MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

Notes to the Annual Group Financial Statements 35-42

For the year ended 29 December 2019
  • + 35. Principal subsidiaries
                               
    NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
                       
                               
    35. Principal subsidiaries                        
                               
    Details of Massmart’s principal subsidiary companies are as follows:
                               
          Number of shares in issue   Place of incorporation and operation   Ownership   Voting power       Interest in Subsidiaries2
    Name of company     000s1     %   %   Principal activity   Rm
                               
    December 2019                          
    Massbuild Proprietary Limited     –   South Africa   100   100   Wholesale and retail of DIY products   289.4
    Masscash Holdings Proprietary Limited   –   South Africa   100   100   Holding company   81.6
    Massmart International Holdings Limited   –   Mauritius   100   100   Holding company   227.7
    Masstores Proprietary Limited   200   South Africa   100   100   Retailing, warehousing, mass merchandising   (19.4)
    Massmart Management and Finance Company Proprietary Limited   –   South Africa   100   100   Management, investment and finance   398.8
    Wild Developments Proprietary Limited   –   South Africa   100   100   Property Holding Company   –
    Massmart Services Proprietary Limited3     –   South Africa   100   100   Management, investment and finance   4,077.2
    Other smaller subsidiaries     –   Various               711.3
                              5,766.6
    December 2018                          
    Massbuild Proprietary Limited     –   South Africa   100   100   Wholesale and retail of DIY products   289.3
    Masscash Holdings Proprietary Limited   –   South Africa   100   100   Holding company   3,055.8
    Massmart International Holdings Limited   –   Mauritius   100   100   Holding company   81.4
    Masstores Proprietary Limited   200   South Africa   100   100   Retailing, warehousing, mass merchandising   (0.3)
    Massmart Management and Finance Company Proprietary Limited   –   South Africa   100   100   Management, investment and finance   –
    Wild Developments Proprietary Limited   –   South Africa   100   100   Property Holding Company   197.8
    Other smaller subsidiaries     –   Various               1,380.0
                              5,004.0
                               
    The above details are given in respect of interests in subsidiaries, where material. A full list of subsidiaries is available to shareholders, on request, at the registered office of the Company.
    There were no material non-controlling interests identified within the Group in the current and prior financial years.
    1Value is less than 100 000.
    2Interest includes the value of the shares in as well as loans to/from these principal subsidiaries with the Company.
    3Refer to note 5 of the Company financial statements for additional details regarding this transaction.
  • + 36. Notes to the Statement of Cash Flows
               
    NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
               
               
    36. Notes to the Statement of Cash Flows        
               
          December 2019   December 2018
    Rm Notes   52 weeks   52 weeks
    36.1 Cash inflow from trading activities          
    (Loss)/Profit before taxation     (1,090.1)   1,268.1
    Adjusted for:          
    Depreciation, amortisation and impairment     3,301.7   1,156.0
    Net (profit)/loss on disposal of tangible and intangible assets     (2.5)   9.5
    Finance costs     1,860.4   648.8
    Finance income     (61.3)   (25.1)
    Dividends from unlisted investments     (20.0)   (34.0)
    Share-based payment expense     128.0   194.6
    Unrealised foreign exchange profit     109.8   11.8
    Other non-cash movements     70.8   181.6
          4,296.8   3,411.3
               
    36.2 Working capital movements          
    Decrease/(Increase) in inventories     143.4   (1,024.6)
    Decrease/(Increase) trade receivables and prepayments     586.0   (575.1)
    Increase/(Decrease) in trade payables     (793.4)   1,226.3
    Decrease in provisions     (18.0)   (172.4)
          (82.0)   (545.8)
               
    36.3 Taxation paid          
    Normal taxation:          
    Amounts receivable from tax authorities at the beginning of the year     156.0   337.4
    Amounts receivable to tax authorities at the end of the year     (24.3)   (156.0)
    Taxation recognised in the Income Statement     (344.9)   (506.0)
    Foreign exchange movement     22.1   –
          (191.1)   (324.6)
               
    36.4 Investment to maintain operations          
    Land and buildings/leasehold improvements     (39.3)   (103.7)
    Vehicles     (45.4)   (64.8)
    Fixtures, fittings, plant and equipment     (154.1)   (295.7)
    Computer hardware     (87.4)   (138.9)
    Computer software     (254.1)   (169.3)
          (580.3)   (772.4)
    36.5 Investment to expand operations          
    Land and buildings/leasehold improvements     (177.2)   (191.6)
    Vehicles     (0.7)   (15.7)
    Fixtures, fittings, plant and equipment     (266.8)   (291.9)
    Computer hardware     (147.0)   (72.9)
    Computer software     (199.9)   (261.5)
          (791.5)   (833.6)
               
    36.6 Proceeds on disposal of assets classified as held for sale     41.3   32.8
               
    36.7 Analysis of cash flows from financing activities          
    Non-current – interest-bearing borrowings          
    – Medium-term bank loans     600.0   (583.6)
    Non-current liabilities – interest-free borrowings          
    – Loans to non-controlling interests     –   (0.1)
    Increase/(Decrease) in non-current liabilities     600.0   (583.7)
               
    Other current liabilities          
    – Medium-term bank loans     (600.0)   (621.3)
    – Debt facilities     (452.4)   1,744.0
    – Repayments of lease obligations     (1,551.2)   (79.2)
    – Other Interest-bearing borrowings     (9.8)   –
    (Decrease)/Increase in current liabilities     (2,613.4)   1,043.5
               
    Net (outflow)/inflow arising from financing activities relating to non-current and current liabilities     (2,013.4)   459.8
               
    36.8 Cash and cash equivalents at the end of the year          
    Cash on hand and bank balances     1,291.8   2,369.8
    Bank overdrafts     (141.2)   –
    Cash and cash equivalents at the end of the year     1,150.6   2,369.8
               
               
  • + 37. Fair Value
                                 
    NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
                                 
                                 
    37. Fair Value
                               
    Fair value hierarchy
                                 
    The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments identified below. The table below reflects ‘Financial instruments’ and ‘Non-current assets classified as held for sale’ carried at fair value, and those ‘Financial instruments’ and ‘Non-current assets classified as held for sale’ that have carrying amounts that differ from their fair values, in the Statement of Financial Position:
                                 
    Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
    Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly
    Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data
                                 
    Financial instruments and assets held for sale in the Statement of Financial Position
                                 
    Rm   Total Carrying Amount   Total Fair Value   Level 1   Level 2   Level 3
                                 
    December 2019                    
    Financial Assets                    
    Financial assets measured at fair value through profit or loss   154.7   154.7   –   28.5   126.2
    Financial assets measured at amortised cost   7.5   7.3   –   7.3   –
    Financial assets measured at fair value through OCI   0.8   0.8   0.8   –   –
    Non-current assets classified as held for sale   159.5   159.5   –   –   159.5
                322.5   322.3   0.8   35.8   285.7
                                 
    Financial liabilities                    
    Financial liabilities measured at amortised cost   2,266.5   2,326.3   –   2,326.3   –
    – Medium-term loan   –   –   –       –
    – Medium-term bank loans   2,266.5   2,326.3   –   2,326.3   –
    Financial liabilities measured at fair value through profit or loss   37.4   37.4   –   37.4   –
                2,303.9   2,363.7   –   2,363.7   –
                                 
                                 
    The Group’s unlisted investments in insurance cell-captives were previously categorised within Level 2 of the fair value hierarchy. Due to the unobservability of the lowest level input that is significant to the entire valuation, the financial assets was re-categorised to Level 3 at the end of the period. Other than this transfer, there were no further transfers between Level 1, Level 2 and Level 3 fair value categories during the year.
    The financial assets and financial liabilities have been presented based on an analysis of their respective natures, characteristics and risks.
                                 
