• + 17. Other financial assets
    17. Other financial assets
    Rm December 2014 December 2013
    Employee Share Trust Loans to the Executive Directors and members of the Executive Committee of Massmart Holdings Limited:
    Balance at the beginning of the year  46.7  70.6
    Advanced during the year  1.2  1.4
    Repayments  (10.3)  (25.3)
     37.6  46.7
    Less: included in other current financial assets  (15.1) -
    Balance at the end of the year  22.5  46.7
    Other loans:
    Housing and staff loans  0.4  0.3
    Finance lease deposit -  21.9
    Property loan -  215.0
    Third party loan -  6.8
    Other -  0.2
     0.4  244.2
     22.9  290.9
    For more information on fair value disclosure, refer to note 39.
    For more information on the Group’s credit risk management, refer to note 40.
    All housing and staff loans bear interest at various fixed rates below the prime interest rate. The Employee Share Trust Loans to Executive Directors and members of the Executive Committee of the Company are non-interest bearing and are secured by the underlying ordinary shares in Massmart Holdings Limited. The loans are repayable 10 years after the grant date. Recourse is not limited to these shares and should shares sold to repay these loans be insufficient to recover the balance outstanding, the unrecovered portion remains a debt due and payable. 619,443 (December 2013: 830,973) shares with a market value of R89,156,431 (December 2013: R112,674,537) have been pledged. The short-term portion of these loans, has been accounted for in note 17.1.
    The finance lease deposit was released in the current year upon acquiring Micawber 269 (RF) (Pty) Ltd. Interest accrued at a fixed rate at 13.7% (December 2013: 13.7%).
    The property loan was transferred to other current financial assets in the current financial year, refer to note 17.1.
    The third party loan was transferred to other accounts receivable in note 20 the current financial year.
    Details of the Employee Share Trust loans to the Executive Directors and members of the Executive Committee of the Company:
    Pattison, Hayward, Members of the Executive
    GM GRC Committee Total
    Rm Rm Rm Rm
    December 2014
    Balance at the beginning of the year  23.1  13.4  10.2  46.7
    Advanced during the year  0.6  0.3  0.3  1.2
    Repayments  (8.6)  (0.7)  (1.0)  (10.3)
    Balance at the end of the year  15.1  13.0  9.5  37.6
    December 2013
    Balance at the beginning of the year  24.3  13.9  32.4  70.6
    Advanced during the year  0.6  0.3  0.5  1.4
    Repayments  (1.8)  (0.8)  (22.7)  (25.3)
    Balance at the end of the year  23.1  13.4  10.2  46.7
    Ilan Zwarenstein did not have an Employee Share Trust Loan in the current and prior year.

     

  • + 17.1. Other current financial assets
    17.1. Other current financial assets
    Rm December 2014 December 2013
    Employee Share Trust Loans to the Executive Directors and members of the Executive Committee of Massmart Holdings Limited  15.1 -
    Property loan  214.2 -
     229.3 -
    For more information on fair value disclosure, refer to note 39.
    For more information on the Group’s credit risk management, refer to note 40.
    The Employee Share Trust Loans to Executive Directors and members of the Executive Committee of the Company are non-interest bearing and are secured by the underlying ordinary shares in Massmart Holdings Limited. The current portion reflected above relates to Grant Pattison’s loan, that was transferred to current upon his resignation. The long-term portion of these loans, have been accounted for in note 17.
    The property loan accrued interest at a fixed rate of 9.2% (December 2013: 9.2%) and was secured by a mortgage bond. The property loan was realised subsequent to year end when the Makro store to which it related transfered to the Group in February 2015.

     

  • + 18. Deferred taxation

     

    18. Deferred taxation
    Rm December 2014 December 2013
    The movements during the year are analysed as follows:
    Net asset at the beginning of the year  585.5  359.6
    Credit to the Income Statement (including foreign exchange movements)  26.0  226.3
    Credit/(charge) to Other Comprehensive Income  0.4  (3.1)
    Acquisition of subsidiaries (note 4)  (7.2) -
    Credit to the Statement of Changes in Equity (note 23)  (3.8)  2.7
    Net asset at the end of the year  600.9  585.5
    Deferred taxation balances are presented in the Statement of Financial Position as follows:
    Deferred taxation assets  662.2  672.1
    Deferred taxation liabilities  (61.3)  (86.6)
     600.9  585.5
    Opening balance Credit/(charge) to the Income Statement Credit/(charge) to Other Comprehensive Income Credit to the Statement of Changes in Equity Acquisition of subsidiaries Foreign exchange movements Closing balance
    Rm
    December 2014
    Temporary differences
    Trademarks  0.8 - - - - -  0.8
    Assessed loss unutilised  273.3  (16.3) - - -  0.1  257.1
    Export partnerships  (2.3)  0.5 - - - -  (1.8)
    Debtors provisions  21.3  2.8 - - -  (0.1)  24.0
    Prepayments  (17.6)  (7.2) - - - -  (24.8)
    Creditors provisions  173.0  51.2 - -  1.8  (0.2)  225.8
    Property, plant and equipment  (191.3)  (39.9) - -  (9.0)  0.2  (240.0)
    Finance leases  (6.1)  1.8 - - - -  (4.3)
    Long-term provisions  80.4  (3.2) - - - -  77.2
    Income not accrued  (1.0)  1.0 - - - - -
    Deferred income  50.8  23.0 - - - -  73.8
    Operating lease adjustment  254.4  26.1 - - - -  280.5
    Other temporary differences1  (50.2)  (14.2)  0.4  (3.8) -  0.4  (67.4)
    Total  585.5  25.6  0.4  (3.8)  (7.2)  0.4  600.9
    December 2013
    Temporary differences
    Trademarks  1.1  (0.3) - - - -  0.8
    Assessed loss unutilised  198.4  78.5 - - -  (3.6)  273.3
    Export partnerships  (2.7)  0.4 - - - -  (2.3)
    Debtors provisions  17.7  3.5 - - -  0.1  21.3
    Prepayments  (228.2)  210.6 - - - -  (17.6)
    Creditors provisions  66.2  106.6 - - -  0.2  173.0
    Property, plant and equipment  (130.6)  (59.2) - - -  (1.5)  (191.3)
    Finance leases  (1.7)  (4.4) - - - -  (6.1)
    Long-term provisions  85.9  (5.5) - - - -  80.4
    Income not accrued -  (1.0) - - - -  (1.0)
    Deferred income  48.8  2.1 - - -  (0.1)  50.8
    Operating lease adjustment  315.5  (61.4) - - -  0.3  254.4
    Other temporary differences1  (10.8)  (54.6)  (3.1)  2.7 -  15.6  (50.2)
    Total  359.6  215.3  (3.1)  2.7 -  11.0  585.5
    1Other temporary differences’ consists of deferred tax raised on lease premiums, share based payments, foreign exchange movements, S24C allowance amongst other insignificant items.
    Deferred tax assets have not been recognised for assessed losses to the value of R198.0 million (December 2013: R94.7 million). Had a deferred tax asset been raised, the year end asset value would have been R54.3 million (December 2013: R26.5 million).
    The Group offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same tax authority on the same legal entity.

     

  • + 19. Inventories
    19. Inventories
    Rm December 2014 December 2013
    Food
    Inventory at cost  3,610.0  3,119.5
    Provisions  (278.4)  (262.0)
     3,331.6  2,857.5
    Liquor
    Inventory at cost  1,037.5  794.0
    Provisions  (44.5)  (40.9)
     993.0  753.1
    General Merchandise
    Inventory at cost  5,517.1  4,982.8
    Provisions  (425.4)  (386.5)
     5,091.7  4,596.3
    Home Improvement
    Inventory at cost  2,062.2  2,139.2
    Provisions  (249.7)  (230.6)
     1,812.5  1,908.6
    Total inventory net of provisions  11,228.8  10,115.5
    Carrying amount of inventories carried at net realisable value  132.9  123.1
    Inventory recognised as an expense in the year  66,962.6  58,926.4
    Write-down recognised as an expense in the year  217.3  148.6
    Inventory is fully funded by trade payables. Details of trade payables can be found in note 26.
    No inventory is pledged as security.

