Directors’ responsibilities

The Directors acknowledge responsibility for the preparation of the consolidated Group Annual Financial Statements, which, in their opinion, fairly present the results and cash flows for the year ended December 2017 and the state of affairs of Massmart Holdings Limited and its subsidiaries at the end of the financial year. The external auditors are responsible for reporting on the fair presentation of these financial statements.

The Company and its subsidiaries have maintained satisfactory accounting records and an effective system of internal controls to ensure the integrity of the underlying information. Appropriate accounting policies, supported by sound and prudent managerial judgements and estimates, have been consistently applied.

The Board’s Audit Committee reviews the financial information presented and ensures that there has been adherence to International Financial Reporting Standards and the Companies Act of South Africa. Internal and external auditors of Group companies have unrestricted access to the Committee.

Group financial results

The financial results of the Group are set out in the income statement, statement of comprehensive income, the statement of cash flows and the statement of changes in equity. The financial position of the Group is set out in the statement of financial position and accompanying notes.

Directorate and secretary

The current Directorate of the Company is shown here.

The Board comprises nine Directors at the time of this report, of whom three are non-Executive, two are Executive and four are independent. In addition, each Board Committee is chaired by an independent non-Executive Director.

The Company Secretary provides a central source of guidance and advice to the Board, and within the Company, on matters of ethics and good governance. The Company Secretary is Mr Joe Ralebepa, whose business and postal addresses are the same as that of the Company, and he was appointed in November 2016.

On 26 May 2017, we announced that Walmart-appointees Mr JP Suarez (who resigned on 26 May 2017) and Mr Andy Clarke (who resigned on 22 February 2017) would be replaced by Ms Susan Muigai and Mr Roger Burnley. Mr Moses Kgosana announced his resignation as a non-Executive Director and Chairman of the Audit and Risk Committees on 13 September 2017. As a result of Mr Moses Kgosana’s resignation, Mr Chris Seabrooke was appointed to the role of Chairman of the Audit and Risk Committees. On 23 November 2017, we announced that Ms Phumzile Langeni, the current Chairman of the Social and Ethics Committee, was appointed as a member of each of the Remuneration and Nominations Committees.

At least one-third of the non-Executive Directors are required to retire every year and Massmart Executive Directors have elected to also retire on this basis. Accordingly, all Directors retire by rotation at least every three years and, if eligible and available, their names are submitted for re-election by the shareholders at the ensuing AGM. In addition, shareholders must ratify the initial appointment of each Director at the first AGM following that Director’s appointment. As a result of these requirements, at the 24 May 2018 AGM, Ms Susan Muigai and Mr Roger Burnley are nominated for election having been appointed during the reporting period and Mr Chris Seabrooke and Mr Guy Hayward retire by rotation. Being eligible, they all offer themselves for election or re-election, as applicable. However Mr Seabrooke has communicated his intention to retire from the Board and all its Committees during 2018.

Shares in issue

Please find the movement in ordinary and preference shares for the financial year under review below:

Ordinary shares
Balance at December 2015 217,136,334
Converted preference shares*
Balance at December 2016 217,136,334
Converted preference shares* 9,155
Ordinary shares in issue at December 2016 217,145,489
Preference shares
Balance at December 2015 2,840,483
Converted ordinary shares
Balance at December 2016 2,840,483
Converted ordinary shares (9,155)
Preference shares in issue at December 2016 2,831,328

* These preference shares above relate to Massmart’s Black Scarce Skills Trust.

 

Interests of Directors in the Company’s shares

At December 2017, Directors owned, directly or indirectly, ordinary shares or options over ordinary shares in the Company. These holdings were all beneficial and are aggregated in the table below:

                 
    December 2017   December 2016
Non-executive Directors   Shares   Options/
Share Awards
  Shares   Options/
Share Awards
                 
K Dlamini   9,800     9,800  
NN Gwagwa   9,800     9,800  
                 
Executive Directors                
GRC Hayward   235,771   596,853   233,503   600,654
JJM van Lierop     200,924     156,477
                 
At the date of this report , the Directors’ beneficial holdings were as follows:
                 
    March 2018   March 2017
Non-executive Directors   Shares   Options/
Share Awards
  Shares   Options/
Share Awards
                 
