WELCOME TO OUR ONLINE ANNUAL REPORT 2011

Compliance, transparency and accountability

INSIGHT
ANNUAL GENERAL MEETING
08h30 Wednesday
23 November 2011
Massmart House
16 Peltier Drive
Sunninghill Ext 6
Sandton

Annual general meeting

Attendance by all directors at Massmart's annual general meeting is strongly encouraged while attendance for Board Committee Chairpersons is compulsory.

At the November 2010 Massmart annual general meeting the Chairpersons of the Remuneration and Nominations and Audit and Risk Committees were in attendance, as were the Board Chairman, CEO and CFO. In total, four non-executive directors attended the annual general meeting.

The notice for any general meeting of shareholders includes an explanation of the reason for, and the effects of, any proposed special resolutions. The Company's transfer secretaries attend every general meeting of shareholders to assist with the recording of shareholders' attendance and to tally the votes. The Chairman confirms with the meeting that votes will be counted by way of poll, i.e. all votes are counted, rather than by way of a show of hands.

Share buyback programme

Annually the Group seeks, and obtains, the approval of the shareholders in general meeting to purchase Massmart shares. This authority ñ valid until the following year's annual general meeting and subject to the Listings Requirements of the JSE ñ allows the Group to purchase its own shares up to a maximum of 15% of the issued shares, at a price not greater than 10% above the preceding five-day weighted average. Shareholders have been asked to renew this authority at the forthcoming November 2011 annual general meeting.

During the year to June 2011, no Massmart shares were purchased on the open market by a Massmart subsidiary. The amount and timing of any future purchases will be determined by the Board and are dependent on the Board's view on the intrinsic value of Massmart shares, the ruling market price from time to time, the Group's cash position and future cash requirements, and prevailing market conditions.

The Massmart Employee Share Trust acquires shares from time to time on the JSE open market to mitigate the dilution caused by the Company issuing new shares when options are exercised by participants. During the 2011 financial year, the Massmart Employee Share Trust purchased 2.1 million shares for R274 million which were utilised to meet vesting share options.

Share dealings

No director, executive or employee may deal, directly or indirectly, in Massmart shares where that person may be aware of unpublished price-sensitive information. There are strict closed periods during which all directors, executives and employees are not allowed to deal in Massmart shares. The periods begin one month prior to the end of each reporting date (these reporting dates being December and June) and end on the public release of the Group's results. A closed period also applies from the date when Massmart issues a cautionary announcement. Following the first cautionary announcement in September 2010 concerning the Walmart transaction, no executives were allowed to deal in Massmart shares until the transaction was closed in June 2011.

In addition, all directors, executives and employees, and their associates as defined by the JSE, are not allowed to deal in Massmart shares in the final hour of trading on the JSE. All share dealings by a director, executive or employee must be authorised by either the Chief Executive Officer or Chief Financial Officer. Any dealings by the Chief Executive Officer are authorised by the Chairman, and dealings by the Chief Financial Officer are authorised by the Chief Executive Officer.

Corporate ethics

INSIGHT
CONTACT THE MASSMART ETHICS LINE
FreeCall 0800 20 32 46
SMS 'please call me' to 32846 (R1 each)
FreeFax 0800 00 77 88
Email   
massmart@ethics-line.com
Do what is right, fair, honest and legal!

Massmart is committed to achieving the highest standards of ethical behaviour and continued its strong emphasis on promoting awareness of, and compliance with, Massmart's Code of Ethical Conduct.