                                 
    Financial instruments and assets held for sale in the Statement of Financial Position    
    Rm   Total Carrying Amount   Total Fair Value   Level 1   Level 2   Level 3
                                 
    December 2018                    
    Financial Assets                    
    Financial assets measured at fair value through profit or loss   124.3   124.3   –   124.3   –
    Financial assets measured at amortised cost   11.8   9.6   –   9.6   –
    Financial assets measured at fair value through OCI   1.1   1.1   1.1   –   –
    Non-current assets classified as held for sale   11.6   11.6   –   –   11.6
                148.8   146.6   1.1   133.9   11.6
                                 
    Financial liabilities                    
    Financial liabilities measured at amortised cost   2,291.1   2,342.2   –   2,342.2   –
    Financial liabilities measured at fair value through profit or loss   24.8   24.8   –   24.8   –
                2,315.9   2,367.0   –   2,390.8   –
                                 
    There were no transfers between the fair value categories during the December 2018 financial year.
    The financial assets and financial liabilities have been presented based on an analysis of their respective natures, characteristics and risks.
                                 
    Fair value measurements categorised within Level 3 reconciliation    
                                 
                    Financial assets measured at fair value through profit or loss   Non-current assets classified as held for sale
    Rm       December 2019   December 2018   December 2019   December 2018
                                 
    Opening balance   –   –   11.6   19.9
    Financial assets recategorised to Level 3   100.9   –   –   –
    Fair value adjustments recognised in the Income Statement   25.3   –   –   –
    Held for sale assets sold during the period   –   –   (11.6)   –
    Asset transferred as held for sale during the period   –   –   159.5   –
    Held for sale assets transferred to property, plant and equipment during the period   –   –   –   (8.3)
    Closing balance   126.2   –   159.5   11.6
                                 
                                 
    Fair value measurement and valuation techniques for level 2 and level 3 financial instruments
                                 
    Rm     Fair value December 2019   Valuation technique   Significant inputs   Input
    2019
                                 
    Type of financial instrument                
    Financial Assets                
                                 
    Financial assets measured at fair value through profit or loss   154.7            
    – Investment in insurance cell-captive on extended warranties   57.2   NAV   Cash and cash equivalents    
                            Investment in unit trusts    
                            Insurance fund liabilities    
    – Investment in insurance cell-captive on premium contributions   63.3   NAV   Cash and cash equivalents    
                            Investment in unit trusts    
                            Insurance fund liabilities    
    – Investment in insurance cell-captive on credit life   5.7   NAV   Cash and cash equivalents    
    – FEC asset – non-designated   28.5   DCF   Yield curves
    Market interest rate
    Market foreign exchange rate    		    
                                 
                                 
    Financial assets measured at amortised cost   7.3            
    – Employee share trust loans   7.3   DCF   Market interest rate    
                     
    Financial assets measured at fair value through OCI   0.8            
    – Listed investments   0.8            
                     
        159.5            
    Non-current assets classified as held for sale   159.5   Market approach based on market information and information provided by the Group’s selling agents   Expected selling price in the market   159.5
                     
                    322.3            
                                 
    Financial liabilities                
                                 
    Financial liabilities measured at amortised cost   2,326.3            
    – Medium-term bank loans   2,326.3   DCF   Market interest rate    
    Financial liabilities measured at fair value through profit or loss   37.4            
    – FEC liability   37.4   DCF   Yield curves
    Market interest rate
    Market foreign exchange rate    		    
                                 
                    2,363.7            
                                 
                                 
    Valuation technique   Description of valuation technique
                                 
    Net asset value (NAV)   Net asset value is used as a valuation technique where the underlying assets and liabilities have been assessed to represent the fair value of the investment. Due to the nature of the investment, specifically the significant composition of liquid assets and liabilities, the net asset value is seen to be the most appropriate representation of fair value.
                                 
    Discounted cash flow (DCF)   The DCF method involves the projection of a series of cash flows. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish the present value of the cash flow stream associated with the item. With regards to assets, the fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the asset’s life including an exit or terminal value. With regards to liabilities, in determining fair value management considers non-performance risk and the Group’s own credit risk. To this end, the Group applies level 2 of the expected present value technique per IFRS 13 Fair Value Measurement.
                                 
                                 
    Fair value measurement and valuation techniques for level 2 and level 3 financial instruments    
                                 
    Rm   Fair value December 2018   Valuation technique   Significant inputs   Input 2018
                                 
    Type of financial instrument                
    Financial Assets                
                                 
    Financial assets measured at fair value through profit or loss   124.3            
    – Investment in insurance cell-captive on extended warranties   30.0   NAV   Cash and cash equivalents    
                            Investment in unit trusts    
                            Insurance fund liabilities    
    – Investment in insurance cell-captive on premium contributions   66.3   NAV   Cash and cash equivalents    
                            Investment in unit trusts    
                            Insurance fund liabilities    
    – Investment in insurance cell-captive on credit life   4.6   NAV   Cash and cash equivalents    
    – FEC asset – non-designated   23.4   DCF   Yield curves
    Market interest rate
    Market foreign exchange rate    		    
                                 
                                 
    Financial assets measured at amortised cost   9.6            
    – Employee share trust loans   9.6   DCF   Market interest rate    
                     
    Financial assets measured at fair value through OCI   1.1            
    – Listed investments   1.1            
                     
        11.6            
    Non-current assets classified as held for sale   11.6   Signed sales agreement   Expected selling price in the market   11.6
                     
                    146.6            
                                 
    Financial liabilities                
                                 
    Financial liabilities measured at amortised cost   2,342.2            
    – Medium-term bank loans   2,342.2   DCF   Market interest rate    
    Financial liabilities measured at fair value through profit or loss   24.8            
    – FEC liability   24.8   DCF   Yield curves
    Market interest rate
    Market foreign exchange rate    		    
                                 
                    2,367.0            
                                 
                                 
    Valuation technique   Description of valuation technique
                                 
    Net asset value (NAV)   Net asset value is used as a valuation technique where the underlying assets and liabilities have been assessed to represent the fair value of the investment. Due to the nature of the investment, specifically the significant composition of liquid assets and liabilities, the net asset value is seen to be the most appropriate representation of fair value.
                                 
