 years commencing on the date of 2.1 Chairman of the Board 1,200,000 871,000 issued shares; after the date of this notice of Annual General Meeting; special resolution number 3, mainly as a result of the Group’s 1.4 the repurchase of shares will be effected through • the assets of the Company and the Group will be in 2.2 Deputy Chairman 625,000 625,000 expansion plans but that the total financial assistance after the order book operated by the JSE trading system excess of the liabilities of the Company and the Group such anticipated increase will not exceed R15 billion in any and will be done without any prior understanding for a period of 12 months after the date of this notice 2.3 Independent 275,000 259,000 financial year. non-Executive Directors or arrangement between the Company and the of Annual General Meeting, such assets and liabilities In the event that the Company provides financial counterparty; being recognised and measured in accordance with 2.4 Committee Chairpersons 252,000 252,000 assistance to its subsidiary companies in the form of loans, 1.5 the Company may only appoint one agent, at any point the accounting policies used in the Annual Financial ” the Company’s solvency and liquidity will not be impaired as in time, to effect the repurchases on the Company’s Statements of the Company and the Group for the year 2.5 Committee Members 128,000 120,000 the Company will raise an asset in its books for the equivalent behalf; ended December 2014; amount then due by that subsidiary. In terms of the Act, at least 75% of the voting rights 1.6 neither the Company nor its subsidiaries may repurchase • the issued share capital and reserves of the Company exercised on each of these resolutions must be cast in favour Notice to shareholders of the Company in shares during a prohibited period (as defined in the JSE and the Group will be adequate for ordinary business of special resolution numbers 2.1, 2.2, 2.3, 2.4 and 2.5 for such terms of section 45(5) of the Act of a resolution Listings Requirements) unless a repurchase programme purposes for a period of 12 months after the date of this notice of Annual General Meeting; and resolutions to be adopted. The Remuneration Report for the is in place where the dates and quantities of shares to be adopted by the Board authorising the Company • the working capital available to the Company and the year ended December 2014 can be found on pages 82 to 91 traded during the relevant period are fixed (not subject to provide direct or indirect financial assistance. Group will be adequate for ordinary business purposes of the Integrated Annual Report. to any variation) and has been submitted to the JSE in By the time this notice of Annual General Meeting for a period of 12 months after the date of this notice of writing. The Company will instruct an independent is delivered to shareholders, the Board of Directors will Annual General Meeting. Special resolution number 3 third party, which makes its investment decisions in have adopted a resolution (Section 45 Board Resolution) The following additional information, which appears in “Resolved, as a special resolution, to the extent required authorising the Company to provide, at any time and from relation to the Company’s securities independently the Integrated Annual Report of which this notice of Annual in terms of, and subject to the provisions of, section 45 time to time during the period of 2 years commencing on of, and uninfluenced by, the Company, prior to the General Meeting forms part, is provided in terms of the JSE of the Act, that the shareholders hereby approve of the the date on which special resolution number 3 is adopted, commencement of the prohibited period to execute Listings Requirements for purposes of special resolution Company providing, at any time and from time to time any direct or indirect financial assistance as contemplated the repurchase programme submitted to the JSE; number 1: during the period of 2 years commencing on the date of this in section 45 of the Act to any one or more related or inter- 1.7 an announcement complying with paragraph 11.27 of • major shareholders – page 77; special resolution, any direct or indirect financial assistance related companies or corporations of the Company and/or to the JSE Listings Requirements will be published by the • material changes – page 124; as contemplated in such section of the Act to any one or any one or more members of any such related or inter-related Company when the Company and/or its subsidiaries • share capital of the Company – page 71; and more related or inter-related companies or corporations (as company or corporation and/or to any one or more persons have cumulatively repurchased 3% of the Company’s • responsibility statement – page 124. defined in the Act) of the Company and/or to any one or initial number of issued ordinary and/or preference more members of any such related or inter-related