• + 1. Accounting policies

    General

    These consolidated financial statements comprise Massmart Holdings Limited (the “Company”) and its subsidiaries (collectively the “Group”).

    The Group operates retail stores in nine formats in sub-Saharan Africa, aggregated into four reportable segments, focused on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash.

    The principal offering for each segment is as follows:
    •    Massdiscounters – general merchandise discounter and food retailer
    •    Masswarehouse – warehouse club
    •    Massbuild – home improvement retailer and building materials supplier
    •    Masscash – food wholesaler, retailer and buying association.

    The Group’s four divisions operate in two principal geographical areas, South Africa and the rest of Africa, and the Group’s geographic segments are reported on this basis.

    Basis of accounting

    The financial statements have been prepared on the historical cost basis, except for non-current assets held-for-sale and financial instruments.

    These financial statements have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), Interpretations Issued by the International Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listing Requirements and the requirements of the Companies Act, 71 of 2008 of South Africa.  The accounting policies are consistent with that of the previous financial year as none of the amendments coming into effect in the current financial year have had an impact on the financial reporting of the Group.
    The principal accounting policies adopted are set out below.

    Basis of consolidation

    The Group annual financial statements incorporate the annual financial statements of the Company and the entities it controls as at 28 December 2014. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group considers all relevant facts and circumstances in assessing whether it has power over an investee and re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. A change in the ownership interest of a subsidiary, without a loss of, is accounted for as an equity transaction. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year, are included in the Statement of Comprehensive Income, Statement of Financial Position and the Statement of Cash Flows, from the date the Group gains control until the date the Group ceases to control the subsidiary.

    All inter-company transactions and balances, income and expenses are eliminated in full on consolidation. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

    Separate disclosure is made of non-controlling interests where the Group’s investment is less than 100%. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the allocated share of changes in equity since the date of the combination. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance.  The Group applies a policy of treating transactions with non-controlling interest holders as transactions with equity holders of the Group.  Disposals to non-controlling interest holders that do not result in the loss of control, result in gains and losses for the Group that are recorded directly in the Statement of Changes in Equity. The difference between any consideration paid and the relevant share of the net asset value acquired from non-controlling interests is recorded directly in the Statement of Changes in Equity.

    Fair value measurement

    The Group measures financial instruments, such as, derivatives and certain investments at fair value at each reporting date. The fair values of financial instruments measured at amortised cost are disclosed should it be determined that the carrying value of these instruments does not reasonably approximate their fair value at each reporting date.

    Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

    •    In the principal market for the asset or liability, or
    •    In the absence of a principal market, in the most advantageous market for the asset or liability

    The principal or the most advantageous market must be accessible by the Group.

    The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

    The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

    All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

    •    Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
    •    Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
    •    Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

    For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between the Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting year.

    For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

    Business combinations

    The acquisition of subsidiaries is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are expensed as incurred and included in ‘Other operating costs’ in the Income Statement. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s net fair value of the identifiable net assets.

    Any contingent consideration forming part of the purchase price is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in the Income Statement or as a charge to other comprehensive income. If the contingent consideration is not within this scope, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

    Goodwill

    Goodwill arising on consolidation of a subsidiary represents the excess of the fair value of the consideration transferred, the recognised amount of the non-controlling interests in the acquiree, and if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree, over the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the Income Statement as a gain on bargain purchase in the year of acquisition.

    Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGU’s) (or group of CGU’s) expected to benefit from the synergies of the combination, and represent the lowest level within the Group at which management monitors goodwill. CGU’s to which goodwill have been allocated are tested for impairment annually, or more frequently when there is an indication that the units may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the units, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the units and then to the other assets of the units pro-rata on the basis of the carrying amount of each asset in the units. An impairment loss recognised for goodwill is not reversed in a subsequent year.

    On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

    Non-current assets held for sale

    Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

    Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell, other than financial assets and deferred tax assets which continue to be measured in accordance with their relevant accounting standards.

    Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

    Property, plant and equipment

    Property, plant and equipment are initially recognised at acquisition cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Group’s management.

    Other than freehold land, which is subsequently carried at cost less accumulated impairment losses, property, plant and equipment are subsequently carried at cost less accumulated depreciation, reduced by any accumulated impairment losses.

    The cost of property meeting the definition of a qualifying asset in terms of IAS 23 Borrowing Costs includes borrowing costs capitalised in terms of the Group’s borrowing cost policy.

    Where expenditure incurred on property, plant and equipment will lead to future economic benefits accruing to the Group, these costs are capitalised. Repairs and maintenance not meeting this criterion are expensed as and when incurred.

    Depreciation commences when the asset is ready for its intended use and is charged so as to write down the cost of the assets, other than land, to their residual values, over their useful lives, using the straight-line method, recognised in profit and loss on the following bases:

    • Buildings 50 years
    • Fixtures, fittings, plant, equipment and motor vehicles 4 to 15 years
    • Computer hardware 3 to 8 years
    • Leasehold improvements shorter of lease period or useful life

     

    Useful life and residual value is reviewed annually, at each reporting year-end and the prospective depreciation is adjusted accordingly if necessary.

    Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. If there is an option to purchase the leased asset and it is virtually certain that this option will be exercised, the leased asset is depreciated over the leased asset’s expected useful life.

    The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Income Statement.

    Intangible assets

    Intangible assets comprise trademarks and computer software and are measured initially at purchased cost. Right of use assets are measured at cost, which is calculated based on the site negotiation agreement. Internally generated intangible assets are not capitalised but rather expensed in the Income Statement in the year in which the expenditure is incurred. Intangible assets are measured at cost less accumulated amortisation, and reduced by any accumulated impairment losses.

    The useful lives of intangible assets are assessed as either finite or indefinite. The Group has no intangible assets with indefinite useful lives other than goodwill which is detailed separately.

    For intangible assets with finite useful lives, amortisation is charged so as to write off the asset over the estimated useful life, to its residual value, using the straight-line method, on the following basis:

    • Trademarks 10 years
    • Right of use 10 years
    • Computer software 3 to 8 years

     

    Useful life is reviewed annually, at each reporting year-end and the prospective amortisation is adjusted accordingly if necessary.

    The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the intangible asset and is recognised in the Income Statement.

    Impairment of non-financial assets

    At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets (excluding goodwill) to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

    The recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.

    If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately in the Income Statement.

    An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of an asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount. This is done so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the Income Statement.

    Goodwill is tested at least annually for impairment as indicated above. However, impairment losses relating to goodwill cannot be reversed in future years.

    Revenue recognition

    Revenue of the Group comprises net sales, royalties and franchise fees, investment income, finance charges, property rentals, management and administration fees, commissions and fees, dividends, distribution income, income from insurance premium contributions and excludes value-added tax. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, volume rebates, returns and sales-related taxes. Payment is usually received via cash, debit card or credit card. Related card transaction costs are recognised in the Income Statement as other operating expenses. Revenue is also reduced by an appropriate provision for product warranties. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The specific recognition criteria described below must also be met before revenue is recognised.

    •    Sales of goods
    Revenue is recognised when the significant risks and rewards of ownership have passed to the buyer, usually when the goods are delivered and title has passed. Revenue from the sale of gift cards is recognised when they are redeemed by customers in exchange for products supplied by the Group.
    •    Rendering of services
    Revenue is earned from delivering goods to customers and goods to stores and distribution centres. Revenue is recognised by reference to stage of completion.
    •    Interest income
    Revenue is accrued on a time apportionment basis, by reference to the principal outstanding and the effective interest rate.
    •    Dividend income
    Revenue is recognised when the shareholders’ right to receive payment has been established, which is generally when shareholders approve the dividend.
    •    Property rental
    Property rental receivable under operating leases is credited to profit or loss on a straight-line basis over the term of the relevant lease.

    Other revenue is recognised on the accrual basis in accordance with the substance of the relevant agreements and measured at fair value of the consideration receivable.

    Where the Group enters into sales transactions involving a range of the Group’s products and services, the Group applies the revenue recognition criteria set out above to each separately identifiable component of the sales transaction. The consideration received from these multiple-component transactions is allocated to each separately identifiable component in proportion to its relative fair value.

    Leasing

    The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

    Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

    Assets held under finance leases are capitalised at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor, net of finance charges, is included in the Statement of Financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the income statement.

    A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

    Rentals payable under operating leases are charged to the Income Statement on a straight-line basis over the term of the relevant lease. Contingent rental costs are expensed when incurred.

    Foreign currencies

    The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (i.e. its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in the functional currency of the Group, which is the presentation currency for the consolidated financial statements (South African Rand).

    Transactions and balances
    Transactions denominated in foreign currencies are initially recorded at their functional currency spot rates on the dates of the transactions.

    At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated using functional currency spot rates on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated using functional currency spot rates on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the functional currency spot rates at the date of the initial transactions.

    Exchange differences arising on the settlement and translation of monetary items are included in the Income Statement for the year. Exchange differences arising on the translation of non-monetary items carried at fair value are included in the Income Statement for the year. However, where fair value adjustments of non-monetary items are recognised in other comprehensive income, exchange differences arising on the translation of these non-monetary items are also recognised in other comprehensive income.