    Discounted cash flow (DCF)   The DCF method involves the projection of a series of cash flows. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish the present value of the cash flow stream associated with the item. With regards to assets, the fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the asset’s life including an exit or terminal value. With regards to liabilities, in determining fair value management considers non-performance risk and the Group’s own credit risk. To this end, the Group applies level 2 of the expected present value technique per IFRS 13 Fair Value Measurement.
                                 
                                 
  • + 38. Risk Management
                                               
      NOTES TO THE ANNUAL FINANCIAL STATEMENTS                  
                         
                                               
      38. Risk Management                  
                                               
      Capital risk management                  
                                               
      The Group measures its capacity for debt by monitoring gross interest-bearing debt (including a 5 times multiple of rent) over EBITDAR and EBITDA divided by net interest. Provided that these two metrics are within target ranges (agreed with the Group’s Audit Committee and lenders from time to time), the Group is satisfied that it will continue as a going concern while maximising the return to stakeholders through the optimisation of debt and equity balances.          
                                               
      The capital structure of the Group consists of debt, more specifically medium-term interest-bearing debt and equity attributable to owners of the parent, comprising share capital, share premium, other reserves and retained profit (See note 20 and note 21 respectively).          
                 
      The targeted level of gearing is determined after consideration of the following key factors :          
      – the needs of the Group to fund current and future capital expenditure to achieve its stated production growth target; and          
      – the desire of the Group to maintain its gearing within levels considered to be acceptable taking into account potential business opportunities and the position of the Group in the business cycle.          
      The targeted level of gearing was adequately managed in the current financial year.          
                 
      The Group has medium-term debt facilities that include certain covenants, including:          
      – maximum gearing ratio;          
      – minimum interest cover; and          
      – specified levels of shareholders’ equity.          
                 
      The Group’s general banking facility can be analysed as follows:          
                                               
      Rm   December 2019   December 2018                              
                                               
      Available cash reserves     1,150.6   625.8                              
      General banking facility     8,739.0   6,575.8                              
      Total     9,889.6   7,201.6                              
                                               
      The above general banking facility excludes a R500m seasonal facility in the current and prior financial year.          
      The Group complies with all externally imposed capital requirements relating to loan covenants.          
                                               
                                               
      Classification of financial instruments                                  
                                               
      December 2019     Financial instrument   Cash flow – hedging instrument   Financial assets measured at fair value through profit or loss   Financial liabilities measured at amortised cost   Financial assets measured at amortised cost   Financial assets measured at fair value through OCI   Non-financial instruments          
      Rm                          
      ASSETS                                        
      Non-current assets                                        
      Property, plant and equipment   –   –   –   –   –   –   8,585.9          
      Lease assets     –   –   –   –   –   –   8,283.1          
      Goodwill   –   –   –   –   –   –   2,598.2          
      Other intangibles assets   –   –   –   –   –   –   1,267.3          
      Investments   127.0   –   126.2   –   –   0.8   –          
      – Investment in insurance cell-captive on extended warranties   57.2   –   57.2   –   –   –   –          
      – Investment in insurance cell-captive on premium contributions   63.3   –   63.3   –   –   –   –          
      – Investment in insurance cell-captive on credit life   5.7   –   5.7   –   –   –   –          
      – Other listed investments   0.8   –   –   –   –   0.8   –          
      Deferred taxation   –   –   –   –   –   –   885.7          
      Current assets                                    
      Inventories   –   –   –   –   –   –   11,893.8          
      Other financial assets   7.5   –   –   –   7.5   –   –          
      – Employee share trust loans   7.5   –   –   –   7.5   –   –          
      Trade, other receivables and prepayments   4,696.9   –   28.5   –   4,668.4   –   316.4          
      – Trade receivables   2,329.5   –   –   –   2,329.5   –   –          
      – Rebate receivables, including rebates and advertising from buying members   1,709.4   –   –   –   1,709.4   –   –          
      – Other accounts receivable and prepayments   629.5   –   –   –   629.5   –   316.4          
      – FEC asset   28.5   –   28.5   –   –   –   –          
      Taxation   –   –   –   –   –   –   224.7          
      Cash on hand and bank balances   1,291.8   –   –   –   1,291.8   –   –          
      Non-current assets classified as held for sale   –   –   –   –   –   –   159.5          
                                               
      Total assets   6,123.2   –   154.7   –   5,967.7   0.8   34,214.6          
                                               
      Non-current liabilities                                        
      Non-current liabilities – interest-bearing borrowings   10,950.7   –   –   10,950.7   –   –   –          
      – Medium-term bank loans   2,000.0   –   –   2,000.0   –   –   –          
      – Lease liability   8,950.7   –   –   8,950.7   –   –   –          
      Non-current liabilities – interest-free borrowings   1.9   –   –   1.9   –   –   5.1          
      – Loans to non-controlling interests   1.9   –   –   1.9   –   –   –          
      – Other non-current interest-free borrowings   –   –   –   –   –   –   5.1          
      Provisions   –   –   –   –   –   –   83.8          
      Deferred taxation   –   –   –   –   –   –   79.7          
      Current liabilities                                      
      Trade and other payables   20,194.8   –   37.4   20,157.5   –   –   817.2          
      – Trade payables   17,764.3   –   –   17,764.3   –   –   –          
      – FEC liability   37.4   –   37.4   –   –   –   –          
      – Income received in advance   –   –   –   –   –   –   151.6          
      – Rebate payables including rebates and advertising owing to buying members   136.5   –   –   136.5   –   –   –          
      – Interest accrual   202.4   –   –   202.4   –   –   –          
      – Amounts due to Walmart   3.3   –   –   3.3   –   –   –          
      – Sundry payables and other accruals   2,051.0   –   –   2,051.0   –   –   665.6          
      Provisions   –   –   –   –   –   –   105.0          
      Other current liabilities   2,957.2   –   –   2,957.2   –   –   –          
      – Related party loans   6.3   –   –   6.3   –   –   –          
      – Medium-term bank loans   266.5   –   –   266.5   –   –   –          
      – Debt facilities   1,300.0   –   –   1,300.0   –   –   –          
      – Lease liability   1,384.4   –   –   1,384.4   –   –   –          
      Taxation   –   –   –   –   –   –   200.4          
      Bank overdrafts   141.2   –   –   141.2   –   –   –          
                                               
