- + 17. Inventories
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 17. Inventories Rm December 2019 December 2018 Food Inventory at cost 3,902.3 4,090.1 Provisions (92.6) (94.7) 3,809.7 3,995.4 Liquor Inventory at cost 1,312.3 1,241.1 Provisions (25.5) (20.9) 1,286.8 1,220.2 General Merchandise Inventory at cost 4,984.7 5,097.5 Provisions (246.6) (162.8) 4,738.1 4,934.7 Home Improvement Inventory at cost 2,146.0 2,106.2 Provisions (86.8) (75.6) 2,059.2 2,030.6 Total inventory net of provisions 11,893.8 12,180.9 Carrying amount of inventories carried at net realisable value 306.4 181.7 Inventory recognised as an expense in the year 75,029.6 72,267.5 Write-down recognised as an expense in the year 618.3 493.8 Right of return asset 78.5 77.8 
No inventory is pledged as security. - + 18. Trade and other receivables
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 18. Trade and other receivables Rm December 2019 December 2018 Trade receivables 2,563.1 2,753.0 Allowance for doubtful debts (233.6) (144.6) 2,329.5 2,608.4 Prepayments 143.3 199.3 Rebate receivables, including rebates and advertising from buying members 1,709.4 1,808.6 Other accounts receivable 802.6 1,053.5 FEC asset (not designated) 28.5 23.4 Total receivables net of provisions 5,013.3 5,693.2 Movement in allowance for doubtful debts Balance at the beginning of the year 144.6 108.1 Change in accounting standards – 9.4 Amounts previously in the provision written off during the year (5.3) (8.9) Additional amounts raised 94.3 36.0 Balance at the end of the year 233.6 144.6 December 2019 December 2019 December 2018 December 2018 Ageing of impaired trade debtors provided for: Expected credit loss rate Gross Carrying amount Expected credit loss rate Gross Carrying amount 0 to 60 days 2% 1,754.0 1% 2,477.9 28.5 21.6 60 to 90 days 3% 227.1 11% 40.5 7.3 4.3 90 to 120 days 15% 99.6 25% 24.1 14.7 6.0 120+ days 38% 482.5 54% 210.5 183.1 112.7 Total 9.1% 2,563.1 5.3% 2,753.0 233.6 144.6 Set out above is the information about the credit risk exposure on the Group’s trade receivables and contract assets using a provision matrix. Trade receivables days reduced to 8 days (December 2018: 9 Days). Allowance for doubtful debts at year end was 9.1% of trade receivables (December 2018: 5.3%). The impact on the trade receivable days of the Shield arrangement, where revenue is recognised on a net basis however the trade receivables are recognised on a gross basis, is 4 days compared to 5 days in the 2018 financial year. No interest is charged on the trade receivables and generally repayment terms do not extend past 30 days. Trade receivables between 0 days and more than 120 days are provided for based on ECL impairment method, determined predominatly by reference to past default experience as economic conditions have changed. This assessment includes considerations relating to 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. No customer represents more than 5% of the total balance of trade receivables. Included in the Group’s trade receivables balance are receivables with a carrying amount of R921.7 million (December 2018: R179.8 million) which are past due at the reporting date for which the Group has not provided. The average age of these receivables is 100.6 days (December 2018: 83.4 days). Other accounts receivable includes accrued rebates receivables, statutory receivables which are non-financial instruments, insurance claim related receivables and other insignificant amounts which do not expose the Group to significant additional credit risk. The Group recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. The Group did not provide detailed information on how the forecast economic conditions have been incorporated in the determination of ECL because the impact is not significant given the short-term and widespread nature of the Group’s customer base. Where considered appropriate, credit guarantee insurance is used to mitigate credit risk exposure on selected trade accounts receivable and as a result a loss allowance may not be recorded even if the debtor falls within a past due ageing. Refer to note 38 for the Group’s management of credit risk exposure. - + 19. Non-current assets classified as held for sale
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 19. Non-current assets classified as held for sale At the end of the current year non-current assets classified as held for sale represents properties in the Other operating segment in the process of being sold. The Group is currently negotiating with potential buyers but had not yet entered into a sale agreement and the transfer of the property had not yet been effected.
In the prior year, non-current assets classified as held for sale represented two properties in the Masscash and Massbuild operating segments which were in the process of being sold. During the course of the 2019 financial year the sale of both properties was executed and the proceeds were received with the resultant profit being recorded in the Income Statement.
