notes to the annual financial statements for the year ended 23 December 2012

1. Accounting policies

Basis of accounting

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain non-current assets and financial instruments to fair value.

These financial statements have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listing Requirements and the requirements of the Companies Act of South Africa. The accounting policies are consistent with that of the previous financial year, except for IAS 1: Presentation of Financial Statements, with regard to the presentation of items within the Statement of Comprehensive Income. When an accounting policy is altered, comparative figures are restated if required by the applicable accounting statement and where material.  No restatement was required in these financial statements.

The principal accounting policies adopted are set out below.

Basis of consolidation

The Group annual financial statements incorporate the annual financial statements of the Company (Massmart Holdings Limited) and the entities it controls as at 23 December 2012. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The operating results of the subsidiaries are consolidated from the date on which effective control is transferred to the Group and up to the effective date of disposal.

All inter-company transactions and balances, income and expenses are eliminated in full on consolidation. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

Separate disclosure is made of non-controlling interests where the Group’s investment is less than 100%. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the allocated share of changes in equity since the date of the combination. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance.

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are expensed as incurred and included in ‘Other operating costs’ in the income statement. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. The non-controlling interest in the acquiree is initially measured at the proportion of the non-controlling interest of net fair value of the assets, liabilities and contingent liabilities recognised.

Any contingent consideration forming part of the purchase price is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in the income statement or as a change to other comprehensive income. If the contingent consideration is not within this scope, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill

Goodwill arising on consolidation of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary or jointly controlled entity at the date of acquisition. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.

Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less costs to sell.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Property, plant and equipment

Freehold land is shown at cost and is not depreciated. Property, plant and equipment is shown at cost less accumulated depreciation, and reduced by any accumulated impairment losses.

Property cost includes professional fees. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Where expenditure incurred on property, plant and equipment will lead to future economic benefits accruing to the Group, these costs are capitalised. Repairs and maintenance are expensed as and when incurred.

Depreciation is charged so as to write off the cost of assets, other than land, over their estimated useful lives, using the straight-line method, on the following bases:

  • Buildings 50 years
  • Fixtures, fittings, plant, equipment and motor vehicles 4 to 15 years
  • Computer hardware 3 to 8 years
  • Leasehold improvements Shorter of lease period or useful life

Useful life and residual value is reviewed annually and the prospective depreciation is adjusted accordingly.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Intangible assets

Trademarks and computer software are measured initially at purchased cost. Right of use assets are measured at cost, which is calculated based on the site negotiation agreement. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Internally generated intangibles assets are not capitalised but rather expensed in the income statement in the period in which the expenditure is incurred. Intangible assets are shown at cost less accumulated amortisation, and reduced by any accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite. The Group has no intangible assets with indefinite useful lives other than goodwill which is detailed separately.

For intangible assets with finite useful lives, amortisation is charged so as to write off the asset over the estimated useful life, using the straight-line method, on the following basis:

  • Trademarks 10 years
  • Right of use 10 years
  • Computer software 3 to 8 years

Useful life is reviewed annually and the prospective amortisation is adjusted accordingly.

Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets (excluding goodwill) to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately in the income statement.

An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of an asset (cash-generating unit) is increased to the revised estimate of its recoverable amount. This is done so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statement.

Goodwill is tested annually for impairment as indicated above. However, impairment losses relating to goodwill cannot be reversed in future periods.

Revenue recognition

Revenue of the Group comprises net sales, royalties and franchise fees, investment income, finance charges, property rentals, management and administration fees, commissions and fees, dividends, distribution income, income from insurance premium contributions and excludes value-added tax. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales-related taxes. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The specific recognition criteria described below must also be met before revenue is recognised.

  • Sales of goods
    Revenue is recognised when the significant risks and rewards of ownership have passed to the buyer, usually when the goods are delivered and title has passed.
  • Rendering of services
    Revenue is earned from delivering goods to customers and goods to stores and distribution centres. Revenue is recognised by reference to stage of completion.
  • Interest income
    Revenue is accrued on a time basis, by reference to the principal outstanding and the effective interest rate.
  • Dividend income
    Revenue is recognised when the shareholders’ right to receive payment has been established, which is generally when shareholders approve the dividend.
  • Other revenue is recognised on the accrual basis in accordance with the substance of the relevant agreements and measured at fair value of the consideration receivable.

Leasing

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are capitalised at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor, net of finance charges, is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to income statement.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. Contingent rental costs are expensed when incurred.