      Total liabilities   34,245.8   –   37.4   34,208.5   –   –   1,291.2          
                                               
                                               
      December 2018     Financial instrument   Cash flow – hedging instrument   Financial assets measured at fair value through profit or loss   Financial liabilities measured at amortised cost   Financial assets measured at amortised cost   Financial assets measured at fair value through OCI   Non-financial instruments          
      Rm                              
      ASSETS                                        
      Non-current assets                                        
      Property, plant and equipment     –   –   –   –   –   –   9,647.2          
      Goodwill     –   –   –   –   –   –   2,599.2          
      Other intangibles assets     –   –   –   –   –   –   1,057.1          
      Investments     102.0   –   100.9   –   –   1.1   –          
      Other financial assets     17.2   –   –   –   17.2   –   –          
      Deferred taxation     –   –   –   –   –   –   743.1          
      Current assets                                        
      Inventories     –   –   –   –   –   –   12,180.9          
      Trade, other receivables and prepayments     5,264.8   –   23.4   –   5,241.4   –   428.4          
      – Trade receivables     2,608.4   –   –   –   2,608.4   –   –          
      – Other accounts receivable and prepayments     2,633.0   –   –   –   2,633.0   –   428.4          
      – FEC asset     23.4   –   23.4   –   –   –   –          
      Taxation     –   –   –   –   –   –   361.3          
      Cash on hand and bank balances     2,369.8   –   –   –   2,369.8   –   –          
      Non-current assets classified as held for sale     –   –   –   –   –   –   11.6          
                                               
      Total assets     7,753.8   –   124.3   –   7,628.4   1.1   27,028.8          
                                               
      Non-current liabilities                                        
      Non-current liabilities – interest-bearing borrowings     2,254.1   –   –   2,254.1   –   –   –          
      – Medium-term bank loans     1,675.0   –   –   1,675.0   –   –   –          
      – Capitalised finance lease     579.1   –   –   579.1   –   –   –          
      Non-current liabilities – interest-free borrowings     1.9   –   –   1.9   –   –   1,276.3          
      – Loans to non-controlling interests     1.9   –   –   1.9   –   –   –          
      – Other non-current interest-free borrowings     –   –   –   –   –   –   27.4          
      – Operating lease liability     –   –   –   –   –   –   1,248.9          
      Provisions     –   –   –   –   –   –   85.5          
      Deferred taxation     –   –   –   –   –   –   76.7          
      Current liabilities                                        
      Trade and other payables     21,797.8   –   24.8   21,773.0   –   –   –          
      – Trade payables     18,698.2   –   –   18,698.2   –   –   –          
      – FEC liability     24.8   –   24.8   –   –   –   –          
      – Rebate payables including rebates and advertising owing to buying members   128.7   –   –   128.7   –   –   –          
      – Interest accrual     79.7   –   –   79.7   –   –   –          
      – Amounts due to Walmart     0.1   –   –   0.1   –   –   –          
      – Sundry payables and other accruals     2,866.3   –   –   2,866.3   –   –   –          
      Provisions     –   –   –   –   –   –   127.3          
      Other current liabilities     685.1   –   –   685.1   –   –   –          
      – Medium-term loans     16.1   –   –   16.1   –   –   –          
      – Medium-term bank loans     600.0   –   –   600.0   –   –   –          
      – Capitalised finance lease     69.0   –   –   69.0   –   –   –          
      Taxation     –   –   –   –   –   –   205.3          
      Bank overdrafts     1,744.0   –   –   1,744.0   –   –   –          
                                               
      Total liabilities     26,482.9   –   24.8   26,458.1   –   –   1,771.1          
                                               
                                               
      Financial risk management                  
                 
      The Group does not trade in financial instruments, but in the ordinary course of business operations, the Group is exposed to a variety of financial risks arising from the use of financial instruments. These risks include:          
      – market risk (comprising interest rate risk and currency risk);          
      – liquidity risk; and          
      – credit risk.          
      The Group has developed a comprehensive risk management process to facilitate, control and monitor these risks. This process includes formal documentation of policies, including limits, controls and reporting structures. The Executive Committee is responsible for risk management activities within the Group.          
                                               
      Market risk management                  
                                               
      Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The market risks that the Group is primarily exposed to include interest rate risk and currency risk. Market risk is managed by identifying and quantifying risks on the basis of current and future expectations and ensuring that all trading occurs within defined parameters. This involves the review and implementation of methodologies to reduce risk exposure. The reporting on the state of the risk and risk practices to the Executive Committee of the Group is part of this process. There has been no change to the Group’s exposure to market risk or the manner in which it manages and measures the risk since the prior financial year.          
                                               
      Interest rate risk management                  
                                               
      The size of the Group’s position, be it either surplus cash or borrowings, exposes it to interest rate risk. The interest-bearing loan funding requirements and the investment of surplus cash funds are managed by the Group through its own commercial bank facilities.          
                                               
      The carrying amount of the Group’s financial assets and liabilities at reporting date that are subject to interest rate risk are as follows :          
                                               
      December 2019             Subject to interest rate movement   Non-interest   Total              
      Rm             Fixed   Floating   bearing                
      ASSETS                                        
      Financial assets                              
      Investments   –   –   127.0   127.0              
      – Investment in insurance cell-captive on extended warranties   –   –   57.2   57.2              
      – Investment in insurance cell-captive on premium contributions   –   –   63.3   63.3              
      – Investment in insurance cell-captive on credit life   –   –   5.7   5.7              
      – Other listed investments   –   –   0.8   0.8              
      Other financial assets   –   –   7.5   7.5              
      – Employee share trust loans   –   –   7.5   7.5              
      Trade and other receivables   –   –   4,696.9   4,696.9              
      – Trade receivables   –   –   2,329.5   2,329.5              
      – Rebate receivables, including rebates and advertising from buying members           –   –   1,709.4   1,709.4              
      – Other accounts receivable   –   –   629.5   629.5              
      – FEC asset   –   –   28.5   28.5              
      Cash on hand and bank balances   –   1,291.8   –   1,291.8              
      Total financial assets   –   1,291.8   4,831.4   6,123.2              
                                               
      Financial liabilities                              
      Non-current liabilities – interest-bearing borrowings   10,950.7   –   –   10,950.7              
      – Medium-term bank loans   2,000.0   –   –   2,000.0              
      – Lease liability   8,950.7       –   8,950.7              
      Non-current liabilities – interest-free borrowings   –   –   1.9   1.9              
      – Loans to non-controlling interests   –   –   1.9   1.9              
      Trade and other payables   –   –   20,194.8   20,194.8              
      – Trade payables   –   –   17,764.3   17,764.3              
      – FEC liability   –   –   37.4   37.4              
      – Rebate payables including rebates and advertising owing to buying members   –   –   136.5   136.5              
      – Interest accrual   –   –   202.4   202.4              
      – Amounts due to Walmart   –   –   3.3   3.3              
      – Sundry payables and other accruals   –   –   2,051.0   2,051.0              
      Other current liabilities   1,657.2   1,300.0   –   2,957.2              
      – Related party loans   6.3   –   –   6.3              
      – Medium-term bank loans   266.5   –   –   266.5              
      – Debt facilities   –   1,300.0   –   1,300.0              
      – Lease liability   1,384.4       –   1,384.4              
      Bank overdrafts   –   141.2   –   141.2              
      Total financial liabilities   12,607.9   1,441.2   20,196.7   34,245.8              
                                               