Rm December 2019 December 2018 Included in the Statement of Financial Position Non-current assets 159.5 11.6 -Freehold land, property, plant and equipment 159.5 11.6 Total assets 159.5 11.6 The fair value of the properties are based on management’s best estimate of the expected selling price taking into account market information and information provided by the Group’s selling agents. For more information on the fair value of these non-current assets held for sale, refer to note 37. - + 20. Issued capital
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 20. Issued capital Share capital Share premium Rm December 2019 December 2018 December 2019 December 2018 Authorised 500 000 000 (December 2018: 500 000 000) ordinary shares of 1 cent each 5.0 5.0 – – 20 000 000 (December 2018: 20 000 000) non-redeemable cumulative non-participating preference shares of 1 cent each 0.2 0.2 – – 18 000 000 (December 2018: 18 000 000) ‘A’ convertible redeemable non-cumulative participating preference shares of 1 cent each 0.2 0.2 – – 4 000 000 (December 2018: 4 000 000) ‘B’ convertible redeemable non-cumulative participating preference shares of 1 cent each – – – – Issued 219 138 809 (December 2018: 217 179 142) ordinary shares of 1 cent each 2.2 2.2 209.8 139.1 2 797 675 (December 2018: 2 797 675) ‘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 2017 217,145,489 2.2 401.2 Shares issued in terms of the Massmart Black Scarce Skills Trust 33,653 – – Reclassification of share-based payment reserve within equity upon vesting – (293.3) Ordinary shares issued – December 2018 217,179,142 2.2 107.9 Treasury shares (1,177,645) – 31.2 Ordinary shares issued excluding treasury shares – December 2018 216,001,497 2.2 139.1 Balance at December 2018 217,179,142 2.2 139.1 Shares issued in terms of the scrip dividend declared1 1,959,667 – 174.4 Reclassification of share-based payment reserve within equity upon vesting – – (109.3) Ordinary shares issued – December 2019 219,138,809 2.2 204.2 Treasury shares (1,466,504) – 5.5 Ordinary shares issued excluding treasury shares – December 2019 217,672,305 2.2 209.8 Ordinary shares, which have a par value of 1 cent, carry one vote per share and carry the right to dividends.Non-redeemable cumulative non-participating preference shares The non-redeemable cumulative non-participating preference shares are unissued in the current year. It remains within the ambit of the Board of Directors to issue these shares as the need arises.‘A’ convertible redeemable non-cumulative participating preference shares 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 2013 financial year.‘B’ convertible redeemable non-cumulative participating preference shares Number of Share capital Share premium shares Rm Rm Balance at December 2017 2,831,328 – – Shares converted to ordinary shares (33,653) – – Balance at December 2018 2,797,675 – – Shares converted to ordinary shares – – – Balance at December 2019 2,797,675.0 – – 1The share capital value is less than R100 000. Please refer to note 9 for additional detail regarding the current year scrip dividend. 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 2019, executives and senior employees have options of 3,583,071 (December 2018: 4,234,937) ordinary shares of which nil (December 2018: 134,782) 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 27. During the current financial year, 1.1 million shares (0.5% of average shares in issue) were bought in the market by the Massmart Holdings Limited Executive Share Trust at an average price of R43.98 totalling R48.4 million. During the prior financial year, 1.9 million shares (0.9% of average shares in issue) were bought in the market by the Massmart Holdings Limited Executive Share Trust at an average price of R127.85 totalling R246.1 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. - + 21. Other reserves
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 21. Other reserves Rm December 2019 December 2018 Foreign currency translation reserve1 (414.7) (338.1) Hedging reserve2 – – Share-based payment reserve3 1,729.5 1,627.0 Change in non-controlling interest (581.3) (581.8) Post-retirement medical aid actuarial gain 41.9 33.8 Other reserves (11.6) (11.3) 763.7 729.6 1Reconciliation of the foreign currency translation reserve: December 2019 December 2018 Balance at the beginning of the year (338.1) (413.1) Change in accounting standards – (0.7) Translation on consolidation (76.6) 75.7 (414.7) (338.1) 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. In addition, exchange differences arising on the Group’s net investment in its foreign operations are also accounted for in the foreign currency translation reserve.December 2019 December 2018 2Reconciliation of the hedging reserve: Balance at the beginning of the year – (14.9) Foreign exchange gain in cost of sales – 20.8 Deferred taxation – (5.9) – – December 2019 December 2018 3Reconciliation of the share-based payment reserve: Balance at the beginning of the year 1,627.0 1,454.0 Share-based payment expense relating to the Massmart Holdings Limited Employee Share Trust 128.0 190.6 Deferred tax recognised in equity relating to the Massmart Holdings Limited Employee Share Trust (1.5) (21.6) Share-based payment expense relating to the Massmart Black Scarce Skills Trust – 4.0 Share-based payment reserve reclassification relating to freehold land upon vesting (23.2) – Share-based payment reserve adjustment upon vesting relating to the Massmart Holdings Limited Employee Share Trust (110.1) (293.3) Reclassification of share-based payment reserve within equity upon vesting 109.3 293.3 1,729.5 1,627.0 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 27. - + 22. Non-current liabilities
NOTES TO THE ANNUAL FINANCIAL STATEMENTS 22. Non-current liabilities Rm December 2019 December 2018 Interest-bearing borrowings Secured Medium-term bank loans 2,266.5 2,291.1 Less: Payable within one year included as current liabilities (note 26) (266.5) (616.1) 2,000.0 1,675.0 Lease liability 10,335.1 648.1 Less: Payable within one year included as current liabilities (1,384.4) (69.0) 8,950.7 579.1 Total non-current interest-bearing liabilities 10,950.7 2,254.1 Interest-free borrowings Unsecured Loans from non-controlling interests 1.9 1.9 Operating lease liability – lease smoothing adjustment^ – 1,357.9 Other non-current interest-free borrowings 5.1 27.4 Less: Payable within one year included in trade and other payables (note 24) – (109.0) Total non-current interest-free liabilities 7.0 1,278.2 Reconciliation of lease liability Rm December 2019 December 2018 Opening Balance (Gross leases including long and short term) 648.1 580.5 Adoption on 1 January 2019 upon transition to IFRS 16 standard^ 10,060.6 – Liability