CHAIRMAN’S LETTER TO STAKEHOLDERS


MARK J LAMBERTI
CHAIRMAN

At the end of Massmart’s first full year as a Walmart subsidiary, it is my privilege to introduce the 2012 Massmart Integrated Annual Report.

Environment

Over the past year there was a general deterioration in the business environment.

The global economy remained fragile with America’s recovery tentative, China’s growth slowing and much of Europe in recession. The performance of sub-Saharan African countries was mixed and there were increasing indications (ie retail, manufacturing and particularly mining) that South Africa’s 2012 GDP growth rate forecast of 2.7% would be under pressure.

South Africa’s daily discourse was dominated by two themes – corruption and political manoeuvring, with the resultant distractions in anticipation of the next presidential term. A sub-text was an anti-business leftist ideology which purports to represent the disadvantaged, while promulgating laws which in some cases stifle enterprise and employment. Sadly too, there was frequently a destructive racial overtone, which one had hoped would have abated after 18 years of democracy.

The Strategic intent of this programme was to:

All of the above culminated too often in aggressive confrontation, in violation of some of the core tenets of our fine constitution, epitomised by the Marikana massacre on the 16th August – the worst failure of business, Government and union leadership since 1994.

Strategy

In 2008, we took the decision to invest through the economic cycle, despite the impact it might have on short-term profits and profitability. This resulted in the implementation of an ambitious programme of investment in acquisitions, new stores, distribution centres, systems and people. The strategic intent of this programme was to sustain the Group’s organic growth in sub-Saharan Africa, re-engineer the supply chain and position Massmart as a serious competitor in food retail.

As 2012 drew to a close, the extent of the progress in every division was cause for satisfaction. Over the past four years we have: opened or acquired 106 stores representing 302,761 m2 of trading space; opened 281,000 m2 of Regional Distribution Centre space; employed over 8,000 new associates; and we have a Food Retail business generating R9 billion in annualised sales.

All of this was accomplished concurrent with the unexpected acquisition of 51% of your Group by Walmart, the well-publicised challenges to the approval of the transaction, and the management commitment required for formal integration of Massmart into Walmart.

Board changes

The year commenced with a smaller Board comprising four independent non-executive directors, three Walmart non-executive directors, and two executive directors.

Over the past 4 years we have:

During the year the following changes were made:

  • Doug McMillon, President and Chief Executive Officer of Walmart International, resigned and was replaced by David Cheesewright, President and Chief Executive Officer of Walmart EMEA;
  • Guy Hayward relinquished his role as Chief Financial Officer to assume the role of Chief Operations Officer; and
  • Ilan Zwarenstein was appointed to the Board as Financial Director.

Group performance

The strategic, operational, financial and societal performance of Massmart in the year to 24 June 2012 is described in detail throughout this report.

The performance of the Group is adequate in the environment, and the management team has done well to balance the increased responsibilities demanded of them post the Walmart transaction. The Board is comfortable that the management team is close to the successes and failures of the past period, has a good understanding of the performance of the Business and is responding appropriately.

We remain in an investment phase with capital expenditure at an all-time high as the business invests for future growth.

Governance

With Walmart now holding a majority stake in Massmart, the structure and operations of the Board needed to change. We have done so cognisant of our responsibilities to all stakeholders, in particular both majority and minority shareholders, to ensure the highest levels of governance.

The Board has adopted a new reporting process, and new governance processes, taking into account the need to include the value offered by the skills of the majority shareholder, whilst being cognisant of the rights of the minority shareholders.

The Board has also adopted the necessary processes and practices in line with the new Companies Act.

Integrated reporting

The milieu in which multinational public companies are enjoined to operate continues to become more challenging worldwide. Exacerbated by the global financial crisis, the economic, competitive, technological, societal, legislative, regulatory and environmental complexities are increasing in every country and sector, with stakeholders more strident both in their demands on corporations and – with some justification – in their critique of corporate leadership.

Since its founding, Massmart has recognised that sustainability is assured only by understanding and meeting the reasonable demands of all stakeholders


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CORPORATE ACOUNTABILITY

More detail can be found in the Corporate Accountability Report.

In addition, stakeholders expect South African business leaders to respond to four interrelated realities arising from our unique history: the socio-economic divide; the skills shortage; the transformation imperative; and rampant crime and corruption.

Since its founding, Massmart has recognised that sustainability is assured only by understanding and meeting the reasonable demands of all stakeholders. In 2011, we embarked on a process of stakeholder engagement to gain a more informed perspective on issues of importance to them and the role that we as retailers can play in addressing these issues.

The process resulted in a ranking of sustainability priorities and the classification of various accountability interventions within three broad themes: enable sustainable supply and consumerism; minimise the Group’s environmental footprint; and champion social equality initiatives.

The impact of this approach has been significant in addressing many of the issues mentioned above. This year’s corporate accountability report provides detail on the positive interventions we have made, and reinforces our commitment to engage with stakeholders to define sustainability priorities as a means to the effective integration of commerciality and accountability.

Appreciation

Over the past four years, in every division and in difficult economic circumstances, Massmart addressed a strategic agenda staggering in its breadth, intensity and complexity. Concurrently we became a subsidiary of Walmart and embarked on a journey of integration with, and learning from, the world’s largest retailer. Together these developments have created a new platform for Massmart’s progress and growth as a leading distributor of consumer goods in sub-Saharan Africa.

Massmart’s position today is a result of two major factors: the first, a rare combination of executive acumen, managerial capability and staff commitment; the second the unwavering confidence and support of Walmart.

My thanks are due to Grant Pattison and every member of Massmart’s management and staff, to all at Walmart who have been so generous with their experience and warmth, and to my colleagues on the Board, whose counsel and oversight have ensured the quality and potential of your investment.

MARK J. LAMBERTI

Chairman

5 October 2012