                                               
      December 2018             Subject to interest rate movement       Non-interest   Total              
      Rm             Fixed   Floating   bearing                  
      ASSETS                                        
      Financial assets                                        
      Investments             –   –   102.0   102.0              
      – Investment in insurance cell-captive on extended warranties             –   –   30.0   30.0              
      – Investment in insurance cell-captive on premium contributions             –   –   66.3   66.3              
      – Investment in insurance cell-captive on credit life             –   –   4.6   4.6              
      – Other listed investments             –   –   1.1   1.1              
      Other financial assets             –   5.4   11.8   17.2              
      – Housing and staff loans             –   5.4   –   5.4              
      – Employee share trust loans             –   –   11.8   11.8              
      Trade and other receivables             –   27.5   5,237.3   5,264.8              
      – Trade receivables             –   –   2,608.4   2,608.4              
      – Other accounts receivable             –   27.5   2,605.5   2,633.0              
      – FEC asset             –   –   23.4   23.4              
      Cash on hand and bank balances             –   2,369.8   –   2,369.8              
      Total financial assets             –   2,402.7   5,351.1   7,753.8              
                                               
      Financial liabilities                                        
      Non-current liabilities – interest-bearing borrowings             2,254.1   –   –   2,254.1              
      – Medium-term bank loans             1,675.0   –   –   1,675.0              
      – Capitalised finance lease             579.1       –   579.1              
      Non-current liabilities – interest-free borrowings             –   –   1.9   1.9              
      – Loans to non-controlling interests             –   –   1.9   1.9              
      Trade and other payables             –   –   21,797.8   21,797.8              
      – Trade payables             –   –   18,698.2   18,698.2              
      – FEC liability             –   –   24.8   24.8              
      – Rebates and advertising to buying members             –   –   128.7   128.7              
      – Interest accrual             –   –   79.7   79.7              
      – Amounts due to Walmart             –   –   0.1   0.1              
      – Sundry payables and other accruals             –   –   2,866.3   2,866.3              
      Other current liabilities             669.0   16.1   –   685.1              
      – Medium-term loans             –   16.1   –   16.1              
      – Medium-term bank loans             600.0   –   –   600.0              
      – Capitalised finance lease             69.0       –   69.0              
      Bank overdrafts             –   1,744.0   –   1,744.0              
      Total financial liabilities             2,923.1   1,760.1   21,799.7   26,482.9              
                                               
      Interest rate sensitivity                  
                                               
      The Group is sensitive to the movements in the SA Prime interest rate. The rates of sensitivity represents management’s assessment of the possible change in interest rates. The average interest rate for the Group for the year was 8.12% (December 2018: 8.31%), and the variable interest paid was R462.9 million (December 2018: R370.4 million). If the SA Prime interest rate increased and decreased by 100 average basis points (December 2018: increased and decreased by 100 average basis points) at year end, the net finance costs for the year would have decreased and increased by R8.4 million respectively (December 2018: decreased and increased by R7.5 million respectively). Although the Group is exposed to the USD LIBOR rate, this exposure is not considered to be significant.          
                                               
      Currency risk management                  
                                               
      All foreign-denominated trading liabilities are covered by forward exchange contracts. Foreign-denominated assets and other foreign-denominated liabilities are not covered by forward exchange contracts.          
      The carrying amount of the Group’s foreign currency denominated monetary assets at reporting date is as follows :          
                                               
      December 2019 South African Rand   USD   Pula   Metical   Cedi   Other1   Total              
      Rm                        
      Investments 127.0   –   –   –   –   –   127.0              
      Trade and other receivables and other financial assets 4,128.8   71.5   228.4   186.7   4.5   77.0   4,696.9              
      Cash on hand and bank balances 889.0   122.5   54.0   138.8   4.1   83.4   1,291.8              
      Total 5,144.8   194.0   282.4   325.5   8.6   160.4   6,115.7              
                                               
      December 2018 South African Rand   USD   Pula   Metical   Cedi   Other1   Total              
      Rm                        
      Investments 102.0   –   –   –   –   –   102.0              
      Trade and other receivables and other financial assets 4,898.6   0.1   129.8   72.6   10.7   152.9   5,264.7              
      Cash on hand and bank balances 1,701.9   104.7   143.6   65.2   1.8   352.6   2,369.8              
      Total 6,702.5   104.8   273.4   137.8   12.5   505.5   7,736.5              
                                               
      1‘Other’ comprise the balance of the currencies per table below.          
                                               
      Foreign currency sensitivity                  
                                               
      For further information regarding the forex movements for the year, refer to note 5.          
                 
      The table below indicates the Group’s sensitivity at year end to movements in the relevant foreign currencies on monetary items, excluding forward exchange contracts. The rates of sensitivity are the rates used when reporting the currency risk to the Executive Committee of the Group and represents management’s assessment of the possible change in reporting foreign currency exchange rates. The rate sensitivity remained constant in the current financial year at 10% in light of the appreciation of the Rand in the current year. For each 10% weakening/strengthening of the Rand against the listed currencies below, profit or loss is increased or decreased.          
                                               
            December 2019   December 2018              
                                               
            Spot rate   10% Rand weakening   10% Rand strengthening       10% increase   10% decrease              
      Currency         Rm   Rm   Spot rate   Rm   Rm              
      USD   14.0252   (9.7)   9.7   14.4718   (1.1)   1.1              
      Botswana Pula   1.3217   (0.4)   0.4   1.3731   1.5   (1.5)              
      Ghanaian New Cedi   2.4552   (0.6)   0.6   3.0294   (0.1)   0.1              
      Kenyan Shilling   0.1386   (0.4)   0.4   0.1411   1.0   (1.0)              
      Malawian Kwacha   0.0191   (0.1)   0.1   0.0193   0.2   (0.2)              
      Mauritian Rupee     0.3838   (0.5)   0.5   0.4124   (0.0)   0.0              
      Mozambican New Metical   0.2275   3.4   (3.4)   0.2280   3.4   (3.4)              
      Nigerian Naira   0.0386   (1.7)   1.7   0.0432   0.9   (0.9)              
      Tanzanian Shilling   0.0061   0.0   (0.0)   0.0064   (0.2)   0.2              
      Uganda Shilling   0.0038   0.1   (0.1)   0.0039   (0.6)   0.6              
      Zambian New Kwacha   1.0432   (1.6)   1.6   1.2740   (1.0)   1.0              
                                               