arising on new leases entered into during the year 1,049.3 146.8 Repayments of lease obligations (Cash flow excluding interest component) (1,551.2) (79.2) Liability adjustments upon entering into modifications of lease terms during the year 158.9 – Foreign exchange movements (30.6) – Gross lease liabilites 10,335.1 648.1 Less: Payable within one year included as current liabilities (1,384.4) (69.0) Long term portion of lease liabilities 8,950.7 579.1 ^ Refer to note 30 Medium-term bank loans Included in medium-term bank loans above is a fixed term loan of R600 million (2018: Rnil). The loan is repayable in one final instalment in February 2021. The drawdown of the loan occurred on 27 of February 2019 at a fixed interest rate of 8.26%, the interest is repayable quarterly. The loan is secured by intragroup cross-suretyships. Included in medium-term bank loans above is a fixed term loan of R1.4 billion (2018: R1.4 billion). The loan is repayable in one final instalment in February 2021. The drawdown of the loan occurred on 31 March 2016 at a fixed interest rate of 10.62%, the interest is repayable quarterly. The loan is secured by intragroup cross-suretyships. Included in the 2018 medium-term bank loans above was a fixed term loan of R600.0 million. The loan was repayable in one final instalment in February 2019. The initial drawdown of the loan occurred on 31 March 2016 at a fixed interest rate of 9.78%, the interest was repayable quarterly. The loan was secured by intragroup cross-suretyships. Foreign bank loans comprise of an offshore USD facility (USD 19.0 million), granted by Standard Chartered Bank, available for working capital and general corporate requirements. The Group is using this loan to fund its African expansion. In October 2018 the original loan matured and was refinanced for a period of 2 years. Interest is incurred daily at the 6 monthly USD LIBOR rate plus 205 basis points, in arrears. The loan is repayable in one final instalment in October 2020.Lease liability At 29 December 2019 Massmart had 443 stores (2018: 436 stores), 87% of which were leased. The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on adoption date was 11.9%. Finance costs for the Group was an additional R1.1 billion for the
year. The average remaining life of real estate leases is four years, with the exception of the Woodmead land lease which has 73 years remaining. For more information on the Group’s liquidity risk and interest rate risk management, refer to note 38. Additional information on the fair value of ‘non-current liabilities’ can be found in note 37. - + 23. Post-retirement medical aid liability
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 23. Provisions Rm December 2019 December 2018 Provision for post-retirement medical aid contributions 91.5 94.1 Less: Payable within one year included in current provisions (note 25) (7.7) (8.6) 83.8 85.5 Reconciliation Rm Opening balance Additional amounts provided Amounts utilised Unused amounts reversed Closing balance December 2019 Provision for post-retirement medical aid contributions 85.5 – – (1.7) 83.8 85.5 – – (1.7) 83.8 December 2018 Provision for post-retirement medical aid contributions 95.6 19.3 – (29.4) 85.5 95.6 19.3 – (29.4) 85.5 Rm Repayable within 1 year Repayable in 2 – 5 years Repayable after 5 years Total December 2019 7.7 – 83.8 91.5 December 2018 10.5 85.5 – 96.0 Post-retirement medical aid Employees of Massmart participate on Massmart Health Plan and Resolution Health Medical Scheme administered by Universal Healthcare Proprietary Limited and Agility Global Health Solutions Health Proprietary Limited 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 1.5% (December 2018: 1.7%) used in calculating the provision.December 2019 December 2018 Significant assumptions: Discount rate 11.2% p.a. 10.6% p.a. Healthcare cost inflation 8.5% p.a. 8.9% p.a. Consumer Price Index inflation1 6.5% p.a. 6.9% p.a. Expected retirement age 65 years 65 years Membership discontinued at retirement or death-in-service 0% 0% December 2019 December 2018 Movements in the post-retirement medical aid liability (Rm): Opening post-retirement medical aid liability 94.1 98.9 Current service cost 2.1 8.1 Interest cost 10.2 11.2 Employer benefits paid (3.7) (3.6) Actuarial gain recognised in the year (11.2) (20.5) Closing defined-benefit obligation 91.5 94.1 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 2019 by 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 gain 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 R0.3 million (December 2018: R1.7 million); Lower than expected healthcare cost inflation resulted in a gain of R1.7 million (December 2018: R4.9 million); and An unexpected gain of R13.6 million (December 2018: R8.1 million) arose as a result of an increase in the real discount rate, i.e. an increase in the difference between the discount rate and the healthcare cost inflation assumption from 1.6% per annum to 2.5% per annum (December 2018: 1.5% per annum to 1.7% per annum).Projection of post-retirement medical aid liability 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 2019 Defined-benefit obligation at December 2019 91.5 Current service cost 1.6 Interest cost 10.0 Expected employer benefits paid (4.0) Defined-benefit obligation at December 2020 99.2 Maturity profile of post-retirement medical aid liability The expected contributions to the post-retirement medical aid liability in the following financial year is R4.0 million (December 2018: 3.7 million). The average duration of the post-retirement medical aid liability at the end of the reporting period is 15.2 years (December 2018: 16.8 years).Sensitivity analysis The valuation results are based on a number of assumptions. The value of the post-retirement medical aid liability could be overstated or understated, depending on the extent to which actual experience differs from the assumptions adopted.2019 Central Assumption Decrease Increase Sensitivity analysis on the post-retirement medical aid liability: 1% decrease or increase in the rate of healthcare cost inflation 8.5% -1.0% 1.0% Defined-benefit obligation in (Rm) 91.5 80.2 105.2 % change -12.3% 15.0% 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 8.5% 8.5% -0.5% 0.5% Defined-benefit obligation in (Rm) 91.5 85.6 98.0 % change -6.5% 7.1% 5% or 10% increase in the rate of healthcare cost inflation for the next 5 years, thereafter returning to a healthcare cost inflation of 8.5% 8.5% 5.0% – 10.0% Defined-benefit obligation in (Rm) 91.5 112.2 – 136.7 % change 22.6%- 49.4% 1% decrease or increase in the discount rate 11.2% -1.0% 1.0% Defined-benefit obligation in (Rm) 91.5 104.9 80.6 % change 14.7% -11.9% 1 year decrease or increase in the expected retirement