Massmart Annual Report 2008

GRI III Questions & Answers

Strategy and analysis

1.1 Statement from CEO
What are Massmart’s current sustainability priorities?

Massmart believes that, as a retailer, we have a pivotal role to play to advocate responsible business practice to our suppliers and responsible consumerism to our customers, recognising that a prerequisite for doing this credibly, requires that we embrace the principles of responsible corporate citizenship.

Our sustainability priorities include improving staff health and welfare opportunities, contributing authentically to the process of black economic empowerment, testing environmental initiatives that minimise supplier, customer and our own impacts on the environment, and implementing a practical framework for advocating responsible practice to suppliers and customers.

1.2 Key impacts, risks and opportunities
What are key sustainability risks and impacts that confront Massmart?

Massmart conducts a biannual sustainability SWOT assessment that involves desktop research, consultation with external experts, such as the UNISA Centre for Corporate Citizenship, and also internal debate to identify the sustainability issues facing the organisation.

Our top three sustainability risks are: difficulty sourcing skilled and experienced retail executives, planners, buyers and business analysts; insufficient independently verified understanding of suppliers social and environmental business practices; and impact of diseases on staff health, such as HIV/Aids, diabetes, cardiovascular disease and tuberculosis.

We continue to track and develop responses to the impacts of unreliable electricity supply, heightened political uncertainty, incidents of price fixing in the food supply chain, tightening retail regulatory environment (eg Consumer Protection and National Waste Management Bills) and high crime levels.

Organisational profile

2.1 – 2.7 Profile and Markets
How does Massmart’s operational structure support sustainability?

Responsibility for monitoring the scope and quality of sustainability practice rests with the Massmart Sustainability Committee. The committee meets quarterly to review Massmart’s Socially Responsible Investment Index, Broad-based Black Economic Empowerment, and Sustainability Reporting performance.

Annual sustainability priorities are agreed by the Massmart Executive Committee on the recommendation of the Group Corporate Affairs Executive. Implementation is coordinated by the Group Corporate Affairs Executive working in close collaboration with divisional line managers.

2.8 Scale
What is the scope and scale of Massmart’s operations?

Massmart is a managed portfolio of nine wholesale and retail chains, each focused on high volume, low margin, low-cost distribution of mainly branded consumer goods for cash. The Group operates in 14 countries in Southern Africa through four divisions comprising 242 stores and one buying division. The Group’s total market capitalisation as at 29 June 2008 was R12,4 billion.

2.9 Significant changes
What sustainability reporting changes have been implemented in this report?

Sustainability reporting has remained the same in terms of geographic and divisional scope. Environmental reporting has been expanded to include carbon emissions and the economic impact of climate change. In addition sustainability indicators have, for the first time, been reported at divisional level.

2.10 Awards received
What sustainability awards did Massmart achieve during the reporting period?

Massmart was ranked as the top BBBEE performer in the listed retail sector in FM’s 2008 Top Empowerment Companies Survey, achieved Top Performer status in the JSE Limited’s 2007 Socially Responsible Investment Index (medium environmental impact category) and was awarded the Association of Certified Chartered Accountants (ACCA) 2008 award for the Best Sustainability Report (Non-Extractive Industries).

Report profile

3.1 Reporting period
What reporting period does this report cover?

This is Massmart’s fifth report and it covers sustainability performance for the financial year ending 30 June 2008.

3.2 Most recent previous report
When did Massmart publish its last sustainability report?

Massmart’s previous sustainability report covered sustainability performance for the financial year ending 30 June 2007.

3.3 Reporting cycle
How often does Massmart publish sustainability reports?

Massmart publishes annual sustainability reports that are timed to coincide with the Group’s annual financial reporting cycle (1 July to 30 June).

Report scope and boundary

3.5 – 3.7 Process for defining content, and any limitations
How does Massmart identify and select information covered in the sustainability report?

Massmart attempts to select information that is perceived to be socially material to our key stakeholder groups placing particular emphasis on government, employees, customers, suppliers, communities within which we operate and civil society. The information reported is based on input provided during stakeholder meetings, outcome of Massmart’s internal risk management process, local and global industry trends, content of public discourse and standards defined by initiatives such as the Global Reporting Initiative.

