WELCOME TO OUR ONLINE ANNUAL REPORT 2011

Massmart's progress update

A key aspect of the feedback we received from our stakeholders, particularly our employees, was the view that we have not been sufficiently clear and concise in communicating our corporate accountability commitment in a way that is both "memorable" and easy to understand.

We realise that we have communicated a myriad of individual interventions and that we should be communicating our intentions with greater clarity. As a result, we have begun classifying various accountability interventions under the umbrella of three broad accountability themes. These are to:

Put simply, these themes relate to Massmart’s operations, products and people.

Although all our Divisions subscribe to these broad themes we acknowledge that as a multi-format retail organisation our Divisions have differences in their structures and retail propositions. This has meant that our Divisions are unable to participate equally in the interventions associated with each theme. We are now distinguishing between shared Group and discretionary Division-specific accountability interventions, which we anticipate will be implemented according to fi ve-year cycles.

We have applied our best efforts to incorporate the perspectives raised by stakeholders into our current sustainability priorities based upon an assessment covering issue materiality, commerciality and social relevance. Those stakeholder perspectives that have still to be incorporated will be subject to ongoing review and discussion with stakeholders.

Finally, it is clear that there are signifi cant opportunities in the short-to-medium term to align more closely with Walmart’s sustainability objectives and best practice which will lead to further evolution of our corporate accountability commitment. A project to do this has been initiated in the context of the Massmart-Walmart integration programme.

 
Objective

TO SUPPORT AND
INTEGRATE EMERGING
FARMERS INTO
MASSMART’S NEW FRESH
PRODUCE SUPPLY CHAIN

Commentary

Massmart is increasing the Group’s fresh food retail proposition through a variety of initiatives that include expanding our Cambridge Food chain, implementing Foodco stores in Game and introducing fresh food into our Makro stores. Developing a local supply base makes good commercial sense and is also good for food-producer security. This presents a good opportunity to develop a sustainable farming initiative that provides local farmers with support and that also integrates them into the retail fresh food supply chain. Walmart has extensive sustainable agriculture expertise and funds from the Massmart-Walmart Supplier Development Fund have been earmarked to support this initiative. We are currently reviewing Walmart best practice and meeting with players to understand how best to approach this project. We hope to ultimately identify 1 500 emerging farmers to participate.


 
Objective

TO IMPLEMENT POST-
CONSUMER E-WASTE
RECYCLING SCHEMES IN
MAJOR METROPOLITAN
AREAS

Commentary

Government has identified e-waste as a priority waste stream. Massmart has a significant hi-tech proposition that generated sales in excess of R1 billion** in the year ending June 2011. It is therefore intuitive to provide facilities that allow for the responsible disposal of e-waste. We achieve this through e-waste recycling schemes that have been implemented at all Makro stores and that have resulted in the collection of 214 tons of e-waste since their implementation in 2008


 
Objective

TO IMPLEMENT
REGIONALLY BASED
POST-CONSUMER WASTE
RECYCLING SCHEMES IN
OUR STORES

Commentary

The successful implementation of Makro’s customer e-waste recycling programme resulted in the identification of similar opportunities in other post-consumer waste areas. Builders Warehouse has implemented a scheme to take CFL light globes, non-recyclable batteries, rechargeable batteries and fl uorescent tubes in all Builders Warehouse and Builders Express stores. Makro has received customer requests for glass recycling bins at their liquor stores and Game has initiated a study to explore demand for small appliance recycling.


 
Objective

TO PARTNER WITH WILLING
SUPPLIERS TO IDENTIFY
AND IMPLEMENT
OPPORTUNITIES TO
REDUCE PRIMARY
PACKAGING

Commentary

Each year Walmart hosts a packaging conference that facilitates exchange of information between packaging companies and Walmart suppliers. This is intended to identify opportunities for reducing and improving the environmental attributes of product packaging. An important aspect of this is Walmart’s experience that these objectives can result in cost savings in the supply chain. Massmart has aspired to implement a packaging rationalisation programme since 2009 but has been unable to access suitable local expertise. We are enthusiastic about opportunities that the Walmart merger presents to leverage Walmart’s packaging expertise and we have initiated discussions to get started. Our initial focus is likely to be on private label products.


 
Objective

TO PROMOTE ADOPTION BY
SUPPLIERS OF
INDEPENDENTLY VERIFIED
ECO-LABELS, SUCH AS
MARINE STEWARDSHIP
COUNCIL (MSC), FORESTRY
STEWARDSHIP COUNCIL
(FSC), AND ENERGY STAR
(OR THEIR EQUIVALENTS)

Commentary

Irresponsible raw materials sourcing and manufacturing practices can cause extensive damage to the environment, including deforestation and depletion of marine resources. One way to counter this is through independent verification that certifies supplier procurement, manufacturing and distribution practices. Previous Massmart attempts to introduce eco-labels to suppliers have been relatively unstructured and have delivered mixed results. We have therefore appointed a fulltime ecologist who has been tasked with developing a commercially viable approach to eco-label advocacy to suppliers. A short-term priority is to ensure that major appliances in our stores display an energy-efficiency rating.