age 65 years – 1 year 1 year Defined-benefit obligation in (Rm) 91.5 95.6 87.5 % change 4.5% -4.3% 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 8.9% -1.0% 1.0% Current service cost and interest cost from the previous valuation (Rm) 12.3 10.5 14.5 % change -14.5% 18.0% 2018 Central Assumption Decrease Increase Sensitivity analysis on the post-retirement medical aid liability: 1% decrease or increase in the rate of healthcare cost inflation 8.9% -1.0% 1.0% Defined-benefit obligation in (Rm) 94.1 85.2 114.8 % change -13.4% 16.6% 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 8.9% 8.9% -0.5% 0.5% Defined-benefit obligation in (Rm) 94.1 91.5 106.2 % change -7.1% 7.9% 5% or 10% increase in the rate of healthcare cost inflation for the next 5 years, thereafter returning to a healthcare cost inflation of 8.9% 8.9% 5.0% – 10.0% Defined-benefit obligation in (Rm) 94.1 120.9 – 147.6 % change 22.9%- 50.0% 1% decrease or increase in the discount rate 10.6% -1.0% 1.0% Defined-benefit obligation in (Rm) 94.1 114.6 85.5 % change 16.4% 13.1% 1 year decrease or increase in the expected retirement age 65 years – 1 year 1 year Defined-benefit obligation in (Rm) 94.1 103.1 94.1 % change 4.7% -4.4% 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 10.1% -1.0% 1.0% Current service cost and interest cost from the previous valuation (Rm) 19.3 11.4 15.8 % change -14.8% 18.4% - + 24. Trade and other payables
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 24. Trade and other payables Rm December 2019 December 2018 Trade payables 17,764.3 18,698.2 Operating lease liability – lease smoothing adjustment^ – 109.0 Payroll accruals 496.2 493.0 FEC liability (Not designated) 37.4 24.8 Income received in advance 151.6 162.1 Rebate payables including rebates and advertising owing to buying members 136.5 128.7 Interest accrual on loans and borrowings 202.4 79.7 Amounts due to Walmart 3.3 0.1 Sundry payables and other accruals 2,220.3 2,102.2 21,012.0 21,797.8 ^Refer to note 30 for the adoption of the new standards. Trade payables do not attract interest. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe, normally around 60 – 90 days, following industry norm. During the year credit days decreased by seven days to 74 days (December 2018: 81 days) due to the change in the mix of goods purchased. Settlement discounts received range between 1.0% to 5.0%. Sundry payables and other accruals comprises other sundry creditor accruals and VAT payables. Included in income received in advance is a gift card liability of R111.3 million (December 2018: R115.4 million). For more information on the Group’s liquidity risk management, refer to note 38. - + 25. Provisions
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 25. Provisions Rm December 2019 December 2018 Onerous lease provision – 1.9 Provisions raised on asset acquisitions – – Provision for Supplier Development Fund – 10.8 Provision for post-retirement medical aid contributions 7.7 8.6 Provision for restructuring – 6.6 Right of return and other 97.3 99.4 105.0 127.3 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 from the growth of their businesses. The fund has no fixed utilisation requirements per year.Reconciliation of provisions Rm Opening balance Change in acccounting standard Amounts provided Amounts utilised Unused amounts reversed Closing balance December 2019 Onerous lease provision 1.9 – – (1.9) – – Provision for Supplier Development Fund 10.8 – – (10.8) – – Provision for post-retirement medical aid contributions 8.6 – 7.7 (8.6) – 7.7 Provision for restructuring 6.6 – – (5.0) (1.6) – Right of return 99.4 – 20.0 (4.6) (17.5) 97.3 127.3 – 27.7 (30.9) (19.1) 105.0 December 2018 Onerous lease provision 3.1 – 1.9 (3.1) – 1.9 Provisions raised on acquisitions 31.5 – 0.1 (20.0) (11.6) 0.0 Provision for Supplier Development Fund 34.5 – – (23.7) – 10.8 Provision for post-retirement medical aid contributions 3.3 – 8.9 (3.6) – 8.6 Provision for restructuring – – 130.1 (122.2) (1.3) 6.6 Right of return – 85.0 38.2 (1.3) (22.5) 99.4 Other 11.1 – – – (11.1) – 83.5 85.0 179.2 (173.9) (46.5) 127.3 - + 26. Interest bearing borrowings
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 26. Interest bearing borrowings Rm December 2019 December 2018 Medium-term bank loans 266.5 600.0 Massmart Education Foundation loan 6.3 5.8 Lamberti Education Foundation Trust loan – 10.3 Interest-bearing borrowings 272.8 616.1 Debt facilities 1,300.0 1,744.0 Total interest-bearing borrowings 1,572.8 2,360.1 Medium-term loans Foreign bank loans comprise of an offshore USD facility (USD 19.0 million), granted by Standard Chartered Bank, available for working capital and general corporate requirements. The Group is using this loan to fund its African expansion. In October 2018 the original loan matured and was refinanced for a period of 2 years. Interest is incurred daily at the 6 monthly USD LIBOR rate plus 205 basis points, in arrears. Included in the 2018 medium-term bank loans above was a fixed term loan of R600.0 million. The loan was repayable in one final instalment in February 2019. The initial drawdown of the loan occurred on 31 March 2016 at a fixed interest rate of 9.78%, the interest was repayable monthly. The loan was secured by intragroup cross-suretyships. The Massmart Education Foundation loan represents cash reserves invested with Group Treasury. Interest was incurred at a fixed rate of 8.8% (December 2018: fixed rate of 8.8%), is unsecured and has no fixed terms of repayment. The Massmart Education Foundation is a related party of the Group. The Lamberti Education Foundation Trust loan represented cash reserves invested with Group Treasury. Interest was incurred at the Group borrowing rate which is a fixed rate of 8.8% (December 2018: 8.8%) . The loan had no fixed terms of repayment and was unsecured. The loan was fully repaid during the current financial year.Debt facilities At the end of the current financial year the Group had an outstanding overnight debt facility amounting to R1 300 million owing to CITI Bank. The debt facility bears interest at the South African prime lending rate less 2.75%. This debt facility facility was advanced during the current financial year at the ZAR equivalent value of USD 100 million (R1 450 million). The debt facility is not secured by intra-group crosssuretyships. At the end of the prior financial year the Group had an outstanding overnight debt facility amounting to R500 million owing to Investec Bank. The debt facility bore interest at a rate which was subjected to the daily base rate determined by the Bank’s treasury desk on drawdown date. The rate as at 30 December 2018 was 7.75%. The debt facility was secured by intra-group crosssuretyships. As at 29 December 