     

  • + 20. Trade and other receivables
    20. Trade and other receivables
    Rm December 2014 December 2014
    Trade receivables  2,222.3  1,918.9
    Allowance for doubtful debts  (115.2)  (96.1)
     2,107.1  1,822.8
    Prepayments  74.8  46.4
    Rebates and advertising from buying members  1,414.2  1,200.2
    Other accounts receivable  648.6  616.6
    FEC asset  43.6  26.5
    Total receivables net of provisions  4,288.3  3,712.5
    Trade receivables neither past due nor impaired  1,806.0  1,481.1
    Movement in allowance for doubtful debts
    Balance at the beginning of the year  96.1  84.1
    Amounts previously in the provision written off during the year  (7.0)  (15.8)
    Increase in provision recognised in the Income Statement  26.1  27.8
    Balance at the end of the year  115.2  96.1
    Ageing of impaired trade debtors provided for:
    30 to 60 days  34.6  16.3
    60 to 90 days  0.9  3.4
    90 to 120 days  2.8  4.8
    120+ days  76.9  71.6
    Total  115.2  96.1
    Trade receivables are well controlled throughout the Group, with trade receivable days remaining constant at 9. Allowance for doubtful debts at year-end was 5.2% of trade receivables (December 2013: 5.0%).
    No interest is charged on the trade receivables. Trade receivables between 30 days and 180 days are provided for based on estimated irrecoverable amounts, determined by reference to past default experience. It is the Group’s policy to provide fully for all receivables that are past due and not insured as well as those receivables over which the Group does not hold any security, which as a result of historical experience are not considered to be recoverable.
    Before accepting any new customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer. Limits and scoring attributed to customers are reviewed quarterly to once a year. There is no customer who represents more than 5% of the total balance of trade receivables.
    Included in the Group’s trade receivables balance are debtors with a carrying amount of R301.1 million (December 2013: R341.7 million) which are past due at the reporting date for which the Group has not provided. The Group considers the amounts to be recoverable and currently holds security over these debtors or the debtors are insured with a carrying amount of R108.7 million (December 2013: 126.8 million). The average age of these receivables is 71 days (December 2013: 91 days).
    December 2014 December 2013
    Rm Insured and recoverable Insured Insured and recoverable Insured
    Ageing of past due but not impaired trade debtors
    30 to 60 days  149.8  41.4  162.7  29.5
    60 to 90 days  87.9  58.1  80.8  56.6
    90 to 120 days  9.5  1.3  24.3  11.2
    120+ days  53.9  7.9  73.9  29.5
    Total  301.1  108.7  341.7  126.8
    In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, management believe that there is no further credit provision required in excess of the allowance for doubtful debts. Refer to note 40 for the Group’s management of credit risk exposure.
    There were no specific trade receivables under liquidation in the current and prior financial year.
    For more information on fair value disclosure, refer to note 39.

     

  • + 21. Non-current assets classified as held for sale
    21. Non-current assets classified as held for sale
    Assets classified as held for sale represent two properties in the process of being sold. At year end the Group had entered into sales agreements with the respective purchasers, however transfer of the properties had not yet been effected. During February 2015 one of the properties was transferred.
    Rm December 2014 December 2013
    Included in the Statement of Financial Position:
    Non-current assets  18.0 -
    - Property, plant and equipment  18.0 -
    Total assets  18.0 -
    Fair value of the properties are based on the respective sales agreements. For more information on the fair value of these non-current assets held for sale, refer to note 39.
    Upon re-classification of one of the properties to non-current assets held for sale, an impairment loss was recognised. Refer to note 6 for more information.

     

  • + 22. Issued capital
    22. Issued capital
    Share capital Share premium
    Rm December 2014 December 2013 December 2014 December 2013
    Authorised
    500,000,000 (December 2013: 500,000,000) ordinary shares of 1 cent each  5.0  5.0 - -
    20,000,000 (December 2013: 20,000,000) non-redeemable cumulative non-participating preference shares of 1 cent each  0.2  0.2 - -
    18,000,000 (December 2013: 18,000,000) ‘A’ convertible redeemable non-cumulative participating preference shares of 1 cent each  0.2  0.2 - -
    4,000,000 (December 2013: 4,000,000) ‘B’ convertible redeemable non-cumulative participating preference shares of 1 cent each - - - -
    Issued
    217,118,072 (December 2013: 217,109,044) ordinary shares of 1 cent each  2.2  2.2  733.4  743.3
    2,858,745 (December 2013: 2,867,773) ‘B’ convertible redeemable non-cumulative participating preference shares of 1 cent each - - - -
    Number of Share capital Share premium
    Ordinary shares shares Rm Rm
    Balance at December 2012  216,910,195  2.2  752.1
    Shares issued in terms of the Massmart Black Scarce Skills Trust  198,849 - -
    Ordinary shares issued – December 2013  217,109,044  2.2  752.1
    Treasury shares  (86,221) -  (8.8)
    Ordinary shares issued excluding treasury shares – December 2013  217,022,823  2.2  743.3
    Balance at December 2013  217,109,044  2.2  743.3
    Shares issued in terms of the Massmart Black Scarce Skills Trust  9,028 -  0.9
    Ordinary shares issued – December 2014  217,118,072  2.2  744.2
    Treasury shares  (194,765) -  (10.8)
    Ordinary shares issued excluding treasury shares – December 2014  216,923,307  2.2  733.4
    Ordinary shares, which have a par value of 1 cent, carry one vote per share and carry the right to dividends.
    ‘A’ convertible redeemable non-cumulative participating preference shares
    Balance at December 2012  9,395,053  0.1 -
    Shares redeemed in accordance with the provisions of the Memorandum of Incorporation  (9,395,053)  (0.1) -
    Balance at December 2013 - - -
    Balance at December 2014 - - -
    There are no ‘A’ convertible redeemable non-cumulative participating preference shares in issue as the residual shares were automatically redeemed on the vesting of the Massmart Thuthukani Empowerment Trust scheme, in terms of the Trust Deed in the prior financial year.
    ‘B’ convertible redeemable non-cumulative participating preference shares
    Balance at December 2012 - - -
    Net shares issued in terms of the Massmart BEE transaction  3,066,622 - -
    Shares converted to ordinary shares  (198,849) - -
    Treasury shares  (2,867,773) - -
    Balance at December 2013 - - -
    Net shares issued in terms of the Massmart BEE transaction  2,867,773 - -
    Shares converted to ordinary shares  (9,028) - -
    Treasury shares  (2,858,745) - -
    Balance at December 2014 - - -
    B’ convertible redeemable non-cumulative participating preference shares, which have a par value of 1 cent, are held in the Massmart Black Scarce Skills Trust. These shares carry one vote per share, which are cast by the trustees, and do not carry the right to dividends. On election of the beneficiary, the shares will convert to ordinary shares on a one-for-one basis and will rank pari passu with all ordinary shares then in issue.
    Share options granted under the Massmart Holdings Limited Employee Share Trust
    At December 2014, executives and senior employees have options of 8,773,054 (December 2013: 9,723,039) ordinary shares of which 4,303,031 (December 2013: 6,649,943) are unvested.
    Share options granted under the Employee Share Incentive Schemes carry no rights to dividends and no voting rights. Additional information of the Employee Share Incentive Schemes can be found in note 29.
    During the current financial year, 0.6 million shares (0.3% of average shares in issue) were bought in the market by the Massmart Holdings Limited Executive Share Trust at an average price of R128.22 totalling R73.7 million.
    During the prior financial year, 1.2 million shares (0.6% of average shares in issue) were bought in the market were by the Share Trust at an average price of R186.76 totalling R223.0 million.
    The directors have the authority, until the next annual general meeting, to issue the ordinary shares of the Company up to a maximum of 5% of the shares already issued.