    Group companies
    On consolidation, the assets and liabilities of the Group’s foreign operations (including comparatives) are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at exchange rates prevailing at the dates of the transactions where possible, or at the average exchange rates for the year.  Exchange differences are recognised in other comprehensive income and transferred to the Group’s foreign currency translation reserve. Such translation differences are recycled in the Income Statement in the year in which the foreign operation is disposed of, and is recognised as part of the gain or loss on disposal of the foreign operation.

    Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the spot rate on the reporting date.

    Retirement benefit costs

    Group companies operate various pension schemes. The schemes are funded through payments to trustee-administered funds in accordance with the plan terms.
    A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior years.
    The Group’s contributions to defined-contribution plans in respect of services rendered in a particular year are recognised as an expense in that year. Additional contributions are recognised as an expense in the year during which the associated services are rendered by employees.

    Post-retirement healthcare benefits

    Group companies operate various pension schemes. The schemes are funded through payments to trustee-administered funds in accordance with the plan terms.
    A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
    The Group’s contributions to defined-contribution plans in respect of services rendered in a particular year are recognised as an expense in that year. Additional contributions are recognised as an expense in the year during which the associated services are rendered by employees.

    The Group provides for post-retirement medical benefits, to qualifying employees and pensioners in certain companies within the Group. The expected costs of these benefits are accrued over the period of employment based on past services and charged to the Statement of Comprehensive Income as employee benefits. This post-retirement medical benefit obligation is measured at present value by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid and that have the terms to maturity approximating the terms of the related post-employment liability. The future cash outflows are estimated using amongst others the following assumptions: health-care cost inflation; discount rates; salary inflation and promotions and experience increases; expected mortality rates; expected retirement age; and continuation at retirement. Valuations of this obligation are carried out annually by independent qualified actuaries in respect of past-service liabilities using the projected unit credit method. Actuarial gains or losses and settlement premiums, when they occur, are recognised immediately in other comprehensive income and as employee benefits in profit or loss respectively.

    Short-term benefits

    The cost of all short-term employee benefits is recognised as an expense during the period in which the employee renders the related service.
    Liabilities for employee entitlements to wages, salaries and leave represent the amount that the Group has as a present obligation, as a result of employee services provided to the reporting date, to the extent that such obligation can be reliably estimated. The accruals have been calculated at undiscounted amounts based on current wage and salary rates.

    Taxation

    Income tax expense represents the sum of the tax currently payable and deferred tax.

    Current income tax
    The tax charge payable is based on taxable profit for the year and any adjustment to tax payable/receivable relating to the prior year. Taxable profit differs from profit as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date in the countries where the Group operates and generates taxable income.
    Current income tax is recognised in the Income Statement, except when it relates to items recognised directly in equity, in which case it is recognised in equity and not in the Income Statement. Where applicable tax regulations are subject to interpretation, management will raise the appropriate provisions.

    The recognition, measurement and classification of interest and tax-related penalties or damages are accounted for in terms of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and are recognised in profit or loss.

    Deferred tax
    Deferred tax is accounted for using the liability method in respect of temporary differences arising between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.

    Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, and the carry forward of unused tax credits and any unused tax losses to the extent that it is probable that taxable profit will be available against which these can be utilised. Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities, which affects neither the taxable profit nor the accounting profit at the time of the transaction.

    The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

    Deferred tax is calculated at the tax rates that are expected to apply to the year when the asset is realised or the liability settled, using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax is recognised in the Income Statement, except when it relates to items credited or charged to other comprehensive income or directly to equity, in which case the deferred tax is recognised in either other comprehensive income or directly in equity.

    Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

    Sales tax
    Income, expenses, assets and liabilities are recognised net of the amount of sales tax, except when the sales tax is not recoverable from, or payable to, the taxation authority, in which case it is recognised as part of the underlying item. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position.

    Any tax on capital gains is deferred if the proceeds of the sale of the assets are invested in similar assets, but the tax will ultimately become payable on sale of that similar asset.

    Inventories

    Inventories which consist of food, liquor, general merchandise and home improvement merchandise, are valued at the lower of cost and net realisable value. Cost is calculated on the weighted- average method. The cost of merchandise is the net of: invoice price of merchandise; insurance; freight; customs duties; an appropriate allocation of distribution costs; trade discounts; rebates and settlement discounts. Rebates and discounts received as a reduction in the purchase price of inventories are deducted from the cost of those inventories.  Rebates earned on the sale of products based on advertising requirements are regarded as a reimbursement of costs already incurred in general (i.e. not linked to inventories) and is deducted from cost of sales.  Obsolete, redundant and slow-moving items are identified on a regular basis and are written down to their estimated net realisable values. The amount of the write down is recognised as an expense in the Income Statement in the year in which it occurs. A new assessment is made of net realisable value in each subsequent year. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write down is reversed, so that the new carrying amount is the lower of the cost and the revised net realisable value. The reversal is recorded in the Income Statement.

    Financial instruments

    Financial assets and financial liabilities are recognised on the Group’s Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

    Financial assets and liabilities are offset and the net amounts presented in the Statement of Financial Position when, and only when, the Group has a legal right to offset the amounts and intend either to settle on a net basis or to realise the asset and settle the liability simultaneously.

    Financial assets
    Financial assets are classified into the following specified categories:
    •    Fair value through profit or loss (FVTPL)
    These include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are covered separately and have their own accounting policy ‘Derivative financial instruments and hedge accounting’.
    •    Loans and receivables
    These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
    •    Held-to-maturity investments
    These are non-derivative financial assets with fixed or determinable payments and fixed maturities and the Group has the positive intention and ability to hold them to maturity.
    •    Available-for-sale investments
    These include equity investments and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities are those that are intended to be held for an indefinite period of time and that may be sold for liquidity needs or in response to changes in market conditions. The Group holds no debt securities classified as available-for-sale.

    The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All financial assets are initially recognised at fair value plus transaction costs, except for financial assets recorded at fair value through profit or loss which are measured at fair value.

    Financial assets are subsequently measured according to their category classification:
    •    Fair value through profit or loss (FVTPL)
    These are held at fair value and any adjustments to fair value are taken to the Income Statement.
    •    Loans and receivables
    These are held at amortised cost using the effective interest rate method less any impairment losses recognised to reflect irrecoverable amounts. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation is recognised in finance income in the Income Statement. Impairment losses on loans and receivables are recognised in ‘Other operating costs’ in the Income Statement.
    •    Held-to-maturity investments
    These are held at amortised cost using the effective interest rate method less any impairment losses recognised to reflect irrecoverable amounts. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation is recognised in finance income in the Income Statement. Impairment losses on loans and receivables are recognised in ‘Other operating costs’ in the Income Statement.
    •    Available-for-sale investments
    These are held at fair value and any adjustment to fair value is recognised as other comprehensive income as a non-distributable reserve until the investment is derecognised, at which time the cumulative gain or loss is reclassified to the Income Statement and recognised in ‘Other operating costs’. Where the investment is determined to be impaired, the cumulative gain or loss is reclassified to the Income Statement.

    Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset.

    De-recognition
    A financial asset is derecognised when the rights to receive cash flows have expired or the Group has transferred its right to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to the third party (where the Group has transferred the risk and rewards of the asset or has transferred control of the asset).

    Impairment
    At each reporting date, the Group reviews whether there is any objective evidence that a financial asset may be impaired as a result of one or more events that have occurred since the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset. Where objective evidence exists an impairment loss is calculated.
    •    Financial assets carried at amortised cost
    The impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The discount rate applied is the original effective interest rate and where a loan has a variable interest rate, the discount rate is the current effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. The recovery is credited to the Income Statement.
    Trade receivables are recognised net of an allowance for impairment. An allowance for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the allowance is the difference between the carrying amount of the receivable and the recoverable amount, being the present value of the expected cash flows, discounted at the original effective interest rate. Any resulting impairment losses are included in other operating costs in the Income Statement. When a receivable is uncollectible, it is written off against the allowance for impairment for receivables. Subsequent recoveries of amounts previously written off are recognised in other operating costs in the Income Statement.
    •    Available-for-sale investment
    For available-for-sale financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.
    The impairment loss is measured as the difference between the acquisition cost and the current fair value, less any impairment loss previously recognised. Impairment losses on equity investments are not reversed through the Income Statement; increases in fair value of the instrument that can be objectively related to an event occurring after the recognition of the impairment, are recognised directly in other comprehensive income.

    Effective interest rate method
    This is a method of calculating the amortised cost of a financial asset or a financial liability, and of allocating interest income and finance costs, over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period. Interest is recognised on an effective interest basis for financial instruments other than those financial assets designated as ‘at fair value through profit or loss’. Discounting of financial instruments carried at amortised cost is omitted where the impact of discounting is considered to be immaterial.