2019 no balance was outstanding related to this debt facility. At the end of the prior financial year the Group had an outstanding overnight debt facility amounting to R710 million owing to Rand Merchant Bank. The debt facility bore interest at a rate which was subjected to the daily base rate determined by the Bank’s treasury desk on drawdown date. The rate as at 30 December 2018 was 7.75%. The debt facility was secured by intra-group crosssuretyships. As at 29 December 2019 no balance was outstanding related to this debt facility. At the end of the prior financial year the Group had an outstanding overnight debt facility amounting to R500 million owing to BNP Paribas. The debt facility bore interest at a rate which was subjected to the daily base rate determined by the Bank’s treasury desk on drawdown date. The rate as at 30 December 2018 was 7.75%. The debt facility was secured by intra-group crosssuretyships. As at 29 December 2019 no balance was outstanding related to this debt facility. For more information on the Group’s liquidity risk and interest rate risk management, refer to note 38. Additional information on the fair value of ‘non-current liabilities’ can be found in note 37. - + 27. Employee Share Incentive Schemes
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 27. Employee Share Incentive Schemes Massmart Holdings Limited Employee Share Trust Massmart introduced a Share Incentive Scheme in the 2013 financial year referred to as the Employee Share Incentive Plan. 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 restricted share grant and a performance share award, further explained below. The first grant of restricted grants 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 Scheme which had its last grant date on 1 May 2013. The Employee Share Option Scheme gave 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 grants, awards and options granted under the Employee Share Incentive Schemes through shares purchased in the market and held by the Massmart Holdings Limited Employee Share Trust, which was established for the purpose of satisfying grants, awards and options under the Employee Share Incentive Schemes, and is funded by the Group. Employee Share Option Scheme Massmart granted share options entitling certain employees within the Group to its shares under the Employee Share Option 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 Employee Share Option Scheme have not yet been exercised: 2019 Offer date Expiry date Exercise price (R) No of options at December 2018 No of options forfeited and expired No of options exercised No of options December 2019 27 May 2009 26 May 2019 77.56 139,118 54,691 84,427 – 1 September 2009 31 August 2019 79.15 6,929 – 6,929 – 16 November 2009 15 November 2019 88.71 10,272 10,272 – – 1 May 2010 30 April 2020 110.00 8,781 – – 8,781 1 September 2010 31 August 2020 120.42 44,399 – – 44,399 1 September 2011 31 August 2021 153.84 1,794,584 233,767 – 1,560,817 1 November 2011 31 October 2021 157.27 218,731 15,937 – 202,794 1 March 2012 28 February 2022 174.88 247,566 84,807 – 162,759 1 April 2012 31 March 2022 164.09 58,041 – – 58,041 16 May 2012 15 May 2022 159.62 213,042 – – 213,042 1 September 2012 31 August 2022 168.03 743,629 46,802 – 696,827 15 October 2012 14 October 2022 167.06 295,193 – – 295,193 1 March 2013 28 February 2023 186.05 420,745 114,234 – 306,511 1 May 2013 30 April 2023 187.53 33,907 – – 33,907 4,234,937 560,510 91,356 3,583,071 2018 Offer date Expiry date Exercise price (R) No of options at December 2017 No of options forfeited and expired No of options exercised No of options December 2018 1 April 2008 31 March 2018 66.91 38,205 – 38,205 – 26 May 2008 25 May 2018 72.86 120,113 – 120,113 – 1 September 2008 31 August 2018 79.86 61,471 – 61,471 – 15 November 2008 14 November 2018 79.91 27,245 – 27,245 – 1 March 2009 28 February 2019 70.71 5,258 – 5,258 – 27 May 2009 26 May 2019 77.55 199,475 – 60,357 139,118 1 September 2009 31 August 2019 79.15 9,367 – 2,438 6,929 16 November 2009 15 November 2019 88.71 10,272 – – 10,272 1 March 2010 28 February 2020 90.49 22,057 – 22,057 – 1 May 2010 30 April 2020 110.00 8,781 – – 8,781 1 September 2010 31 August 2020 120.42 64,261 – 19,862 44,399 1 September 2011 31 August 2021 153.84 2,306,948 100,187 412,177 1,794,584 1 November 2011 31 October 2021 157.27 294,560 28,962 46,867 218,731 1 March 2012 28 February 2022 174.88 284,334 36,768 – 247,566 1 April 2012 31 March 2022 164.09 58,041 – – 58,041 16 May 2012 15 May 2022 159.62 241,638 – 28,596 213,042 1 September 2012 31 August 2022 168.03 854,133 65,405 45,099 743,629 15 October 2012 14 October 2022 167.06 321,729 10,004 16,532 295,193 1 March 2013 28 February 2023 186.05 505,059 84,314 – 420,745 1 May 2013 30 April 2023 187.53 33,907 – – 33,907 5,466,854 325,640 906,277 4,234,937 December 2019 December 2018 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 4,403 5,715 Shares and options sold by employees and Executive Directors (152) (986) Shares repurchased from/ forfeited by employees and options lapsed/ forfeited (561) (326) Closing balance of shares and options issued 3,689 4,403 The closing balance includes 105,448 (December 2018: 168,102) shares and 3,583,071 (December 2018: 4,234,931) 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 other employees. Refer to note 15 on Employee Share Trust loans to Executive Directors and other employees. Movement in the year The following options granted to employees and Executive Directors in terms of the Employee Share Option Scheme have not yet been exercised: December 2019 December 2018 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 4,234,937 159 5,466,854 154.24 Exercised during the year (91,356) 77.70 (906,277) 125.47 Forfeited or expired during the year (560,510) 156.20 (325,640) 168.12 Outstanding at the end of the year 3,583,071 161.90 4,234,937 159.33 Exercisable at the end of the year 3,583,071 4,234,937 In December 2019, the weighted average share price at the date of exercise for share options exercised during the year was R77.70. The options outstanding at the end of the year had a weighted average remaining contractual life of 2.2 years. No options were granted in the current financial year. In December 2018, the weighted average share price at the date of exercise for share options exercised during the year was R125.47. The options outstanding at the end of the year had a weighted average remaining contractual life of 3.1 years. No options were granted in the current financial year. Fair value of share options granted during the year There were no grants issued during the current financial year. Employee Share Incentive Plan Massmart granted restricted share grants and performance share awards