     

  • + 23. Other reserves

     

    23. Other reserves
    Rm December 2014 December 2013
    Foreign currency translation reserve1  50.8  104.5
    Hedging reserve2  7.8  6.8
    Share-based payment reserve3  833.3  708.2
    Capital redemption reserve fund  0.2  0.2
    Fair value adjustment of available-for-sale financial asset  (10.2)  (5.7)
    Change in non-controlling interest  (328.2)  (300.4)
    Treasury shares -  (1.7)
    Post-retirement medical aid actuarial gain  (3.2)  5.7
     550.5  517.6
    1Reconciliation of the foreign currency translation reserve: December 2014 December 2013
    Balance at the beginning of the year  104.5  57.3
    Translation on consolidation  (53.7)  47.2
     50.8  104.5
    Exchange differences relating to the translation from functional currencies of the Group’s foreign subsidiaries into Rands are accounted for in the foreign currency translation reserve.
    December 2014 December 2013
    2Reconciliation of the hedging reserve:
    Balance at the beginning of the year  6.8  1.7
    Foreign exchange loss in cost of sales  (11.7)  (18.8)
    FEC asset  17.1  18.0
    FEC liability  (4.0)  7.8
    Deferred taxation  (0.4)  (1.9)
     7.8  6.8
    December 2014 December 2013
    3Reconciliation of the share-based payment reserve:
    Balance at the beginning of the year  708.2  579.2
    Share-based payment expense relating to the Massmart Holdings Limited Employee Share Trust  106.7  109.0
    Deferred tax recognised in equity relating to the Massmart Holdings Limited Employee Share Trust  (2.8)  2.7
    Share-based payment expense relating to the Massmart Black Scarce Skills Trust  21.2  17.3
     833.3  708.2
    Massmart introduced a new Employee Share Incentive Scheme in the prior financial year. The share-based payment reserve arises on the granting of share options and share awards to employees under the Employee Share Incentive Schemes. For additional information, refer to note 29.

     

  • + 24. Non-current liabilities
    24. Non-current liabilities
    December 2014 December 2013
    Rm
    Interest-bearing
    Secured
    Medium-term loan  600.0  600.0
    Medium-term bank loans  2,087.2  891.7
    Less: Payable within one year included in other current liabilities (note 28)  (565.5)  (329.6)
     2,121.7  1,162.1
    Capitalised finance leases  23.4  61.3
    Less: Payable within one year included in other current liabilities (note 28)  (11.2)  (44.7)
     12.2  16.6
    Total non-current interest-bearing liabilities  2,133.9  1,178.7
    Interest-free
    Unsecured
    Loans from non-controlling interests  2.1  3.0
    Operating lease liability – lease smoothing adjustment  1,014.6  932.8
    Other  13.3  0.2
    Less: Payable within one year included in trade and other payables  (103.4)  (97.1)
    Total non-current interest-bearing liabilities  926.6  838.9
    Medium-term loan
    The medium-term loan is a fixed term loan of R600.0 million owed to Walmart. The interest is repayable quarterly over five years and was effective from 18 April 2013 at a fixed interest rate of 7.46%. The loan is repayable in one final instalment in April 2018. The loan is secured by intragroup cross-suretyships.
    Medium-term bank loans
    Included in medium-term bank loans in the prior financial year was a fixed term loan of R500.0 million which was secured during the second half of the June 2011 financial year repayable quarterly over three years. The drawdown of the loan occurred on 18 April 2011 at a fixed interest rate of 8.12%. The loan was repaid in the current year.
    Included in medium-term bank loans above is a fixed term loan of R750.0 million which was secured during the second half of the June 2012 financial year repayable quarterly over five years. The drawdown of the loan occurred on 25 May 2012 at a fixed interest rate of 7.88%. The long-term portion of the loan at the end of the current financial year is R225.0 million (December 2013: R375.0 million) and the short-term portion is R150.0 million (December 2013: R150.0 million). The loan is secured by intragroup cross-suretyships. The short-term portion has been accounted for in note 28.
    Included in medium-term bank loans above is a fixed term loan of R275.0 million which was secured during the second half of the December 2013 financial year repayable quarterly over three years. The drawdown of the loan occurred on 28 November 2013 at a fixed interest rate of 7.23%. The long-term portion of the loan at the end of the current financial year is R91.6 million (December 2013: R183.3) and the short-term portion is R91.6 million (December 2013: R91.6 million). The loan is secured by intragroup cross-suretyships. The short-term portion has been accounted for in note 28.
    Included in medium-term bank loans above are other loans with a long-term portion of NIL (December 2013: R3.8 million). The short-term portion has been accounted for in note 28.
    Included in medium-term bank loans above is a fixed term loan of R500.0 million which was secured during the first half of the current financial year repayable quarterly over five years. The drawdown of the loan occurred on 2 June 2014 at a fixed interest rate of 8.40%. The long-term portion of the loan at the end of the current financial year is R350.0 million (December 2013: NIL) and the short-term portion is R100.0 million (December 2013: NIL). The loan is secured by intragroup cross-suretyships. The short-term portion has been accounted for in note 28.
    Included in medium-term bank loans above is a fixed term loan of R600.0 million which was secured during the second half of the current financial year repayable quarterly over five years. The drawdown of the loan occurred on 28 November 2014 at a fixed interest rate of 8.17%. The long-term portion of the loan at the end of the current financial year is R480.0 million (December 2013: NIL) and the short-term portion is R120.0 million (December 2013: NIL). The loan is secured by intragroup cross-suretyships. The short-term portion has been accounted for in note 28.
    Included in medium-term bank loans above is a fixed term loan of R500.0 million which was secured during the second half of the current financial year repayable quarterly over five years. The drawdown of the loan occurred on 7 July 2014 at a fixed interest rate of 8.61%. The long-term portion of the loan at the end of the current financial year is R375.0 million (December 2013: NIL) and the short-term portion is R100.0 million (December 2013: NIL). The loan is secured by intragroup cross-suretyships. The short-term portion has been accounted for in note 28.
    Capitalised finance leases
    Capitalised finance leases include leases over vehicles; fixtures, fittings and plant and equipment; property in 2013; and computer hardware, repayable in monthly instalments varying from one to five years at various interest rates of between 7.0% and 12.0% (December 2013: between 5.8% and 13.8%). The short-term portion has been accounted for in note 28.
    The capitalised finance leases are secured by moveable assets with a book value of R22.2 million (December 2013: R67.2 million) and the property lease by the value of the underlying land amounting to NIL (December 2013: R31.4 million). No renewal terms nor contingencies exist, escalation ranges between 7 -8% on certain leases. These assets are accounted for in note 13.
    Operating lease liability
    The increase in the operating lease liability primarily relates to the increased stores opened during the current financial year.
    For more information on the Group’s liquidity risk and interest rate risk management, refer to note 40.
    Additional information on the fair value of ‘non-current liabilities’ can be found in note 39.

     

  • + 25. Non-current provisions

     