                                               
      Forward foreign exchange contracts                  
                                               
      Forward exchange contracts are entered into to manage exposure to fluctuations in foreign currency exchange rates on specific trading transactions. The Group’s policy is to enter into forward contracts for all committed foreign currency purchases to hedge the Group’s exposure to variability in cash flows. For more information refer to note 5. In the prior year the Group closed out the cash flow hedge through sale of inventory and changed to fair value hedge accounting. There are no other hedges in the Group.          
                                               
      December 2019             Foreign currency   Fair value adjustment   Average exchange rate                  
      At year end, the open forward exchange contracts were as follows:   (millions)   Rm   Rm                  
      USD             25.4   (23.0)   15.8                  
      Sterling             –   –   –                  
      Euro             0.0   (0.1)   14.1                  
      Total                 (23.1)                      
                                               
      December 2018             Foreign currency   Fair value adjustment   Average exchange rate                  
      At year end, the open forward exchange contracts were as follows:   (millions)   Rm   Rm                  
      USD             65.6   6.3   16.5                  
      Sterling             –   –   –                  
      Euro             0.0   (0.0)   14.5                  
      Total                 6.3                      
                                               
      The fair value adjustment represents the balance at the end of the current financial year and is included in Trade and other receivables (FEC asset balance) and included in Trade and other payables (FEC liability balance). As the average duration is three months, these FEC balances would be derecognised and the resulting impact would be accounted for in cost of sales and in foreign exchange gains/(losses) in the Income Statement within the next financial year for both periods under review.          
                                               
      During the December 2019 financial year an amount of Rnil (December 2018: R14.9 million) (net of tax) relating to the FEC hedges was recognised in other comprehensive income. For more information on the movement in the hedging reserve refer to note 21.          
                                               
      Forward foreign exchange contracts sensitivity                      
                                               
      The following table indicates the Group’s sensitivity of the outstanding forward exchange contracts at the reporting date to movements in the USD. The USD is the primary currency in which the Group has entered into forward foreign exchange contracts. The rates of sensitivity are the rates used when reporting the currency risk to the Executive Committee of the Group and represents management’s assessment of the possible change in foreign currency exchange rates. The Rand/USD year end rate was R14.03 (December 2018: R14.52).          
                                               
            December 2019   December 2018                      
            USD   USD   USD   USD                      
      Rm     5% increase   5% decrease   5% increase   5% decrease                      
      (Loss)/Profit   –   –   (21.8)   21.8                      
      Derivative financial (liabilities)/assets       –   –   –                      
      Equity     –   –   (21.8)   21.8                      
                                               
                                               
      Liquidity risk management                  
                                               
      Liquidity risk is the risk that the Group will be unable to meet a financial commitment in any location or currency. This risk is minimised through the holding of cash balances and sufficient available borrowing facilities (refer to note 22). In addition, detailed cash flow forecasts are regularly prepared and reviewed so that the cash needs of the Group are managed according to its requirements.          
                 
      The following table details the Group’s contractual maturity for its financial liabilities. The table has been compiled based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to repay the liability. The cash flows include both the principal and estimated interest payments.          
                                               
      December 2019             Repayable   Repayable   Total                  
      Rm   within 1 year   1 – 5 years                    
      Financial liabilities                                        
      Non-current and current liabilities – interest-bearing borrowings   2,957.2   24,952.2   27,909.4                  
      – Related party loans   6.3   –   6.3                  
      – Medium-term bank loans   266.5   2,032.0   2,298.5                  
      – Debt facilities   1,300.0   –   1,300.0                  
      – Lease liability   1,384.4   22,920.2   24,304.6                  
      Non-current liabilities – interest-free borrowings   –   1.9   1.9                  
      – Loans to non-controlling interests   –   1.9   1.9                  
      Trade and other payables   20,194.8   –   20,194.8                  
      – Trade payables   17,764.3   –   17,764.3                  
      – FEC liability   37.4   –   37.4                  
      – Sundry payables and other accruals   2,393.2   –   2,393.2                  
      Bank overdrafts   141.2   –   141.2                  
      Total undiscounted cash flows of the Group’s financial liabilities   23,293.2   24,954.1   48,247.3                  
      Less: Future finance charges           (14,281.6)                  
      Total financial liabilities           33,965.7                  
                                               
      December 2018             Repayable   Repayable   Total                  
      Rm   within 1 year   1 – 5 years                      
      Financial liabilities                                        
      Non-current and current liabilities – interest-bearing borrowings             685.1   2,939.2   3,624.3                  
      – Medium-term loans             –   –   –                  
      – Medium-term bank loans             616.1   2,291.1   2,907.2                  
      – Capitalised finance lease             69.0   648.1   717.1                  
      Non-current liabilities – interest-free borrowings             –   –   –                  
      – Loans to non-controlling interests             –   –   –                  
      Trade and other payables             21,797.8   –   21,797.8                  
      – Trade payables             18,698.2   –   18,698.2                  
      – FEC liability             24.8   –   24.8                  
      – Sundry payables and other accruals             3,074.8   –   3,074.8                  
      Bank overdrafts             1,744.0   –   1,744.0                  
      Total undiscounted cash flows of the Group’s financial liabilities             24,226.9   2,939.2   27,166.1                  
      Less: Future finance charges                     (16,058.2)                  
      Total financial liabilities                     11,107.9                  
                                               
      Credit risk management                  
                                               
      The carrying amount of the financial assets represents the Group’s maximum exposure to credit risk without taking into consideration any collateral provided. Other Debt instruments at amortised cost are considered to be of low credit risk for the years presented.          
      Potential areas of credit risk include trade and other receivables, including rebates receivable, short-term loans and cash investments. Credit risk arises from the risk that a counterparty may default or not meet its obligations timeously. Trade accounts receivable consist primarily of a large, widespread customer base. Group companies regularly monitor the financial position of their customers. Where considered appropriate, credit guarantee insurance is used to mitigate credit risk exposure on selected trade accounts receivable. The granting of credit is controlled by application and account limits. Rebates receivable comprise amounts owed to the Group by suppliers for purchases made. The Group’s standard trading terms allow for both rebates and settlement discounts to be deducted off the invoices from suppliers when payment is being made for future purchases, limiting the Group’s credit risk exposure. 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.          
               
      Provision is made for both specific and general portfolio impairments, and at the year-end management did not consider there to be any material credit risk exposure that was not already covered by credit guarantee insurance or portfolio impairment provisions. The carrying amounts of the financial assets above represent the Group’s maximum credit risk exposure. Additional information relating to trade and other receivables can be found in note 18.          
      At year end no financial assets measured at amortised cost were pledged as security. At year end, security with a fair value of Rnil (December 2018: R2.6 million) is held by the Group. During the current year the Group did not take possession of security it held over its financial assets measured at amortised cost.          
  • + 39. Segmental reporting
                             
    NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
                             
                             
    39. Segmental reporting    
                           
    Operating segments                        
                             
    The Group is organised into four Divisions for operational and management purposes, being Massdiscounters, Masswarehouse, Massbuild and Masscash. Massmart reports its operating segment information on this basis. The principal offering for each Division is as follows:
    Massdiscounters – general merchandise discounter and food retailer
    Masswarehouse – warehouse club trading in food, general merchandise and liquor
    Massbuild – home improvement retailer and building materials supplier
    Masscash – food wholesaler, retailer and buying association
    No single customer represented more than 10% of any of one of the Divisions’ revenue in the current and prior financial year.
                             
