WELCOME TO OUR ONLINE ANNUAL REPORT 2011

Notes to the annual financial statements
for the year ended 26 June 2011

1.

Revenue

   
    2011 2010
    Rm Rm
  Dividends received (included are dividends from subsidiary companies) 2,030.4 887.5
  Management and administration fees received (included are management and administration fees from subsidiary companies) 27.8 17.0
    2 058.2 904.5
       

2.

Operating profit

   
    2011 2010
    Rm Rm
  Credits to operating profit include:    
  Foreign exchange profit 0.7 0.3
  Charges to operating profit include:    
  Foreign exchange loss 0.5 0.7
  Share-based payment (2.6) 0.3
  Contribution to pension scheme 0.7 0.6
       

3.

Net finance income

   
    2011 2010
    Rm Rm
  Finance costs    
  Interest on Group loans (0.4)
  Finance income    
  Interest on Group loans 0.7
  Net finance income 0.7 (0.4)
       

4.

Taxation

   
    2011 2010
    Rm Rm
  Current year    
  South African normal taxation:    
  Current taxation 2.2
  Deferred taxation 3.1 (5.1)
  Secondary taxation on companies 79.0 72.8
    84.3 67.7
  The rate of taxation is reconciled as follows: % %
  Standard corporate taxation rate 28.0 28.0
  Exempt income (27.7) (27.6)
  Secondary taxation on companies 4.0 7.5
  Other (0.2) (0.4)
  Effective rate 4.1 7.5
   

5.

Interest in subsidiaries

 
  2011 2010
  Rm Rm
     
Shares at cost less amounts written off 103.9 103.9
Amounts owing by subsidiaries 1,599.8 119.4
  1,703.7 223.3
  • Details of net shares at cost can be found in note 37 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

 
  2011 2010
  Rm Rm
Unlisted investments    
Investment in Imagegate Limited (UK)1 4.0 4.0
Investment in Massmart Black Scarce Skills Trust and Massmart Thuthukani Empowerment Trust 0.2 0.2
Listed investments 0.3 0.3
  4.5 4.5
Note
1 Classified as a 'loan and receivable' financial asset for IAS 39 purposes.
  • For IAS 39 Financial Instruments: Recognition and Measurement accounting treatment of these financial assets, see note 39 in the Group financial statements.

7.

Deferred taxation

 
  2011 2010
  Rm Rm
The major movements during the year are analysed as follows:    
Net asset at the beginning of the year 5.6 0.5
Charge to profit or loss for the year (3.1) 5.1
Net asset at the end of the year 2.5 5.6
The major components of deferred taxation are analysed as follows:    
Other temporary differences 2.5 5.6
  2.5 5.6
   

8.

Issued capital

 
  Share capital   Share premium
  2011 2010   2011 2010
  Rm Rm   Rm Rm
Authorised          
500,000,000 (2010: 500,000,000) ordinary shares of 1 cent each 5.0 5.0  
20,000,000 (2010: 20,000,000) non-redeemable cumulative non-participating preference shares of 1 cent each 0.2 0.2  
18,000,000 (2010: 18,000,000) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each 0.2 0.2  
4,000,000 (2010: 4,000,000) 'B' convertible redeemable non-cumulative participating preference shares of 1 cent each  
Issued          
213,883,460 (2010: 201,495,504) ordinary shares of 1 cent each 2.1 2.0   743.9 269.0
12,192,748 (2010: 17,673,670) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each 0.1 0.2  
3,295,662 (2010: 3,871,523) '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 2009 201,302,639 2.0 259.1
Shares issued in terms of the Massmart Thuthukani Empowerment Trust 85,328
Shares issued in terms of the Massmart Black Scarce Skills Trust 107,537
Ordinary shares in issue – June 2010 201,495,504 2.0 259.1
Realisation of treasury shares 17.3
Treasury shares (60,056) (7.4)
Ordinary shares in issue excluding treasury shares – June 2010 201,435,448 2.0 269.0
Balance at June 2010 201,495,504* 2.0 269.0
Shares issued in terms of the Massmart Executive Share scheme 6,331,173 481.6
Shares issued in terms of the Massmart Thuthukani Empowerment Trust 5,480,922
Shares issued in terms of the Massmart Black Scarce Skills Trust 575,861
Ordinary shares in issue – June 2011 213,883,460 2.0 750.6
Realisation of treasury shares 7.4
Treasury shares (107,644) (14.1)
Ordinary shares in issue excluding treasury shares – June 2011 213,775,816 2.0 743.9

*Ordinary shares, which have a par value of 1 cent, carry one vote per share and carry the right to dividends.

  Number of Share capital Share premium
  shares Rm Rm
'A' convertible redeemable non-cumulative participating preference shares      
Balance at June 2009 17 758 998 0.2
Net shares issued in terms of the Massmart BEE transaction    
Shares converted to ordinary shares (85 328)
Balance at June 2010 17 673 670 0.2
Shares converted to ordinary shares (5 480 922)
Balance at June 2011 12 192 748 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 is 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 2009 1,979,060
Net shares issued in terms of the Massmart BEE transaction 2,000,000    
Shares converted to ordinary shares (107,537)
Balance at June 2010 3,871,523
Shares converted to ordinary shares (575,861)
Balance at the end of the year 3,295,662
  • '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 is 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 2011, executives and senior employees have options over 6,079,937 ordinary shares (of which 3,846,383 are unvested). As at June 2010, executives and senior employees had options over 14,156,168 ordinary shares (of which 11,812,673 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 29.
  • During the period under review, the only shares bought in the market were by the Share Trust whereby 2.1 million shares were bought at an average price of R130.60 totalling R273.9 million.
  • During the prior year, the only shares bought in the market were by the Share Trust whereby 1.2 million shares were bought at an average price of R114.44 totalling R137.2 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

 
  2011 2010
  Rm Rm
Balance at the beginning of the year 6.9 4.1
Treasury shares (1.2) 2.5
Share-based payment reserve (2.6) 0.3
  3.1 6.9

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 29 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

 
  2011 2010
  Rm Rm
Cross-suretyships under banking and other financial facilities 4,973.0 4,837.0
  4,973.0 4,837.0

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 R485.2 million (2010: R650.0 million) entered into by Masstores (Pty) Limited on behalf of Makro and are included in operating lease commitments in land and buildings. These leases terminate in December 2020 and have a discounted present value of R338.0 million (2010: R485.1 million), discounted at 15% (2010: 15%). 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. The investment in subsidiaries has not been fair valued but the Group’s market capitalisation, and by implication the value of its subsidiaries at reporting date was R28.3 billion (2010: R24.3 billion)

11.

Notes to the cash flow statement

 
    2011 2010
    Rm Rm
11.1
Cash flow from trading
   
  Profit before taxation 2,052.7 901.0
  Adjustment for:    
  Interest (received)/paid (0.7) 0.4
  Investment income (2,030.4) (887.5)
  Share-based payment expense (2.6) 0.3
  Other non-cash movements (1.3) (0.1)
    17.7 14.1
11.2
Working capital movements
   
  Increase in trade and other payables 14.2 2.6
    14.2 2.6
11.3
Taxation paid
   
  Amounts owed at the beginning of the year 5.4 2.6
  Amounts charged to the income statement (84.3) (67.7)
  Deferred taxation 3.1 (5.1)
  Amounts owed at the end of the year (3.3) (5.4)
  Cash amounts paid (79.1) (75.6)
11.4

Dividends paid

   
  Cash dividends paid to shareholders (846.1) (839.7)
11.5
Net acquisition of treasury shares
   
  Share trust losses (140.3) (97.5)
    (140.3) (97.5)