K Dlamini   9,800     9,800  
NN Gwagwa   9,800     9,800  
                 
Executive Directors                
GRC Hayward   249,754   568,879   232,390   566,475
JJM van Lierop     120,411     156,477

 

 

 

Subsidiaries

As at the date hereof, the following companies are material subsidiaries of the Company:

Massbuild Proprietary Limited 2004/035206/07
Masscash Holdings Proprietary Limited 1997/014716/07
Massmart International Holdings Limited (incorporated in Mauritius) 47902 C1/GBL
Massmart Management and Finance Company Proprietary Limited 1992/004084/07
Masstores Proprietary Limited 1991/006805/07
Wild Developments Proprietary Limited 1973/000178/07

The principal subsidiaries above are determined based on the Group’s cross-surety arrangement. These subsidiaries represent the Group for which lender covenants shall be maintained. Details of the Company’s interests in material subsidiaries are set out in note 37.

Borrowing powers

In terms of the Memorandum of Incorporation, the Group has unlimited borrowing powers. At December 2017, borrowings were R3.9 billion (December 2016: R4.5 billion).

Going concern

The Directors are of the opinion that the business will be a going concern in the year ahead. In reaching this opinion, the Directors considered the following factors:

  • Strong positive cash flows from trading;
  • No recurring operating losses at Divisional and Group level;
  • Well-controlled working capital and good quality inventory;
  • Approved short- and long-term financing, with sufficient additional short-term borrowing capacity if required;
  • Key executive management in place;
  • There have been no material changes that may affect the Group in any of its customer, product or geographic markets; and
  • Budgets to December 2018 reflect a continuation of the above positive factors.

Direct and ultimate holding companies

The Company’s direct holding company is Main Street 830 Proprietary Limited, incorporated in South Africa, and the Company’s ultimate holding company is Wal-Mart Stores, Inc., incorporated in the United States.

Subsequent events

During the first quarter of 2018 each of the Massdiscounters and Masscash Divisions internally announced their intent to initiate a restructure of their respective operating models in accordance with requirements of the South African Labour Relations Act, 1995 (LRA), and have each initiated a formal facilitated consultation process with their employees on their proposed restructuring in accordance with section 189 of the LRA.

The estimated costs associated with the potential retrenchments arising from the proposed restructuring for the two Divisions amount to R66 million which will impact the Group performance for the first half of 2018. If these costs are in fact incurred, savings associated with the restructure in respect of the two Divisions will be realised in the second half of 2018 and are projected to absorb only about one third of the estimated restructuring costs. The Group full annualised savings will be realised in 2019. A further R25 million may be invested in order to align the offices and teams of the Masscash Division, of which R6 million may occur in the first half.

In addition, Massdiscounters Division is considering relocating part of its offices from Durban to Johannesburg in the second half of 2018. The decision to relocate part of its offices is subject to a separate section 189 facilitated consultation process which Massdiscounters has initiated with the affected employees.

The estimated costs associated with the proposed office relocation covering; refurbishment of existing offices in Durban, moving part of the teams to Johannesburg and fitting out new offices in Johannesburg amount to R50 million, and will, if the decision to relocate is taken, be incurred during the second half of 2018 and be one off in nature. Material qualitative benefits are expected from this move over time through increased Group collaboration, leveraging scale and expertise, integration and transformation, talent retention and attraction as well as efficiency improvements.

Company Secretary certificate

In terms of section 88(e) of the Companies Act No. 71 of 2008, as amended (‘Companies Act’), I, Joe Ralebepa, in my capacity as Company Secretary of Massmart Holdings Limited, confirm that, to the best of my knowledge and belief, in respect of the year under review, Massmart Holdings Limited has filed with the Companies and Intellectual Property Commission all such returns and notices as are required of a public company in terms of the Companies Act and that all such returns and notices appear to be true, correct and up to date.

On behalf of the Board

Joe Ralebepa
Company Secretary
29 March 2018

Massmart address

The Company’s registered office and postal address are as follows:

Registered office: Postal address:
Massmart House
16 Peltier Drive
Sunninghill Ext 6
Sandton, 2157
South Africa
Private Bag X4
Sunninghill
2157
South Africa