    Financial liabilities and equity
    Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

    Financial liabilities are classified into the following specified categories:
    •    Fair value through profit or loss (FVTPL)
    These include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are covered separately and have their own accounting policy ‘Derivative financial instruments and hedge accounting’.
    •    Liabilities at amortised cost
    These are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market.
    The classification depends on the nature and purpose of the financial liabilities and is determined at the time of initial recognition. All financial liabilities are initially recognised at fair value and, in the case of liabilities at amortised cost, net of directly attributable transaction costs.

    Financial liabilities are subsequently measured according to their category classification:
    •    Fair value through profit or loss (FVTPL)
    Fair value gains and losses on liabilities at fair value through profit or loss are recognised in the Income Statement.
    •    Liabilities at amortised cost
    These are held at amortised cost using the effective interest rate method. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation costs are recognised in finance costs in the Income Statement in accordance with the Group’s policy on borrowing costs.

    De-recognition
    A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. Gains or losses are recognised in the Income Statement when the liability is de-recognised. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability is substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Income Statement.

    Fair value of financial instruments
    The fair values of listed investments are calculated by reference to stock exchange quoted selling prices at the close of business on the reporting date, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using the appropriate valuation techniques which include:
    •    Using recent arm’s length market transactions
    •    Reference to the current fair value of another instrument that is substantially the same
    •    A discounted cash flow analysis or other valuation models

    Derivative financial instruments and hedge accounting

    The Group’s activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rates.

    The Group uses foreign exchange forward contracts to hedge its exposure to foreign currency fluctuations relating to certain firm trading commitments. The use of financial derivatives is governed by the Group’s policies approved by the Board, which provide written principles on the use of financial derivatives consistent with the Group’s risk management strategy. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an on-going basis to determine that they have been highly effective throughout the financial reporting periods for which they were designated. The Group does not trade in derivative financial instruments for speculative purposes.

    Derivative financial instruments are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

    The effective portion of the changes in fair value of derivative financial instruments that are designated and qualify as cash flow hedges are recognised in other comprehensive income in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the Income Statement. If the hedged firm commitment results in the recognition of an asset or liability, then, at the time, any cumulative gain or loss on the hedging instrument recognised in other comprehensive income, is retained in equity until the forecast transaction is recognised in the Income Statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is reclassified to the Income Statement.

    The hedge is de-designated as a cash flow hedge at the Shipped-on-Board date, and is discontinued when the hedging instrument is sold, expired, terminated, exercised, or no longer qualifies for hedge accounting, in which case, the net cumulative gain or loss recognised in other comprehensive income is transferred to the Income Statement.

    All above-mentioned references to Income Statement recognitions are processed through ‘cost of sales’.

    The Group does not hold any fair value hedges or hedges of a net investment in a foreign operation.

    Cash and cash equivalents

    Cash and cash equivalents comprise cash on hand, deposits held on call with banks, investments in money-market instruments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value, and bank overdrafts. For the purpose of the Statement of Cash Flows, the Group‘s bank overdraft is included within cash and cash equivalents.

    Treasury shares

    The Company’s own equity instruments that are reacquired are recognised at cost and deducted from equity. No gain or loss is recognised in the Income Statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them. Share options exercised during the reporting year are satisfied with treasury shares, and where required, shares purchased in the market. Any difference between the exercise price and the market price is recognised as a gain or loss in the Statement of Changes in Equity.

    Equity, reserves and dividend payments

    Share capital represents the nominal value of shares that have been issued.
    Share premium includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits.
    Other components of equity include the following:
    •    Re-measurements of net defined-benefit liability – comprises the actuarial losses from changes in demographic and financial assumptions and the return on plan assets;
    •    Translation reserve – comprises foreign currency translation differences arising from the translation of financial statements of the Group’s foreign entities into ZAR; and
    •    Reserves for Available for Sale financial assets and cash flow hedges – comprises gains and losses relating to these types of financial instruments.

    Retained profit includes all current and prior period retained profits and share-based employee remuneration.
    All transactions with owners of the parent are recorded separately within equity.
    Dividend distributions payable to equity shareholders are included in other liabilities when the dividends have been approved in a general meeting prior to the reporting date.

    Provisions

    Provisions for product warranties, legal disputes, onerous contracts or other claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of discounts is recognised as a finance cost. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.

    A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

    Any reimbursement that the Group can be virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision.

    No liability is recognised if an outflow of economic resources as a result of present obligations is not probable. Such situations are disclosed as contingent liabilities unless the outflow of resources is remote.

    Share-based payments

    The Group issues equity-settled share-based payments to employees who are beneficiaries of the various Group share schemes. Equity-settled share-based payments are measured at the fair value (excluding the effect of non-market-based vesting conditions) of the equity instruments issued at the date of the grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed in the Income Statement on a straight-line basis over the vesting period with a corresponding increase in other capital reserves in equity, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. The cumulative expense recognised at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.

    Fair value is measured by use of binomial and lattice models. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

    Borrowing costs

    All borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Capitalisation of the borrowing costs begins on commencement date and ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. Should active development of the qualifying asset be suspended, capitalisation of the borrowing costs during this year is also suspended. General borrowing costs are capitalised by calculating the weighted average expenditure on the qualifying asset and applying a weighted-average borrowing rate to the expenditure. Specific borrowing costs are capitalised when the borrowing facility is utilised specifically for the qualifying asset less any investment income on the temporary investment of these funds. All other borrowing costs are recognised as an expense in the Income Statement in the year in which they are incurred. Borrowing costs consist of interest and other costs that the Group incurs in connection with the borrowing of funds.

    Operating segments

    An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s operating results are reviewed regularly by the Group’s Executive Committee to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. All inter-segment transfers are carried out at arm’s length prices. For management purposes, the Group uses the same measurement policies as those used in its financial statements. In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment.

    Cost of sales

    Cost of sales primarily comprises goods sold and services provided, including an allocation of the direct overhead expense, net of supplier rebates, and necessary to acquire and store goods. Cost of sales also includes: the cost to distribute goods to customers; inbound freight costs; internal transfer costs; warehousing costs and the cost of other shipping and handling activities; any write-downs and reversals of write-downs to inventory; and any foreign currency exposure, including reclassified gains and losses on foreign currency hedging instruments, relating directly to goods imported.

  • + 2.Critical accounting judgements and key sources of estimation uncertainty

    Critical judgements in applying the Group’s accounting policies

    In the process of applying the Group’s accounting policies, which are described above, management has not made any critical judgements that have a significant effect on the amounts recognised in the Financial Statements, except for:

    Classification of leases as financing or operating in nature
    The Group enters into commercial property leases for the majority of its stores. Where management has determined, based on an evaluation of the terms and conditions, that the lessor retains all significant risks and rewards of these properties, it will account for the contracts as operating leases.

    Business combination versus asset acquisition
    During the current and prior year all of the properties were accounted for as asset acquisitions. The directors have assessed the properties acquired and have concluded that in their view these acquisitions are property acquisitions in terms of IAS 16 Property, Plant and Equipment and are therefore accounted for in terms of that standard. In the opinion of the directors these properties did not constitute a business as defined in terms of IFRS 3 Business Combinations, as there were not adequate processes identified within these properties to warrant classification as businesses.

    Key sources of estimation uncertainty

    Deferred tax assets
    Deferred tax assets are raised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. Assessment of future taxable profit is performed at every reporting date, in the form of future cash flows using a suitable growth rate. Details of deferred taxation can be found in note 18. In addition, significant judgement is required in assessing the impact of any legal or economic limits or uncertainties in various tax jurisdictions.

    Property, plant and equipment
    Property, plant and equipment and intangible assets are depreciated over their useful lives taking into account, where appropriate, residual values. Assessment of useful lives and residual values are performed annually, taking into account factors such as technological innovation, maintenance programmes, market information and management considerations. In assessing the residual value of an asset, its remaining life, projected disposal value and future market conditions are taken into account. Detail on property, plant and equipment and intangible assets can be found in note 13 and 15 respectively.

    Goodwill impairment
    Determining whether goodwill is impaired requires an estimation of the value in use of the CGU’s (or group of CGU’s) to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the CGU (or group of CGUs) and a suitable discount rate in order to calculate the present value. The carrying amount of goodwill at the reporting date was R2,542.9 million (December 2013: R2,532.0 million). The impairment of goodwill in the prior year relates to the impairment of certain acquired goodwill in Masscash. Details of the impairment loss calculation can be found in note 14.

    Inventory provisions
    Inventory provisions include shrinkage, obsolescence and write-downs which take into account historical information related to sales trends and stock counts and represent the expected write-down between the estimated net realisable value and the original cost. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Details on the provisions can be found in note 19.

    Allowance for doubtful debts
    The Group assesses its doubtful debt allowance at each reporting date. Key assumptions applied are the estimated debt recovery rates and the future market conditions that could affect recovery. Details of the allowance can be found in note 20.

    Fair value of equity awards granted
    The fair value of share awards and options granted in terms of IFRS 2 Share-based Payment have been obtained using the Lattice and Binomial pricing models respectively. Assumptions include expected volatility, expected life, risk-free rate and expected dividend yield. By obtaining an external valuation from accredited valuers and through consultation with various financial institutions, management is of the opinion that the risk relating to estimation uncertainty has been mitigated. Details of the valuations can be found in note 29.