Foreign currencies

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (i.e. its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in the functional currency of the Group, which is the presentation currency for the consolidated financial statements (South African Rand).

Transactions and balances
Transactions denominated in foreign currencies are initially recorded at their functional currency spot rates on the dates of the transactions.

At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated using functional currency spot rates on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated using functional currency spot rates on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the functional currency spot rates at the date of the initial transactions.

Exchange differences arising on the settlement and translation of monetary items are included in the income statement for the period. Exchange differences arising on the translation of non-monetary items carried at fair value are included in the income statement for the period. However, where fair value adjustments of non-monetary items are recognised in other comprehensive income, exchange differences arising on the translation of these non-monetary items are also recognised in other comprehensive income.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the spot rate on the reporting date.

Group companies
On consolidation, the assets and liabilities of the Group’s foreign operations (including comparatives) are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at exchange rates prevailing at the dates of the transactions where possible, or at the average exchange rates for the period.  Exchange differences are recognised in other comprehensive income and transferred to the Group’s foreign currency translation reserve. Such translation differences are recycled in the income statement in the period in which the foreign operation is disposed of.

Hyperinflation
The financial statements (including comparatives) of foreign subsidiaries and associates that report in the currency of a hyperinflationary economy are restated in terms of the measuring unit current at the reporting date before they are translated into the Group’s presentation currency, South African Rands.

Government grants

Government grants for staff training costs are recognised in the income statement over the periods necessary to match them with the related costs and are deducted in reporting the related expense. Income is not recognised until there is reasonable assurance that the grants will be received.

Retirement benefit costs

Payments to defined contribution plans are charged as an expense as they fall due. There are no defined retirement benefit plans in the Group.

Post-retirement healthcare benefit

Post-retirement healthcare benefits are provided by certain Group companies to qualifying employees and pensioners. Contributions are made to a separately administered fund. The healthcare benefit costs are determined through annual actuarial valuations by independent consulting actuaries using the projected unit credit method. Unvested past service costs are recognised as an expense in the income statement on a straight line basis over the expected remaining working lives of the participating members. Past service costs are recognised in full in the income statement following the introduction of, or changes to, a pension plan for members who have already retired. Actuarial gains and losses are recognised in full in the income statement in the period in which they occur.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current income tax
The tax charge payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised through other comprehensive income is also recognised through other comprehensive income and not in the income statement. Where applicable tax regulations are subject to interpretation, management will raise the appropriate provisions.

Deferred tax
Deferred tax is accounted for using the liability method in respect of temporary differences arising between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses to the extent that it is probable that taxable profit will be available against which deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised. Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities, which affects neither the tax profit nor the accounting profit at the time of the transaction. Deferred tax assets and liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability settled, using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax is recognised in the income statement, except when it relates to items credited or charged to other comprehensive income or directly to equity, in which case the deferred tax is recognised in either other comprehensive income or directly in equity.

Sales tax
Income, expenses, assets and liabilities are recognised net of the amount of sales tax, except when the sales tax is not recoverable from, or payable to, the taxation authority, in which case it is recognised as part of the underlying item, or when receivables and payables are stated including sales tax. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

Other taxes
Secondary Taxation on Companies (STC) is payable on net dividends paid and is recognised as a tax charge in the income statement in the year it is incurred. STC was only applicable for the prior financial year until March 2012 and was replaced by a shareholders withholding tax.

Any tax on capital gains is deferred if the proceeds of the sale of the assets are invested in similar assets, but the tax will ultimately become payable on sale of that similar asset.

Inventories

Inventories, which consist of merchandise, are valued at the lower of cost and net realisable value. Cost is calculated on the weighted-average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Financial instruments

Financial assets and financial liabilities are recognised on the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial assets
Financial assets are classified into the following specified categories:

  • Fair value through profit or loss (FVTPL)
    These include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are covered separately and have their own accounting policy ‘Derivative financial instruments and hedge accounting’.
  • Loans and receivables
    These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
    Held-to-maturity investments
    These are non-derivative financial assets with fixed or determinable payments and fixed maturities and the Group has the positive intention and ability to hold them to maturity.
  • Available-for-sale investments
    These include equity investments and debt securities. Equity investments classified as available for sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities are those that are intended to be held for an indefinite period of time and that may be sold for liquidity needs or in response to changes in market conditions. The Group holds no debt securities.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All financial assets are initially recognised at fair value plus transaction costs, except for financial assets recorded at fair value through profit or loss.