Massmart has an Ethics Hotline that is independently run by Deloitte Tip-Offs Anonymous. Deloitte Tip-Offs Anonymous has been certified by the External Whistle-blowing Hotline Services Provider Standard E01.1.1. This Hotline can be used by all Massmart employees and suppliers to report any suspected unethical behaviour. Calls are investigated by the Divisional Ethics Officers and, where necessary, by the Massmart Internal Forensic Auditors. All calls are monitored by the Massmart Ethics Office. The Group Ethics Forum meets twice a year where the call statistics and trends are discussed. The appointment of Ethics Officers in all Divisions, and the formulation and regular meetings of the Group Ethics Forum have ensured the continued focus on the consistent application of ethics practice and training within Massmart. Total calls and reports for the year under review were 8.2% higher than the previous year (see here). During the 2011 financial year, 53% of calls that were classified as criminal/fraud were resolved resulting in disciplinary action, dismissals, resignations and/or charges laid against the relevant individuals. The balance of these calls were closed due to either insufficient information being supplied by the caller or that the allegations were found to be untrue.

In March 2011, the 2004 Code of Ethical Conduct was revised. This was because an ethics survey that was conducted in 2009 indicated that not all employees understood how the principles align with Massmart's values and more information was needed on how to seek guidance and report unethical behavior. In addition to this, a new Whistle Blowing Policy was introduced to Massmart. This policy provides clarity to all Massmart employees and suppliers that they can raise breaches of the Massmart Code of Ethical Conduct without fear of victimisation, subsequent discrimination and disadvantage.

The Massmart Ethics Office continuously distributes ethics awareness communications throughout Massmart:
  • Regular email communication on relevant topics is sent to all employees with access to an email address and also for management to display on all notice boards. The following communication has been distributed: 'Conflict of interest', 'Racism', 'Fraud', 'Bribery', 'Whistle blowing' and 'Employee theft'.
  • Ethics posters are situated in all stores and head offices. In 2011, the Massmart Ethics Office released a new Values poster. The posters currently displayed are: 'Do what is right' and 'What does ethics mean' (available in four languages), 'Trust us, tell us' and 'Our values'.
MASSMART ETHICS LINE
Total calls and reports
July 99
August 118
September 96
October 96
November 130
December 99
January 114
February 108
March 174
April 92
May 98
June 121
Total 1,345
Anonymous calls 15.2%
Increase in total calls and reports over last year 8.2%

 
BREAKDOWN OF TOTAL CALLS (%) BREAKDOWN OF TOTAL CALLS (%)

Massmart regularly communicates its ethical standards to suppliers and service providers, and attempts to ensure that they comply with these standards. This is achieved in the following ways, just to mention a few: suppliers and service providers are invited to make use of the Ethics Hotline, Massmart's formal trading agreements detail ethical practices that suppliers are expected to uphold, and supplier ethical cards are distributed with supplier communications.

Compliance

Monitoring and achieving legal and regulatory compliance across the Group has always been a fundamental tenet of our business model. King III however, requires that the compliance process should be more formal with clear responsibilities and reporting. To this end, the Finance Directors in each Division are now the Compliance Officers (and Risk Officers) and have been formally tasked with ensuring that their respective Divisions monitor and comply with all regulations and legislation.

Compliance across the Group is exercised as follows:
  • The environment is monitored, formally and informally, via several sources including specifically-appointed service providers that review all proposed or impending legislation and regulations, as well as non-executive directors, and contacts with government bodies, supplier bodies, and consumer groups.
  • Depending upon where the response to the impending legislation can most efficiently and effectively be addressed, the task would fall to one of the trading Forums (Food, Liquor, General Merchandise, Cellular) or functional Forums (TIP, Finance) or even the Group Exco. The members of these forums are also tasked with keeping their respective Divisions apprised of intentions to support the role of the Divisional Compliance Officers.
  • Ongoing compliance is monitored and tested through various means including Internal Audit, external audit and third-party service providers. Reports from these entities are presented to both the Risk and Audit Committees.

The Group Compliance Officer is an in-house legal resource at Massmart Corporate who is a qualified lawyer and reports to the Company Secretary, and ultimately to the CFO.

The impending legislation that may have a potentially material impact on the Group includes:
  • Payment Card Industry Data Security Standard (PCI); and
  • Protection of Personal Information Act (PPI Act).