How does Massmart ensure that its reporting is balanced?

Massmart seeks to achieve balance in two ways. Firstly, by emphasising purely statistical reporting through the compilation of sustainability scorecards covering black economic empowerment, human resources, customer, supplier, environmental and corporate social investment performance. Secondly, we consciously disclose priority performance concerns within each sustainability performance area, for example poor levels of procurement from black merchandise suppliers.

3.8 Reporting on group elements and data measurement techniques

Are data measurement techniques described sufficiently?

Our scorecards are constructed in a manner that seeks to eliminate opportunities for subjective interpretation. We don’t provide specific formulae and detail underpinning the statistical information presented in the scorecards.

3.10 – 3.11 Restatements or significant changes
Have significant reporting changes been made/ identified since the previous reporting period?

Yes, plastic recycling has not been included in the 2008 recycling statistics.

3.12. GRI Index
Why does Massmart use the GRI standard and how does it impact on sustainability processes at Massmart?

Massmart applies the GRI standard mainly because it has, in our opinion, become the de facto sustainability reporting standard. We apply GRI standards as key performance indicators to measure sustainability progress.

Assurance

3.13 Policy and practice on external assurance

Massmart remains of the firm opinion, giving their independence and intimate knowledge of the Group and our information systems, that Massmart Internal Audit Services is better placed than any external organisation to verify the statistical scorecard information contained in this report. We also believe that verification is best achieved by focusing on purely statistical data. The Massmart Internal Audit Department is therefore responsible for verifying all Group sustainability scorecard information.

Governance

4.1 – 4.3 Governance structure, independence
What structure exists at Board level to cover responsibility for sustainability practice?

Sustainability practice is reviewed by the Sustainability Committee which is a committee of the Massmart Board. The committee comprises five non-executive directors, Massmart CEO, Massmart Corporate Affairs Executive and Group Human Capital Executive.

4.4 Shareholder/employee interaction
What mechanisms are in place to enable shareholders and employees to make recommendations to the Board?

Employees have a 11,4% shareholding in Massmart through their participation in the Thuthukani Employee Empowerment Trust. Employee and external shareholders are entitled to make recommendations to the Board at annual general meetings. Employees are represented at the annual general meeting by staff elected Thuthukani Trustees.

4.5 – 4.7 Link between compensation and performance
To what extent is sustainability performance taken into account when determining executive compensation?

Executive bonuses are based on individual performance, as well as, the overall financial performance of the Group and the particular division in which executives are employed. In the case of sustainability performance a financial incentive is payable to top executives based on the extent that they improve the BBBEE performance of their division. This reflects the high priority that the Group places on transformation.

4.8 Policies on triple bottom-line performance and implementation status
What is Massmart’s sustainability proposition?

Massmart’s sustainability proposition is to achieve commercial success by adopting a cost-effective mass distribution business model that simultaneously offers benefits on both ends of the retail value chain without compromising our commitment to socially responsible business practice.

This involves sensibly integrating sustainability practices with business objectives, offering suppliers an efficient channel to their markets, optimising value for customers, acting in a socially responsible manner and advocating principles of responsible consumerism to suppliers and customers.

Achievement of this proposition is underpinned by black economic empowerment, human capital, ethics, environmental, Corporate Social Investment and related policies that define minimum standards of sustainability practice.

4.10. Self-assessment of triple bottom-line governance
What processes are in place to assess triple bottom-line governance at Massmart?

The Massmart Sustainability Committee assesses Group sustainability performance in terms of a framework that measures progress against agreed sustainability targets. This is supplemented by comparing internally assessed performance against the progress made against criteria defined by the JSE Limited Socially Responsible Investment Index.

4.11. Precautionary approach
How does Massmart follow the precautionary approach in the procurement of products?

Massmart makes every effort to base procurement decisions on a sound understanding of relevant facts with reference to the reasonable man test. The Group’s default approach is to adopt a conservative approach to procurement decisions in situations characterised by doubt about suppliers and/or the merchandise in question.

What does Massmart do to promote adoption of a precautionary approach in its decisions?