    Rm   Total   Other   Massdiscounters   Masswarehouse   Massbuild   Masscash
                             
    December 2019                        
                             
    Sales     93,660.0   –     19,796.0     29,367.5     14,219.0     30,277.5
    Operating profit before foreign exchange movements and interest     852.0     (59.3)     (512.8)     1,039.2     849.4     (464.5)
    Trading profit before interest and taxation     1,111.2   –     (391.0)     1,039.1     848.5     (385.4)
    Net foreign exchange loss     (143.0)     (25.7)     (78.2)   –     (29.8)     (9.3)
    Net finance costs     (1,799.1)     (108.7)     (637.3)     (319.8)     (471.7)     (261.6)
    Operating (loss)/profit before taxation     (1,090.1)     (193.7)     (1,228.3)     719.4     347.9     (735.4)
    Trading (loss)/profit before taxation     (687.9)     (108.7)     (1,028.3)     719.3     376.8     (647.0)
                             
    Inventory     11,893.8     17.6     3,484.3     3,233.1     2,059.5     3,099.3
    Total assets     40,337.8     5,322.4     10,054.3     8,292.9     7,360.2     9,308.0
    Non-current asset held for sale     159.5     159.5   –   –   –   –
    Total liabilities     35,537.0     3,696.2     8,864.5     10,516.7     5,947.5     6,512.1
                             
    Net capital expenditure     1,371.6     212.6     443.8     136.6     368.0     210.6
    Depreciation and amortisation     3,072.1     86.2     1,126.0     620.3     700.4     539.2
    Impairment losses     229.5     76.1     93.9   –   –     59.5
                             
                             
    Inventory days     59.0   –     89.0     49.0     80.0     44.0
    Number of stores     443   –     173     22     118     130
    Trading area (m2)     1,675,052   –     561,934     246,125     478,279     388,714
    Trading area (m2) increase on December 2019   1.6%   –   0.2%   6.5%   2.2%   0.0%
    Average trading area per store (m2)     3,781   –     3,248     11,188     4,053     2,990
    Distribution centre space (m2)     353,716     57,305     157,957     29,305     64,728     44,421
    Distribution centre space (m2) increase/(decrease) on December 2019   0.0%   100.0%   0.0%   -66.2%   0.0%   0.0%
                             
                             
    Rm   Total   Other   Massdiscounters   Masswarehouse   Massbuild   Masscash
                             
    December 2018                        
                             
    Sales     90,941.6   –     19,729.4     28,778.2     13,756.1     28,677.9
    Operating profit before foreign exchange movements and interest     1,894.5     (5.9)     (97.1)     1,103.3     750.5     143.7
    Trading profit before interest and taxation     2,071.1   –     32.6     1,100.8     749.1     188.6
    Net foreign exchange (loss)/ gain     (2.7)     (42.8)     0.9   –     15.5     23.7
    Net finance costs     (623.7)     (81.4)     (136.0)     (130.8)     (198.9)     (76.6)
    Operating profit/(loss) before taxation     1,268.1     (130.1)     (232.2)     972.5     567.1     90.8
    Trading profit/(loss) before taxation     1,447.4     (81.4)     (103.4)     970.0     550.2     112.0
                             
    Inventory     12,180.9     5.3     3,839.0     2,871.1     2,006.6     3,458.9
    Total assets     34,782.6     5,880.3     7,606.0     6,838.1     5,253.2     9,205.0
    Non-current asset held for sale     11.6     9.8   –   –     1.8   –
    Total liabilities     28,253.9     4,455.4     6,042.7     7,478.4     3,786.8     6,490.6
                             
    Net capital expenditure     1,606.0     271.5     517.3     271.7     297.3     248.2
    Depreciation and amortisation     1,134.6     64.6     374.4     251.4     250.2     194.0
    Impairment losses     21.4     6.8     14.6   –   –   –
                             
                             
    Inventory days     62.0   –     99.0     44.0     79.0     52.0
    Number of stores     436   –     171     21     114     130
    Trading area (m2)     1,648,718   –     560,828     231,021     468,155     388,714
    Trading area (m2) increase on December 2016 (excluding re-measurements)   2.2%   –   2.2%   0.0%   2.6%   3.1%
    Average trading area per store (m2)     3,781   –     3,280     11,001     4,107     2,990
    Distribution centre space (m2)     353,716   –     157,957     86,610     64,728     44,421
    Distribution centre space (m2) (decrease)/increase on December 2018   4.4%   –   0.4%   27.7%   0.0%   -9.2%
                             
                             
    The other column includes consolidation entries.
    All intercompany transactions have been eliminated in the above results.
    Additional information can be found in ‘Our Customers’ and the ‘Chief Financial Officer’s Review’ in the Group’s Integrated Annual Report.
    Trading profit before taxation is earnings before corporate net interest, asset impairments, BEE transaction IFRS 2 charges and foreign exchange movements.
    Net capital expenditure is defined as capital expenditure less disposal proceeds.
                             
    Geographic segments
     
    The Group’s four Divisions operate in two principal geographical areas – South Africa and the rest of Africa.
         
        December 2019   December 2018
        52 weeks   52 weeks
        Total   South Africa   Rest of Africa   Total   South Africa   Rest of Africa
                             
    Sales     93,660.2     85,270.7     8,389.5     90,941.6     83,053.5     7,888.1
    Segment assets (Total)     40,337.8     35,814.1     4,523.7     34,782.6     31,172.1     3,610.5
    Segment assets (Non-current)     21,747.2     19,305.9     2,441.3     14,165.8     13,073.1     1,092.7
    Net capital expenditure     1,371.6     1,243.1     128.5     1,606.0     1,479.7     126.2
                             
                             
    Disagregation of revenue by major categories   Total   South Africa   Rest of Africa   Total   South Africa   Rest of Africa
      Food and Liquor     53,501.8     49,132.3     4,369.6     50,913.0     46,920.7     3,992.3
      Durables     40,158.3     36,138.4     4,019.9     40,028.7     36,132.9     3,895.8
    Total     93,660.1     85,270.7     8,389.5     90,941.7     83,053.6     7,888.1
                             