    25. Non-current provisions
    Rm December 2014 December 2013
    Onerous lease provision  22.6  26.6
    Less: Payable within one year included in current provisions (note 27)  (6.6)  (8.6)
    Provision for post-retirement medical aid contributions  101.7  84.2
    Less: Payable within one year included in current provisions (note 27)  (2.7) -
     115.0  102.2
    Reconciliation of non-current provisions
    Rm Opening balance Reallocated to current provisions Additional amounts provided Amounts utilised Unused amounts reversed Closing balance
    December 2014
    Onerous lease provision  18.0 -  3.8  (1.0)  (4.8)  16.0
    Provision for post-retirement medical aid contributions  84.2 -  14.8 - -  99.0
     102.2 -  18.6  (1.0)  (4.8)  115.0
    December 2013
    Onerous lease provision  23.1 - -  (2.4)  (2.7)  18.0
    Liabilities raised on business acquisitions  64.6  (68.8)  4.2 - -
    Provision for post-retirement medical aid contributions  81.5 -  2.7 - -  84.2
     169.2  (68.8)  6.9  (2.4)  (2.7)  102.2
    Rm Repayable within 1 year* Repayable in 2 – 5 years Repayable after 5 years Total
    December 2014  9.3  13.7  101.3  124.3
    December 2013  8.6  13.5  88.7  110.8
    * Included in current provisions in note 27.
    The onerous lease provision relates to the closure of stores in the Masscash Division. The respective escalation rates range between 6.0% and 7.3%. The final onerous operating lease expires in November 2019.
    Post-retirement medical aid
    Employees of Massmart participate on Massmart Health Plan and Resolution Health Medical Scheme administered by Universal Healthcare (Pty) Ltd and Agility Global Health Solutions Health (Pty) Ltd respectively. The post-retirement subsidy policy is summarised below:
    Members who joined Makro and Dion Stores prior to 1 July 1999 are eligible for a subsidy of medical scheme contributions upon retirement. Members who joined Massmart prior to 1 January 2000 are also eligible for a subsidy upon retirement;
    Members and their spouses are entitled to a 50% subsidy of medical scheme contributions upon retirement; and
    Dependants of eligible continuation members receive a subsidy before and after the death of the principal member.
    If a member eligible for a subsidy of medical scheme contributions upon retirement dies in service, their dependants are eligible for a subsidy of medical scheme contributions as described above for a period of three months.
    The significant risks faced by Massmart as a result of the post-retirement healthcare obligation can be summarised as follows:
    The risk that future CPI inflation and healthcare cost inflation are higher than expected and uncontrolled; and
    The risk that pensioners live longer than expected and thus their healthcare benefit is payable for longer than expected.
    The liability is unfunded. The significant assumptions are listed below.
    Of particular importance is the ‘interest rate – medical inflation rate’ gap of 0.2% (December 2013: 0.8%) used in calculating the provision.
    December 2014 December 2013
    Significant assumptions:
    Discount rate 8.9% p.a. 10.1% p.a.
    Healthcare cost inflation 8.7% p.a. 9.3% p.a.
    Consumer Price Index inflation1 6.7% p.a. 7.3% p.a.
    Expected retirement age 65 years 65 years
    Membership discontinued at retirement or death-in-service 0% 0%
    Movements in the post-retirement medical aid liability (Rm):
    Opening defined benefit obligation  84.2  81.5
    Current service cost  2.5  2.8
    Interest cost  8.4  7.6
    Employer benefits paid  (2.3)  (2.0)
    Net actuarial loss/(gain) recognised in the year  8.9  (5.7)
    Closing defined-benefit obligation  101.7  84.2
    1CPI inflation by itself is not a significant assumption used in the valuation. This assumption has been based on the relationship between current conventional bond yields and current index-linked bond yields. The healthcare cost inflation exceeds CPI inflation by an average of 2.0% per annum over the long term, which is seen to be appropriate.
    The last valuation of the liability for the post-retirement medical aid contributions was performed as at December 2014 by Alexander Forbes, Fellow of the Institute of Actuaries (December 2013: Alexander Forbes, Fellow of the Institute of Actuaries). The current financial year costs have been assessed in accordance with the advice of independent actuaries.
    The net actuarial loss in the current year arose as a result of a combination of the following factors:
    Unexpected changes in the membership and membership profile resulted in a net gain of R0.1 million (December 2013: R0.4 million);
    Lower than expected healthcare cost inflation resulted in a gain of R1.1 million (December 2013: R0.7 million); and
    An unexpected loss of R10.1 million arose as a result of an decrease in the real discount rate, i.e. a decrease in the difference between the discount rate and the healthcare cost inflation assumption from 0.8% per annum to 0.2% per annum.
    Projection of defined-benefit obligation
    Provided that all actuarial assumptions are borne out in practice, the accrued liability is expected to increase each year in line with:
    The rate of discount;
    Plus the cost of an additional year’s accrual for in-service members (service cost); and
    Less the benefit payments made by the employer in respect of continuation members.
    A projection of results:
    Rm December 2015
    Defined-benefit obligation at December 2014  101.7
    Current service cost  2.8
    Interest cost  8.9
    Expected employer benefits paid  (2.7)
    Defined-benefit obligation at December 2015  110.7
    Maturity profile of defined-benefit obligation
    The expected contributions to the defined benefit plan obligation in the following financial year is R2.7 million.
    The average duration of the defined benefit plan obligation at the end of the reporting period is 20.5 years (December 2013: 21.4 years).
    Sensitivity analysis
    The valuation results are based on a number of assumptions. The value of the defined benefit obligation could be overstated or understated, depending on the extent to which actual experience differs from the assumptions adopted.
    2014 Central assumption Decrease Increase
    Sensitivity analysis on the defined benefit obligation:
    1% decrease or increase in the rate of healthcare cost inflation 8.7% -1.0% 1.0%
    Defined-benefit obligation in (Rm)  101.7  85.3  122.7
    % change -16.1% 20.7%
    0.5% decrease or increase in the rate of healthcare cost inflation for the next 5 years, thereafter returning to a healthcare cost inflation of 9.3% 8.7% -0.5% 0.5%
    Defined-benefit obligation in (Rm)  101.7  82.4  85.6
    % change -2.1% 2.1%
    5% or 10% increase in the rate of healthcare cost inflation for the next 5 years, thereafter returning to a healthcare cost inflation of 9.3% 8.7% 5% – 10%
    Defined-benefit obligation in (Rm)  101.7 125.6 – 154.0
    % change 23.5% – 51.5%
    1% decrease or increase in the discount rate 8.9% -1.0% 1.0%
    Defined-benefit obligation in (Rm)  101.7  122.9  85.5
    % change 20.8% -16.0%
    1 year decrease or increase in the expected retirement age 65 years - 1 year + 1 year
    Defined-benefit obligation in (Rm)  101.7  105.8  97.0
    % change 4.1% -4.6%
    Sensitivity analysis on the aggregate of the current service and interest cost:
    1% decrease or increase in the rate of healthcare cost inflation from previous valuation 9.3% -1.0% 1.0%
    Current service cost and interest cost from the previous valuation (Rm)  10.9  9.0  13.4
    % change -17.3% 22.3%
    2013 Central assumption Decrease Increase
    Sensitivity analysis on the defined benefit obligation:
    1% increase or decrease in the rate of healthcare cost inflation 9.3% -1.0% 1.0%
    Defined-benefit obligation in (Rm)  84.2  70.7  101.4
    % change -16.0% 20.4%
    0.5% increase or decrease in the rate of healthcare cost inflation for the next 5 years, thereafter returning to a healthcare cost inflation of 9.3% 9.3% -0.5% 0.5%
    Defined-benefit obligation in (Rm)  84.2  82.4  85.9
    % change -8.5% 2.1%
    5% or 10% increase in the rate of healthcare cost inflation for the next 5 years, thereafter returning to a healthcare cost inflation of 9.3% 9.3% 5.0% 10.0%
    Defined-benefit obligation in (Rm)  84.2  103.8  127.1
    % change 23.3% 51.0%
    1% increase or decrease in the discount rate 10.1% - 1% + 1%
    Defined-benefit obligation in (Rm)  84.2  101.4  71.0
    % change 20.4% -15.7%
    1 year increase or decrease in the expected retirement age 65 years - 1 year + 1 year
    Defined-benefit obligation in (Rm)  84.2  88.5  80.2
    % change 5.2% -4.7%
    Sensitivity analysis on the aggregate of the current service and interest cost:
    1% increase or decrease in the rate of healthcare cost inflation from previous valuation 9.0% -1.0% 1.0%
    Current service cost and interest cost from the previous valuation (Rm)  10.5  8.6  12.9
    % change -18.1% 23.6%

     

  • + 26. Trade and other payables

     

    26. Trade and other payables
    Rm December 2014 December 2013
    Trade payables  14,841.5  13,702.5
    Operating lease liability – lease smoothing adjustment  103.4  97.1
    Payroll accruals  735.6  533.0
    FEC liability  6.7  2.7
    Income received in advance  70.4  40.1
    Rebates and advertising owing to buying members  129.0  92.4
    Shareholders for dividends  10.5  12.0
    Interest accrual  32.1  15.3
    Amounts due to Walmart1  218.3  136.3
    Promissory notes -  104.5
    Sundry payables and other accruals  2,176.0  2,038.3
     18,323.5  16,774.2
    1For more information on amounts due to Walmart, refer to note 34.
    Trade payables do not attract interest.
    For more information on the operating lease liability refer to note 24.
    The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe, normally around 60 days. Control over trade payables has resulted in the average term decreasing to 75 days (December 2013: 76 days). Settlement discounts received range from 1.0% to 2.2% (December 2013: 1.0% to 2.1%).
    Promissory notes in the prior year represented commitments under a non-cancellable lease agreement of R104.5 million entered into by Masstores (Pty) Ltd on behalf of certain Makro stores. The final promissory notes of R104.5 million were paid on 31 December 2013.The lease terminates in December 2020. Additional information can be found in note 32.
    Sundry payables and other accruals comprises other sundry creditor accruals.
    For more information on fair value disclosure, refer to note 39.

