DIRECTORS’ REPORT
DIRECTORS’ RESPONSIBILITIES
The Directors acknowledge responsibility for the preparation of the annual financial statements, which, in their opinion, fairly present the results and cash flows for the financial year 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 adequate 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 judgments and estimates, have been consistently applied.
The Audit Committee of the Board reviews the financial information presented and ensures that there has been adherence to International Financial Reporting Standards. 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.
DIVIDEND
Massmart’s dividend policy is to declare and pay an interim and final cash dividend representing a 1.7 times dividend cover, unless circumstances dictate otherwise. Despite the slightly lower headline earnings and this policy, the Board has decided to maintain this year’s dividend at the same level as the past two years. The resulting dividend cover is 1.5 (2009: 1.6).
With regard to the final distribution to shareholders, the Directors resolved to distribute to shareholders registered in the books of the Company on 17 September 2010, a final cash dividend of 134 cents (2009: 134 cents) per share, bringing the total dividend for the year to 386 cents (2009: 386 cents) per share.
A Thuthukani dividend equivalent to 100% of the Massmart ordinary dividend per share (134 cents) was paid to the Massmart Thuthukani Empowerment Trust on 20 September 2010.
Alongside please find the movement in ordinary and preference shares for the period under review.
DIRECTORATE AND SECRETARY
The current directorate of the Company is shown on pages 15 to 17. With effect from 1 May 2010, following his appointment as chairman of a major supplier, Mr ZL “KK” Combi resigned from the Board of Directors after seven years of service. The Company thanks him for his contribution to the Group and wishes him well.
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 Ilan Zwarenstein, CA(SA), whose business and postal addresses are the same as that of the Company.
In accordance with the provisions of the Company’s Articles of Association, KD Dlamini, NN Gwagwa, MJ Lamberti, P Langeni and IN Matthews will retire at the annual general meeting. Being eligible, KD Dlamini, NN Gwagwa, MJ Lamberti, P Langeni and IN Matthews offer themselves for re-election.
Massmart address
The Company’s registered office and postal address are as follows:
Registered office
Massmart House
16 Peltier Drive
Sunninghill Ext 6
Sandton
2191
South Africa
Postal address
Private Bag X4
Sunninghill
2157
South Africa
Shares in issue
Ordinary shares |
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| Opening balance June 2008 | 201,193,512 | ||
| Converted preference shares* | 109,127 | ||
| Closing balance June 2009 | 201,302,639 | ||
| Converted preference shares* | 192,865 | ||
| Closing balance June 2010 | 201,495,504 | ||
Preference shares* |
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| Closing balance June 2008 | 19,847,185 | ||
| Converted to ordinary shares | 109,127 | ||
| Closing balance June 2009 | 19,738,058 | ||
| New shares issued | 2,000,000 | ||
| Converted to ordinary shares | 192,865 | ||
| Closing balance June 2010 | 21,545,193 | ||
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INTERESTS OF DIRECTORS IN THE COMPANY’S SHARES
At 27 June 2010, Directors owned ordinary shares in the Company, or options over ordinary shares in the Company, directly or indirectly, aggregated as to beneficial and non-beneficial ownership, as follows:
| 2010 | 2009 | |||||||
| Shares | Options | Shares | Options | |||||
| Non- | Non- | Non- | Non- | |||||
| Beneficial | beneficial | Beneficial | beneficial | Beneficial | beneficial | Beneficial | beneficial | |
| Non-executive directors | ||||||||
| MJ Lamberti | – | 500,000 | – | – | – | 500,000 | – | – |
| CS Seabrooke | – | 30,000 | – | – | – | 350,000 | – | – |
| MD Brand | – | – | – | – | 17,500 | – | – | – |
| ZL Combi | – | – | – | – | 20,000 | – | – | – |
| KD Dlamini | 20,000 | – | – | – | 20,000 | – | – | – |
| NN Gwagwa | 20,000 | – | – | – | 20,000 | – | – | – |
| JC Hodkinson | 8,000 | – | – | – | 8,000 | – | – | – |
| P Langeni | 20,000 | – | – | – | 20,000 | – | – | – |
| IN Matthews | – | – | – | – | – | – | – | – |
| P Maw | – | – | – | – | – | – | – | – |
| DNM Mokhobo | 20,000 | – | – | – | 20,000 | – | – | – |
| MJ Rubin | – | 29,500 | – | – | – | 29,500 | – | – |
| Executive directors | ||||||||
| GM Pattison | 1,457,308 | – | 550,000 | – | 1,457,308 | – | 550,000 | – |