Massmar t has implemented a variety of interventions that reinforce the principles of a precautionary approach. These include training staff in the process of ethical decision-making, applying a risk management approach that seeks to avoid exposing the organisation to undue risk, defining comprehensive product specifications that emphasize health and safety issues, conducting supplier environmental surveys and contracting suppliers to specified standards of conduct.

4.12 External economic, environmental and social charters or initiatives
Which charters/associations/principles or other sustainability initiatives does Massmart subscribe to or endorse?

Massmart’s sustainability programme is strongly influenced by the criteria defined in the JSE Limited’s Socially Responsible Index, Department of Trade and Industry’s Codes of Good Practice on Broad-based Black Economic Empowerment and the Global Reporting Initiative guidelines.

4.13 Industry associations and advocacy organisations
What associations and advocacy organisations does Massmart participate in and support?

Massmart is a member of and/or participates in organisations that include; Business Against Crime, Business Unity South Africa (BUSA), Consumer Goods Council of South Africa (CGCSA), Ethics Institute of South Africa, National African Federated Chamber of Commerce (NAFCOC), National Economic Development & Labour Council (NEDLAC), Retailers Association, South African Institute of Race Relations and WWF.

Stakeholder engagement

4.14 – 4.16 Stakeholder groups engaged, basis for identification and frequency of engagement
What is Massmart’s position on stakeholder engagement?

Massmart is committed to proactively understanding and responding to the priorities of our stakeholders who we interpret to include investors, shareholders, employees, customers, suppliers, local communities, government, civil society and the media. Our stakeholder engagement practices include participation in stakeholder organised forums, making formal submissions to parliament, conducting stakeholder surveys, and hosting public policy and general interest discussion groups with stakeholders.

What criteria does Massmart use in deciding who to engage with?

Massmart engages proactively with stakeholder groups that directly impact on, or are directly impacted by activities in our direct sphere of commercial influence. Factors that are considered before engaging stakeholders include representivity, credentials, social and business relevance of issue.

How frequently does Massmart engage stakeholders?

Stakeholder engagement activities occur on an ongoing basis throughout the year. Engagement with investors and shareholders takes place at least four times per annum through results presentations, meetings and the Massmart annual general meeting. We aim to engage with government and civil society stakeholders at least six times per year through meetings, workshops and surveys. Employee, customer and supplier engagement is considerably more intensive and generally occurs as needed.

Economic performance

EC1
How much economic value has Massmart generated over the reporting period?

Massmart derives economic value with reference to employee salaries, wages and benefits, government taxation, shareholders dividends, interest paid to lenders, minority holdings in Masscash subsidiaries, and amortisation and depreciation. On this basis our Economic value added for the year ending June 2008 was R9 891 million.

EC2 Financial implications, risks, opportunities relating to climate change
How does Massmart measure risks and opportunities relating to climate change?

Massmart doesn’t understand the economic impacts of climate change well enough and has therefore embarked on a process to identify and purchase credible independently compiled climate change risk reviews. The environmental section of this report incorporates, for the first time, a Maplecroft.com climate change risk assessment which indicates that 12 of the 15 countries in which we operate have very high economic risk exposure to climate change.

EC3 Defined benefit plan obligations
How does Massmart manage financial risks relating to defined benefit plans?

Massmart has no defined benefit plans.

EC4 Financial assistance from government
What is the extent of financial assistance received from government?

None.

EC5 Standard entry level wage compared to local minimum wage
How does Massmart determine entry level wages for employees?

Entry level wages are determined with reference to minimum wage legislation, internal wage equity and local market expectations. The minimum average wage in the Massmart Group is R2 040.

EC 6 Proportion of spending on locally based suppliers
What is Massmart’s policy with regard to procurement from locally based suppliers?

Massmart applies every effort to first procure merchandise from local manufacturers insofar as they satisfy our customer expectations of style, quality and price. Total direct South African imports for the year ending 30 June 2008 represented approximately 4,5% of total procurement. Statistics for our other sub-Saharan African operations outside South Africa were not available at the time of printing this report.

EC 7 Procedures for local hiring
What is Massmart’s approach to hiring staff from local communities?