     

  • + 27. Current provisions and other
    27. Current provisions and other
    Rm December 2014 December 2013
    Onerous lease provision  6.6  8.6
    Contingent consideration payable on business acquisitions -  92.9
    Provisions raised on asset acquisitions  12.6  8.5
    Provision for Supplier Development Fund  157.2  202.5
    Provision for post-retirement medical aid contributions  2.7 -
    Other  16.3  14.5
     195.4  327.0
    Provisions raised against specific assets, for example inventories and trade receivables, are accounted for with those assets and are detailed in the relevant notes.
    The Group established the Supplier Development Fund in line with the judgement of the Competition Appeal Court at the time of the Walmart transaction. The purpose of the fund is to assist the Group’s suppliers, particularly Black Economic Empowerment suppliers, in order to promote and benefit the growth of their businesses. The fund is expected to be utilised within the 3 remaining years with no fixed utilisation requirements per year.
    Reconciliation of current provisions
    Rm Opening balance Reallocated from non-current provisions Amounts provided Amounts utilised Unused amounts reversed Closing balance
    December 2014
    Onerous lease provision  8.6 -  5.7  (3.1)  (4.6)  6.6
    Contingent consideration payable on business acquisitions  92.9 - -  (90.0)  (2.9) -
    Provisions raised on asset acquisitions  8.5 -  11.6 -  (7.5)  12.6
    Provision for Supplier Development Fund  202.5 - -  (45.3) -  157.2
    Provision for post-retirement medical aid contributions - -  5.0  (2.3) -  2.7
    Other  14.5 -  7.8  (2.9)  (3.1)  16.3
     327.0 -  30.1  (143.6)  (18.1)  195.4
    December 2013
    Onerous lease provision  7.3 -  7.2  (2.3)  (3.6)  8.6
    Contingent consideration payable on business acquisitions  124.1  68.8 -  (100.0) -  92.9
    Provisions raised on asset acquisitions - -  10.5  (2.0) -  8.5
    Provision for Supplier Development Fund  225.4 - -  (22.9) -  202.5
    Other  7.0 -  13.9  (5.4)  (1.0)  14.5
     363.8  68.8  31.6  (132.6)  (4.6)  327.0
    Contingent consideration raised on business acquisitions decreased in the current financial year due to the payment of R90.0 million (December 2013: R100.0 million) as a result of contingent consideration hurdles being met.
    The unused amounts reversed in the current year of R7.5 million relate to the reduction of a provision raised on the Capensis Investments 241 (Pty) Ltd asset acquisition in the prior period as the rectification costs on the properties amounted to less than what was initially estimated. A provision was raised on an asset acquisition in the current financial year for R11.6 million (December 2013: R10.5 million). For more information on these acquisitions, refer to note 4.

     

  • + 28. Other current liabilities
    28. Other current liabilities
    Rm December 2014 December 2013
    Medium-term bank loans  565.5  329.6
    Capitalised finance leases  11.2  44.7
    Massmart Education Foundation loan  4.8  4.6
    Medium-term loans  249.7  152.7
    - Foreign trade finance facility -  117.6
    - Foreign bank loans  237.8  21.1
    - Short-term foreign bank loan  7.6 -
    - Lamberti Education Foundation Trust loan  4.3  14.0
     831.2  531.6
    Medium-term bank loans
    For more information on the medium-term bank loans, medium term loans and capitalised finance leases, refer to note 24.
    The Massmart Education Foundation loan represents cash reserves invested with Group Treasury. Interest was incurred at a variable rate based on the daily prime rate plus 25 basis points at year end, and has no fixed terms of repayment.
    Medium-term loans
    In the prior year ‘foreign trade finance facility’ was an offshore USD facility, granted by First Trade Solutions Ltd, available for working capital requirements. The Group used this facility to fund its African working capital loans. The facility was capped at USD 20.0 million. Interest was incurred at the average monthly US$ Libor rate plus 75 basis points, compounded monthly in arrears. This loan was closed out in June 2014.
    In the current year and prior year “foreign bank loans” comprise an offshore USD facility, granted by Standard Chartered Bank, available for working capital and general corporate requirements. The Group is using this loan to fund its African expansion, the first drawdown occurred in December 2013, the second in February 2014 and the third in October 2014. The facility is capped at USD 30.0 million, of which the Group has utilised USD 20.5 million (December 2013: USD 2 million) at the year end. Interest is incurred daily at the average 6 monthly US$ Libor rate plus 155 basis points, in arrears.
    The ‘short-term foreign bank loan’ is an offshore USD overdraft facility, granted by HSBC, entered into in the current financial year to fund the Group’s working capital expenditure requirements in Africa. The Group has drawn down USD 0.7 million of the USD 15.0 million facility at year-end. Interest is incurred based on the overnight USD LIBOR plus 0.75% per annum. The facility imposes financial covenants on the Group, none of which have been breached during the current financial year. All amounts drawn down in terms of this facility are repayable on demand.
    The Lamberti Education Foundation Trust loan represents cash reserves invested with Group Treasury. Interest was earned at a variable rate based on the daily prime rate plus 25 basis points which amounted to 5.4% (December 2013: 4.54%) at year end, and has no fixed terms of repayment.
    For more information on fair value disclosure, refer to note 39.
    For more information on the Group’s liquidity risk and interest rate risk management, refer to note 40.

     