 
Objective

TO EXCHANGE KNOWLEDGE
WITH WILLING SUPPLIERS
TO FACILITATE HIGHER
ENVIRONMENTAL AND
HUMAN RIGHTS
STANDARDS IN THE RETAIL
SUPPLY CHAIN

Commentary

One technique to advocate more responsible practice is to ask suppliers to disclose their environmental and human rights activities. Massmart has been surveying and profiling the environmental practices of major suppliers since 2007. In 2011, a total of 350 suppliers were asked to participate in the Group’s environmental survey, although only 112 responded. We continue to supplement the survey process with random site visits to selected suppliers. Various suppliers who participated in the 2010 survey round have indicated a willingness to collaborate with Massmart to improve their environmental credentials. In response, we have undertaken to develop follow-on ‘quick start’ educational workshops aimed at teaching practical steps to improve environmental performance in the supply chain. The objective of the workshops is to contribute to improving sourcing and manufacturing practices as well as the environmental attributes of consumer products. Our aim is to maintain active environmental profiles for our top 500 suppliers by unit volume and to expose all willing suppliers to ‘quick start’ environmental workshops.


 
Objective

TO EMPOWER CONSUMERS
TO MAKE RESPONSIBLE
CONSUMER CHOICES
MORE FREQUENTLY

Commentary

Price competitiveness and access to accurate information are two important levers for assisting consumers in making responsible purchasing decisions. Massmart has responded by launching the Eco-wise environmental awareness programme, a current priority that involves the development of an Eco-wise consumer website, which is nearing completion for launch in the fourth quarter of 2011. In addition, we have increased the frequency and scope of product promotions that feature environmentally responsible merchandise options. Most importantly we are working on price democratisation and information transparency to promote responsible consumer behaviour. These are areas in which Walmart has considerable expertise, including partnerships with a consortium of universities, suppliers and NGOs to develop a product information database that will provide the framework for the development of a consumer-facing index tool for shoppers. The aim of this tool is to offer consumers easy-to-understand labelling information that assists them in making sustainable product choices. Consequently, Massmart has prioritised consumer empowerment as a key area for knowledge exchange with Walmart.

* Denotes mandatory Group-wide accountability interventions
** Hi Tech figure for Makro.

 

Mandatory for new stores

Objective

TO IMPROVE ENERGY
EFFICIENCY IN LINE WITH
FORMAT-SPECIFIC ENERGY
INTENSITY BENCHMARK
RANGES

Commentary

Energy security and significantly increased energy tariffs continue to be a national priority. Massmart has developed energy intensity benchmarks for all Group formats that distinguish between legacy and new store energy efficiency opportunities. These benchmarks recognise that our different retail formats have different energy requirements and that more can be achieved by designing new energy efficient stores versus retrofitting legacy stores. Massbuild and Massdiscounters have achieved 10.0% and 3.0% energy intensity savings respectively based on their original 2008 baseline energy consumption. Energy intensity savings have been achieved through a number of interventions, including improved in-store consumption tracking, conversion to energy efficient lighting and refrigeration systems and the installation of lighting strips and skylights to reduce in-store lighting requirements. Makro, which has historically operated energy efficient stores, has taken the next step by designing and building stores that optimise natural lighting and reclaim heat from refrigeration systems to heat the store. These and other innovations have led to a 25.0% reduction in energy consumption (based on an annualised comparison between the new Makro Vaal store and a similar-sized legacy store).

 

Sometimes inhibited by a lack of infrastructure in outlying areas

Objective

TO RECYCLE SECONDARY
PACKAGING (SPECIFICALLY
BOARD AND PLASTIC
WASTE) THAT IS GENERATED
IN STORES AND
DISTRIBUTION CENTRES

Commentary

Massmart currently has approximately 172 active board and plastic waste recycling sites at store level. These vary in sophistication and effectiveness. An initial high-level recommendation based on Walmart store visits has highlighted an opportunity to cost-effectively improve store recycling activities. We are currently reviewing Walmart’s recycling practices and meeting with recycling service providers to scope and verify the opportunity. This will serve as input to the development of a Massmart recycling standard. We would ideally like to achieve a situation of zero secondary packaging plastic and board waste to landfill.