    Provision for post-retirement medical aid
    Post-retirement healthcare benefits are provided to certain retired employees. Actuarial valuations are performed to assess the financial position of the fund. Assumptions used include the discount rate, healthcare cost inflation, mortality rates, withdrawal rates and membership. By obtaining an external valuation from accredited valuers, management is of the opinion that the risk relating to estimation uncertainty has been mitigated. Details can be found in note 25 and note 27.

    Taxation
    The Group is subject to taxes in numerous jurisdictions. Significant estimate is required in determining the worldwide accrual for income taxes. There are many transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated uncertain income tax positions based on best informed estimates of whether additional income taxes will be due. Where the final income tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred income tax assets and liabilities in the period in which such determination is made. Details of taxation can be found in note 10.

    Fair value measurement of financial instruments
    When the fair values of financial assets and financial liabilities recorded in the Statement of Financial Position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Details of fair value measurements can be found in note 39. Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re-measured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration are the probability of meeting each performance target and the discount factor.

  • + 3. Technical Review

    Massmart first adopted International Financial Reporting Standards (IFRS) with effect from 1 July 2005. Subsequent amendments have been made to the standards, resulting in revised issues. All these amendments have been complied with in line with the transitional provisions of the relevant standards.

    Standards or Interpretations that became effective in the current period

    The following new standards, interpretations and amendments to existing standards, were adopted in the current financial reporting period and had no significant effect on the Group’s reported results

    Standard/Interpretation
    Pronouncement
    Description
    IAS 27 Separate Financial Statements
    Amendments for investment entities
    The investment entities amendments apply to investments in subsidiaries, joint ventures and associates held by a reporting entity that meets the definition of an investment entity. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement, as applicable), except for investments in subsidiaries, associates and joint ventures that provide services that relate only to the investment entity, which must be consolidated or accounted for using the equity method.

    This amendment did not have any financial or disclosure impact on the Group's reported results.
    IAS 39 Financial Instruments: Recognition and Measurement
    Amendments for novations of derivatives
    The IASB amended IAS 39 Financial Instruments: Recognition and Measurement to provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. Novation indicates that parties to a contract agree to replace their original counterparty with a new one. This amendment has not had any financial or disclosure impact on the Group's reported results as there have not been novations any of Massmart’s derivatives.
    IFRS 10 Consolidated Financial Statements
    Investment Entity consolidation exemption amendment
    Exemption from the requirement that all subsidiaries must be consolidated. Entities meeting the definition of “Investment Entities” must account for investment in subsidiaries at fair value in accordance with IAS 39 of IFRS 9 (if applicable) if it meets the requirements.

    This amendment did not have any financial or disclosure impact on the Group's reported results
    IFRS 12 Disclosure of Interests in Other Entities
    New Investment Entity disclosures
    Disclosure requirements for investment entities that are fair valued.

    This amendment did not have any financial or disclosure impact on the Group's reported results.
    IFRIC 21 Levies
    New IFRIC
    IFRIC 21 Levies provides guidance on when to recognise a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain. The Interpretation covers the accounting for outflows imposed on entities by governments (including government agencies and similar bodies) in accordance with laws and/or regulations. However, it does not include income taxes, fines and other penalties, liabilities arising from emissions trading schemes and outflows within the scope of other Standards. The Interpretation does not supersede IFRIC 6 Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment, which remains in force and is consistent with IFRIC 21 Levies.

    This interpretation did not have any financial or disclosure impact on the Group's reported results as applicable levies were already correctly accounted for.

    Standards or Interpretations issued but not yet effective

    At the date of authorisation of these financial statements, the following relevant standards were in issue but not yet effective. The Group has elected not to early adopt any of these standards.

    Standard/Interpretation
    Pronouncement
    Description
    IAS 16 Property, Plant and Equipment
    Amendments resulting from Annual Improvements 2010-2012 Cycle (Revaluation method)
    The objective of this amendment is to clarify the requirements for the revaluation method in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets to address concerns about the calculation of the accumulated depreciation or amortisation at the date of the revaluation. The IFRS Interpretations Committee reported to the IASB that practice differed in the calculation of accumulated depreciation for an item of property, plant and equipment that is measured using the revaluation method in cases where the residual value, the useful life or the depreciation method has been re-estimated before a revaluation.

    The amendment clarifies that the carrying amount of an asset is adjusted to that value in one of the following ways:
    i) The gross carrying amount is adjusted consistently with the valuation (e.g. change the total or change the carrying amount to that with accumulated depreciation adjusted proportionately).
    ii) The accumulated depreciation is eliminated against the gross carrying amount of the asset.

    This amendment is not expected to have any financial or disclosure impact on the Group's results.
    Amendments to IAS 16 and IAS 38 (Basis for depreciation/amortisation)
    The basis for calculation of depreciation and amortisation should be based on the expected pattern of consumption of the future economic benefits of an asset.

    This amendment is not expected to have any financial or disclosure impact on the Group's results .
    Amendments to IAS 16 and IAS 38 (Establish principal for the basis for depreciation and amortisation)
    In estimating the basis of depreciation and amortisation, revenue generation is not considered to be an appropriate basis for measuring the consumption of economic benefits.

    This amendment is not expected to have any financial or disclosure impact on the Group's results as revenue-based methods of depreciation and amortisation methods are not in use. .
    IAS 19 Employee Benefits
    Amendments to Defined Benefit Plans
    The amendment clarifies the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of service, and those contributions, can, but are not required, to be recognised as a reduction in the service cost in the period in which the related service is rendered.

    This amendment is not expected to have any financial or disclosure impact on the Group's results.
    IAS 24 Related Party Disclosures
    Amendments resulting from Annual Improvements 2010-2012 Cycle (Definitions and disclosures revised)
    The definition of related parties includes the entity, or any member of a group of which it is a part, that provides key management personnel services to the reporting entity or its parent. Details of the individual employee benefits do not need to be disclosed for an entity that provides key management personnel services. The amounts incurred for key management personnel services from an entity must be disclosed.

    This amendment is not expected to have any financial or disclosure impact on the Group's results.
    IAS 27 Consolidated and Separate Financial Statements
    Amendment for use of the equity method.
    The amendment will allow entities to use the equity method to account for the investments in subsidiaries, joint ventures and associates in the separate financial statements.

    This amendment is not expected to have any financial or disclosure impact on the Group's results as investments in subsidiaries will continue to be accounted for at cost in the separate financial statements
    IAS 38 Intangible Assets
    Amendments resulting from Annual Improvements 2010-2012 Cycle (Revaluation method)

    The objective of this amendment is to clarify the requirements for the revaluation method in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets to address concerns about the calculation of the accumulated depreciation or amortisation at the date of the revaluation. The IFRS Interpretations Committee reported to the IASB that practice differed in the calculation of accumulated depreciation for an item of property, plant and equipment that is measured using the revaluation method in cases where the residual value, the useful life or the depreciation method has been re-estimated before a revaluation.

    The amendment clarifies that the carrying amount of an asset is adjusted to that value in one of the following ways:
    i) The gross carrying amount is adjusted consistently with the valuation (e.g. change the total or change the carrying amount to that with accumulated depreciation adjusted proportionately).
    ii) The accumulated depreciation is eliminated against the gross carrying amount of the asset.

    This amendment is not expected to have any financial or disclosure impact on the Group's results.
    Amendments to IAS 16 and IAS 38 (Basis for depreciation/amortisation)
    The basis for calculation of depreciation and amortisation should be based on the expected pattern of consumption of the future economic benefits of an asset.

    This amendment is not expected to have any financial or disclosure impact on the Group's results.
    Amendments to IAS 16 and IAS 38 (Establish principal for the basis for depreciation and amortisation)
    A depreciation method based on revenue is not appropriate.