  • + 29. Employee Share Incentive Schemes
    29. Employee Share Incentive Schemes
    Massmart Holdings Limited Employee Share Trust
    Massmart introduced a new share incentive scheme in the prior financial period referred to as the Employee Share Awards Scheme. Massmart Holdings Limited’s shareholders approved the scheme at the Annual General Meeting held on 22 May 2013. The new scheme entails participation through a Retention Share Grant and/or a Performance Share Award, further explained below. The first grant of retention and performance awards under the new scheme was made on 16 September 2013. The purpose of the new scheme is to replace the existing Employee Share Option Awards Scheme which had its last grant date on 1 May 2013. The Employee Share Option Award Scheme will continue to give rise to an equity-settled share-based payment expense until the end of the December 2018 financial year. The final options of this scheme will expire in the 2023 financial year. Both Employee Share Incentive Schemes are administered through the Massmart Holdings Limited Employee Share Trust.
    Shares to Satisfy Awards and Options
    It is Massmart’s practice to satisfy awards and options granted under the Employee Share Incentive Scheme through shares purchased in the market and held by the Massmart Holdings Limited Employee Share Trust, which was established for the purpose of satisfying awards under the Employee Share Incentive Scheme, and is funded by the Company.
    Employee Share Option Scheme (Old Scheme)
    Massmart granted share options entitling certain employees within the Group to its shares under the Employee Share Incentive Scheme. The options were granted by Massmart in its own shares resulting in them being accounted for as equity-settled share-based payments. Employees are required to be employed up to the date of vesting in order to receive the share options earned by them. The share-based payment valuation was performed by Alexander Forbes for all periods with respect to the share options.
    Vesting occurs over a five-year period as follows:
    - 25% two years after the offer date;
    - 50% three years after the offer date;
    - 75% four years after the offer date;
    - 100% five years after the offer date; and
    - expires ten years after the offer date.
    The following options granted to employees and Executive Directors in terms of the Massmart Employee Share Option Scheme (Old Scheme) have not yet been exercised:
    2014
    Offer date Expiry date Exercise price (R) No of options at December 2013 No of options forfeited and expired No of options exercised New options granted No of options closing balance
    1 April 2005 31 March 2015  41.91  47,000  47,000 -
    27 May 2005 26 May 2015  42.97  13,303  639  12,664
    1 November 2005 31 October 2015  51.91  996  996 -
    30 November 2005 29 November 2015  51.19  3,618  3,618
    1 April 2006 31 March 2016  58.74  7,665  4,892  2,773
    23 May 2006 22 May 2016  54.13  22,863  3,256  19,607
    25 August 2006 24 August 2016  51.93  4,724  4,724
    15 November 2006 14 November 2016  62.04  14,700  14,700
    23 February 2007 22 February 2016  67.79  32,152  4,119  28,033
    2 April 2007 1 April 2017  82.67  5,573  5,573
    24 May 2007 23 May 2017  94.25  239,073  46,678  192,395
    24 August 2007 23 August 2017  80.75  41,216  41,216
    30 November 2007 29 November 2017  71.58  12,854  12,854
    1 April 2008 31 March 2018  66.91  228,602  37,435  191,167
    26 May 2008 25 May 2018  72.86  590,590  84,356  506,234
    1 September 2008 31 August 2018  79.86  120,164  31,700  88,464
    27 October 2008 26 October 2018  72.42  129,126  23,109  106,017
    15 November 2008 14 November 2018  79.91  32,549  32,549
    1 March 2009 28 February 2019  70.71  107,694  10,498  97,196
    27 May 2009 26 May 2019  77.55  624,089  4,419  111,384  508,286
    1 September 2009 31 August 2019  79.15  39,661  6,453  33,208
    1 October 2009 30 September 2019  87.60  17,923  8,318  9,605
    16 November 2009 15 November 2019  88.71  18,820  8,548  10,272
    1 March 2010 28 February 2020  90.49  113,775  4,017  20,629  89,129
    1 April 2010 31 March 2020  108.95  19,092  4,370  14,722
    1 May 2010 30 April 2020  110.00  32,748  2,606  30,142
    1 September 2010 31 August 2020  120.42  199,615  9,470  190,145
    1 September 2011 31 August 2021  153.84  3,318,101  209,214  3,108,887
    1 November 2011 31 October 2021  157.27  432,365  51,874  380,491
    1 March 2012 28 February 2022  174.88  421,478  421,478
    1 April 2012 31 March 2022  164.09  122,954  122,954
    16 May 2012 15 May 2022  159.62  377,779  44,465  333,314
    1 September 2012 31 August 2022  168.03  1,235,157  129,248  1,105,909
    15 October 2012 14 October 2022  167.06  321,729  321,729
    01 March 2013 28 February 2023  186.05  739,384  40,292  699,092
    01 May 2013 30 April 2023  187.53  33,907  33,907
     9,723,039  483,529  466,456 -  8,773,054
    2013
    Offer date Expiry date Exercise price (R) No of options at December 2012 No of options forfeited and expired No of options exercised New options granted No of options closing balance
    1 April 2005 31 March 2015  41.91  47,000 - - -  47,000
    1 May 2005 30 April 2015  43.42 - - - - -
    27 May 2005 26 May 2015  42.97  16,753 -  3,450 -  13,303
    31 May 2005 30 May 2015  42.88  12,570 -  12,570 - -
    1 October 2005 30 September 2015  52.48 - - - - -
    1 November 2005 31 October 2015  51.91  1,240 -  244 -  996
    30 November 2005 29 November 2015  51.19  8,622 -  5,004 -  3,618
    1 April 2006 31 March 2016  58.74  16,093 -  8,428 -  7,665
    23 May 2006 22 May 2016  54.13  36,196 -  13,333 -  22,863
    25 August 2006 24 August 2016  51.93  5,547 -  823 -  4,724
    1 October 2006 30 September 2016  56.42  3,674 -  3,674 - -
    15 November 2006 14 November 2016  62.04  16,905 -  2,205 -  14,700
    23 February 2007 22 February 2016  67.79  60,918 -  28,766 -  32,152
    2 April 2007 1 April 2017  82.67  6,432 -  859 -  5,573
    24 May 2007 23 May 2017  94.25  315,046 -  75,973 -  239,073
    24 August 2007 23 August 2017  80.75  50,657 -  9,441 -  41,216
    30 November 2007 29 November 2017  71.58  49,392 -  36,538 -  12,854
    1 April 2008 31 March 2018  66.91  356,000 -  127,398 -  228,602
    26 May 2008 25 May 2018  72.86  916,631  683  325,358 -  590,590
    1 September 2008 31 August 2018  79.86  170,570 -  50,406 -  120,164
    27 October 2008 26 October 2018  72.42  129,126 - - -  129,126
    15 November 2008 14 November 2018  79.91  32,549 - - -  32,549
    1 March 2009 28 February 2019  70.71  117,833 -  10,139 -  107,694
    27 May 2009 26 May 2019  77.55  884,547  11,790  248,668 -  624,089
    1 September 2009 31 August 2019  79.15  53,426  3,776  9,989 -  39,661
    1 October 2009 30 September 2019  87.60  23,038 -  5,115 -  17,923
    16 November 2009 15 November 2019  88.71  27,365 -  8,545 -  18,820
    1 March 2010 28 February 2020  90.49  133,028 -  19,253 -  113,775
    1 April 2010 31 March 2020  108.95  79,423  21,989  38,342 -  19,092
    1 May 2010 30 April 2020  110.00  43,995 -  11,247 -  32,748
    1 September 2010 31 August 2020  120.42  243,172  8,030  35,527 -  199,615
    1 September 2011 31 August 2021  153.84  3,543,023  169,830  55,092 -  3,318,101
    1 November 2011 31 October 2021  157.27  468,863  36,498 - -  432,365
    1 March 2012 28 February 2022  174.88  437,786  16,308 - -  421,478
    1 April 2012 31 March 2022  164.09  122,954 - - -  122,954
    16 May 2012 15 May 2022  159.62  377,779 - - -  377,779
    1 September 2012 31 August 2022  168.03  1,271,853  36,696 - -  1,235,157
    15 October 2012 14 October 2022  167.06  377,819  56,090 - -  321,729
    01 March 2013 28 February 2023  186.05 -  31,497 -  770,881  739,384
    01 May 2013 30 April 2023  187.53 - - -  33,907  33,907
     10,457,825  393,187  1,146,387  804,788  9,723,039
    December 2014 December 2013
    Reconciliation of the number of shares options issued 000s 000s
    Total shares and options available to the scheme  39,500  39,500
    Shares and treasury shares issued to the scheme  (16,493)  (16,493)
    Remaining capacity for issue in terms of the JSE practice  23,007  23,007
    Opening balance of shares and options issued  10,554  11,579
    New shares and options offered to employees and Executive Directors -  805
    Shares and options sold by employees and Executive Directors  (678)  (1,437)
    Shares repurchased from/ forfeited by employees and options lapsed/ forfeited  (484)  (393)
    Closing balance of shares and options issued  9,392  10,554
    The closing balance includes 619,443 (December 2013: 830,973) shares and 8,773,054 (December 2013: 9,723,039) options. Shares and options previously issued to employees who then subsequently left the Group are excluded from the figures above.
    Once the options have vested they may be exercised at any time, up to ten years, from the offer date. Once exercised, the relevant shares can be sold at the discretion of the participants. In terms of the scheme rules, share trust loans have been raised on offers made to Executive Directors and Executive Committee members. Refer to note 17 on Employee Share Trust loans to Executive Directors and Executive Committee members.
    Movement in the Year
    The following options granted to employees and Executive Directors in terms of the Massmart Employee Share Option Scheme (Old Scheme) have not yet been exercised:
    December 2014 December 2013
    Number of share options Weighted average exercise price Number of share options Weighted average exercise price
    Rand Rand
    Outstanding at the beginning of the year  9,723,039  139.4  10,457,825  130.0
    Granted during the year - -  804,788  186.1
    Exercised during the year  (466,456)  75.5  (393,187)  154.5
    Forfeited or expired during the year  (483,529)  160.0  (1,146,387)  81.4
    Outstanding at the end of the year  8,773,054  141.6  9,723,039  139.4
    Exercisable at the end of the year  4,470,023  3,073,096