Massmart has a strong preference for hiring staff from local communities. We are sometimes constrained in our efforts by the unavailability of individuals with the requisite skills. Altogether 98% of the staff in our foreign operations are local citizens.

EC 8 Significant indirect impacts
What are the most significant indirect economic benefits that derive from Massmart’s operations?

Massmart’s primary indirect economic impact is rooted in Massmart’s high volume low cost customer value proposition that seeks to provide wholesale and retail customers with an exceptional value for money proposition. Further economic opportunities are also created for the property development industry as the result of the Group’s store opening programme. We don’t have sufficient data to quantify the specific indirect economic benefits attributable to the Group’s activities.

Environmental performance

EN1-2 Materials use and recycled
Does Massmart track and manage all the materials used in its operations?

Massmart doesn’t currently have the systems in place to track recycled waste materials as a percentage of all materials used in operations.

What percentage of materials used by Massmart are recycled?

Our stores are required to recycle board and paper waste associated with merchandise packing material. To this end we currently have 120 active paper and board recycling facilities. In addition, Makro recently launched a pilot customer e-waste recycling project.

EN 3-7 Energy used and saved
How much energy was consumed by Massmart during the reporting period?

The Group consumed approximately 253 949 546 kW of electricity during the reporting period ending 30 June 2008.

What percentage of energy was saved during the reporting period?

We estimate that energy savings of approximately 4% were achieved during the current reporting period. These were achieved primarily as the result of closer management of lighting and climate control in stores.

What alternative energy sources does Massmart use?

None.

EN8 – 10 Water used and recycled
How much water did Massmart use during the period?

The cost of water consumed was R10 514 897. We don’t have statistics regarding the volume of water used.

How much water was recycled during the period?

Data not available.

EN11 – 15 Biodiversity
How does Massmart currently manage its impact on biodiversity?

Environmental impact assessments are conducted for all store development activities. Massmart does not own, lease or manage any land in or adjacent to protected areas or areas of high biodiversity value. We have not implemented any initiatives in respect of tracking and managing supplier impact on biodiversity.

EN16 – 25 Emissions, effluents and waste
What were Massmart’s greenhouse gas emissions during the reporting period?

Massmart estimates, based on available data, that the Group emitted 249 222 metric tons of carbon dioxide during the reporting period ending June 2008. Altogether 97% of emissions are attributable to electricity consumption. This calculation was based on the international WRI/WBCSD GHG Protocol Corporate Accounting and Reporting Standard.

Were there any significant waste spills during the reporting period?

No.

EN26 – 27 Products and services
What constraints will environmental considerations place on future demand for Massmart’s products and services?

We anticipate that consumers will seek alternatives to environmentally sensitive products, for example, detergents, insecticides, solvents and paints. Massmart has engaged KPMG to assist the Group to identify merchandise categories that may be affected with the objective of developing appropriate mitigation strategies, which will include sourcing alternative greener product options.

How does Massmart take into account environmental issues associated with the procurement of products and services?

All merchandise procured must comply with legislated environmental standards and South African Bureau of Standards specifications where these exist. Massmart has developed guidelines that encourage buyers to ask suppliers about the environmental impacts of their products placing emphasis on manufacturing practices, product design, traceability, packaging and environmental labelling standards.

Does Massmart calculate the carbon footprint of the merchandise that it sells?

No.

What is Massmart’s approach to environmentally friendly packaging?

Massmart recognises the environmental and commercial benefits associated with reducing product packaging and has set an objective to explore packaging reduction opportunities with key suppliers.

EN28 Incidents of non-compliance
Were there any instances of non-compliance to environmental legislation and regulations during the reporting period?

No.

EN29 Impact of transport
What were the greenhouse gas emissions that can be attributed to Massmart owned transport, and air travel during the reporting period?

We estimate that 16 000 metric tons of carbon dioxide attributable to company owned transport and air travel was emitted during the reporting period ending June 2008. This estimate is however based on incomplete data and the actual emissions are likely to be higher. We do not have any data relative to transport emissions associated with supplier deliveries to the Group.

EN30 Total environmental protection investments
What is the extent of Massmart’s investment in initiatives and projects aimed at environmental protection?

Data not available.

Social performance

Labour practices and decent work.