Financial assets are subsequently measured according to their category classification:

  • Fair value through profit or loss (FVTPL)
    These are held at fair value and any adjustments to fair value are taken to the income statement. Listed investments are carried at market value, which is calculated by reference to stock exchange quoted selling prices at the close of business on the reporting date.
  • Loans and receivables
    These are held at amortised cost using the effective interest rate method less any impairment losses recognised to reflect irrecoverable amounts. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation is recognised in finance income in the income statement. Impairment losses on loans are recognised in finance costs and impairment losses on receivables are recognised in ‘Other operating costs’ in the income statement.
  • Held-to-maturity investments
    These are held at amortised cost using the effective interest rate method less any impairment losses recognised to reflect irrecoverable amounts. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation is recognised in finance income in the income statement. Impairment losses on loans are recognised in finance costs and impairment losses on receivables are recognised in ‘Other operating costs’ in the income statement.
  • Available-for-sale investments
    These are held at fair value and any adjustment to fair value is recognised as other comprehensive income as a non-distributable reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the income statement. Where the investment is determined to be impaired, the cumulative gain or loss is reclassified to the income statement. Listed investments are carried at market value, which is calculated by reference to stock exchange quoted selling prices at the close of business on the reporting date.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset.

Derecognition
A financial asset is derecognised when the rights to receive cash flows have expired or the Group has transferred its right to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to the third party (where the Group has transferred the risk and rewards of the asset or has transferred control of the asset).

Impairment
At each reporting date, the Group reviews whether there is any objective evidence that a financial asset may be impaired as a result of one or more events that have occurred since the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset. Where objective evidence exists an impairment loss is calculated.

  • Financial assets carried at amortised cost
    The impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The discount rate is the original effective interest rate and where a loan has a variable interest rate, the discount rate is the current effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. The recovery is credited to the income statement.
  • Available-for-sale investment
    The impairment loss is measured as the difference between the acquisition cost and the current fair value, less any impairment loss previously recognised. Impairment losses on equity investments are not reversed through the income statement; increases in fair value of the instrument that can be objectively related to an event occurring after the recognition of the impairment, are recognised directly in other comprehensive income.

Effective interest rate method
This is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as ‘at fair value through profit or loss’.

Financial liabilities and equity
Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Debt instruments issued, which carry a right to convert to equity that is dependent on the outcome of uncertainties beyond the control of both the Group and the holder, are classified as liabilities, except where conversion is certain. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Financial liabilities are classified into the following specified categories:

  • Fair value through profit or loss (FVTPL)
    These include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are covered separately and have their own accounting policy ‘Derivative financial instruments and hedge accounting’.
  • Liabilities at amortised cost
    These are non-derivative financial liabilities with fixed or determinable payments that are not quoted in active market.

The classification depends on the nature and purpose of the financial liabilities and is determined at the time of initial recognition. All financial liabilities are initially recognised at fair value and, in the case of liabilities at amortised cost, net of directly attributable transaction costs.

Financial liabilities are subsequently measured according to their category classification:

  • Fair value through profit or loss (FVTPL)
    Fair value gains and losses on liabilities at fair value through profit or loss are recognised in the income statement.
  • Liabilities at amortised cost
    These are held at amortised cost using the effective interest rate method. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation costs are recognised in finance costs in the income statement.

Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. Gains are recognised in the income statement when the liability is derecognised. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement.

Fair value of financial instruments
The fair values of listed investments are calculated by reference to stock exchange quoted selling prices at the close of business on the reporting date, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using the appropriate valuation techniques which include:

  • Using recent arm’s length market transactions
  • Reference to the current fair value of another instrument that is substantially the same
  • A discounted cash flow analysis or other valuation models

Derivative financial instruments and hedge accounting

The Group’s activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rates.

The Group uses foreign exchange forward contracts to hedge its exposure to foreign currency fluctuations relating to certain firm trading commitments. The use of financial derivatives is governed by the Group’s policies approved by the Board, which provide written principles on the use of financial derivatives consistent with the Group’s risk management strategy. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine that they have been highly effective throughout the financial reporting periods for which they were designated. The Group does not trade in derivative financial instruments for speculative purposes.

Derivative financial instruments are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

The effective portion of the changes in fair value of derivative financial instruments that are designated and qualify as cash flow hedges are recognised in other comprehensive income in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. If the hedged firm commitment or forecast transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in other comprehensive income are reclassified to profit or loss in the same period or periods during which the asset or liability affects profit or loss. All other amounts deferred in other comprehensive income are recognised in the income statement in the same period in which the hedged firm commitment affects the income statement.

