Chairman’s letter to Stakeholders

This report is on behalf of the past and present Boards of the Company, at the start of a new era for Massmart as a subsidiary of the world’s largest retailer.

Most of the events that led to this transition have been widely publicised, with your company attracting more headlines over the past year than over the previous twenty. Sadly, little of this was related to our primary objective of good shop keeping, and the commentary surrounding the change of Massmart’s ownership contained varying degrees of accuracy and emotion, reflective more of narrow self-interests than those of broader society.

The catalyst was an initial non-binding offer by Walmart to acquire the entire issued share capital of Massmart for R148 per share. At an historic price earnings ratio of 26, this placed a value of R31 billion on your company and represented a 19.2% premium to the then share price, thought by some to be inflated by speculation.

In due course Walmart made a binding offer to purchase 51% of the company at the same price per share.

The end of an era

Consistent with their fiduciary record and stakeholder orientation, the members of the previous Board deliberated at length on the strategic, commercial and societal merits of the transaction and concluded that control by Walmart would enhance the growth and prospects of Massmart with substantial benefits for all stakeholders.

Shareholders would receive a fair price for 51% of their shareholdings and also benefit in their remaining shareholdings from future participation in the Walmart-enhanced performance of the Company. Management would deepen their expertise in the art and science of retailing. Staff would be presented with new career prospects arising from faster growth and Walmart’s support of the Broad Based Black Economic Empowerment initiatives that resulted in Massmart being a Level 3 contributor with the highest Employment Equity score of all listed retailers. Suppliers would benefit from participation in leading edge distribution practices and the potential to access Walmart’s international supply chain. And South African consumers would benefit from lower prices, on more products, in more locations. In short the transaction would enhance the sustainability of the Company.

Following a unanimous recommendation by the Board, ninety seven per cent of shareholders voted in favour of the transaction. The regulatory approval process, delayed to ensure full participation by all dissenting parties, ended on 31 May 2011, when the Competition Tribunal approved the transaction after an exhaustive and thorough evaluation process. This concluded the largest investment in South Africa by an American company, the 10th largest corporate transaction in South Africa over the past decade, and the fifth largest acquisition by Walmart.

The investment in Massmart by the largest retailer in the world is indicative of the growing significance of Africa for global companies, and an extraordinary vote of confidence in the government, private sector and consumers of South Africa.

It is also a vindication of over two decades of strategic positioning and operational implementation by almost 30,000 Massmart people, led in recent times by a cohesive management team who Walmart insisted must remain, under the direction of a Board who with an average tenure of over ten years, delivered an enviable record of service to all stakeholders.

  • Dods Band
  • Kuseni Dlamini
  • Jim Hodkinson
  • Nigel Matthews
  • Peter Maw
  • Dawn Mokhoto
  • Michael Rubin


It is common cause, and my experience, that competent individuals do not necessarily make an effective board. The Massmart Board members that brought the Company to this juncture were individually competent and collectively excellent, and it is fitting that I pay tribute to those whose departure was volunteered in its reconstitution.

  • Michael Rubin joined Makro in 1989 as Development Director, served as an executive director on the Massmart Board from its inception and became a non-executive director in 1997. I relied heavily on his advice in the repositioning of Makro and the early acquisitions, and store location and design decisions that resulted in the creation of Massmart and its growth thereafter. Michael is a contrarian with an impeccable ethic, who always forced us to think more deeply about retail, financial and social issues.
  • Nigel Matthews joined the Board in 2001 and served with extraordinary diligence as Chairman of the Audit and Risk Committees. His savvy corporate wisdom could always be relied on, and the cordial relationship he developed with the finance community, internal auditors and external auditors belied a steely commitment to the establishment and maintenance of a robust control environment and impeccable governance.
  • Dawn Mokhobo joined the Board in 2002 and served on the Remuneration and Nominations Committee, and the Sustainability and Transformation Committee, where her experience and humanity found full expression mainly in support of the Group's internal constituencies.
  • Peter Maw joined the Board in 2003, bringing his formidable financial and corporate finance expertise to bear through astute questions and his membership of the Audit, Risk, Strategy and Investment Committees.
  • Dods Brand joined the Board in 2003, enriching the Board's deliberations with principled insight and a perspective borne from his experience as Chief Executive of a JSE-listed retail group.
  • Jim Hodkinson joined the Board in 2004. The quietest member of the Board but a consummate shopkeeper whose experience and reputation as Chief Executive and Chairman of B&Q plc added inestimable value in the stores, and in developing access to international retailers and trends.
  • Kuseni Dlamini joined the Board in 2006, bringing a keen independent mind to bear on all debate, particularly though his Chairmanship of the Remuneration and Nominations Committee, where the tensions around executive remuneration were always confronted thoughtfully.

On behalf of all associated with Massmart, I thank them for over 70 years of collective service and for their part in making your company Walmart's preferred target. We wish them every good fortune in the years ahead.

