Online Annual Report 2009

Notes to the annual financial statements
for the year ended 28 June 2009

1. Revenue

    2009 2008
    Rm Rm
  Dividends received (included are dividends from subsidiary companies) 602.3 1,155.5
  Management and administration fees received (included are management and administration fees from subsidiary companies) 14.0 19.5
    616.3 1,175.0
       

2. Operating profit

  Credits to operating profit include:    
  Foreign exchange profit 0.7
  Profit on intra-group sale of Shield Buying and Distribution (Pty) Ltd 52.0
  Charges to operating profit include:    
  Foreign exchange loss 1.0 0.5
  Share-based payment 0.4 2.8
  Contribution to pension scheme 0.5 0.5
       

3. Net finance costs

  Finance costs    
  Interest on Group loans (7.1)
  Finance income    
  Interest on Group loans 5.9
  Net finance costs (1.2)
       

4. Taxation

  Current year    
  South African normal taxation    
    Current taxation 4.6
    Deferred taxation (0.5) 3.7
  Secondary taxation on companies (relating to dividends paid) 78.4 64.0
    77.9 72.3
  Prior year overprovision:    
  South African normal taxation    
    Current taxation (19.7) (0.1)
    (19.7) (0.1)
  Total 58.2 72.2
  The rate of taxation is reconciled as follows:    
    Standard corporate taxation rate 28.0 28.0
    Exempt income (28.1) (26.4)
    Disallowable expenditure 0.1
    Secondary taxation on companies 12.7 5.5
    Profit on intra-group sale of Shield Buying and Distribution (Pty) Ltd (1.2)
    Prior year adjustment (3.2)
  Effective rate 9.5 5.9
       

5. Interest in subsidiaries

  Shares at cost less amounts written off 103.9 103.9
  Amounts owing by/(to) subsidiaries 232.2 95.7
    336.1 199.6
  Details of net shares at cost can be found in note 38 in the Group financial statements.
These loans are unsecured, earn interest at variable rates and have no fixed terms of repayment.
   
       

6. Other financial assets

  Unlisted investments    
    Preference shares – Fullimput 65 (Pty) Ltd 1 560.7
    Investment in Imagegate Limited (UK) 2 4.5 5.4
    Investment in Massmart Black Scarce Skills Trust and Massmart Thuthukani Empowerment Trust 0.2 0.2
  Listed investments 0.2 0.2
    4.9 566.5
  The directors’ value the unlisted investments at R4.7 million (2008: R566.3 million).
The preference share investment represents cumulative preference shares in Fullimput 65 (Pty) Ltd. A long-term liability of the Group is secured by a cession of the preference shares.
 

For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these financial assets, see note 40 in the Group financial statements.

       

7. Deferred taxation

    2009 2008
    Rm Rm
  The major movements during the year are analysed as follows:    
  Net asset at the beginning of the year 3.7
  Charge/(release) to profit or loss for the year 0.5 (3.7)
  Net asset at the end of the year 0.5
  The major components of deferred taxation are analysed as follows:    
  Other temporary differences 0.5
    0.5
           

8. Issued capital

    Share capital Share premium
    2009 2008 2009 2008
    Rm Rm Rm Rm
  Authorised        
  500,000,000 (2008: 500,000,000) ordinary shares of 1 cent each 2.0 2.0
  20,000,000 (2008: 20,000,000) non-redeemable cumulative non-participating preference shares of 1 cent each 0.2 0.2
  18,000,000 (2008: 18,000,000) ‘A’ convertible redeemable non-cumulative participating preference shares of 1 cent each 0.2 0.2
  2,000,000 (2008: 2,000,000) ‘B’ convertible redeemable non-cumulative participating preference shares of 1 cent each
  Issued        
  201,302,639 (2008: 201,193,512) ordinary shares of 1 cent each 2.0 2.0 259.1 264.7
  17,758,998 (2008: 17,868,125) ‘A’ convertible redeemable non-cumulative participating preference shares of 1 cent each 0.2 0.2
  1,979,060 (2008: 1,979,060) ‘B’ convertible redeemable non-cumulative participating preference shares of 1 cent each
         
    Number of Share capital Share premium
    shares Rm Rm
  Ordinary shares      
  Balance at June 2007 201,072,831 2.0 254.7
  Shares issued in terms of the Massmart Black Scarce Skills trust 20,940
  Shares issued in terms of the Massmart Thuthukani Empowerment Trust 99,741
  Ordinary shares in issue – June 2008 201,193,512 2.0 254.7
  Issue of shares 20.0
  Treasury shares (2,000,984) (10.0)
  Ordinary shares in issue excluding treasury shares – June 2008 199,192,528 2.0 264.7
  Balance at June 2008 *201,193,512 2.0 264.7
  Shares issued in terms of the Massmart Thuthukani Empowerment Trust 109,127
  Ordinary shares in issue – June 2009 201,302,639 2.0 264.7
  Issue of shares 12.0
  Treasury shares (1,360,836) (17.6)
  Ordinary shares in issue excluding treasury shares – June 2009 199,941,803 2.0 259.1
  * The number of shares is the ordinary shares issued before deducting treasury shares.