entitling certain employees within the Group to fully-paid shares under the Employee Share Incentive Plan. The grants and awards were granted by Massmart in its own shares resulting in the grants and awards being treated as equity-settled share-based payments. The Employee Share Incentive Plan is split into two incentive structures, mainly, restricted share grants and performance share awards. Restricted share grants 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 ten trading days immediately prior to the day in question. Performance share awards are subject to non-market conditions in years one, two and three 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 restricted share grants and over a three-year period for performance share awards as follows: Restricted share grants Performance share 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 grants and awards granted to employees and Executive Directors in terms of the Employee Share Incentive Plan have not yet been exercised: December 2019 December 2018 Restricted share grants Number of share grants and awards Vesting Period Number of share grants and awards Vesting Period 15 September 2014 – 2018 to 2019 – – 16 March 2015 6,227 2018 to 2020 163,264 2018 to 2019 15 September 2015 163,918 2018 to 2020 28,339 2018 to 2020 16 September 2016 387,190 2019 to 2021 385,989 2018 to 2020 18 April 2017 2,974 2020 to 2022 692,089 2019 to 2021 15 September 2017 824,445 2020 to 2022 25,275 2020 to 2022 14 September 2018 1,308,794 2021 to 2023 965,337 2020 to 2022 13 September 2019 2,745,462 2022 to 2024 1,480,672 2021 to 2023 Performance share awards 18 March 2016 – 2019 – 2018 18 April 2017 781,175 2020 972,130 2019 13 April 2018 675,171 2021 1,195,001 2020 12 April 2019 1,842,657 2022 1,067,154 2021 Total awards 8,738,013 6,975,250 Exercisable at the end of the year – – Movement in the Year December 2019 December 2018 Number of share grants and awards Weighted average exercise price Number of share grants and awards Weighted average exercise price Rand Rand Outstanding at the beginning of the year 6,975,250 – 6,733,071 – Granted during the year 4,792,392 – 2,614,914 – Vested during the year (1,536,413) – (1,540,033) – Forfeited or expired during the year (1,493,216) – (832,702) – Outstanding at the end of the year 8,738,013 – 6,975,250 – Exercisable at the end of the year – – The estimated fair values of the restricted share grants at grant date was R80.08 (December 2018: R102.83) and the performance share awards was R115.05 (December 2018: R132.53). These fair values were calculated using the Lattice Model. The inputs into the model at grant date were as follows: Restricted share grants (13 September 2019) December 2019 December 2018 10 day volume weighted average share price (Rand) 45.9 103.3 Expected volatility 54.16%-66.72% 28.87%-33.95% Expected life 2.75 – 4.25 years 2.75 – 4.25 years Risk-free rate 6.59%-6.87% 7.88%-8.19% Expected dividend yield 0.00% 3.44% Performance share awards and restricted share grants (12 April 2019) 10 day volume weighted average share price (Rand) 80.0 164.2 Expected volatility 32.97% 39.34% Expected life 2.25 years 2.25 years Risk-free rate 7.18% 6.93% Expected dividend yield 3.34% 3.22% 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 grants and awards. 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 2019 1 April 2014 30 March 2019 136.69 131,377 131,377 – – – 1 October 2014 30 September 2019 120.29 294,131 294,131 – – – 425,508 425,508 – – – December 2018 1 April 2013 30 March 2018 189.13 91,625 91,625 – – – 1 October 2013 30 September 2018 170.31 633,976 633,976 – – – 1 April 2014 30 March 2019 136.69 212,776 8,136 73,263 – 131,377 1 October 2014 30 September 2019 120.29 370,899 – 76,768 – 294,131 1,309,276 733,737 150,031 – 425,508 December 2019 December 2018 000s 000s Reconciliation of the number of options issued Opening balance of share options 425 1,309 New share options offered to employees – – Share options sold by employees – (150) Share options repurchased from/forfeited by employees and options lapsed/forfeited (425) (734) Closing balance of share options – 425 Number of options exercisable – – In the current financial year no options were exercised. In the year ending December 2018, 150,031 options were exercised. The options outstanding at the end of the year had a weighted average remaining contractual life of 0.6 years. Expense recognised in 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 2019 December 2018 Expense arising from Employee Share Option Scheme 0.2 (5.3) Expense arising from Employee Share Incentive Plan 127.8 195.9 Expense arising from Black Scarce Skills Trust – 4.0 Total expense arising from equity-settled share-based payment transactions 128.0 194.6 - + 28. Retirement benefit information
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 28. 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. The Massmart Pension Fund and Massmart Provident Fund have been classified as valuation exempt. The Board of Trustees successfully submitted the renewal applications for exemption from valuation in 2019 and the funds therefore remain exempt from the provisions of sections 9A and 16 of the Pension Funds Act. The exemption expires on 31 May 2022. This exemption may be extended upon submission of an application in terms of the Notice, which must be submitted to the registrar on or before 31 May 2022; failing which the fund must undergo a statutory actuarial valuation as at 31 May 2022, which must be submitted to the registrar by 31 May 2023. The fund will reapply if required. Contributions received by the funds for the year ended December 2019 amounted to R841.7 million (December 2018: R719.5 million). The Group’s contribution of R489.4 million (December 2018: R428.6 million) was included in the Income Statement for the year in ‘Employee costs’. - + 29. Commitments
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 29. Commitments Rm December 2019 December 2018 Commitments in respect of capital expenditure approved by Directors: Contracted for Stores to be opened 160.1 513.5 Stores to be refurbished 62.6 7.2 Purchase of plant and equipment 15.7 11.3 Purchase of new system software 179.5 322.8 Purchase of new computer hardware 53.5 46.6 Purchase of motor vehicles – 0.2 Store relocations 373.7 18.9 Minor revamps – – Store expansion and reduction 28.1 17.9 Distribution centre to be opened 145.1 20.4 1,018.3 958.8 Not contracted for Stores to be opened 52.4 524.1 Stores to be refurbished 255.1 96.3 Purchase of plant and equipment 217.6 240.8 Purchase of new system software 156.0 318.2 Purchase of new computer hardware 208.5 104.5 Purchase of motor vehicles 9.6 16.5 Store expansion and reduction 16.8 8.4 Distribution centre to be opened 78.3 58.0 Logistical expansion – 15.0 Store relocations 49.3 32.1 Minor revamps 3.7 – 1,047.3 1,413.9 2,065.6 2,372.7 - + 30. Adjustments recognised on adoption of IFRS 16