company related to any such company or corporation, provided that The Directors, whose names are set out on pages 40 to 41 shares at the time that the general authority from or corporation and/or to any one or more persons related any such financial assistance shall not in the aggregate of the Integrated Annual Report, collectively and individually, shareholders is granted and for each 3% in aggregate of to any such company or corporation, on such terms and exceed an amount of R15 billion in any financial year. accept responsibility for the accuracy of information conditions as the Board of Directors of the Company, or any The Section 45 Board Resolution will be effective only the initial number of that class acquired thereafter; and contained in this statement and certify that, to the best of one or more persons authorised by the Board of Directors of if and to the extent that special resolution number 3 is 1.8 a resolution by the Board of Directors that it authorises their knowledge and belief, there are no other facts, the the Company from time to time for such purpose, deems fit, adopted by the shareholders, and the provision of any such repurchase, that the Company and its subsidiaries omission of which would make any statement false or provided that any such financial assistance shall not in the such direct or indirect financial assistance by the Company, have passed the solvency and liquidity test as set out in misleading and that they have made all reasonable enquiries aggregate exceed an amount of R15 billion in any financial pursuant to such resolution, will always be subject to the section 4 of the Act and that since the application by in this regard. year.” Board of Directors being satisfied that (i) immediately after the Board of Directors of the solvency and liquidity test, Other than the facts and developments reported in the In terms of the Act, at least 75% of the voting rights providing such financial assistance, the Company will satisfy there have been no material changes to the financial Integrated Annual Report, to which this notice of Annual exercised on this resolution must be cast in favour of special the solvency and liquidity test as referred to in section 45(3) position of the Group, has been passed.” General Meeting is attached, there have been no material resolution number 3 for it to be adopted. (b)(i) of the Act, and that (ii) the terms under which such changes in the financial or trading position of the Company Statement by the Board of Directors The following direct and/or indirect financial assistance financial assistance is to be given are fair and reasonable to and its subsidiaries since the publication of the audited In accordance with the JSE Listings Requirements, the was provided by the Company to related and/or inter-related the Company as referred to in section 45(3)(b)(ii) of the Act. Annual Financial Statements for the year ended December Directors state that: companies and/or corporations of the Company as at the In as much as the Section 45 Board Resolution 2014. financial year ended December 2014: contemplates that such financial assistance will in the (a) the intention of the Directors is to utilise the authority In terms of the Act, at least 75% of the voting rights aggregate exceed one–tenth of one percent of the given under special resolution number 1 at a future exercised on this resolution must be cast in favour of special Rbn date, provided that the cash resources of the Company Company’s net worth at the date of adoption of such resolution number 1 for it to be adopted. Cross Suretyships in respect of 9.0 are in excess of its requirements. In this regard, the resolution, the Company hereby provides notice of the banking facilities Directors will take into account, inter alia, an appropriate Special resolution number 2 Section 45 Board Resolution to shareholders. Such notice capitalisation structure for the Company and the long- “Resolved, as a special resolution, that the following Loans to subsidiary companies 2.0 will also be provided to any trade union representing any term cash needs of the Company, and will ensure that Directors’ remuneration (payable to the applicable non- employees of the Company. Total 11.0 any such utilisation is in the interests of the shareholders; Executive Directors for services to be rendered by them in (b) having considered the effect of the maximum number their capacities as such), be and is hereby approved, each of ordinary and preference shares that may be acquired by way of a separate vote, for the period commencing on pursuant to the authority given under special resolution 28 May 2015 to the date of the Company’s next Annual number 1: General Meeting: 126 Shareholder information Massmart Integrated Annual Report 2014 127

Notice of AGM continued for the year ended December 2014