    In December 2014, the weighted average share price at the date of exercise for share options exercised during the year was R123.96. The options outstanding at the end of the year had a weighted average remaining contractual life of 6.3 years. No options were granted in the current financial year.
    In December 2013, the weighted average share price at the date of exercise for share options exercised during the year was R184.24. The options outstanding at the end of the year had a weighted average remaining contractual life of 7.2 years. Options were granted on 1 March 2013 and 1 May 2013. The estimated fair values of the options granted on these dates were R52.69 and R49.48.
    Fair Value of Employee Share Options granted during the year
    These fair values were calculated using the Black Schöles Model. The inputs into the model at grant date were as follows: December 2014 December 2013
    Weighted average share price (Rand) at grant dates -  189.3
    Expected volatility - 27.57% – 28.53%
    Expected life - 5 – 6 years
    Risk-free rate - 5.66% – 6.11%
    Expected dividend yield - 2.5% – 5.0%
    There were no grants issued during the current financial year.
    Employee Share Awards Scheme (New Scheme)
    Massmart granted share awards entitling certain employees within the Group to fully-paid shares under the Employee Share Incentive Scheme. The awards were granted by Massmart in its own shares resulting in the awards being treated as equity-settled share-based payments. The Employee Share Award Scheme is split into two incentive structures, mainly, retention and performance awards. Retention shares require the employee to remain employed at the date of vesting in order to receive the shares earned by them. In determining the spot price at grant date its fair market value is the volume weighted average price of a share on the Johannesburg Stock Exchange (JSE) over the 10 (ten) trading days immediately prior to the day in question. Performance shares are subject to non-market conditions in years 1, 2 and 3 based 50% on Group Return of Investment (ROI) and 50% on Group nominal sales against the budgeted equivalent for that year. The share-based payment valuation was performed using a valuation system acquired by the Group with the necessary model inputs having been determined by management. Management derived these inputs through consultation with various financial institutions, and they are representative of the market data available for Massmart Holdings Limited’s share at the reporting date. Vesting occurs over a five-year period for retention awards and over a three-year period for performance awards as follows:
    Retention Awards Performance Awards
    - Three years after the offer date 33% 100%
    - Four years after the offer date 33% N/A
    - Five years after the offer date 33% N/A
    The following awards granted to employees and Executive Directors in terms of the Massmart Employee Share Award Scheme (New Scheme) have not yet been exercised:
    December 2014 December 2013
    Retention awards Number of share awards Vesting Period Number of share awards Vesting Period
    16 September 2013  344,624 2016 to 2018  379,863 2016 to 2018
    15 September 2014  779,689 2017 to 2019 - -
    Performance awards
    16 September 2013  761,903 2016  841,951  2,016
    17 March 2014  1,110,418 2017 - -
    Total awards  2,996,634 -  1,221,814 -
    Exercisable at the end of the year - -
    Movement in the Year
    December 2014 December 2013
    Number of share options Weighted average exercise price Number of share options Weighted average exercise price
    Rand Rand
    Outstanding at the beginning of the year  1,221,814 - - -
    Granted during the year  1,890,107 -  1,221,814 -
    Forfeited or expired during the year  (115,287) - - -
    Outstanding at the end of the year  2,996,634 -  1,221,814 -
    Exercisable at the end of the year - -
    The estimated fair values of the retention awards at grant date was R121.66 (December 2013:R32.19) and the performance awards was R132.71 (December 2013:R31.46).
    Fair Value of Employee Share Awards granted during the year
    These fair values were calculated using the Lattice Model. The inputs into the model at grant date were as follows:
    Retention awards December 2014 December 2013
    10 day volume weighted average share price (Rand)  126.3  171.5
    Expected volatility 27.74% – 28.43% 19.92% – 26.19%
    Expected life 2.75 – 4.75 years 2.75 – 4.75 years
    Risk-free rate 7.19% – 7.62% 6.61% – 7.33%
    Expected dividend yield 3.55% 3.52%
    Performance awards
    10 day volume weighted average share price (Rand)  129.4  171.5
    Expected volatility 22.7% 19.92%
    Expected life 2.25 years 2.75 years
    Risk-free rate 7.46% 6.61%
    Expected dividend yield 3.08% 3.52%
    Exercise price - -
    Expected volatility was determined by calculating the historical volatility of the Company’s share price over the number of previous years corresponding with the share awards vesting period. 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. The risk-free rate used was the swap rate over the vesting period of the share award.
    Massmart Black Scarce Skills Trust
    The Black Scarce Skills Trust is a share-scheme used to attract and retain African, Coloured and Indian employees. The Executive Committee of each of the divisions and the Massmart Remuneration Committee submit their nominations to the Black Scarce Skills Trust trustees for approval, upon which allocations are made bi-annually in April and October of each year. A beneficiary can only receive one allocation.
    Vesting occurs over a five-year period as follows:
    - 25% two years after the offer date;
    - 50% three years after the offer date;
    - 75% four years after the offer date;
    - 100% five years after the offer date; and
    - expires five years after the offer date.
    The following options granted to eligible employees in terms of the Massmart Black Scarce Skills Trust have not yet been exercised:
    Offer date Expiry date Exercise price (R) No of options opening balance No of options forfeited and expired No of options exercised New options granted No of options closing balance
    December 2014
    1 April 2009 31 March 2014  71.96  10,873  918  9,955 - -
    27 May 2009 26 May 2014  77.56  4,290 -  4,290 - -
    1 April 2010 31 March 2015  108.95  76,582  2,043  14,775 -  59,764
    1 October 2011 30 September 2016  143.74  571,491  36,670 - -  534,821
    1 April 2012 31 March 2017  164.09  369,388  24,579 - -  344,809
    1 October 2012 30 September 2017  166.91  223,878  5,064 - -  218,814
    1 April 2013 30 March 2018  189.13  182,133  13,067 - -  169,066
    1 October 2013 30 September 2018  170.31  909,444  20,021 - -  889,423
    1 April 2014 30 March 2019  136.69 -  9,201 -  305,657  296,456
    1 October 2014 30 September 2019  120.29 -  10,690 -  507,407  496,717
     2,348,079  122,253  29,020  813,064  3,009,870
    December 2013
    1 April 2008 31 March 2013  66.97  177,607  8,799  168,808 - -
    1 October 2008 30 September 2013  75.52  139,187  4,717  134,470 - -
    1 April 2009 31 March 2014  71.96  15,601  306  4,422 -  10,873
    27 May 2009 26 May 2014  77.56  5,064 -  774 -  4,290
    1 April 2010 31 March 2015  108.95  97,076  2,135  18,359 -  76,582
    1 October 2011 30 September 2016  143.74  669,336  61,118  36,727 -  571,491
    1 April 2012 31 March 2017  164.09  406,705  31,360  5,957 -  369,388
    1 October 2012 30 September 2017  166.91  244,609  20,731 - -  223,878
    1 April 2013 31 March 2018  189.13 -  2,500 -  184,633  182,133
    1 October 2013 30 September 2018  170.31 - - -  909,444  909,444
     1,755,185  131,666  369,517  1,094,077  2,348,079
    December 2014 December 2013
    000s 000s
    Movement in the Year  3,979  3,979
    Reconciliation of options
    Opening balance of share options  2,348  1,755
    New share options offered to employees  814  1,094
    Share options sold by employees  (29)  (369)
    Share options repurchased from/forfeited by employees and options lapsed/forfeited  (123)  (132)
    Closing balance of share options  3,010  2,348
    Number of options exercisable  428  146
    In December 2014, the weighted average share price at the date of exercise for share options exercised during the year was R132.68 The options outstanding at the end of the year had a weighted average remaining contractual life of 3.27 years. Options were granted on 1 April 2014 and 1 October 2014. The estimated fair values of the options granted on these dates were R23.45 and R19.48.
    In December 2013, the weighted average share price at the date of exercise for share options exercised during the year was R179.30. The options outstanding at the end of the year had a weighted average remaining contractual life of 3.8 years. Options were granted on 1 April 2013 and 1 October 2013. The estimated fair values of the options granted on this date were R37.21 and R37.03.
    Fair Value of Employee Share Options granted during the year
    These fair values were calculated using the binomial model. The inputs into the model were as follows: December 2014 December 2013
    Weighted average share price (Rand) at granting dates  127.8  175.9
    Expected volatility 22.57% – 23.13% 19.66% – 28.03%
    Expected life 3 – 5 years 3 – 5 years
    Risk-free rate 7.1% – 7.8% 5.5% – 7.0%
    Expected dividend yield 2.5% – 2.7% 2.3% – 2.4%
    Expected volatility was determined by calculating the historical volatility of the Company’s share price over the number of previous years corresponding with the option lifetime. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
    Expense Charged to Profit or Loss
    The expense recognised for employee services received during the year on equity-settled share-based payment transactions is shown in the following table:
    Rm December 2014 December 2013
    Expense arising from Employee Share Option Scheme  52.5  105.7
    Expense arising from Employee Share Awards Scheme  54.2  3.3
    Expense arising from Black Scarce Skills Trust  21.2  17.3
    Total expense arising from equity-settled share-based payment transactions  127.9  126.3