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 30. Adjustments recognised on adoption of IFRS 16 The Group has adopted IFRS 16 ‘Leases’ using the modified retrospective approach, by recognising the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of equity at 31 December 2018. IFRS 16 has had a significant impact for the Group, given the number of stores that are leased. IFRS 16 had no impact on the accounting of previously existing finance leases. It has however impacted most leases that were previously recorded as operating leases under IAS 17, where only the occupancy charge was recorded in the Income Statement. IFRS 16 now requires leases to be recognised in the Statement of Financial Position in the form of a capitalised right-of-use asset and corresponding liability. Changes to the Income Statement result in occupancy costs being replaced by an amortisation of the right-of-use asset and lease finance costs on the liability. In applying IFRS 16 for the first time, the Group has used the following expedients permitted by the standard:
a. Modified retrospective adoption – no comparatives required to be disclosed
b. Combine lease and non-lease components
c. Exemption of short-term leases and leases for low value assets
d. Portfolio approach applied to classes of leases that have similar characteristics
e. Interest rate based on remaining lease term for existing leases at transition dateFor leases previously classified as finance leases the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial recognition. The measurement principles of IFRS 16 are only applied after this date. Remeasurements to lease liabilities were recognised as adjustments to the related right-of-use assets immediately after the date of initial recognition. Rm December 2019 Net lease commitments as at 30 December 2018 Real Estate Short-term Year 1 2,343.8 Years 2 to 5 7,807.2 Subsequent to year 5 6,102.7 16,253.7 Long-term 1 Year 1 5.0 Years 2 to 20 212.8 Years 21 to 50 2,209.8 Subsequent to year 50 12,719.4 15,147.0 Non-real estate Year 1 52.1 Years 2 to 5 68.3 Subsequent to year 5 – 120.4 Lease commitments disclosed as at 30 December 2018 31,521.1 Discounted using the lessees’ incremental borrowing rate of
at the date of initial application(21,051.4) Add: Finance lease liabilities recognised as at 30 December 2018 396.2 (Less): low-value leases recognised on a straight-line basis as expense (88.2) Lease liability recognised as at adoption date 10,777.7 Of which are: Non-current lease liabilities 9,598.3 Current liabilities 1,179.4 10,777.7 All line items on the Group Statement of Financial Position impacted by the adoption of IFRS 16 are as follows: December
2018
(Audited)IFRS 16 at adoption adjustment 2019
Opening
Balance
(Adjusted)Non-current assets Lease assets 537.7 8,530.0 9,067.7 Current assets Trade, other receivables and prepayments 5,693.2 (118.1) 5,575.1 Total assets 6,230.9 8,411.9 14,642.8 Equity attributable to owners of the parent Retained profit 5,643.1 (227.1) 5,416.0 Non-current liabilities Lease liability 648.1 8,950.2 9,598.3 Interest-free borrowings 1,278.2 (1,276.3) 1.9 Current liabilities Trade and other payables 21,797.8 (145.3) 21,652.5 Lease liability 69.0 1,110.4 1,179.4 Total equity and liabilities 29,436.2 8,411.9 37,848.1 The associated right-of-use assets for property leases were measured on a modified retrospectively basis as if the new rules had always been applied. Right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payment as well as any lease smoothing and onerous lease balances relating to that lease as at 30 December 2018. The adoption of IFRS 16 and the related change in accounting policy affected a number of line items on the Statement of Financial Position. The net impact to retained earnings was an amount of R227.1 million representing the day-one impairment of certain right-of-use assets on adoption date. Leases on properties are normally contracted for periods of between 3 and 12 years with renewal options averaging a further 3 to 10 years. Rental comprises minimum monthly payments and in some cases, contingent payments based on turnover levels. Turnover rentals, where applicable, average 1.1% of turnover. Rental escalations vary, but are between 0% and 10% p.a.1The long-term lease of land relates to a 99-year lease arrangement that was entered into in 1994 for the Makro Woodmead Store. The basic rental escalation is set at 7.5%. The present value of the minimum lease payments was R251.9 million as at 30 December 2018. This was the only finance lease included in the 2018 net lease commitments disclosure. - + 31. Contingent liabilities
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 31. Contingent liabilities Rm December 2019 December 2018 Contingent liabilities – – During 2019, we managed litigation, regulatory challenges and some other contingent liabilities, some of which have been resolved and others that are ongoing but are unlikely to impact the group. The Competition Commission probe into the Grocery Retail Market Inquiry was finalised with a report being issued in November of 2019 stating that all lease exclusivities must be phased out in a period of 5 years from the date of report, amongst other things. The Commission will seek to enforce regulations governing this going forward. - + 32. Related-party transactions
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 32. Related-party transactions 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. December 2019 December 2018 Rm 52 weeks 52 weeks 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) 124.5 87.3 Retirement benefits 4.4 4.2 Other long-term benefits 38.5 0.5 Gains on exercise of share options 17.4 33.6 184.8 125.6 Other related-party transactions: Refer to note 24 for the outstanding balance owed to Walmart at the end of the current financial year. Operational costs of R20.6 million (2018: R30.1 million) were recovered from Walmart during the current financial year. Interest amounting to Rnil (2018: R12.5 milion) was paid to Walmart during the current financial year. Main Street 830 Proprietary Limited, a subsidiary of Wal-Mart Stores, Inc. and the direct holding company of Massmart Holdings Limited receives dividends from the Company. A scrip dividend of R159.4 million (December 2018: R385.7 million cash dividend) was distributed during the current financial year. Loans to Executive Directors and Executive Committee members have been disclosed in note 15. Loans owing to Massmart Education Foundation and Lamberti Education Foundation Trust have been disclosed in note 26. R0.5 million (2018: R0.5 million) interest was paid to Massmart Education Foundation and R0.1 million (2018: R0.5 million) interest was paid to Lamberti Education Foundation Trust during the current financial year. 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 23 and note 28. Refer to note 33 and note 34 for more information regarding Directors remuneration and interests in the Company’s Share Incentive Schemes. - + 33. Directors’ emoluments