    This amendment is not expected to have any financial or disclosure impact on the Group's results as revenue-based methods of depreciation and amortisation methods are not in use.
    IFRS 2 Share- based Payment
    Amendments resulting from Annual Improvements 2010-2012 Cycle (Definitions revised)
    The IASB identified the need to clarify the definition of 'vesting conditions' in IFRS 2 to ensure the consistent classification of conditions attached to a share-based payment. Previously, this IFRS did not separately define a 'performance condition' or a 'service condition', but instead described both concepts within the definition of 'vesting conditions'. The IASB decided to separate the definitions of a 'performance condition' and a 'service condition' from the definition of a 'vesting condition' and thus make the description of each condition more clear. This amendment is not expected to have any financial or disclosure impact on the Group's results.
    IFRS 3 Business Combinations
    Amendments resulting from Annual Improvements 2010-2012 Cycle (Measurement requirements for all contingent assets and liabilities)
    The objective of this amendment is to clarify certain aspects of accounting for contingent consideration in a business combination. The IASB noted that the classification requirements for contingent consideration were unclear as to when 'other applicable IFRSs' would need to be used to determine the classification of contingent consideration as either a financial liability or an equity instrument. Contingent consideration that is within the scope of IFRS 9 (IAS 39) shall be measured at fair value at each reporting date with changes in fair value recognised in profit or loss.in accordance with IFRS 9 (IAS 39). However, if the contingent consideration does not fall within the scope of IFRS 9 (IAS 39) it shall be measured at fair value at each reporting date with changes recognised in profit or loss. This amendment is not expected to have any financial or disclosure impact on the Group's results.
    Amendments resulting from Annual Improvements 2011-2013 Cycle (Scope paragraph for joint arrangement)
    The amendment clarifies that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. This amendment is not expected to have any financial or disclosure impact on the Group's results.
    IFRS 8 Operating Segments
    Amendments resulting from Annual Improvements 2010-2012 Cycle (Aggregation criteria)
    The IASB has issued an amendment to assist in clarifying the aggregation criteria. Operating segments may be combined/aggregated if aggregation is consistent with the core principle of the standard, if the segments have similar economic characteristics and if they are similar in other qualitative respects. If they are combined, the entity must disclose the economic characteristics (e.g. sales and gross margins) used to assess whether the segments are ‘similar’. This amendment is not expected to have any significant financial or disclosure impact on the Group's results.
    IFRS 9 Financial Instruments
    The IASB has issued the final version of IFRS 9, which combines classification and measurement, the expected credit loss impairment model and hedge accounting.
    Financial assets are measured at amortised cost, fair value through profit or loss, or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics. Apart from the ‘own credit risk’ requirements, classification and measurement of financial liabilities is unchanged from existing requirements. Early adoption is permitted. The impairment requirements in the new standard are based on an expected credit loss model and replace the IAS 39 incurred loss model. Entities are required to recognise either 12-month or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition. The measurement of expected credit losses would reflect a probability-weighted outcome, the time value of money and reasonable and supportable information. Hedge effectiveness testing must be prospective and can be qualitative, depending on the complexity of the hedge. A risk component of a financial or non-financial instrument may be designated as the hedged item if the risk component is separately identifiable and reliably measureable. The time value of an option, the forward element of a forward contract and any foreign currency basis spread can be excluded from the designation as the hedging instrument and accounted for as costs of hedging. More designations of groups of items as the hedged item are possible, including layer designations and some net positions.

    Management is still assessing the impact that the new standard will have on the classification of financial assets and impairment assessments. Additional disclosures are expected. The new standard is not expected to have an impact on the Group’s hedging transactions.
    IFRS 11 Joint Arrangements
    New guidance
    Requires the acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3 Business Combinations) to apply all of the principles and disclosure requirements for business combinations in IFRS 3 and other IFRSs, except where those principles conflict with the guidance of IFRS 11. This guidance is not expected to have any financial or disclosure impact on the Group's results.
    IFRS 13 Fair Value Measurement
    Amendments resulting from Annual Improvements 2010-2012 Cycle (Measurement requirements)
    The amendments clarify the requirements for those short-term receivables and payables. This amendment is not expected to have any financial or disclosure impact on the Group's results.
    Amendments resulting from Annual Improvements 2011-2013 Cycle (Portfolio exemption)
    The scope of the portfolio exception for measuring the fair value of a group of financial assets and liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, and accounted for in accordance with IAS 39 or IFRS 9, regardless of whether they meet the definitions of a financial asset or financial liability as per IAS 32. This amendment is not expected to have a significant disclosure impact on the Group's results.
    IFRS 15 Revenue from Contracts from Customers
    New standard
    IFRS 15 establishes a single, comprehensive framework for determining when to recognise revenue and the amount of revenue to be recognised. IFRS 15 replaces the previous revenue standards IAS 18 Revenue and IAS 11 Construction Contracts and the related interpretations IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Revenue –Barter Transactions Involving Advertising Services. The new standard:

    • improves the comparability of revenue from contracts with customers,

    • reduces the need for interpretive guidance to address emerging revenue recognition issues, and

    • provides more useful information through improved disclosure requirements.

    The standard outlines the principles an entity must apply to measure and recognise revenue. The core principle is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.

    The principles in IFRS 15 will be applied using a five-step model:

    1. Identify the contract(s) with a customer

    2. Identify the performance obligations in the contract

    3. Determine the transaction price

    4. Allocate the transaction price to the performance obligations in the contract

    5. Recognise revenue when (or as) the entity satisfies a performance obligation In addition to the five-step model, the standard also specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. Application guidance is provided in the standard to assist entities in applying its requirements to determining the consideration paid to a customer (particularly with regard to slotting fee arrangements and co-operative advertising arrangements), variable consideration, common arrangements, including licences, warranties, rights of return, principal-versus-agent considerations, options for additional goods or services, and breakage.

    The new standard is more prescriptive than current IFRS and the disclosure requirements are more extensive. Management is still assessing the impact that the new standard will have on the Group’s recognition of revenue, and additional disclosure is expected.

    The changes to the accounting for revenue would primarily impact revenue recognition from services, which is not significant for the Group as well as the accounting for expected customer returns.

    The Group expects the adoption of the new standard to result in additional disclosure.
  • + 4. Acquisition of subsidiaries
               
    4. Acquisition of subsidiaries                  
                       
    Subsidiaries acquired            
          Purchasing   Principal   Date of   Control
    December 2014   division   activity   acquisition   acquired
                       
    Micawber 269 (RF) (Pty) Ltd   Corporate   Property Company   15 October 2014   100%
    Rospall Investments (Pty) Ltd   Corporate   Property Company   31 July 2014   100%
    Darryl Investments (Pty) Ltd   Corporate   Property Company   1 August 2014   100%
    Mikeva Cash & Carry (Pty) Ltd   Masscash   Wholesale Company   28 April 2014   55%
                       
                       
          Purchasing   Principal   Date of   Control
    December 2013   division   activity   acquisition   acquired
                       
    Capensis Investments 241 (Pty) Ltd     Corporate   Property Company   25 January 2013   100%
                       
    Mikeva Cash & Carry (Pty) Ltd was accounted for as a business combination and all of the other subsidiary acquisitions were accounted for as asset acquisitions.
                       
    Fair value analysis of the assets and liabilities acquired        
                       
    The net fair value of the assets acquired and liabilities assumed during the current financial year was R592.4 million (December 2013: R1 345.3 million) on the date of acquisition.
                       
    Net cash outflow on acquisition        
                  December 2014   December 2013
    Rm             52 weeks   53 weeks
    Total purchase price              (564.4)    (577.4)
    Less: Cash and cash equivalents of subsidiaries   -    0.2
    Net cash position for the Group              (564.4)    (577.2)
                       
    • A cash outflow of R552.9 million relates to the acquisition of Micawber 269 (RF) (Pty) Ltd, Rospall Investments (Pty) Ltd and Darryl Investments (Pty) Ltd. This net cash outflow for the asset acquisitions can be found in note 38.5. The acquisition of Makiva Cash & Carry (Pty) Ltd for R11.5 million can be found in note 38.8.
    • The cash outflow of R577.2 million in the prior financial year, relates to the acquisition of the remaining 50.1% share in Capensis Investments 241 (Pty) Ltd.
    • A liability was raised on the asset acquisition of Micawber 269 (RF) (Pty) Ltd in the current financial year for R11.6 million. A liability of R10.5 million arose on the acquisition of Capensis Investments 241 (Pty) Ltd in the prior financial year. For further information regarding the liabilities raised refer to note 27.
                       
    Goodwill arising on acquisition of businesses        
                       
    Upon the acquisition of Mikeva Cash & Carry (Pty) Ltd, within the Masscash division, goodwill of R9.7 million arose. In addition, the acquisition of liquor businesses within the Massdiscounters division resulted in goodwill of R2.4 million arising in the current financial year. These business combinations are not considered to be significant. No goodwill arose in the prior financial year.

     

  • + 5. Revenue
    5. Revenue
    December 2014 December 2013
    Rm 52 weeks 53 weeks
    Sales  78,173.2  72,263.4
    Other income  145.8  249.5
    - Change in fair value of financial assets carried at fair value through profit or loss1  24.8  39.0
    - Dividends from listed investments -  0.3
    - Dividends from unlisted investments  0.3  78.8
    - Royalties and franchise fees2  80.1  41.5
    - Management and administration fees  0.7  0.8
    - Property rentals  27.6  10.3
    - Commissions and fees  2.7  35.3
    - Distribution income  7.9  4.9
    - Retirement of aged gift cards -  7.6
    - Contributions from landlords -  7.2
    - Other  1.7  23.8
     78,319.0  72,512.9
    1Additional information on financial assets carried at fair value through profit or loss can be found in note 16.
    2‘Royalties and franchise fees’ are primarily earned in Massdiscounters.
  • + 6. Impairment of assets

     

    6. Impairment of assets
    December 2014 December 2013
    Rm Notes 52 weeks 53 weeks
    Land and buildings1 13  9.4 -
    Leasehold improvements2 13  9.0  4.4
    Fixtures, fittings, plant and equipment2 13  6.2  10.9
    Goodwill 14 -  26.3
     24.6  41.6
    1The impairment of the land and buildings relates to a property reclassified to non-current asset held for sale where the recoverable amount was determined as its fair value less costs to dispose based on the amount that could be received on selling the property (level 3 valuation). Additional information can be found in note 21.
    2The impairment of the leasehold improvements and fixtures, fittings, plant and equipment relates to the closure of stores in the Masscash division, where the recoverable amounts were determined as fair value less costs to dispose based on the amount that could be received on selling the items (level 3 valuation).
    The impairment of assets in the prior financial year relates to the impairment in the Masscash division due to the closure of a store.