LA1 – 3 Workforce breakdown turnover and benefits
How many people does Massmart employ and what is the racial composition of the workforce?

Massmart employs 27 521 employees, 82% of whom are black (African, Coloured or Indian). Labour turnover is estimated to be 19%.

LA4-5 Employees covered by collective bargaining agreements and policies for communicating major change
What is the level of staff unionisation?

A total of 41% of staff are unionised.

Have there been any significant changes in collective bargaining agreements and union memberships?

No, union membership has remained relatively stable at 41% for the past three reporting periods.

Have there being any significant instances of labour unrest during the reporting period?

No.

LA 6 – 9 Occupational health and safety
How does Massmart manage the risks associated with Occupational Health and Safety (OHS)?

Massmart’s risk management process includes applying extensive OHS safety protocols that include appointment of safety officers, establishment of store safety committees, incorporation of safety standards into job descriptions and, conduct of line management and independent safety reviews.

How many occupational health and safety incidents occurred during the reporting period?

A total of 516 workplace injuries were sustained by Massmart employees during the period ending 30 June 2008.

What is Massmart’s approach to HIV/Aids?

Massmart has an extensive HIV/Aids programme which includes ongoing awareness building, regular voluntary counselling and testing clinics, as well as the provision of free anti-retroviral treatment for permanent staff and their spouses. The estimated HIV-prevalence rate amongst permanent staff for the year ending June 2008 was 5,41%.

What is Massmart’s approach to other priority diseases and ailments?

The Group runs regular store-based programmes to screen for diabetes, cholesterol, high blood pressure, tuberculosis and obesity.

LA10 – 12 Employee training and education
Who takes responsibility for training at Massmart?

Job specific retail training is the responsibility of Divisional Human Resources directors.

The Massmart Human Capital Executive has responsibility for development associated with maintaining the executive and priority skills pipeline. The latter is addressed primarily through the Massmart corporate university.

What investment does Massmart make in training and development?

The Group invested approximately R23,7 million in formal training and development activities during the year ending June 2008.

How many hours’ training does each employee receive per annum?

Data not available.

LA13 – 14 Diversity and equal opportunity
Does Massmart have any programmes in place to promote appreciation of diversity amongst employees?

Massmart has conducted diversity training with executives and senior managers, and is in the process of implementing “The Diversity Game” across the Group.

Human rights

HR1 – 3 Investment and procurement practices
What proportion of Massmart’s investments have been subject to human rights screening?

Data not available.

What does Massmart do to extend the principles of human rights screening to suppliers?

Massmart trading terms contracts include a provision requiring suppliers to comply with all relevant legislation and also with good human rights practice. Massmart has approved a pilot project to conduct an independent social audit of selected direct import suppliers.

HR4 Incidents of discrimination
What mechanisms does Massmart have in place to disclose incidents of human rights abuse?

Massmart has implemented an independently managed anonymous ethics line to which suppliers and staff can report any unethical issues which include incidents of discrimination. Call our ethics line on 0800 203 246.

How many incidents of discrimination have been reported?

Three incidents of racial discrimination were reported during the financial year ending June 2008.

HR5 Risks to freedom of association and collective bargaining
Are there any areas of operation within Massmart in which risks to freedom of association may exist?

No, our commitment to freedom of association is authentic and we would act firmly against any employee who through their actions/omissions is found to undermine this commitment. Altogether 40,74% of divisional staff are currently unionised.

HR6 – 7 Incidents of child, forced or compulsory labour
What is Massmart’s policy with regard to child labour?

The Group does not employ underage staff and contracts suppliers to make the same commitment in their employment practices.

HR8 Security personnel trained in relevant human rights
What training do security staff receive to ensure that they do not infringe employee, customer and supplier human rights?

Security staff receive training related to the legal procedures that they must follow when apprehending an employee, customer or supplier suspected of wrong doing. This training, whilst dealing with the ‘rights’ of suspects, does not focus specifically on human rights per se.

HR9 Violations of the rights of indigenous people?
Does Massmart have a policy covering the rights of indigenous people?

No, although we reinforce, through our ethics training, the general principle that the dignity and rights of all individuals may never be infringed in the way that the Group conducts its business.