 

Rainwater harvesting

Objective

TO HARVEST RAINWATER
TO SUPPLEMENT
NURSERIES (AT BUILDERS
WAREHOUSE) AND
LANDSCAPING IRRIGATION
REQUIREMENTS

Commentary

This objective is most relevant for standalone stores, as opposed to stores located in shopping malls. All standalone stores have been assigned a rainwater harvesting index based on a 2009 study conducted by an independent consultant. All Builders Warehouse and Builders Express stores have installed rainwater harvesting solutions to supplement irrigation requirements for in-store nurseries. We estimate that 3,240 kilolitres was harvested in this way during the 2010 calendar year. Makro is currently using the Builders Warehouse solution as a reference for assessing the merits of using rainwater harvesting to supplement its landscaping irrigation needs. We aspire to supplement 40.0% of nursery and landscaping irrigation needs in this way.

 
Objective

TO INCREASE
PERMANENT
EMPLOYEES’ ACCESS
TO AFFORDABLE
SUBSIDISED PRIVATE
MEDICAL BENEFITS

Commentary

Approximately 41.9% of permanent employees have access to private medical benefits. This is a 16.0% improvement on the situation when this objective was launched in 2008. Massmart has now implemented four different subsidised health benefits options in the space of four years to increase staff uptake. In addition, we continue with our in-store wellness testing programme for early detection of high cholesterol, high blood pressure, unsafe blood sugar levels and obesity. Our goal is to achieve a minimum of 60.0% medical benefits coverage among permanent employees. We are closely monitoring the proposed National Health Insurance scheme which will impact upon this objective.


 
Objective

TO COMMISSION
AN ACADEMIC STUDY OF THE
SOCIOECONOMIC IMPACT
OF WALMART’S ENTRY
INTO SOUTH AFRICA

Commentary

There has been robust debate about the potential impact of Walmart’s entry into South Africa. Walmart have asked Massmart to commission research to understand the impact on areas defined by academic researchers that are likely to include job creation, consumer prices, local manufacturing, local farming and export development.


 
Objective

TO COMBAT THE RATE OF
INFECTION AMONGST
EMPLOYEES AND TO
PROVIDE ALL HIV-POSITIVE
PERMANENT EMPLOYEES
AND THEIR SPOUSES WITH
FREE ACCESS TO PRE-HAART
AND HAART PROGRAMMES

Commentary

The infection rate among employees has remained stable, at 5.6%, lower than the national average (11.0%). We have improved testing penetration, with Voluntary Counselling and Testing (VCT) increasing from 3,180 in 2009/2010 to 8,153 for 2010/2011. This constitutes a 156.4% increase in penetration. A total of 87.0% of all HIV-positive staff have enrolled on the Impilo treatment programme, representing good progress in our initiative to ensure that all HIV-positive permanent employees receive treatment. However, this process continues to be hampered by the stigma which surrounds the virus. To facilitate greater treatment uptake, Massmart has extended its treatment hotline operating hours to enable employees to seek help and treatment advice after hours. We would like 100% of HIV-positive permanent staff to enrol for treatment and we aspire to achieve a 70.0% voluntary testing penetration rate.


 
Objective

TO ACHIEVE AND MAINTAIN
LEVEL 4 BBBEE
CONTRIBUTOR STATUS

Commentary

Massmart achieved level-3 BBBEE contributor status in the 2011 BBBEE verification process, with a score of 75.9%. This was, according to the 2011 FM Top Empowerment Companies Survey, the highest score in the retail industry. In addition, we were pleased to be ranked 7th of all JSE-listed companies on Employment Equity in the same survey. Many employees will, however, consider the R430.6 million paid out by the Thuthukani Staff Empowerment scheme when the Walmart transaction was completed as one of the most significant BBBEE milestones achieved by the Group. Going forward, we expect the dilution of staff share ownership and changes to Enterprise Development scoring criteria to impact negatively on our BBBEE score.


 
Objective

TO INVEST A MINIMUM OF
1% PROFIT AFTER TAX
(PAT) IN EDUCATION-
FOCUSED SOCIAL
DEVELOPMENT INITIATIVES
THAT BENEFIT THE
POOREST OF THE POOR

Commentary

Massmart invested R24,4 million, equating to 2.0% PAT, in Corporate Social Investment (CSI) initiatives during the period, exceeding the minimum investment guideline by 1.0%. CSI spending is decentralised to the operating divisions that supported projects that included early childhood development, teacher support, sustainable food production at schools, implementation of school container kitchens to enable hygienic food preparation and support for established feeding schemes. Massmart continues to encourage the divisions to adopt central guidelines that will see a minimum of 85.0% of CSI support being allocated, in partnership with the Basic Education Department, to nutrition (container kitchens and vegetable tunnels) and English literacy at quintile 1 primary schools. The Group’s decentralised model means that this initiative is progressing more slowly than we would like.

* Denotes mandatory Group-wide accountability interventions