     

  • + 7. Foreign exchange (loss)/gain
    7. Foreign exchange (loss)/gain
    December 2014 December 2013
    Rm 52 weeks 53 weeks
    Foreign exchange (loss)/gain from loans to African operations1  (35.0)  73.1
    Foreign exchange gain arising from an investment in a trading and logistics structure2 (note 16)  4.8  22.3
    Foreign exchange loss arising from the translation of foreign creditors3  (19.6)  (27.6)
    Total  (49.8)  67.8
    Foreign exchange currency exposures and rates
    Spot rate Spot rate
    Jurisdiction Currency December 2014 December 2013
    United States USD  11.5995  10.5372
    United Kingdom Pound Sterling  18.0449  17.3686
    European Union Euro  14.1944  14.4703
    Botswana Botswana Pula  1.2157  1.2012
    Ghana Ghanaian New Cedi  3.6107  4.4177
    Malawi Malawian Kwacha  0.0249  0.0255
    Mauritius Mauritian Rupee  0.3684  0.3477
    Mozambique Mozambican New Metical  0.3458  0.3508
    Nigeria Nigerian Naira  0.0634  0.0653
    Tanzania Tanzanian Shilling  0.0068  0.0066
    Uganda Uganda Shilling  0.0042  0.0042
    Zambia Zambian New Kwacha  1.8265  1.8966
    Kenya Kenyan Shilling  0.1281  0.1224
    The Group also operates in Lesotho, Namibia and Swaziland. The Lesotho Loti, the Namibian Dollar and Swazi Lilangeni are pegged to the Rand on a 1:1 basis, therefore, there is no foreign exchange exposure relating to these currencies.
    1Foreign exchange (loss)/gain from loans to African operations
    Massdiscounters, Massbuild and Masscash have provided Rand denominated loans to their African operations as start-up capital, which are then maintained as working capital loans. These loans attract foreign exchange gains/(losses) in the African operations when translated into the functional currency of those operations at year-end. Where the operations hold other monetary balances not in their functional currency, those balances also attract foreign exchange gains/(losses) when translated into functional currency at year-end.
    In addition, through a Mauritian entity, the Group lends its African operations local currency denominated loans as start-up capital. These loans attract foreign exchange gains/(losses) in the Mauritian entity when translated into USD, its functional currency, at year-end. Currently, it is the Group’s policy to naturally hedge these loans by lending to its subsidiaries in various African countries in various African currencies, thereby spreading its foreign exchange exposure across a broad basket of currencies. In addition, the Group limits its exposure to any one currency by funding a portion of the start-up capital via in-country bank loans. Refer to note 28 for more information on these foreign bank loans.
    The African operations trade in their local currency, which for reporting purposes is also their functional currency. The foreign exchange gain/(loss) that arises when translating the foreign operation into Rands (the Group’s presentation currency) is accounted for in the foreign currency translation reserve on the Statement of Financial Position. Additional information on these translations can be found in note 23.
    2Foreign exchange gain arising from an investment in a trading and logistics structure (note 16)
    The Group’s trading and logistics structure was terminated during February 2014. This was a USD denominated investment. As a result of the weakening of the Rand against the USD in both the current and prior year, a foreign exchange gain arose on translation of this investment into Rands.
    3Foreign exchange loss arising from the translation of foreign creditors
    Foreign creditors resulting from foreign stock purchases and transactions with the ultimate holding company, being Wal-Mart Stores, Inc., are foreign currency denominated and upon translation into the Group’s functional currency at year-end, exchange differences arise on translation into Rands at year end. As the bulk of foreign creditors and transactions with Wal- Mart Stores, Inc. are recorded in USD’s, this exchange difference can in most part be explained by the movement of the Rand against the USD. As the Rand weakened in both periods, this resulted in an exchange loss in both periods.
    All of the foreign exchange gains/losses referred to above are recognised in the Income Statement.
    Foreign exchange loss arising from hedges
    The Group uses foreign exchange forward contracts (FEC’s) to hedge its exposure to foreign currency fluctuations relating to all firm trading commitments in respect of foreign stock purchases as mentioned in point 3 above. The foreign exchange movements that arise from the hedges are recognised in the Income Statement when they become ineffective or for effective hedges when the firm commitment is terminated resulting in the FEC being cancelled. The impact of ineffective hedges and cancelled hedges during the current and prior year, was insignificant. Once the FECs are de-designated as hedging instruments, and the FECs have expired, movements in the fair value of the FECs are recognised in cost of sales in the Income Statement. Upon expiry of the FECs, the net cumulative gain or loss recognised in Other Comprehensive Income is transferred to cost of sales in the Income Statement. For more information on this net cumulative gain or loss subsequently transferred to the Income Statement refer to note 23.
    For more information on the Group’s foreign currency risk management policy refer to note 40.

     

  • + 8. Operating profit before interest
    8. Operating profit before interest
    December 2014 December 2013
    Rm Notes 52 weeks 53 weeks
    CREDITS TO OPERATING PROFIT BEFORE INTEREST INCLUDE:
    Profit on disposal of tangible and intangible assets  10.4  7.6
    CHARGES TO OPERATING PROFIT BEFORE INTEREST INCLUDE:
    Depreciation and amortisation (owned assets):  829.5  703.7
    - Buildings 13  35.5  25.8
    - Leasehold improvements 13  55.5  49.3
    - Fixtures, fittings, plant and equipment 13  505.2  423.4
    - Computer hardware 13  72.6  67.5
    - Motor vehicles 13  46.6  34.0
    - Computer software 15  108.8  98.5
    - Right of use 15  4.9  4.8
    - Trademarks 15  0.4  0.4
    Depreciation and amortisation (leased assets): 13  17.1  27.4
    - Buildings  1.6  2.0
    - Fixtures, fittings, plant and equipment  2.5  5.4
    - Computer hardware  3.6  5.7
    - Motor vehicles  9.4  14.3
    Share-based payment expense:  127.9  126.3
    - Massmart Holdings Limited Employee Share Trust 29  106.7  109.0
    - Massmart Black Scarce Skills Trust 29  21.2  17.3
    Operating lease charges:  1,917.9  1,772.0
    - Land and buildings  1,811.7  1,668.2
    - Plant and equipment  74.6  67.1
    - Computer hardware  1.4  1.4
    - Motor vehicles  30.2  35.3
    Loss on disposal of tangible and intangible assets  11.8  21.3
    Fees:  126.6  117.3
    - Administrative and outsourcing services  93.5  86.6
    - Consulting  33.1  30.7
    Auditors’ remuneration:  22.2  20.6
    - Current year fee  22.2  20.3
    - Prior year (over)/under provision -  0.3
    Professional fees  2.1  7.7

     

  • + 9. Net finance costs
    9. Net finance costs
    December 2014 December 2013
    Rm 52 weeks 53 weeks
    Finance costs  (386.8)  (283.8)
    - Interest on bank overdrafts and loans  (382.4)  (276.3)
    - Interest on obligations under finance leases  (4.4)  (7.5)
    Finance income  41.5  28.7
    - Income from investments, bank accounts and other financial assets  41.5  28.7
    Net finance costs  (345.3)  (255.1)
    Additional information on bank overdrafts, loans and finance leases can be found in note 24.
    Additional information on investments and other financial assets can be found in note 16 and note 17.

     

  • + 10. Taxation
    10. Taxation
    December 2014 December 2013
    Rm 52 weeks 53 weeks
    CURRENT YEAR
    South African normal taxation:
    Current taxation  414.7  653.5
    Deferred taxation  (54.4)  (231.8)
    Foreign taxation:
    Current taxation  73.2  94.4
    Deferred taxation  16.9  8.3
    Withholding tax1  9.9  18.5
    Taxation effect of participation in export partnerships2  0.5  0.4
     460.8  543.3
    PRIOR YEAR UNDER/(OVER) PROVISION
    South African normal taxation:
    Current taxation  8.3  0.9
    Deferred taxation  (0.9)  (0.6)
    Foreign taxation:
    Current taxation  4.9  2.9
    Deferred taxation  12.8  8.8
    Taxation effect of participation in export partnerships2  (2.5) -
     22.6  12.0
    Taxation as reflected in the Income Statement  483.4  555.3
    1The withholding tax relates to interest and dividends paid by foreign controlled entities.
    2Two companies in the Group participate in Trencor export partnerships. As the companies are liable for the tax effect of the participation, the amount is classified as a taxation charge. Additional information on the export partnership can be found in note 16.
    % December 2014 December 2013
    The rate of taxation is reconciled as follows:
    Standard corporate taxation rate  28.0  28.0
    Exempt income  (0.1)  (1.1)
    Disallowable expenditure  3.2  0.1
    Foreign income  1.1  1.1
    Prior year under-provision  1.3  0.6
    Allowances on lease premiums and improvements  (0.1)  (0.3)
    Assessed loss not utilised  2.0  1.4
    Withholding tax  (1.1)  0.1
    Other3  (4.5)  (0.6)
     29.8  29.3
    3 ‘Other’ includes such items as tax rate changes, non-taxable income and foreign currency translation reserve adjustments.