Society

SO1 Programmes to manage impacts on communities
How does Massmart assess the impact of its operations on communities?

Massmart’s primary focus is on impact assessments that are conducted prior to the development of new store sites. Broader social impacts are identified through our programme of stakeholder engagement which is currently deficient in this specific area of engagement.

SO2 – 4 Policies and practices on corruption
Does Massmart have a code of ethics and how is this implemented and enforced?

Massmart has a Code of Ethical Conduct which has and continues to be communicated to staff and strategic suppliers. Ethical practice in the Group is tracked and managed by accredited divisional Ethics Officers who are accountable to a Chief Ethics Officer. An outsourced anonymous ethics line has been established to report unethical practice and the Ethics Institute of South Africa conducts biannual surveys of the state of ethics in the Group.

How many incidents of unethical conduct were raised during the current reporting period?

The ethics line received 238 calls during the financial year ending June 2008. A total of 65 of these calls related to allegations of criminal misconduct.

What is the extent of Massmart’s involvement in organisations dealing with ethics?

Massmart is a member of the Ethics Institute of South Africa. The Group has agreed to jointly fund, with the Ethics Institute, a project to survey the ethics practice of listed South African companies.

SO5 Policies on public policy development and lobbying
How does Massmart engage government on public policy issues?

The Group focuses public policy engagement efforts primarily on the legislature by making written and verbal submissions to the appropriate parliamentary portfolio committees. We also participate in forums such as Business Unity South Africa that represent the business community’s perspective on public policy issues.

SO6 Contributions to political parties and related interests
What is Massmart’s policy on making donations to political parties?

Massmart does not make donations to political parties or related institutions.

SO7 Legal actions for any anti-competitive behaviours
Were any actions for anti-competitive behaviour lodged against Massmart during the reporting period?

No.

SO8 Fines or sanctions for non-compliance
What fines were imposed on Massmart for incidents of legislative or regulatory non-compliance during the reporting period?

None.

Product responsibility

PR1 – 2 Customer health and safety
What standards and voluntary codes with regard to merchandise health and safety does Massmart subscribe to?

The merchandise that Massmart sells conforms with relevant legislated requirements, product specific South African Bureau of Standards criteria and Hazard Analysis and Critical Control Point (HACCP) standards. We also retain Food Consulting Services to conduct Good Manufacturing Practice (GMP) audits and random food quality and safety checks on private label food products.

PR3 – 4 Products and service labelling
What product labelling standards and voluntary codes does Massmart subscribe to?

Our suppliers are required to comply with all relevant labelling legislation, such as the Foodstuffs, Cosmetics and Disinfectants Act No 54, 1972 (food and alcohol) and the Merchandise Marks Act No 17, 1941 (various).

PR5 Practices on customer satisfaction
How does Massmart identify customer expectations with regard to sustainability issues?

Market research including focus groups and customer surveys are conducted at divisional level within the Group. The primary emphasis of this research tends to be on traditional commercial elements of the value proposition to customers, with a relatively modest, but inconsistent focus, on environmental and social issues.

PR6 – 7 Compliance with marketing and communications standards
What marketing codes and voluntary standards does Massmart subscribe to?

Massmart follows the Direct Marketing Association (DMA) and Advertising Standards Authority (ASA) codes of advertising practice and complies with relevant marketing and advertising legislation. We have started reviewing current Group-wide advertising and marketing practice in terms of the principles proposed in the Consumer Protection Bill.

How does Massmart take sustainability issues into account in its marketing campaigns?

Game, Makro and Builders Warehouse have begun experimenting with mechanisms in their print, advertising material that draw the consumers attention to socially responsible merchandise options.

Did Massmart incur any fines/legal sanction for breach of advertising and marketing standards?

No, although one advertising standards authority’s finding was upheld against Game for inaccurate price marking.

PR8 – 9 Substantiated complaints and fines for breaches of customer privacy
What is Massmart’s policy on customer privacy?

Massmart maintains strict confidentiality with regard to all personal information relating to our customers. We are closely monitoring the progress of the Protection of Personal Information Bill.

Did Massmart incur any fines/legal sanctions for breach of customer privacy during the reporting period?

No.