2011 performance

The strategic, operational, financial and societal performance of Massmart in the year to June 2011 is described in detail throughout this report.

From the Board's view point the following matters warrant emphasis.


More detail on the financial performance can be found in the Chief Financial Officer's report


Sales grew 11.6% to R53,0 billion and pre-tax profits before transaction costs grew 10.3% to R2,1 billion. Headline earnings per share fell 23.6% to 433.3 cents per share, depressed by R408.8 million of costs directly associated with the Walmart transaction. Headline earnings per share adjusted for these costs increased by 10.0%.

Notwithstanding a R1,2 billion capital investment programme, your company continues to render high returns on sales, equity and capital employed of 3.8%, 33.7% and 47.2% respectively.

These high Level metrics were the result of continued investment in strategic initiatives and sound operational management in a recovering low interest rate, low inflation consumer economy.

A demanding strategic agenda

Massmart has always been driven by a rolling three year strategic agenda, which aims to enhance the competitive advantage and positioning of the Group and its parts. The breadth and complexity of the initiatives arising from this thinking has increased each year, concomitant with the increase in Massmart's resources and capabilities.

In a year when organic growth and everyday trading was challenging, and the Walmart transaction exciting but potentially diversionary, the progress with a multitude of strategic initiatives was impressive. Acquisitions and a necessary disposal; the thrust into retail food in three Divisions; the development of new stores, formats, categories and private labels; the rebranding of stores; and the enhancement of the regional distribution capability; were underpinned by a continued investment in the development of people and the pillars of sustainability.

As a result, by year end, your company comprised: 313 stores; trading under ten brands; totalling 1,280,936 square metres; selling almost 501,000 SKUs in General Merchandise. Home Improvement, Food and Liquor; supported by regional distribution centres of 89,711 square metres; employing over 30,495 people (over 26,500 employed in the prior year), in 13 sub-Saharan countries.

Managing the change of ownership

A change of ownership is typically disruptive to a business. This has not been and the regulatory developments required Grant Pattison (Chief Executive Officer) and Guy Hayward (Chief Financial Officer) to totally redirect their efforts, the vast majority of the organisation remained focussed on managing the implementation of the strategic agenda, delivering value to customers and producing the results contained in this report.


More detail on the Board can be found in

This was a reflection both of the depth and calibre of divisional and functional leadership, and of the excitement and confidence with which all Massmart people view the new ownership. The relationship with Walmart and the Sam M. Walton College of Business has been cultivated over 20 years and many of our executives and senior managers have experienced the humble warmth and hospitality personified by Walmart associates. With few exceptions there is an alignment of philosophies, values and culture, and contrary to the trepidation normally prevalent in the acquired organisation, the dominant sentiment in Massmart today, is an urgency to extract value from Walmart's expertise and resources.

Leaders invariably determine the success of organisational change and Grant, ably assisted by Guy, must take credit not only for concluding the transaction but also for inspiring the enthusiasm with which the Company is embracing a demanding integration agenda. He did this while handling a wide range of new and unpredictable developments with sound judgement and a cool demeanour that belied the gravity and complexity of the issues we were facing.

In consequence, your company is stretched but not stressed.

Reconstitution of the Board

The Board was reconstituted on 20 June 2011, when Walmart's control, direction and oversight were given effect through:

  • the resignation of the seven directors acknowledged above
  • Chief Executive Officer Grant Pattison and Chief Financial Officer Guy Hayward retaining their positions as executive directors
  • Christopher Seabrooke retaining his position as Deputy Chairman and lead independent non-executive director
  • Dr. Lulu Gwagwa and Ms. Phumzile Langeni retaining their positions as independent non-executive directors
  • the appointment of: Doug McMillon, President and Chief Executive Officer of Walmart International;
    JP Suarez, Walmart International Senior Vice President of International Business Development; and Jeffrey Davis, Walmart International's Senior Vice-President Finance & Treasury.

It was a singular honour to be asked by Walmart Chief Executive Michael Duke to remain on as the independent non-executive Chairperson of Massmart. I accepted the appointment mindful that it may one day entail the leadership of a board divided on what is in the best interests of the Company, the controlling shareholder and the minority shareholders. If and when this occurs, I am confident that the Board will ensure that the best interests of the company prevail.

Moving forward

  • Two Executive Directors
  • Four Independant Non-executive Directors
  • Three Non-Executive Directors

Since its inception Massmart has experienced numerous forms of ownership. While past shareholders have always acted in the best interests of the Company, none have possessed the expertise or capabilities to enhance Massmart's strategic or competitive stance in the distribution of consumer goods to the mass market. This is no longer the case.

Walmart's ownership is the catalyst for new avenues of efficiency, productivity and growth in pursuit of lower prices to more customers in more places. Notwithstanding the current global economic challenges, Massmart powered by Walmart's scale, capabilities and experience, is poised to accelerate its high return expansion on the sub-continent.

We look forward to a year of stimulating learning for all involved.

Mark J. Lamberti

5 October 2011