Special resolution number 4 5.2 “Resolved as a special resolution of the holders of If you wish to attend the Annual General Meeting or send • If the instrument appointing the proxy or proxies has been ‘B’ preference shares and subject to the passing of a proxy, you must request your CSDP or broker to issue the delivered to Computershare, as long as that appointment 4.1 “Resolved as a special resolution of the holders of resolutions 4.2 and 5.1 that the new, consolidated necessary letter of authority to you. Shareholders holding remains in effect, any notice that is required by the Act ordinary shares and subject to the passing of resolution revision of the Memorandum of Incorporation of the dematerialised shares, and who are unable to attend the or the Company’s Memorandum of Incorporation to be 4.2, that the Memorandum of Incorporation of the Company be and is hereby ratified and adopted in terms Annual General Meeting and wish to be represented thereat, delivered by the Company to the shareholder, must be Company be and is hereby amended in terms of section of section 18 of the Act.” must complete the form of proxy attached in accordance delivered by the Company to: (i) the shareholder or (ii) the 16 of the Act to give effect to each of the proposed In terms of the Act, at least 75% of the voting rights with the instructions therein and lodge it with or mail it to proxy or proxies, if the shareholder has: (a) directed the amendments contained in Schedule 1 attached to the exercised by the holders of ‘B’ preference shares on this the transfer secretaries, Computershare Investor Services Company to do so in writing and (b) paid any reasonable notice of Annual General Meeting in terms of which this resolution must be cast in favour of special resolution Proprietary Limited (Computershare). fee charged by the Company for doing so. special resolution is proposed.” number 5.2 for it to be adopted. A form of proxy (which is attached) must be dated and • Attention is also drawn to the “Notes to the form of proxy”. In terms of the Act, at least 75% of the voting rights signed by the shareholder appointing a proxy and should be • The completion of a form of proxy does not preclude any exercised by holders of ordinary shares on this resolution Reason for special resolution number 5 forwarded to reach Computershare by no later than 09h00 shareholder from attending the Annual General Meeting. must be cast in favour of special resolution number 4.1 The reason for this special resolution is to consolidate on Monday, 25 May 2015. Before a proxy exercises any rights for it to be adopted. all of the proposed amendments in one memorandum of Shareholders may participate (but not vote) electronically of a shareholder at the Annual General Meeting, such form of in the Annual General Meeting. Shareholders wishing to 4.2 “Resolved as a special resolution of the holders of incorporation in terms of section 18 of the Act. proxy must be so delivered. participate in the Annual General Meeting electronically ‘B’ preference shares and subject to the passing of A complete copy of the consolidated revision will be In compliance with the provisions of section 58(8) (b) (i) should contact the Assistant Company Secretary on info@ resolution 4.1, that the Memorandum of Incorporation made available for inspection by shareholders during normal of the Act, a summary of the rights of a shareholder to be massmart.co.za or +27 11 517 0000 not less than 5 business of the Company be and is hereby amended in terms business hours at the registered office of the Company represented by proxy, as set out in section 58 of the Act, is set days prior to the Annual General Meeting. Access to the of section 16 of the Act to give effect to each of the for a period of not less than 14 days prior to the Annual out immediately hereunder: Annual General Meeting by way of electronic participation proposed amendments contained in Schedule 1 General Meeting and on the Company’s website: www. • A shareholder entitled to attend and vote at the Annual will be at the shareholder’s expense. Only persons physically attached to the notice of Annual General Meeting in massmart.co.za. The consolidated revised Memorandum General Meeting may appoint any individual (or two present at the Annual General Meeting or represented by a terms of which this special resolution is proposed.” of Incorporation will also be tabled at the Annual General or more individuals) as a proxy or as proxies to attend, valid proxy shall be entitled to cast a vote on any matter put In terms of the Act, at least 75% of the voting rights Meeting and initialled by the Chairman for identification. participate in and vote at the Annual General Meeting to a vote of shareholders. exercised by the holders of ‘B’ preference shares on this The proposed amendments to the Memorandum of in the place of the shareholder. A proxy need not be a resolution must be cast in favour of special resolution Incorporation are contained in Schedule 1 to this notice of