| GRC Hayward | 804,898 | – | 250,000 | – | 804,898 | – | 250,000 | – |
At the date of this report, the Directors’ holdings were as follows:
| Shares | Options | |||
| Non- | Non- | |||
| Beneficial | beneficial | Beneficial | beneficial | |
| Non-executive directors | ||||
| MJ Lamberti | – | 500,000 | – | – |
| CS Seabrooke | – | – | – | – |
| MD Brand | – | – | – | – |
| KD Dlamini | 20,000 | – | – | – |
| NN Gwagwa | 20,000 | – | – | – |
| JC Hodkinson | 8,000 | – | – | – |
| P Langeni | 20,000 | – | – | – |
| IN Matthews | – | – | – | – |
| P Maw | – | – | – | – |
| DNM Mokhobo | 20,000 | – | – | – |
| MJ Rubin | – | 29,500 | – | – |
| Executive directors | ||||
| GM Pattison | 1,421,389 | – | 500,000 | – |
| GRC Hayward | 804,898 | – | 75,000 | – |
Details of shares issued and options granted by the Company in terms of the rules of the Massmart Share Incentive Scheme are dealt with on pages 200 to 203.
SUBSIDIARIES
As at the date hereof, the following companies are principal subsidiaries of the Company:
 |
Massbuild (Proprietary) Limited (previously Builders Trade Depot) | 2004/035206/07 |
|
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Masscash Holdings (Proprietary) Limited | 1997/014716/07 |
|
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Massmart International Holdings Limited (incorporated in Mauritius) | 47902 C1/GBL |
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Massmart Management & Finance Company (Proprietary) Limited | 1992/004084/07 |
|
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Masstores (Proprietary) Limited | 1991/006805/07 |
Details of the Company’s interests in material subsidiaries are set out in note 37 on page 208. Total net profit after tax for all subsidiaries for the 2010 financial year amounted to R1,291.8 million (2009: R1,282.0 million).
BORROWING POWERS
In terms of the Articles of Association, the Group has unlimited borrowing powers. At 27 June 2010, borrowings were R708.7 million (2009: R388.0 million).
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
- 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 our customer, product or geographic markets; and
- budgets to June 2011 reflect a continuation of the above positive issues.
LITIGATION
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.
AUDIT COMMITTEE REPORT
The Audit Committee met three times during the year and the internal and external auditors presented formal reports to the Committee and attended meetings by invitation. In accordance with section 270A(1)(f) of the Companies Act, No. 61 of 1973, as amended, the Committee reports as follows:
- The scope, independence and objectivity of the external auditors was reviewed.
- The audit firm Deloitte & Touche, and audit partner André Dennis, are, in the Committee’s opinion, independent of the Company, and have been proposed to the shareholders for approval to be the Group’s auditor for the 2011 financial year.
- On an ongoing basis, the Committee reviews and approves the fees proposed by the external auditors.
- The appointment of the external auditor complies with the Companies Act, as amended, and with all other legislation relating to the appointment of external auditors.
- The nature and extent of non-audit services provided by the external auditors has been reviewed to ensure that the fees for such services do not become so significant as to call into question their independence.
- The nature and extent of future non-audit services have been defined and pre-approved.
- As at the date of this report, no complaints have been received relating to accounting practices and internal audit of the Company or to the content or auditing of the Company’s financial statements, or to any related matter.
SUBSEQUENT EVENTS
On 27 September 2010, Massmart released an announcement describing a non-binding expression of interest received from Wal-Mart Stores, Inc, which could lead to Wal-Mart making a cash offer to acquire the entire issued share capital of our company for a price of R148 per share. This has subsequently received extensive coverage in the local and international press.
Wal-Mart is currently conducting due diligence on the Group and the first time that any further announcements may be made in this regard will be on or about 8 November 2010. In the event that a firm offer is received from Wal-Mart, the directors of Massmart will obtain an independent opinion and express a view on the firm offer at that time.
On behalf of the Board
Ilan Zwarenstein
Company Secretary
6 October 2010