     

  • + 30. Retirement benefit information
    30. Retirement benefit information
    All full-time permanent Massmart staff are members of either the Massmart Pension Fund, the Massmart Provident Fund or the SACCAWU National Provident Fund. These funds are defined contribution funds and are subject to the Pension Funds Act, 1956. Following the recent acquisitions, some staff are still members of the retirement funds of the previous business owners. Projects are underway to transfer these employees to one of the above funds in future.
    The Massmart Pension Fund and Massmart Provident Fund have been classified as valuation exempt. The Board of Trustees successfully submitted applications for exemption from valuation in 2013 and the funds were, therefore, exempt from the provisions of sections 9A and 16 of the Pension Funds Act, with effect from 28 February 2013. The exemption granted was a permanent valuation exemption at that stage. However, the Financial Services Board has in 2014 published Information Circular 2 of 2014 wherein they indicated that permanence of valuation exemption is being reviewed and will most likely be withdrawn. Consequently the fund exemptions may expire on 28 February 2016. The fund will reapply if required.
    Contributions received by the funds for the year ended December 2014 amounted to R523.0 million (December 2013: R410.0 million). The Group’s contribution of R315.9 million (December 2013: R245.4 million) was included in the Income Statement for the year in ‘Employee costs’.
  • + 31. Commitments
    31. Commitments
    Rm December 2014 December 2013
    Commitments in respect of capital expenditure approved by directors:
    Contracted for
    Stores to be opened  277.2  925.2
    Distribution centre to be opened  16.0  23.6
    Stores to be refurbished  114.1  83.4
    Purchase of plant and equipment  23.5  20.1
    Purchase of new system software  162.3  69.3
    Purchase of new computer hardware  41.5  15.6
    Purchase of motor vehicles  3.4  0.2
    Store relocations  17.8  50.1
    Store conversions  2.3  30.4
    Minor revamps  34.9  31.4
    Store Expansion and Reduction  166.0 -
    Rebranding  5.1 -
     864.1  1,249.3
    Not contracted for
    Stores to be opened  388.3  259.4
    Stores to be refurbished  358.4  50.1
    Purchase of plant and equipment  114.3  162.9
    Purchase of new system software  81.8  41.4
    Purchase of new computer hardware  31.5  14.2
    Purchase of motor vehicles  68.9  30.4
    Store conversions -  94.0
    Minor revamps  42.3  88.5
    Distribution centre to be opened  0.9 -
    Minority buyouts and acquisitions -  20.0
    Logistical expansion  40.2  22.5
    Store relocations  28.5 -
     1,155.1  783.4
     2,019.2  2,032.7
    Capital commitments will be funded using current facilities.
  • + 32. Operating lease commitments
    32. Operating lease commitments
    Net operating lease expense
    Rm December 2014 December 2013
    Land and buildings
    Year 1  1,788.3  1,639.8
    Years 2 to 5  6,684.7  6,164.5
    Subsequent to year 5  6,979.0  6,606.4
     15,452.0  14,410.7
    Plant and equipment
    Year 1  5.1  5.2
    Years 2 to 5  7.5  6.9
     12.6  12.1
    Other
    Year 1  10.3  11.0
    Years 2 to 5  7.2  11.9
     17.5  22.9
     15,482.1  14,445.7
    Leases on properties are contracted for periods of between 3 and 20 years (2013: 3 and 20 years) with renewal options averaging a further 3 to 25 years. Rental comprises minimum monthly payments and in some cases, contingent payments based on turnover levels. Turnover rentals, where applicable, average 1.5% (2013: 1.5%) of turnover. Rental escalations vary, but are between 5 and 11.5% (2013: 5 and 11.5%) p.a.
  • + 33. Contingent liabilities
    33. Contingent liabilities
    Rm December 2014 December 2013
    Contingent liabilities  4.2 -
    In the ordinary course of business, the Group and its subsidiaries are involved in a number of legal proceedings. In the Board of Directors’ judgment, however, there are no current, pending or threatened legal or arbitration proceedings that may have, or have had in the previous 12 months, a material effect on the Group’s financial position.

    33.1 Lease exclusivity
    For the past two years we have defended several legal actions filed against our Massdiscounters/Game division by three of the major food retailers in South Africa and a prominent property fund also located in South Africa. These interdictory actions for injunctive relief are based on contractual and delictual theories of law relating to exclusivity and restrictive usage clauses in separate lease agreements between the relevant landlord and Game on the one hand, and one or more of the major food retailers on the other. These disputes arise when one or more of these retailers are co-located in a particular shopping center with a Game store that seeks to offer a limited fresh food offering. Along with other legal defences, we have asserted that the blanket enforcement of these clauses by the major food retailers contravenes South African competition law. In October 2014, Massmart lodged a formal complaint with the South African Competition Commission and requested the Commission to initiate a formal investigation into this behaviour. In December 2014, the Commission notified us that they would proceed with a formal investigation of our claims, together with similar complaints raised by other stakeholders. The various proceedings, including the Commission’s investigation, are on-going.  If the conclusion of these proceedings is not in our favour–in whole or in part–then a key Group strategy in certain localities in South Africa could be delayed or curtailed. In addition to this matter, the Group and our subsidiaries are party to a variety of legal, administrative, regulatory and government proceedings, claims and inquiries arising in the normal course of business. While the results of these proceedings, claims and inquiries cannot be predicted with certainty, management believes that the final outcome of the foregoing will not have a material adverse effect on the Group’s financial position.
  • + 34. Related-party transactions
    34. Related-party transactions
    December 2014 December 2013
    Rm 53 weeks 52 weeks
    Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
    Compensation of key management personnel:
    The remuneration of Executive Directors and other key management were as follows:
    Short-term benefits (salaries, benefits and short-term incentives)  90.0  59.5
    Retirement benefits  2.3  2.3
    Other long-term benefits  2.9  3.0
    Gains on exercise of share options  18.3  11.6
     113.5  76.4
    Key management is defined as the 13-person (December 2013: 13-person) Massmart Executive Committee.
    The remuneration of Executive Directors and key executives is determined by the Nomination and Remuneration Committee having regard to the performance the of individuals and market trends. Two members of the Executive Committee and Board, and two members of the Board resigned in the current financial year. There was no movement to the Executive Committee in the prior financial year.
    Other related-party transactions:
    Of the Walmart integration and related costs, an amount due to Walmart of R218.3 million (December 2013: R136.3 million) remains unpaid at the end of the current financial year and has been included in ‘Amount due to Walmart’ in note 26. An amount due from Walmart of R12.0 million (December 2013: R10.3 million) remains receivable at the end of the current financial year and has been included in ‘other accounts receivable’ in note 20. These are non- interest bearing and have no fixed terms of repayment.
    Main Street 830 (Pty) Ltd, a subsidiary of Wal-Mart Stores, Inc. and the direct holding company of Massmart Holdings Ltd receives dividends from the Company. Dividends of R479.3 million (December 2013: R479.3 million) were paid during the year.
    In the prior financial year the Group secured a medium-term loan with Walmart repayable after five years. Interest of 7.46% is repaid quarterly. The loan of R600.0 million is accounted for under non-current interest-bearing liabilities. Additional information can be found in note 24.
    Loans to Executive Directors and Executive Committee members have been disclosed in note 17.
    The Massmart Health Plan and Resolution Health Medical Scheme, Massmart Pension Fund and Massmart Provident Fund are managed for the benefit of past and current employees of the Group. Additional information can be found in note 25 and note 30.
    Refer to note 35 and 36 for more information regarding directors remuneration and interests in the Company’s Share Scheme.