shareholder of the Company. By order of the Board number 4.2 for it to be adopted. Annual General Meeting. • A proxy appointment must be in writing, dated and Reason for special resolution number 4 General signed by the shareholder appointing a proxy and, The detailed reasons for and effects of each of the subject to the rights of a shareholder to revoke such Philip Sigsworth proposed amendments contained in Schedule 1, are set out Identification, voting and proxies appointment (as set out below), remains valid only until immediately below each of the proposed amendments. The the end of the Annual General Meeting. Company Secretary general intention is to update the Company’s Memorandum Shareholders are entitled to attend, speak and vote at the • A proxy may delegate the proxy’s authority to act on 2 April 2015 of Incorporation so as to provide for those changes Annual General Meeting. behalf of a shareholder to another person, subject to necessitated by the commencement of the Financial Markets In terms of section 63(1) of the Act, any person attending any restrictions set out in the instrument appointing the Act No 19 of 2012 as well as certain changes to the JSE or participating in the Annual General Meeting must present proxy. Listings Requirements. None of the proposed amendments reasonably satisfactory identification and the person • The appointment of a proxy is suspended at any time and materially alter the rights of any shareholder of the Company presiding at the Annual General Meeting must be reasonably to the extent that the shareholder who appointed such or materially alter the rights attaching to any class of shares satisfied that the right of any person to participate in and proxy chooses to act directly and in person in the exercise in the Company. vote (whether as a shareholder or as proxy for a shareholder) of any rights as a shareholder. has been reasonably verified. Forms of identification include • The appointment of a proxy is revocable by the Special resolution number 5 valid identity documents, driver’s licences or passports. shareholder in question cancelling it in writing, or 5.1 “Resolved as a special resolution of the holders of Shareholders holding dematerialised shares, but not making a later inconsistent appointment of a proxy, in their own name, must furnish their Central Securities ordinary shares and subject to the passing of resolutions and delivering a copy of the revocation instrument to Depository Participant (CSDP) or broker with their 4.1 and 5.2 that the new, consolidated revision of the the proxy and to Computershare. The revocation of a instructions for voting at the Annual General Meeting. If Memorandum of Incorporation of the Company be and proxy appointment constitutes a complete and final your CSDP or broker, as the case may be, does not obtain is hereby ratified and adopted in terms of section 18 of cancellation of the proxy’s authority to act on behalf of instructions from you, it will be obliged to act in accordance the Act.” the shareholder as of the later of: (i) the date stated in the with your mandate furnished to it, or if the mandate is silent In terms of the Act, at least 75% of the voting rights revocation instrument, if any and (ii) the date on which in this regard, complete the form of proxy attached. exercised by holders of ordinary shares on this resolution the revocation instrument is delivered to Computershare Unless you advise your CSDP or broker, in terms of the must be cast in favour of special resolution number 5.1 as required in the first sentence of this paragraph. agreement between you and your CSDP or broker by the for it to be adopted. cut-off time stipulated therein, that you wish to attend the Annual General Meeting or send a proxy to represent you at the Annual General Meeting, your CSDP or broker will assume that you do not wish to attend the Annual General Meeting or send a proxy. 128 Shareholder information Massmart Integrated Annual Report 2014 129

Schedule 1 – Proposed amendments Form of proxy Massmart Holdings Limited JSE share code MSM Incorporated in the Republic of South Africa ISIN ZAE000152617 to Memorandum of Incorporation Registration number 1940/014066/06 (“Massmart” or “the Company”)