Changes in the fair value of derivative financial instruments that do not qualify as cash flow hedges are recognised in the income statement as they arise.

The hedge is de-designated as a cash flow hedge at the Shipped on Board date, and discontinued when the hedging instrument is sold, expired, terminated, exercised, or no longer qualifies for hedge accounting. At the time, any cumulative gain or loss on the hedging instrument recognised in other comprehensive income is retained in equity until the forecast transaction is recognised in the income statement. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is transferred to the income statement.

The Group does not hold any fair value hedges or hedges of a net investment in a foreign operation.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits held on call with banks and investments in money-market instruments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value, net of bank overdrafts.

Treasury shares

Own equity instruments that are reacquired are recognised at cost and deduced from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Voting rights related to treasury shares are nullified for the Group and no dividends are allocated to them. Share options exercised during the reporting period are satisfied with treasury shares and where required, shares purchased in the market.  Any difference between the exercise price and the market price is recognised as a gain or loss in the statement of changes in equity.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material.

Share-based payments

The Group issues equity-settled share-based payments to employees who are beneficiaries of the various Group share schemes. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed in the income statement on a straight-line basis over the vesting period with a corresponding increase in other capital reserves in equity, based on the Group’s estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. The cumulative expense recognised at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.

Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

Borrowing costs

All borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. All other borrowing costs are recognised as an expense in the income statement in the period in which they are incurred. Borrowing costs consist of interest and other costs that the company incurs in connection with the borrowing of funds.

Segmental information

The Group is organised into four divisions for operational and management purposes being Massdiscounters, Masswarehouse, Massbuild and Masscash. Massmart reports its business segment information on this basis. The principal offering for each division is as follows:-

  • Massdiscounters – general merchandise discounter and food retailer;
  • Masswarehouse – warehouse club;
  • Massbuild – home improvement retailer and building materials supplier; and
  • Masscash – food wholesaler, retailer and buying association.
The Group’s four divisions operate in two principal geographic areas, South Africa and the rest of Africa, and the Group’s geographic segments are reported on this basis.

2. Technical review

Massmart first adopted International Financial Reporting Standards (IFRS) with effect from 1 July 2005. Subsequent amendments have been made to the standards, resulting in revised issues. All these amendments have been complied with in line with the transitional provisions of the relevant standards. 

2.1 Standards issued not yet effective

At the date of authorisation of these financial statements, the following relevant standards were in issue but not yet effective. The Group has elected not to early adopt any of these standards. 

IFRS 7 Financial Instruments: Disclosure amended in December 2011 relates to the offsetting of financial assets and liabilities. This standard becomes effective for year-ends beginning on or after 1 January 2013 which is the Group's December 2013 year-end. This standard will have no financial or disclosure impact on the Group's results.

IFRS 9 Financial Instruments Phase one – Classification and measurement of financial assets and liabilities. With regards to financial assets IFRS 9 introduces a business model test and characteristics of financial assets test; if these tests are met, debt instruments are measured at amortised cost. All other debt instruments are required to be measured as fair value. Equity instruments will be classified and measured at fair value either through P&L or OCI. Unlisted equity investments will no longer be measurable at cost. Financial liabilities, the principles of IAS 39 were largely retained with the exception of financial liabilities designated as at fair value through profit or loss where adjustments relating to own credit risk will now be recognised in OCI. Phase one is effective for year-ends beginning on or after 1 January 2015, which is applicable to the Group's December 2015 financial year-end. There is no financial impact on the Group's results expected as a result of Phase one, however there will be disclosure changes.

The second and third phases of the project will deal with the impairment of financial instruments and hedge accounting, respectively. 

IFRS 10 Consolidated Financial Statements replaces the consolidation requirements in SIC12 Consolidation – Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. This standard builds on the existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company and provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 10 will have no financial impact on the Group results. This standard is effective for the Group's December 2013 financial year.

IFRS 11 Joint arrangements IFRS 11 replaces IAS 31 and SIC 13 and refers to IFRS 10's revised definition of 'control' when referring to 'joint control'. Under IFRS 11 a joint arrangement (previously a 'joint venture' under IAS 31) is accounted for as either a:
joint operation – by showing the investor's interest/ relative interest in the assets, liabilities, revenues and expenses of the joint arrangement; or
joint venture – by applying the equity accounting method. Proportionate consolidation is no longer permitted.
Under IFRS 11 the structure of the joint arrangement is not the only factor considered when classifying the joint arrangement as either a joint operation or joint venture. This standard is effective for the Group's December 2013 financial year. This standard is not expected to have a financial impact on the Group.