Ordinary shares, which have a par value of 1 cent, carry one vote per share and carry the right to dividends.
 
  ‘A’ convertible redeemable non-cumulative participating preference shares  
  Balance at June 2007 17,967,866 (0.2)
  Shares converted to ordinary shares (99,741)
  Balance at June 2008 17,868,125 (0.2)
  Shares converted to ordinary shares (109,127)
  Balance at June 2009 17,758,998 (0.2)
 
‘A’ convertible redeemable non-cumulative participating preference shares, which have a par value of 1 cent, are held in the Thuthukani Empowerment Trust. These shares carry one vote per share, which are cast by the appointed trustees, and carry the right to dividends. On election of the beneficiary, the shares will convert to ordinary shares, on a one-for-one basis and will rank pari passu with all ordinary shares then in issue.
 
      Number of Share capital Share premium
      shares Rm Rm
  ‘B’ convertible redeemable non-cumulative participating preference shares
  Balance at June 2007 2,000,000
  Shares converted to ordinary shares (20,940)
  Balance at June 2008 1,979,060
  Shares converted to ordinary shares
  Balance at June 2009 1,979,060
 
‘B’ convertible redeemable non-cumulative participating preference shares, which have a par value of 1 cent, are held in the Black Scarce Skills Trust. These shares carry one vote per share, which are cast by the appointed trustees, and do not carry the right to dividends. On election of the beneficiary, the shares will convert to ordinary shares on a one-for-one basis and will rank pari passu with all ordinary shares then in issue.

Share options granted under the Massmart Holdings Limited Employee Share Trust
As at June 2009, executives and senior employees have options over 16,055,227 ordinary shares (of which 13,195,878 are unvested). As at June 2008, executives and senior employees had options over 14,304,900 ordinary shares (of which 11,784,413 are unvested).

Share options granted under the Employee Share Incentive Scheme carry no rights to dividends and no voting rights. Further details of the Employee Share Incentive Scheme are contained in note 30 on page 172 in the Group financial statements.

The preference shares issued during the year were issued at par value.

The total share buyback (including shares bought in the market by the Share Trust) for the year was 1.6 million shares (2008: 3.3 million) at an average price of R78.76 (2008: R83.10) totalling R126.0 million (2008: R271.8 million).

The directors have the authority, until the next annual general meeting, to issue the ordinary shares of the Company up to a maximum of 5% of the shares already issued.
       

9. General reserves

    2009 2008
    Rm Rm
  Balance at the beginning of the year 3.7 0.9
  Share-based payment reserve 0.4 2.8
    4.1 3.7
 
The share-based payment reserve arises on the granting of share options to employees under the employee share incentive scheme. Details of the employee share incentive scheme can be found in note 30 on page 172 in the Group financial statements. The share-based payment valuation was performed by Alexander Forbes for all periods and the scheme is equity-settled.
       

10. Cross-suretyships and promissory notes

    2009 2008
    Rm Rm
  Cross-suretyships under banking and other financial facilities 4,717.7 4,463.8
    4,717.7 4,463.8
 
Banking facilities incorporate, amongst others, letters of credit, forward exchange contracts and electronic fund transfers. These facilities have been secured by cross-suretyships between Group companies.

Other financial facilities relate to promissory notes that represent commitments under non-cancellable operating leases of R799.9 million (2008: R936.1 million) entered into by Masstores (Pty) Limited relating to certain Makro stores and are included in operating lease commitments in land and buildings. These leases terminate in December 2020 and have a discounted present value of R554.1 million (2008: R601.6 million). In accordance with IAS 17 Leases, the rentals paid are amortised over the entire remaining lease period on a straight-line basis.

At the balance sheet date the Massmart Group was net cash positive.
   

11. Notes to the cash flow statement

    2009 2008
    Rm Rm
  11.1 Cash flow from trading    
    Profit before taxation 616.1 1,221.3
    Adjustment for:    
      Interest received (5.9)
      Interest paid 7.1
      Investment income (602.3) (1,155.5)
      Share-based payment expense 0.4 2.8
      Other non-cash movements 2.1
        16.3 69.8
  11.2 Working capital movements    
    Decrease/(increase) in trade and other receivables 16.8 (18.8)
    Decrease in trade and other payables (6.4) (74.2)
      10.4 (93.0)
  11.3 Taxation paid    
    Amounts owed at the beginning of the year (18.3) (15.3)
    Amounts charged to the income statement (58.2) (72.2)
    Deferred taxation (0.5) 3.7
    Amounts owed at the end of the year (2.6) 18.3
    Cash amounts paid (79.6) (65.5)
  11.4 Dividends paid    
    Amounts owing at the beginning of the year
    Amounts charged to the income statement (883.4) (721.4)
    Amounts owing at the end of the year
    Cash amount paid (883.4) (721.4)
  11.5 Net acquisition of treasury shares    
    Loss from the share trust (82.2) (96.3)
    Share premium movement on treasury shares acquired (3.4)
      (82.2) (99.7)

Annual Financial Statements

Group Financial Statements

Company Financial Statements