24.11.2 the Shares voted in person or by proxy disclosed as For use by certificated and dematerialised shareholders who have ‘own name’ registration of shares on Friday, 22 May 2015 at the Annual Introduction and rationale General Meeting to be held on Wednesday, 27 May 2015 at 09h00 at Massmart House, 16 Peltier Drive, Sunninghill Ext 6, Sandton a number and a percentage (in relation to the total The memorandum of incorporation is the document that issued Share capital of that class of the Company); I/We (Please PRINT full names) sets out the rights, duties and responsibilities of shareholders, 24.11.3 the Shares abstained disclosed as a percentage of (address) being the directors and others within and in relation to a company. The (in relation to the total issued Share capital of that holders of ordinary shares/‘B’ preference shares, hereby appoint (see note 3), Company’s existing Memorandum of Incorporation requires class of the Company); updating to ensure compliance with the current regulatory 1. or failing him/her, 24.11.4 the votes carried (i) for and (ii) against each framework. This Schedule 1 sets out each of the proposed 2. or failing him/her, resolution, disclosed as a percentage (in relation to amendments, and details the reasons for and effects of the the Chairman of the Annual General Meeting as my/our proxy to participate in, speak and vote for me/us on my/our behalf at the the total number of Shares voted at the meeting in proposed changes. Annual General Meeting which will be held for the purpose of considering and, if deemed fit, passing the ordinary and special respect of clause 24.11.2); and resolutions to be proposed and at each adjournment of the Annual General Meeting and to vote for or against the ordinary and Proposed amendment 1 24.11.5 to the extent that the number of Shares in clauses special resolutions or to abstain from voting in respect of the shares in the issued capital of the Company registered in my/our name/s, 24.11.2 and 24.11.3 differ for each resolution, details in accordance with the following instructions (see note 4). The Memorandum of Incorporation of the Company is must be provided per resolution.” Insert an “X” or the number of ordinary shares/‘B’ preference shares (see note 4) amended by the replacement of all references therein to the For Against Abstain Securities Services Act 36 of 2004 with the Financial Markets Reason for and effect of proposed amendment OS PS OS PS OS PS Act 19 of 2012. The JSE Listings Requirements were amended with Ordinary Resolutions Reason for and effect of proposed amendment effect from 30 September 2014 to include more detailed 1. Re-election of Shelley Broader to the Board of Directors requirements on the disclosure and announcement of the 2. Re-election of Andy Clarke to the Board of Directors The Financial Markets Act 19 of 2012 commenced on voting processes undertaken at issuer companies’ general 3 June 2013 and replaced the Securities Services Act 36 of 3. Re-election of Johannes van Lierop to the Board of Directors meetings. These requirements are now contained in 2004 in its entirety. The Memorandum of Incorporation 4. Re-election of Kuseni Dlamini to the Board of Directors section 3.91 of the JSE Listings Requirements, and are to be is accordingly to be updated so as to refer to the new 5. Re-election of Phumzile Langeni to the Board of Directors incorporated into the Memorandum of Incorporation of the legislation. 6. Re-election of JP Suarez to the Board of Directors Company for ease of reference and completeness. 7. Election of Ernst & Young Inc. as the Company’s auditors Proposed amendment 2 Proposed amendment 4 8. Appointment of the Audit Committee members: The Memorandum of Incorporation of the Company is 8.1 Chris Seabrooke The Memorandum of Incorporation of the Company is 8.2 Lulu Gwagwa amended by the deletion of clause 8.1 and the replacement amended by the deletion of clause 27 thereof and replacing thereof with a new clause 8.1 which reads as follows: it with a new clause 27 which reads as follows: 8.3 Phumzile Langeni “8.1 Pursuant to section 33(2) of the Financial Markets Act, 9. Authorisation for the Directors to issue ordinary shares for cash, not exceeding 5% of the shares in issue the Company may only issue further listed Securities in “27 Restriction on shareholders acting other than at a 10. Endorsement of the Company’s remuneration policy meeting uncertificated form. Except to the extent otherwise provided Special Resolutions in the Act, the rights and obligations of Security holders shall Despite section 60, only the following resolutions of 1. Authorisation for the Company and/or its subsidiaries to repurchase its own shares not be different solely on the basis of their Securities being Shareholders may be proposed as written resolutions in 2. Approval of Non-Executive Directors’ remuneration accordance with section 60 of the Act, as per the JSE Listings Certificated Securities or Uncertificated Securities and each 2.1 Chairman of the Board Requirements: provision of this Memorandum of Incorporation applies with 2.2 Deputy Chairman respect to any Uncertificated Securities in the same manner 27.1 a change of name of the Company; 2.3 Independent non-Executive Directors as it applies to Certificated Securities, unless otherwise stated 27.2 resolutions in respect of odd-lot offers as 2.4 Committee Chairpersons or indicated by the context.” contemplated in clause 20; 27.3 an increase in the number of authorised Shares; and 2.5 Committee Members Reason for and effect of proposed amendment 27.4 approval of any amendment to this Memorandum 3. Authorisation to provide financial assistance The Financial Markets Act 19 of 2012 commenced on 3 of Incorporation, 4.1 Authorisation by ordinary shareholders for the Company to amend its N/A N/A N/A June 2013. It provides in section 33(2) that listed securities and apart from the above, all resolutions of Shareholders Memorandum of Incorporation may now only be issued in uncertificated (dematerialised) may only be passed at general meetings.” 