IFRS 12 Disclosure of Interests in Other Entities is a comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates and special purpose vehicles. IFRS 12 requires sufficient transparency to enable users of financial statements to evaluate the nature of, and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. The standard is effective for the Group's December 2013 financial year and will have no financial impact on the Group's results, except for additional disclosure.

IFRS 13 Fair value measurement provides guidance on fair value measurement and provides additional disclosure requirements. This standard is effective for the Group's December 2013 financial year and we anticipate that it will have a limited financial impact, if any, on the Group's results. Currently the Group has extensive financial instrument disclosure and anticipates this standard to have a limited impact on disclosure as well. 

IAS 19 Employee Benefits amended in June 2011 resulting from the post-employment benefits and termination benefits projects. A significant amendment is the removal of the corridor approach for recognising actuarial gains and losses, requiring full recognition of surpluses and deficits in other comprehensive income. The Group currently accounts for the full amount regarding its Post Retirement Healthcare in profit or loss, therefore this amendment is expected to have an impact on the Group's financial results and disclosure. 

An additional amendment relates to the distinction between short-term and other long term benefits. This distinction will be based on the expected timing of settlement rather than the employee's entitlement to the benefits. This is expected to have an impact on the manner in which leave pay and similar liabilities are currently classified and accounted for. The revision to IAS 19 becomes effective for year-ends beginning on or after 1 January 2013 which is the Group's December 2013 year-end.

IAS 27 Separate Financial Statements was amended to take into account the changes required due to the introduction of IFRS 10 Consolidated Financial Statements. IAS 27, as revised, is limited to the accounting for investments in subsidiaries, joint ventures and associates in the separate financial statements of the investor. This standard becomes effective for year-ends beginning on or after 1 January 2013 which is the Group's December 2013 year-end. This standard will have no financial impact on the Group's results.

IAS 28 Investments in Associates and Joint Ventures, consequential revision due to the issue of IFRS 10 and 11. The revised standard caters for joint ventures (now accounted for by applying the equity accounting method) in addition to prescribing the accounting for investments in associates. This standard becomes effective for year-ends beginning on or after 1 January 2013 which is the Group's December 2013 year-end. This standard will have no financial impact on the Group's results.

IAS 32 Financial Instruments: Presentation Offsetting financial assets and financial liabilities. The amendment clarifies the meaning of the entity currently having a legally enforceable right to set off financial assets and financial liabilities as well as the application of IAS 32 offsetting criteria to settlement systems. This standard becomes effective for year-ends beginning on or after 1 January 2014 which is the Group's December 2014 year-end. This standard will have no financial or disclosure impact on the Group's results.

IAS 1 Presentation of Financial Statements The amendment clarifies that:
  • Comparative information in respect of the previous period (the required comparative information) forms part of a complete set of financial statements; and
  • The required comparative information includes comparatives for all amounts presented in the current period.
    An entity may present additional comparative information for periods before the required comparative period, as long as it is prepared in accordance with IFRS. All accompanying notes and disclosures must be provided. The amendment becomes effective for annual periods beginning on or after 1 January 2013 which is the Group's December 2013 year end.

IAS 16 Property, Plant and Equipment The amendment clarifies that servicing equipment is Property, Plant and Equipment (PP&E) when used for more than one period; it should otherwise be classified as inventory. The amendment deletes the requirement that spare parts and servicing equipment used only in connection with an item of PP&E should be classified as PP&E. The amendment becomes effective for annual periods beginning on or after 1 January 2013 which is the Group's December 2013 year end.

IAS 32 Financial Instruments: Presentation The amendment clarifies that income tax related to distributions to equity holders and income tax related transaction costs of an equity transaction would be accounted for in accordance with IAS 12 Income Taxes (this includes determining whether the income tax is recognised in profit and loss or immediately in equity). The amendment becomes effective for annual periods beginning on or after 1 January 2013 which is the Group's December 2013 year end.

IAS 34 Interim Financial Reporting The amendment aligns the disclosure requirements in IAS 34 with those of IFRS 8 Operating Segments. The amendment clarifies that total assets for a particular reportable segment need only be disclosed when both:
  • The amounts are regularly provided to the chief operating decision maker; and
  • There has been a material change in the total assets for that segment from the amount disclosed in the last annual financial statements.
    The amendment becomes effective for annual periods beginning on or after 1 January 2013 which is the Group's 2013 interim reporting period.