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 33. Directors’ emoluments R’000 Services as Directors of Massmart Holdings Limited Salary and allowances Bonuses and performance related payments1 Other benefits Retirement and related benefits Subtotal Fringe benefit of interest-free loans used to finance shares2 Gains on exercise of share options and on shares purchased by Directors Total For the 52 weeks ended December 2019 Executive Directors Slape, M3 – 744 2,679 3,080 – 6,503 – – 6,503 Abdool-Samad, M4 – 2,100 10,097 321 221 12,739 – – 12,739 Hayward, GRC5 – 18,828 – 258 686 19,772 218 1,369 21,359 van Lierop, JJM6 – 18,769 – 1,047 – 19,816 – 3,070 22,886 – 40,441 12,776 4,706 907 58,830 218 4,439 63,487 Non-Executive Directors Dlamini, KD 2,313 – – – – 2,313 – – 2,313 Seabrooke, CS7 403 – – – – 403 – – 403 Burnley, R8 – – – – – – – – – Gwagwa, NN 1,141 – – – – 1,141 – – 1,141 Ighodaro, O 1,086 – – – – 1,086 – – 1,086 Langeni, P 1,702 – – – – 1,702 – – 1,702 Mthimunye, L 720 – – – – 720 – – 720 Muigai, S – – – – – – – – – Ostale, E – – – – – – – – – Suarez, JP – – – – – – – – – 7,365 – – – – 7,365 – – 7,365 Total 7,365 40,441 12,776 4,706 907 66,195 218 4,439 70,852 1In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year 2Held in terms of the rules of the Company’s share scheme 3Appointed with effect from 1 September 2019 4Appointed with effect from 1 August 2019 5Resigned as an Executive Director with effect from 31 August 2019 6Resigned with effect from 31 July 2019 7Resigned with effect from 23 May 2019 8Resigned with effect from 27 February 2019 R’000 Services as Directors of Massmart Holdings Limited Salary and allowances Bonuses and performance related payments1 Other benefits Retirement and related benefits Subtotal Fringe benefit of interest-free loans used to finance shares2 Gains on exercise of share options and on shares purchased by Directors Total For the 53 weeks ended December 2018 Executive Directors Hayward, GRC – 6,345 1,306 228 666 8,545 332 3,921 12,798 van Lierop, JJM – 5,566 1,055 2,603 – 9,224 – 13,017 22,241 – 11,911 2,361 2,831 666 17,769 332 16,938 35,039 Non-Executive Directors Dlamini, KD 2,262 – – – – 2,262 – – 2,262 Seabrooke, CS 1,965 – – – – 1,965 – – 1,965 Burnley, R – – – – – – – – – Gwagwa, NN 845 – – – – 845 – – 845 Ighodaro, O3 533 – – – – 533 – – 533 Langeni, P 1,541 – – – – 1,541 – – 1,541 Muigai, S – – – – – – – – – Ostale, E – – – – – – – – – – 7,146 – – – – 7,146 – – 7,146 Total 7,146 11,911 2,361 2,831 666 24,915 332 16,938 42,185 1In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year 2Held in terms of the rules of the Company’s share scheme 3Appointed with effect from May 2018 - + 34. Interests of Directors in the Company’s share scheme
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS 34. Interests of Directors in the Company’s share scheme Details of Directors’ shares and share options per Director: Grant dates Subscription price (R) Number of shares/share options Gain on sale/exercise (R 000’s) Expiry date M Abdool-Samad Employee Share Incentive Plan (note 27) Balance at December 2018 – Restricted share grants 13-Sep-19 – 47,474 – 13-Sep-22 Restricted share grants 13-Sep-19 – 47,474 – 13-Sep-23 Restricted share grants 13-Sep-19 – 47,492 – 13-Sep-24 Balance at December 2019 142,440 GRC Hayward Employee Share Option Scheme (note 27) Balance at December 2018 375,977 Options exercised/ shares sold – Balance at December 2019 375,977 Comprising: Shares 27-May-09 77.56 105,448 – – Options 1-Sep-11 153.84 120,987 – 1-Sep-21 Options 16-May-12 159.62 149,542 – 16-May-22 Employee Share Incentive Plan (note 27) Balance at December 2018 169,458 Performance shares vested 18-Mar-16 – (27,157) – 18-Mar-19 Performance share award forfeitures* 18-Mar-16 – (7,637) – 18-Mar-19 Performance share award forfeitures* 18-Apr-17 – (7,981) – 18-Apr-20 Performance share award forfeitures* 13-Apr-18 – (7,316) – 13-Apr-21 Restricted share grants 15-Sep-14 – (3,838) – 15-Sep-19 Restricted share grants 15-Sep-15 – (4,732) – 15-Sep-19 Restricted share grants 16-Sep-16 – (4,650) – 16-Sep-19 Balance at December 2019 – 106,147 – Comprising: Performance share awards 18-Apr-17 – 27,811 – 17-Apr-20 Performance share awards 13-Apr-18 – 28,834 – 12-Apr-21 Restricted share grants 15-Sep-15 – 4,734 – 15-Sep-20 Restricted share grants 16-Sep-16 – 4,650 – 16-Sep-20 Restricted share grants 16-Sep-16 – 4,653 – 16-Sep-21 Restricted share grants 15-Sep-17 – 5,345 – 15-Sep-20 Restricted share grants 15-Sep-17 – 5,345 – 15-Sep-21 Restricted share grants 15-Sep-17 – 5,348 – 15-Sep-22 Restricted share grants 14-Sep-18 – 6,475 – 14-Sep-21 Restricted share grants 14-Sep-18 – 6,475 – 14-Sep-22 Restricted share grants 14-Sep-18 – 6,477 – 14-Sep-23 JJM van Lierop Employee Share Incentive Plan (note 27) Balance at December 2018 150,706 Performance shares vested 18-Mar-16 – (26,782) – 18-Mar-19 Performance share award forfeitures* 18-Mar-16 – (7,532) – 18-Mar-19 Performance shares vested 18-Apr-17 – (11,439) – 18-Apr-20 Performance share award forfeitures* 18-Apr-17 – (16,482) – 18-Apr-20 Performance shares vested 13-Apr-18 – (3,262) – 13-Apr-21 Performance share award forfeitures* 13-Apr-18 – (21,660) – 13-Apr-21 Restricted share grants 16-Mar-15 – (15,889) – 16-Mar-18 Restricted share grants 15-Sep-15 – (8,235) – 15-Sep-18 Restricted share grants 16-Sep-16 – (11,578) – 16-Sep-19 Restricted share grants 15-Sep-17 – (12,086) – 15-Sep-20 Restricted share grants 14-Sep-18 – (15,761) – 14-Sep-21 Balance at December 2019 – The Directors’ interest in the Company’s shares and options held at reporting date can be found in the Directors’ Report. At the date of approval of the Group Annual Financial Statements, M Slape held 0 shares and 0 share options/grants/awards, M Abdool-Samad held 0 shares and 142,440 share options/grants/awards, GRC Hayward held 230,389 shares and 376,676 share options/grants/awards and JJM van Lierop held 0 shares and 0 share options/grants/awards. There were no other changes in the interests held by the Directors in the Company’s shares after the reporting date up to the date of approval.
MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019
Notes to the Annual Group Financial Statements 17-34
For the year ended 29 December 2019