4.2 Authorisation by ‘B’ preference shareholders for the Company to amend its N/A N/A N/A form. This requirement will now be incorporated into the Memorandum of Incorporation Reason for and effect of proposed amendment relevant provisions of the Memorandum of Incorporation of 5.1 Authorisation by ordinary shareholders for the Company to ratify and adopt the consolidated N/A N/A N/A the Company concerning the issuance by the Company of Schedule 10 of the JSE Listings Requirements, containing revised Memorandum of Incorporation certificated and uncertificated securities. the requirements for issuers’ memoranda of incorporation, 5.2 Authorisation by ‘B’ preference shareholders for the Company to ratify and adopt the was amended to limit and regulate the passing of written consolidated revised Memorandum of Incorporation N/A N/A N/A Proposed amendment 3 resolutions of shareholders in respect of certain matters, (Indicate with an “X” or the relevant number of shares, in the applicable space, how you wish your votes to be cast.) The Memorandum of Incorporation of the Company under section 60 of the Act. These matters are contained If you return this form duly signed, without any specific directions, the proxy will vote as he/she thinks fit. is amended by the insertion of a new clause 24.11 therein in item 10.11(h) of schedule 10 and are accordingly to *OS – Ordinary shares *PS – Preference shares which reads as follows: be incorporated into the Company’s Memorandum of “24.11 All results of voting by the Shareholders on resolutions Incorporation in terms of the above proposed amendment. submitted to them shall be announced and disclosed by Apart from these matters, all shareholder resolutions must Signed at on 2015 the Company as required by the JSE Listings Requirements. be passed at duly convened meetings of the Company as The announcement shall include the following: per section 61 of the Act. Signature Assisted by me (where applicable) 24.11.1 the resolutions proposed at the meeting; Completed forms of proxy must be lodged with Computershare Investor Services Proprietary Limited, not less than 48 (forty- eight) hours before the time for holding the Annual General Meeting, i.e. by no later than 09h00 on Monday , 25 May 2015. Please read the notes on the reverse side of this form of proxy. 130 Shareholder information

Notes to the form of proxy

1. A form of proxy is only to be completed by those shareholders who and in respect of which an abstention is recorded may not exceed are: the total of the votes exercisable by the shareholder or by his/her Definitions and formulas 1.1 holding shares in certificated form; or proxy. 1.2 recorded on the sub-register of the Company in dematerialised 5. Forms of proxy must be received by the transfer secretaries, Employment costs LSM Return on average shareholders’ equity (%) electronic form in “own name” on the record date for attending, Computershare Investor Services Proprietary Limited Includes the IFRS 2 Share-based Payment The South African Advertising Research Headline earnings participating and voting at the Annual General Meeting. (Computershare), Ground Floor, 70 Marshall Street, Johannesburg 2. If you have already dematerialised your shares through a Central expense. Foundation (SAARF) Living Standards Average of opening and closing equity 2001 (PO Box 61051, Marshalltown 2107) by no later than 09h00 on Measure (LSM) has become the most widely Securities Depository Participant (CSDP) or broker and wish to attributable to equity holders of the parent Monday, 25 May 2015. used segmentation tool in South Africa. It attend the Annual General Meeting, you must request your CSDP Net finance costs 6. The completion and lodging of this form of proxy will not preclude is a means of segmenting the South African or broker to provide you with a letter of representation or you must Interest received less interest paid. Return on capital employed (%) the relevant shareholder from attending the Annual General market that cuts across race, gender, age instruct your CSDP or broker to vote by proxy on your behalf in or any other variable used to categorise Meeting and speaking and voting in person at such meeting to the Operating profit before terms of the agreement between yourself and your CSDP or broker. EBITDA people. Instead, it groups people according asset impairments exclusion of any proxy appointed in terms of this form of proxy. 