     

  • + 11. Dividends paid to shareholders
    11. Dividends paid to shareholders
    December 2014 December 2013
    Rm 52 weeks 53 weeks
    Final cash dividend No 28 (December 2013: No 26)  597.0  596.5
    Interim cash dividend No 29 (June 2013: No 27)  317.0  316.9
    Total dividends paid  914.0  913.4
    Dividend/distribution per share (cents)
    Interim  146.0  146.0
    Final  275.0  275.0
    Total  421.0  421.0
    No 26 of 275.0 cents declared on 27 February 2013 and paid on 25 March 2013 (R596.5 million).
    No 27 of 146.0 cents declared on 20 August 2013 and paid on 16 September 2013 (R316.9 million).
    No 28 of 275.0 cents declared on 26 February 2014 and paid on 24 March 2014 (R597.0 million).
    No 29 of 146.0 cents declared on 27 August 2014 and paid on 22 September 2014 (R317.0 million).
    No 30 of 275.0 cents declared on 26 February 2015 and paid on 23 March 2015 (R597.1 million).
    Withholding tax of 15% was applied to the dividends declared on 26 February 2014 and paid on 24 March 2014 and the dividends declared on 27 August 2014 and paid on 22 September 2014. Withholding tax applies to the dividend declared on 26 February 2015 and paid on 23 March 2015, and will be accounted for in the next financial year. The Group was acting as an agent with regards to the withholding tax paid on behalf of shareholders on dividends declared and as such, withholding tax has been included in the total amount of the dividend paid.

     

  • + 12. Earnings per share
    12. Earnings per share
    December 2014 December 2013
    Earnings per share (cents) 52 weeks 53 weeks
    Basic EPS  497.8  591.4
    Diluted basic EPS  492.9  585.1
    Headline EPS  509.7  615.2
    Headline EPS before foreign exchange (taxed)  526.2  592.7
    Diluted headline EPS  504.7  608.6
    Diluted headline EPS before foreign exchange (taxed)  521.1  586.4
    December 2014 December 2013
    Ordinary shares (number) 52 weeks 53 weeks
    In issue  217,118,072  217,109,044
    Weighted average  216,907,568  216,934,934
    Diluted weighted average  219,054,983  219,268,221
    Headline earnings per share
    The calculation of headline earnings per share is based on the weighted average number of ordinary shares. The calculation is reconciled as follows:
    December 2014 December 2013
    Rm 52 weeks 53 weeks
    Profit for the year attributable to owners of the parent  1,079.8  1,283.0
    Adjustments after non-controlling interest:
    Impairment of assets (note 6)  24.6  41.6
    Loss on disposal of tangible and intangible assets  1.4  11.9
    Taxation on diposal of tangible assets  (0.3)  (3.3)
    Loss on disposal of business -  1.8
    Taxation on disposal of business -  (0.5)
    Headline earnings  1,105.5  1,334.5
    Foreign exchange loss/(profit) after taxation  35.9  (48.8)
    Headline earnings before foreign exchange  1,141.4  1,285.7
    Diluted headline earnings per share
    The calculation of diluted attributable and diluted headline earnings per share is based on the weighted average number of ordinary shares. The calculation is reconciled as follows:
    December 2014 December 2013 December 2014 December 2013
    52 weeks 53 weeks 52 weeks 53 weeks
    Rm Rm Cents/share Cents/share
    Profit attributable to the owners of the parent  1,079.8  1,283.0  497.8  591.4
    Adjustment for impact of issuing ordinary shares - -  (4.9)  (6.2)
    Diluted attributable earnings  1,079.8  1,283.0  492.9  585.1
    Headline earnings  1,105.5  1,334.5  509.7  615.2
    Adjustment for impact of issuing ordinary shares - -  (5.0)  (6.6)
    Diluted headline earnings  1,105.5  1,334.5  504.7  608.6
    Diluted headline earnings before foreign exchange  1,141.4  1,285.7  521.1  586.4
    Weighted average shares outstanding
    No. of shares December 2014 December 2013
    Weighted average shares outstanding for basic and headline earnings per share  216,907,568  216,934,934
    Potentially dilutive ordinary shares resulting from outstanding options  2,147,415  2,333,287
    Weighted average shares outstanding for diluted basic and diluted headline earnings per share  219,054,983  219,268,221
    Majority of the dilutive impact arises from the Employee Share Award Scheme introduced during the prior year. The Black Scarce Skills ‘B’ preference shares have a small effect on diluted basic and diluted headline earnings per share in the current year. For more information on these schemes refer to note 29.

     

  • + 13. Property, plant and equipment

     

    13. Property, plant and equipment
    December 2014 Cost Accumulated depreciation and impairment Net book value
    Rm
    Owned assets
    Freehold land and buildings  3,418.0  108.4  3,309.6
    Leasehold improvements  814.8  310.7  504.1
    Fixtures, fittings, plant and equipment  5,297.7  2,362.1  2,935.6
    Computer hardware  658.9  380.1  278.8
    Motor vehicles  323.4  134.5  188.9
    Total  10,512.8  3,295.8  7,217.0
    Capitalised leased assets
    Freehold land and buildings  19.7  19.7 -
    Fixtures, fittings, plant and equipment  1.4  0.2  1.2
    Computer hardware  13.5  10.5  3.0
    Motor vehicles  36.0  18.0  18.0
    Total  70.6  48.4  22.2
    Total property, plant and equipment  10,583.4  3,344.2  7,239.2
    December 2013 Cost Accumulated depreciation and impairment Net book value
    Rm
    Owned assets
    Freehold land and buildings  2,460.8  85.7  2,375.1
    Leasehold improvements  743.3  274.5  468.8
    Fixtures, fittings, plant and equipment  4,713.2  2,033.8  2,679.4
    Computer hardware  586.9  354.2  232.7
    Motor vehicles  232.8  99.3  133.5
    Total  8,737.0  2,847.5  5,889.5
    Capitalised leased assets
    Freehold land and buildings  49.4  18.0  31.4
    Fixtures, fittings, plant and equipment  34.8  10.4  24.4
    Computer hardware  17.3  11.0  6.3
    Motor vehicles  59.7  23.2  36.5
     161.2  62.6  98.6
    Total property, plant and equipment  8,898.2  2,910.1  5,988.1
    Certain capitalised leased property, plant and equipment is encumbered as per note 24 and note 28.
    Reconciliation of property, plant and equipment
    December 2014 Opening net book value Additions1 Additions through acquisitions2 Disposals Depreciation Foreign exchange gain/(loss) Reclassifications Impairment Classified as held for sale Closing net book value
    Rm
    Owned assets
    Freehold land and buildings  2,375.1  397.2  606.4  (3.6)  (35.5)  (2.6) -  (9.4)  (18.0)  3,309.6
    Leasehold improvements  468.8  103.6 -  (2.0)  (55.5)  (1.8) -  (9.0) -  504.1
    Fixtures, fittings, plant and equipment  2,679.4  768.6  1.2  (17.6)  (505.2)  (5.7)  21.1  (6.2) -  2,935.6
    Computer hardware  232.7  120.3 -  (0.6)  (72.6)  (1.0) - - -  278.8
    Motor vehicles  133.5  89.0  0.3  (8.7)  (46.6)  (0.3)  21.7 - -  188.9
    Total  5,889.5  1,478.7  607.9  (32.5)  (715.4)  (11.4)  42.8  (24.6)  (18.0)  7,217.0
    Capitalised leased assets
    Freehold land and buildings  31.4 -  (29.8) -  (1.6) - - - - -
    Fixtures, fittings, plant and equipment  24.4  0.3 - -  (2.5)  0.1  (21.1) - -  1.2
    Computer hardware  6.3  0.4 - -  (3.6)  (0.1) - - -  3.0
    Motor vehicles  36.5  14.1 -  (1.4)  (9.4)  (0.1)  (21.7) - -  18.0
    Total  98.6  14.8  (29.8)  (1.4)  (17.1)  (0.1)  (42.8) - -  22.2
    Total property, plant and equipment  5,988.1  1,493.5  578.1  (33.9)  (732.5)  (11.5) -  (24.6)  (18.0)  7,239.2
    December 2013 Opening net book value Additions Additions through acquisitions Disposals Depreciation Foreign exchange gain Reclassifications Impairment Classified as held for sale Closing net book value
    Rm
    Owned assets
    Freehold land and buildings  850.0  195.4  1,354.6  (3.5)  (25.8)  5.4  (1.0) - -  2,375.1
    Leasehold improvements  432.5  82.8 -  (11.6)  (49.3)  18.5  0.3  (4.4) -  468.8
    Fixtures, fittings, plant and equipment  2,168.2  949.3 -  (10.2)  (423.4)  19.5  (13.1)  (10.9) -  2,679.4
    Computer hardware  193.3  104.7 -  (0.6)  (67.5)  2.8 - - -  232.7
    Motor vehicles  134.5  55.3 -  (8.1)  (34.0)  0.9  (15.1) - -  133.5
    Total  3,778.5  1,387.5  1,354.6  (34.0)  (600.0)  47.1  (28.9)  (15.3) -  5,889.5
    Capitalised leased assets
    Freehold land and buildings  33.4 - - -  (2.0) - - - -  31.4
    Fixtures, fittings, plant and equipment  30.1 - - -  (5.4) -  (0.3) - -  24.4
    Computer hardware  12.0 - - -  (5.7) - - - -  6.3
    Motor vehicles  14.2  22.9 -  (1.4)  (14.3) -  15.1 - -  36.5
    Total  89.7  22.9 -  (1.4)  (27.4) -  14.8 - -  98.6
    Total property, plant and equipment  3,868.2  1,410.4  1,354.6  (35.4)  (627.4)  47.1  (14.1)  (15.3) -  5,988.1
    1Included in additions to ‘freehold land and buildings’ is the acquisition of 12 Masscash division properties and the development of a property in the Massbuild division. All of these acquisitions have been included as part of the ‘Investment to expand operations’ in note 38.5.
    2The acquisition of ‘freehold land and buildings’ in the current financial year relates to three asset acquisitions, refer to note 4, which have all been included as part of ‘Investment to expand operations’ in note 38.5. Included in the asset acquisitions was a property that was previously leased in terms of a finance lease by the Group, resulting in the transfer of ‘freehold land and buildings ‘ from the capitalised leased assets to owned assets.
    The Group has reviewed the residual values and useful lives of the assets. No significant adjustment resulted from such review in the current financial year.
    The impairment in the current financial year relates to the impairment of owned assets in Masscash as a result of store closures and before the transfer of properties to non-current assets held for sale. Additional information can be found in note 6.
    Borrowing costs of R12 million were capitalised at an average rate of 6.88% in the current financial year in the Masswarehouse division.
    Refer to note 31 for capital commitments.