    All intercompany transactions have been eliminated in the above results.
    Segment assets excludes financial instruments and deferred taxation and reflects the geographic location of the Group’s assets.
    Net capital expenditure is defined as capital expenditure less disposal proceeds.
  • + 40. Value Added Statement
    NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
    40. Value Added Statement
    December 2019 December 2018
    Rm 52 weeks % 52 weeks %
    Sales   93,660.0   90,941.6
    Cost of sales   (75,946.8)   (73,250.4)
    Other revenue and interest received   244.4   264.1
    Net costs of services and other operating expenses   (6,983.3)   (7,295.5)
    Value added   10,974.3   10,659.8
    Applied as follows :
    – To employees as salaries, wages and other benefits   8,042.1   67.7   7,582.9   71.3
    – To Government as taxation (excluding VAT)   206.3   1.7   399.4   3.7
    – To shareholders as dividends   161.0   1.4   744.0   7.0
    – To lenders as interest   1,860.4   15.6   648.8   6.1
    – Depreciation and amortisation   3,067.1   25.8   1,134.6   10.6
    – Non-controlling interests   11.1   0.1   (19.9)   (0.2)
    – CSI   11.9   0.1   25.4   0.2
    – Net earnings retained   (1,468.3)   (12.3)   144.6   1.4
      11,891.6   100.0   10,659.8   100.0
  • + 41. Events after the reporting date
           
    NOTES TO THE ANNUAL FINANCIAL STATEMENTS
           
           
    41. Events after the reporting date      
     

    During the post balance-sheet period the Group announced the commencement of a potential store closure consultation process in terms of section 189 and section 189A of the Labour Relations Act 66 of 1995, as amended; with organised labour and other relevant stakeholders. A total of 34 DionWired and Masscash stores and approximately 1,440 employees are affected by this process.

    After an extensive consultation process with the affected employees; organised labour and other relevant stakeholders under the guidance of the Commission for Conciliation, Mediation and Arbitration and all options/alternatives in respect of the potential closure of the affected stores having been exhausted, the Group announced on 19 March 2020 that a decision to close all of the non-performing stores had been taken. The affected 23 Dion Wired Stores ceased trading on 19 March 2020. A decision to cease trade in relation to the 11 affected non-performing Masscash stores has yet to be determined by management. The retrenchment costs is estimated to be R66.8 million.

    Furthermore, the re-organisation of the operating model was also announced. The current four divisions will be re-organised into two business units: Massmart Wholesale and Massmart Retail.

    The Group’s top priority during the global outbreak of the coronavirus (COVID-19) is the health and safety of our customers and our associates. The measures the Group has implemented to stem the spread of the disease and to look after the health and wellbeing of our customers and associates include: developing various in-store safety measures to enhance cleaning and hygiene protocols as well as to enable safe social distancing, providing pregnant associates across the Group with paid COVID-19 special leave, liaising closely with suppliers to secure high demand products for our customers, and restricting all international and domestic travel for non-essential purposes. We are especially concerned with ensuring that products remain affordable and available for customers. The Group is also partnering with Food Forward (previously known as Food Bank) to provide COVID-19 related food aid to vulnerable groups across the country, including the elderly, orphans and the chronically ill.

    While the effects of the global outbreak of the COVID-19 virus on our business are continually being reassessed, the full impact of the 21-day nationwide lockdown for the period from 27 March 2020 to 16 April 2020 announced on 23 March 2020 remains unknown. As an essential retailer, a number of the Group’s formats will continue to trade during the South African lockdown, however restrictions have been placed on the goods that may be sold. The Massbuild operating segment will not trade in South Africa during the lockdown period however all our African store formats will continue to trade subject to local restrictions. The high level of uncertainty, due to the unpredictable outcomes of this disease, complicates the estimation of the financial effects of the outbreak and as a result it could materially impact the results of the Group negatively and the assumptions applied in our assessment of provisions and impairment considerations.

    As a result of the lockdown, the Group has reassessed its ability to continue to operate over the foreseeable future. The Group is confident that through the actions that have been taken, including engagement with various stakeholders such as lenders and shareholders, as well as the cost saving initiatives which have been implemented since the second half of 2019, combined with the Group’s liquidity position, will allow Massmart to navigate through this difficult 21 day trading environment. Specifically, the Group has assessed that it currently has sufficient borrowing facilities in place to allow it to continue to pay expenses and trade creditors throughout the lock down period. Should the lockdown be extended beyond the 21 days announced by the President, the impact would be felt throughout the South African economy. Under continued lockdown restrictions, the Group would have to reassess the impact on sales, liquidity and available facilities. Management has also started conversations with banks to obtain extended banking facilities should the need arise.
  • + 42. Shareholder analysis
                   
    NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS
                   
                   
    42. Shareholder analysis          
                 
    The following analysis of shareholders was extracted from the shareholders register:
                   
      Number of holders   %   Number of shares   %
                   
                   
    Shareholder spread              
    1 – 1,000 shares   4,224     79.8     866,067     0.4
    1,001 – 10,000 shares   730     13.8     2,065,884     0.9
    10,001 – 100,000 shares   218     4.1     8,057,639     3.7
    100,001 – 1,000,000 shares   100     1.9     27,821,373     12.7
    1,000,001 shares and over   19     0.4     180,327,846     82.3
        5,291     100.0     219,138,809     100.0
                   
    Public/non-public shareholders              
    Non-public shareholders:              
    Walmart subsidiary: Main Street 830 Proprietary Limited   1   –     115,651,347     52.8
    Directors and Group Executives of the Company   3     0.1     250,143     0.1
    Share trusts   1   –     1,483,976     0.7
    Public shareholders   5,286     99.9     101,753,343     46.4
        5,291     100.0     219,138,809     100.0
                   
      Number of holders   %   Number of shares   %
                   
    Distribution of shareholders              
    Walmart subsidiary: Main Street 830 Proprietary Limited   1   –     115,651,347     52.8
    Unit Trusts/Mutual Funds   81     1.5     71,316,781     32.5
    Trading Position   12     0.2     3,348,097     1.5
    Other Managed Funds   5,139     97.4     5,902,553     2.8
    Sovereign Wealth   3     0.1     5,762,006     2.6
    Custodians   6     0.1     2,226,926     1.0
    Private Investors   19     0.4     3,595,823     1.6
    Hedge Fund   4     0.1     363,169     0.2
    Investment Trusts   1   –     5,479,288     2.5
    Insurance Companies   14     0.3     3,377,852     1.5
    Exchange-Traded Fund Total   7     0.1     1,877,068     0.9
    University   4     0.1     237,899     0.1
        5,291     100.0     219,138,809     100.0
                   
                   
    Custodians and managers holding 3% or more              
    The following custodians and managers held beneficially, directly or indirectly, equal to or in excess of 3% of the Company’s shares:              
    Walmart subsidiary: Main Street 830 Proprietary Limited           115,651,347     52.8
    Investec Asset Management           20,059,551     9.2
    Franklin Resources Inc           13,562,347     6.2
    PIC           11,686,505     5.3
    PSG Asset Management           7,772,070     3.5