3. A shareholder may insert the name of a proxy or the names of Earnings before interest, taxation, to their living standards. Average of opening and closing capital 7. Documentary evidence establishing the authority of a person alternative proxies of the shareholder’s choice in the space/s depreciation, amortisation and asset employed balances provided, with or without deleting ‘the Chairman of the Annual signing this form of proxy in a representative capacity or other legal impairments. Year The Group defines capital employed as General Meeting’ but any such deletion must be initialled by the capacity must be attached to this form of proxy unless previously In line with most international retailers, the average of opening and closing equity shareholder. The person whose name stands first on this form of recorded by Computershare or waived by the Chairman of the Massmart runs its internal accounting and EBITDAR attributable to equity holders of the parent proxy and who is present at the Annual General Meeting will be Annual General Meeting. administrative timetable using the retail Earnings before interest, taxation, and non-current interest-bearing liabilities. calendar which treats each financial year as entitled to act as proxy to the exclusion of those whose names 8. Any alterations or corrections made to this form of proxy must be depreciation, amortisation, asset an exact 52-week period. follow. initialled by the signatory/ies. impairments and occupancy costs. Return on invested capital (%) 4. Please insert an ‘X’ in the relevant space according to how you wish 9. A minor must be assisted by his/her parent or guardian unless Sales per FTE Adjusted operating profit your votes to be cast. However, if you wish to cast your votes in the relevant documents establishing his/her legal capacity are Trading profit before interest and taxation respect of a lesser number of shares than you own in the Company, Sales Average invested capital produced or have been registered by Computershare. Earnings before interest, taxation, asset insert the number of shares held in respect of which you wish to FTEs 10. The Chairman of the Annual General Meeting may accept any form impairments, the BEE IFRS 2 charge, foreign Adjusted operating profit includes finance vote. Failure to comply with the above will be deemed to authorise income and adds back depreciation, of proxy which is completed other than in accordance with these exchange movements, loss on disposal 2 the proxy to vote or to abstain from voting at the Annual General Sales per trading m amortisation and occupancy costs. notes if the Chairman is satisfied as to the manner in which the of business and assets classified as held Meeting as he/she deems fit in respect of all the shareholders’ shareholder wishes to vote. for sale. Sales Average invested capital is average total votes exercisable at the Annual General Meeting. A shareholder Trading m2 assets of continuing operations plus average or his/her proxy is not obliged to use all the votes exercisable by 11. If any shares are jointly held, the first name appearing in the register Comparable sales Sales for Shield are excluded as they do not accumulated depreciation and amortisation the shareholder or by his/her proxy, but the total of the votes cast shall, in the event of a dispute, be taken as a shareholder. A store is considered comparable in its have stores. less average accounts payable less average 13th month of trading and is removed from accrued liabilities plus occupancy costs x8. comparable sales from the first day of the Net asset turn Transfer secretaries month of closure. Sales Debt: Equity (%) Computershare Investor Services Proprietary Limited Net assets Average debt Ground Floor FTE (full-time equivalents) Average total equity 70 Marshall Street The Group defines net assets as total equity Includes all permanent employees and Johannesburg 2011 and non-current interest-bearing liabilities. Debt comprises non-current interest- the permanent equivalent of temporary bearing liabilities. PO Box 61051, Marshalltown 2107 employees and contracted workers. Telephone 011 370 5000 Gross margin (%) Cash earnings cover Call Centre 086 110 09818 Trading space (m2) Gross profit Sales Operating cash flow per share Trading space excludes parking, yard, Headline earnings per share warehouse space, office space and receiving Operating margin (%) areas. Operating profit Net cash to total equity (%) 2 Sales Regional distribution centre space (m ) Cash and cash equivalents, Distribution centre space excludes parking Trading profit before interest and taxation net of borrowings and yard space. margin (%) Total equity at the end of the financial year Trading profit before Sales per store interest and taxation Current ratio Sales Sales Number of stores Current assets Current liabilities Sales for Shield are excluded as they do not EBITDA margin (%) have stores. EBITDA Quick ratio Sales DC Current assets excluding inventory Current liabilities Distribution centre Effective tax rate (%) Taxation Profit before tax