     

  • + 14. Goodwill

     

    14. Goodwill
    Reconciliation of goodwill
    Rm December 2014 December 2013
    Balance at the beginning of the year  2,532.0  2,557.7
    Additions through acquisitions1  12.1 -
    Impairment -  (26.3)
    Disposal -  (2.8)
    Foreign exchange (loss)/gain  (1.2)  3.4
     2,542.9  2,532.0
    Carrying amount of significant goodwill
    Rm December 2014 December 2013
    Masscash Holdings (Pty) Ltd  1,095.5  1,086.6
    Massbuild (Pty) Ltd2  901.5  902.0
    The Fruit Spot (Pty) Ltd  173.9  173.9
    Rhino Cash and Carry Group  321.3  321.3
    1The increase of goodwill in the current financial year relates to the acquisition of fresh and liquor businesses in Masscash and Massdiscounters respectively. Additional information can be found in note 4.
    2No disposals occured in Massbuild (Pty) Ltd in the current financial year. The movement in goodwill relates to the translation of goodwill from its functional currency to its presentation currency through the foreign currency translation reserve. Additional information can be found in note 23.
    Goodwill is assessed for impairment at company level. This basis represents the lowest level at which management monitors goodwill. The recoverable amounts of the CGU’s have been based on value in use.
    The key assumptions for the value in use calculations are discount and growth rates. Management estimates discount rates using rates that reflect current market assumptions of the time value of money and the risks specific to the CGUs. The growth rates are based on the retail industry growth forecasts.
    The Group prepares cash flow forecasts based on the CGUs’ results for the next five financial years. A terminal value is calculated based on a conservative growth rate of 3% (December 2013: 3%). This rate does not exceed the average long-term growth rate for the retail market. The valuation method applied is consistent with that applied in the prior financial year.
    The rate used to discount the forecast cash flows is 11.9% (December 2013: 10.5%) which incorporates a retail risk premium.
    No significant impairment loss would result from a reasonable change to the assumptions applied in testing goodwill.
    In the prior period, the impairment related to certain acquired goodwill in Masscash due to the closure of a store, and the disposal of a business externally.
    There were no additions through acquisitions in the prior financial year, refer to note 4.

     

  • + 15. Intangibles assets
    15. Intangibles assets
    December 2014 Cost Accumulated amortisation and impairment Net book value
    Owned assets
    Computer software  867.7  485.2  382.5
    Right of use  50.5  17.7  32.8
    Trademarks  4.4  3.9  0.5
     922.6  506.8  415.8
    December 2013 Cost Accumulated amortisation and impairment Net book value
    Rm
    Owned assets
    Computer software  748.1  388.3  359.8
    Right of use  48.8  12.7  36.1
    Trademarks  4.3  3.4  0.9
     801.2  404.4  396.8
    December 2014 Opening net book value Additions Disposals Amortisation Reclassifications Closing net book value
    Rm
    Owned assets
    Computer software  359.8  131.5 -  (108.8) -  382.5
    Right of use  36.1  1.6 -  (4.9) -  32.8
    Trademarks  0.9 - -  (0.4) -  0.5
     396.8  133.1 -  (114.1) -  415.8
    December 2013 Opening net book value Additions Disposals Amortisation Reclassifications Closing net book value
    Rm
    Owned assets
    Computer software  347.3  98.0  (1.1)  (98.5)  14.1  359.8
    Right of use  39.0  1.9 -  (4.8) -  36.1
    Trademarks  1.3 - -  (0.4) -  0.9
     387.6  99.9  (1.1)  (103.7)  14.1  396.8
    The Group has reviewed the useful lives of these intangible assets for reasonability and as a result there were no significant adjustments in the current financial year.
    Additions arose in the current financial year as a result of new store openings and new software rollouts.
    ‘Right of use’ intangible assets are in respect of payments to secure sites.
    For more information on the Group’s capital commitments, refer to note 31.

     

  • + 16. Investments

     

    16. Investments
    Rm December 2014 December 2013
    Unlisted investments
    Fair value through profit or loss
    Financial assets classified as held for trading
    -  117.4
    - Investment in a trading and logistics structure1 -  117.4
    Financial assets designated as fair value through profit or loss  125.2  100.3
    - Investment in insurance cell-captive on extended warranties2  56.1  44.4
    - Investment in insurance cell-captive on premium contributions3  69.0  55.9
    - Investment in insurance cell-captive on credit life4  0.1 -
    Total fair value through profit or loss (FVTPL)  125.2  217.7
    Loans and receivables
    Participation in export partnership – Trencor  1.7  2.1
    Total loans and receivables  1.7  2.1
    Listed investments
    Other listed investments  8.4  12.1
    Total listed investments  8.4  12.1
    Total investments  135.3  231.9
    For more information on fair value disclosure, refer to note 39.
    Reconciliation of financial assets carried at fair value through profit or loss
    Rm December 2014 December 2013
    Opening balance  217.7  248.8
    Fair value adjustments taken to the Income Statement  19.9  (4.2)
    Interest on investment taken to finance income  0.1  1.1
    Realisation of the investment in the trading and logistics structure recognised in cash reserves  (117.4)  (1.6)
    Deconsolidation of investment in insurance cell-captive on extended warranties5 -  23.3
    Foreign exchange gains taken to the Income Statement (note 7)  4.8  22.3
    Realisation of the right in the bare dominium on the acquisition of Capensis Investments 241 (Pty) Ltd -  (122.0)
    Capital contribution made to the investment in insurance cell-captives  0.1  50.0
     125.2  217.7
    Further details on the investments in this category:
    1M-class preference shares in the structure, held by the Group were repurchased during the year.
    2The Group sells extended warrenties through this vehicle facilitated by Mutual & Federal.
    3The Group places general insurance through this vehicle facilitated by Mutual & Federal.
    4The Group will sell credit life insurance through this vehicle by arrangement with Guardrisk. The cell arrangement was capitalised in the current year with no life products sold during the current financial year.
    5In the prior financial year the cell-captives were deconsolidated as a result of the implementation of IFRS 10 Consolidated Financial Statements. The cell-captives do not meet the definition of a “deemed separate entity” and, as a result, have not been consolidated.
    Reconciliation of loans and receivables
    Rm December 2014 December 2013
    Opening balance  2.1  2.5
    Investment realised  (0.4)  (0.4)
     1.7  2.1
    Further details on the investments in this category:
    During the current and prior financial year certain divisions participated in export partnerships, whose business is the purchase and export sale of marine containers. The participations are accounted for as loans receivables and generally mature over 10 to 15 years. Interest is earned at variable interest rates.
    For more information on the credit risk management of loans and receivables, refer to note 40.
    Reconciliation of available-for-sale investments
    Rm December 2014 December 2013
    Opening balance  12.1  7.4
    Fair value adjustment  (3.7)  4.7
     8.4  12.1
    Further details on the investments in this category:
    Other listed investments include shares held on the Johannesburg Stock Exchange and the Zimbabwe Stock Exchange.