Notes to the annual financial statements for the year ended 24 June 2012

1. Revenue

     
  2012
Rm
  2011
Rm
Dividends received (included are dividends from subsidiary companies) 946.5   2,030.4
Management and administration fees received (included are management and administration fees from subsidiary companies) 20.0   27.8
  966.5   2,058.2
       

2. Operating profit

     
Credits to operating profit include:      
Foreign exchange profit 0.7   0.7
Charges to operating profit include:      
Foreign exchange loss   0.5
Share-based payment 4.0   (2.6)
Contribution to pension scheme 0.7   0.7
       

3. Net finance income

     
Finance income      
Interest on Group loans 0.7   0.7
Interest from Receiver of Revenue 0.4  
Net finance income 1.1   0.7
       

4. Taxation

     
Current year      
South African normal taxation:      
Current taxation 2.0   2.2
Deferred taxation 2.6   3.1
Secondary taxation on companies 67.6   79.0
Total 72.2   84.3
The rate of taxation is reconciled as follows: %   %
Standard corporate taxation rate 28.0   28.0
Exempt income (31.9)   (27.7)
Disallowable expenditure 4.8  
Secondary taxation on companies 8.1   4.0
Other (0.3)   (0.2)
Effective rate 8.7   4.1
       

5. Interest in subsidiaries

     
Shares at cost less amounts written off 103.9   103.9
Amounts owing by subsidiaries 1,373.9   1,599.8
  1,477.8   1,703.7
       
  • 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.
  • Massmart Holdings Limited has subordinated its right to claim payment of its shareholder’s loan. The loan, amounting to R725.6 million (2011: R1,298.9 million), is interest free, unsecured and does not have any fixed terms of repayment.
  • Included in amounts owing by subsidiaries are employee share trust loans to directors of Massmart Holdings Limited, to the value of R44.4 million (2011: R46.5 million). See note 17 in the Group financial statements.

6. Other financial assets

     
  2012   2011
  Rm   Rm
Unlisted investments      
Investment in Imagegate Limited (UK)1 4.6   4.0
Investment in Massmart Black Scarce Skills Trust and Massmart Thuthukani Empowerment Trust 0.2   0.2
Listed investments 0.5   0.3
  5.3   4.5

1. Classified as a 'loans and receivables' financial asset for IAS 39 purposes.

  • The directors value the unlisted investments at R4.8 million (2011: R4.2 million).
  • 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

     
  2012
Rm
  2011
Rm
The major movements during the year are analysed as follows:      
Net asset at the beginning of the year 2.5    5.6 
Charge to profit or loss for the year (2.6)   (3.1)
Net (liability)/asset at the end of the year (0.1)   2.5 
The major components of deferred taxation are analysed as follows:      
Other temporary differences (0.1)   2.5 
  (0.1)   2.5 

8. Issued capital

     
  Share capital   Share premium
  2012
Rm
  2011
Rm
  2012
Rm
  2011
Rm
Authorised              
500,000,000 (2011: 500,000,000) ordinary shares of 1 cent each 5.0   5.0    
20,000,000 (2011: 20,000,000) non-redeemable cumulative non-participating preference shares of 1 cent each 0.2   0.2    
18,000,000 (2011: 18,000,000) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each 0.2   0.2    
4,000,000 (2011: 4,000,000) 'B' convertible redeemable non-cumulative participating preference shares of 1 cent each      
Issued              
216,124,461 (2011: 213,883,460) ordinary shares of 1 cent each 2.2   2.1   750.6   743.9
10,134,631 (2011: 12,192,748) 'A' convertible redeemable non-cumulative participating preference shares of 1 cent each 0.1   0.1    
3,112,778 (2011: 3,295,662) 'B' convertible redeemable non-cumulative participating preference shares of 1 cent each      

  Number of shares   Share capital Rm   Share premium Rm
Ordinary shares          
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
Balance at June 2011 213,883,460*   2.0   743.9
Shares issued in terms of the Massmart Executive Share Scheme –    0.2  
Shares issued in terms of the Massmart Thuthukani Empowerment Trust 2,058,117     
Shares issued in terms of the Massmart Black Scarce Skills Trust 182,884     
Ordinary shares in issue – June 2012 216,124,461     2.2   743.9
Treasury shares (43,152)     6.7
Ordinary shares in issue excluding treasury shares – June 2012 216,081,309    2.2   750.6

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

  Number of shares   Share capital Rm   Share premium Rm
'A' convertible redeemable non-cumulative participating preference shares          
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   
Shares converted to ordinary shares (2,058,117)   (0.1)  
Balance at June 2012 10,134,631    0.1   
 
  • '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 shares   Share capital Rm   Share premium Rm
'B' convertible redeemable non-cumulative participating preference shares          
Balance at June 2010 3,871,523     
Shares converted to ordinary shares (575,861)    
Balance at June 2011 3,295,662     
Shares converted to ordinary shares (182,884)    
Balance at June 2012 3,112,778     
 
  • '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 2012, executives and senior employees have options over 9,702,840 (2011: 6,079,937) ordinary shares of which 7,188,065 (2011: 3,846,383) 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 current year, the only shares bought in the market were by the Share Trust where 1.2 million shares (0.6% of average shares in issue) were bought at an average price of R166.28 totalling R206.7 million.
  • During the prior year, the only shares bought in the market were by the Share Trust where 2.1 million shares (1.0% of average shares in issue) were bought at an average price of R130.60 totalling R273.9 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

     
  2012
Rm
  2011
Rm
Balance at the beginning of the year 3.1   6.9
Treasury shares 1.2   (1.2)
Share-based payment reserve 4.0   (2.6)
Revaluation of listed investments 0.2  
  8.5   3.1
 
  • 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

     
  2012
Rm
  2011
Rm
Cross-suretyships under banking and other financial facilities 5,903.1   4,973.0
  5,903.1   4,973.0
 
  • 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 R303.9 million (2011: R485.2 million) entered into by Masstores (Pty) Ltd 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 R262.8 million (2011: R338.0 million), discounted at 15% (2011: 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 reporting date the Massmart Group was net cash positive.

11. Notes to the cash flow statement

     
  2012
Rm
  2011
Rm
       
Cash flow from trading      
Profit before taxation 829.5   2,052.7
Adjustment for:      
Interest received (1.1)   (0.7)
Investment income (946.5)   (2,030.4)
Share-based payment expense 4.0   (2.6)
Other non-cash movements 1.4   (1.3)
  (112.7)   17.7
Working capital movements      
(Decrease)/increase in trade and other payables (2.2)   14.2
  (2.2)   14.2
Taxation paid      
Amounts owing at the beginning of the year 3.3   5.4
Amounts charged to the income statement (72.2)   (84.3)
Deferred taxation 2.6   3.1
Amounts owing/(receivable) at the end of the year 0.6   (3.3)
Cash amounts paid (65.7)   (79.1)
Dividends paid      
Cash dividends paid to shareholders (873.0)   (846.1)
Net acquisition of treasury shares      
Share trust losses (127.0)   (140.3)
  (127.0)   (140.3)