Letter from the Outgoing Non-executive Chairman

Sound Strategies and Excellent Management

Strategy and performance

Massmartís performance in the 2007 financial year once again reflected the soundness of its strategies, the excellence of its management, the positioning of its portfolio of wholesale and retail formats and the effectiveness of its channel and shared services forums. This was assisted by favourable economic conditions in South Africa and satisfactory economic conditions in the other African countries in which it has operations (excluding Zimbabwe where economic indicators continue to deteriorate).

Headline earnings per share (HEPS), before charges for the Groupís recent BEE transaction, increased 36,4% and HEPS after the charges for the BEE transaction grew 28,9% to 540,4 cents per share. HEPS has increased by over 30% per annum since listing in 2000. The Groupís high cash conversion ratio has enabled it to establish a dividend policy at a lower level of 1,7 times cover. Dividends and distributions per share have increased by 43,9% p.a. compounded over the period since listing.

While share prices will vary with market conditions, over a period the average growth in share price should reflect the growth in intrinsic value per share. The growth in Massmartís share price from 930 cents at the 2001 financial year-end to 8 800 cents at the 2007 financial year-end represents an implied compounded annual growth in intrinsic value of 45,4%. This is indeed a tribute to the achievements of management and in particular to the leadership of outgoing CEO, Mr Mark Lamberti.

The CEOís succession

As advised last year, Mr Grant Pattison was appointed CEO Designate to succeed Mr Mark Lamberti as CEO at 30 June 2007. This was the culmination of an effective and transparent succession planning process that had been under way since 2004.

I am pleased to advise that the succession has been smooth. I believe that Grant has taken over the leadership role very effectively and is well positioned to continue the sound and progressive management of the Group.

Governance and directorate

As of 1 July 2007, the Board of Massmart comprises two executive directors, one non-executive director and 11 independent non-executive directors, five of whom are black and three of whom are female.

As mentioned previously, my Board colleagues and I are unanimously of the view that the interests of Massmart’s stakeholders will be best served by the retention of the skills and experience of Mark Lamberti as Chairman of the Board.

The chairmanship will continue to be completely non-executive and subject to all existing policies relating to remuneration and tenure. In keeping with sound governance practice, the chairs of the four Board committees will continue to be held by independent directors and recognising that Mark Lamberti is not considered independent I will function as the Group’s lead independent director and as Non-executive Deputy Chairman.

During the year Dr Lulu Gwagwa and Mr Kuseni Dlamini joined the Board as independent non-executive directors. We are delighted to have them with us and to enjoy the benefit of their contribution.

In December 2006, Mr Fanus Nothnagel resigned as an executive director of the Group. We thank him for his contribution to the Group during the four years he was with us.

I am pleased to report that the Board and all of its committees functioned well during the year. The non-executive directors have an appropriate mix of retail, financial, governance and human capital skills.

The Board regards its key functions as:

  • the keepers of strategy;
  • the monitors of risk;
  • the custodians of management excellence; and
  • the overseers of performance of the Company.

I refer stakeholders to the detailed Corporate Governance Review contained in this report.


Sustainable development

The Group continues to focus on sustainable development and a detailed report is included in these financial statements.

Massmart proactively addresses the inequalities of the past and unequivocally embraces the vision of a united South African society in the future. BEE targets continue to be the sole qualitative element of executive incentive schemes in order to provide further impetus to the Group’s programmes.

Shareholders

I am pleased to welcome all new shareholders who have invested in the Group during the year. The Group now has 8 191 registered shareholders representing a 23,6% increase over the prior year. These include 5 763 individuals.

The Group has no controlling shareholder or shareholder of reference and its shares are widely held in South Africa and abroad. At the reporting date the foreign shareholding in Massmart amounted to 74% by number of shares. The majority of these shareholders are domiciled in the USA, with the balance predominantly in the United Kingdom and Europe.

The number of Massmart’s shares which traded in the past 12 months was 117,3% of issued share capital making Massmart one of the more liquid shares on the JSE.

Tribute

Mr Mark Lamberti retired on 30 June 2007 after 19 years at the helm of the Massmart Group which he was instrumental in founding. The financial performance of the Group over this period (and especially since listing), the strategic balance and growth of the Group’s portfolio of assets and its highly capable management team are all a tribute to Mark’s leadership and vision.

I take this opportunity of expressing sincere and grateful thanks to Mark on behalf of the Board, management and stakeholders of Massmart for all that he has achieved in the dedication of his career to the establishment and growth of this exceptional Group.

I wish Mark and his wonderful wife, Annette, and their family, success, happiness and health in the next chapter of their lives which I am sure will feature many personal and business achievements in South Africa and abroad. I am delighted that we will all continue our association through the board of Massmart.

Appreciation

I record my personal appreciation to my colleagues on the Board, to the outgoing CEO and the incoming CEO and the management team for their unfailing support, and also to the Group’s professional advisors and bankers for their services to the Group.

It has been a pleasure and an honour to lead the Board of this exceptional Group over the past four years and I look forward to my new role of Deputy Chairman and lead independent director with commitment and enthusiasm.

Chris Seabrooke

10 October 2007