The tax rate reconciliation can be found on page 56. Glossary / definitions We strive to provide useful and frequent Company Secretary disclosure to our shareholders, regardless P Sigsworth, CA(SA) of how uncomfortable this may be in periods Registered office Inventory days Headline earnings per share Operating cash flow per share of difficulty or under performance. Massmart House, 16 Peltier Drive Inventory Headline earnings Net cash flow from operating activities Sunninghill Ext 6, Sandton, 2146, South Africa Total cost of sales multiplied Weighted average number Weighted average number of shares by the number of days traded in the of shares in issue in issue Massmart reports formally to shareholders twice a Postal address financial year Net cash flow from operating activities, year (in February and August) when its full-year and Private Bag X4, Sunninghill, 2157, South Africa Diluted headline earnings per share half-year results, together with a thorough Executive Inventory turn excludes dividends paid. Telephone number Headline earnings overview, are announced and issued to shareholders and Net asset value per share + 27 (0) 11 517 0000 Total cost of sales Diluted weighted average number the media. On both occasions the CEO, CFO and certain of shares in issue Inventory Closing equity attributable to equity Group Executives give presentations to institutional Facsimile number holders of the parent Attributable earnings per share investors, analysts and the media. + 27 (0) 11 517 0020 Payable days Total number of shares in issue Trade payables excluding VAT Earnings attributable to the equity Early in January and July, shortly after the conclusion Website Total cost of sales multiplied holders of the parent Return on equity (%) of the full-year and half-year trading periods, on release www.massmart.co.za Weighted average number of by the number of days traded in the Headline earnings excluding of the Integrated Annual Report and at the Group’s Company registration number financial year shares in issue foreign exchange annual general meeting in May, Massmart releases 1940/014066/06 (incorporated in South Africa) Dividends/distribution per share Average ordinary shareholders equity sales updates reporting on the Group’s year-to-date Asset turn JSE share code Return on sales (%) sales performance. In addition, annually in November, Sales Distribution to shareholders MSM Total assets Total number of shares in issue Operating profit before interest and tax the CEO and CFO host a day-long visit by institutional excluding foreign exchange analysts and investors to Massmart stores. A sales update ISIN Total liabilities to total equity Cash generated from operations before working capital movements per share Sales is released along with this visit. ZAE000152617 Current and non-current liabilities Cash generated from operations before During the year, apart from closed periods, the CEO Total equity Dividend cover working capital movements and CFO together meet regularly with institutional Headline earnings per share Weighted average number of shareholders and, in addition, are available for meetings Design and publisher Interim and final dividend per share shares in issue or conference calls with analysts and any existing or Ninepoint prospective Massmart shareholders. Printer Lawprint

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Photographer Analyst presentation and preliminary announcement • Gareth Gilmour / Maritza Kriel Final dividend declared • Transfer secretaries Cape Town institutional investor roadshow • Computershare Investor Services Proprietary Limited 70 Marshall Street, Johannesburg, 2001 Johannesburg institutional investor roadshow • Final dividend paid • Principal bankers ABSA Bank Limited Publication of Annual Report • First National Bank (A division of FirstRand Bank Limited) Annual General Meeting • Investec Bank Limited Analyst presentation and preliminary announcement • Stock exchange information Nedbank Group Limited The Standard Bank of South Africa Limited Interim dividend declared • at 24 December 2014 Cape Town institutional roadshow • Auditors Shares in issue (millions) 217.1 Ernst & Young Inc. Johannesburg institutional roadshow • Shares traded (millions) 88.0 Interim dividend paid • Percentage of shares traded (%) 40.5 Corporate law advisors Cliffe Dekker Hofmeyr United States institutional investor roadshow • Earnings yield (%) 3.5 Dividends yield (%) 2.9 Edward Nathan Sonnenbergs United Kingdom institutional investor roadshow • Market capitalisation (Rm) 31,249 Lead sponsor Financial year-end • Closing share price South African (Rand) 143.93 Deutsche Securities (SA) Proprietary Limited www.massmart.co.za www.massmart.co.za/iar2014 Massmart values your feedback Do you have any questions or suggestions regarding Massmart’s Integrated Annual Report 2014? Email: [email protected]