2.2 Standards that became effective in the current period

IAS 12 Deferred taxes Recovery of underlying assets – amendment to IAS 12. The amendment introduces a rebuttable presumption that deferred tax on investment properties and property, plant and equipment measured at fair value, be recognised on a sale basis. The presumption can be rebutted if the entity applies a business model that would indicate that substantially all of the investment property will be consumed in the business, in which case an own-use basis must be adopted. The amendment is effective for annual periods beginning on or after 1 January 2012. This amendment did not have a financial or disclosure impact on the Group's results as the Group holds no investment properties, nor does it revalue other items of property, plant and equipment.

IAS 1 Presentation of Financial Statements Presentation of items of other comprehensive income (amendment to IAS 1). The amendment to IAS 1 requires that items presented within OCI be grouped separately into those items that will be recycled into profit or loss at a future point in time, and those items that will never be recycled. The amendment became effective for annual periods beginning on or after 1 July 2012 and is applied for the first time in the December 2012 financial statements. This amendment only results in an amendment to presentation.

3. Acquisition of subsidiaries

Subsidiaries acquired

    Purchasing
division
  Principal
activity
  Date of
acquisition
  Control
acquired
(%)
December 2012                
Masscash (Pty) Ltd T/A Upington Cash and Carry   Masscash   Wholesale Cash and Carry   27 August 2012   100
Masscash (Pty) Ltd T/A Super Bloemfontein Cash and Carry   Masscash   Wholesale Cash and Carry   3 August 2012   100
Masscash (Pty) Ltd T/A Kimberly Cash and Carry   Masscash   Wholesale Cash and Carry   16 November 2012   100
Masscash (Pty) Ltd T/A Sydenham Liquors Cash and Carry   Masscash   Wholesale Cash and Carry   1 November 2012   100
Cambridge Food (Pty) Ltd T/A Temba   Masscash   Retail Cash and Carry   28 June 2012   100
                 
  • The acquisitions listed above were for the purchase of business assets and not the entity's shares.
  • These acquisitions increased the Group's store profile by four stores.
June 2012                
Rhino Cash and Carry Group   Masscash   Retail Cash and Carry   1 March 2012   100
Fruitspot   Masswarehouse   Distribution   2 January 2012   100

  • Both of these acquisitions are aligned to Group's strategy of rolling out Food Retail.

Fair value analysis of the assets and liabilities acquired

The net fair value of the businesses acquired during the year was R22.8 million (June 2012: R40.9 million) on the date of acquisition.

Net cash outflow on acquisition

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Total purchase price (56.9)   (346.7)
Less: Cash and cash equivalents of subsidiary   18.8 
Net cash position for the Group (56.9)   (327.9)

  • The net cash outflow as reflected above can be found in note 37.8.
  • There were no liabilities raised on the business acquisitions in the current financial year. Liabilities were raised on the business acquisitions in the prior year for R182.3 million. The long-term portion can be found in note 24 and the short-term portion can be found in note 26.

Goodwill arising on acquisition

  • Goodwill arose in the business combinations because the cost of the combination included a control premium. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of the expected synergies, revenue growth and future market development. These benefits are not recognised separately from goodwill as the future economic benefits arising from them cannot be reliably measured.
  • Goodwill was recognised in the current and prior year on all the acquisitions listed above.
  • Goodwill of R38.4 million (June 2012: R486.4 million), raised on the acquisitions reflected above, is recognised in note 13.

4. Revenue

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Sales 36,122.6   61,209.1
Change in fair value of financial assets carried at fair value through profit or loss 27.7   11.4
Instalment-sale finance charges 0.9   1.9
Dividends from listed investments -     0.1
Dividends from unlisted investments -     3.8
Royalties and franchise fees 19.5   33.8
Management and administration fees 2.4   5.1
Property rentals 3.5   2.1
Commissions and fees 34.0   52.0
Distribution income 3.2   1.5
Income from insurance premium contributions -     9.4
Income from insurance extended warranties 18.7   -  
Other 2.0   32.7
  36,234.5   61,362.9

5. Impairment of assets

  Notes December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Leasehold improvements 12 5.4   -  
Goodwill 13 -     16.5
  5.4   16.5

  • The impairment of assets in the current year relates to the impairment of leasehold improvements in Masscash.
  • The impairment of assets in the prior year relates to the impairment of certain acquired goodwill in Masscash.

6. Operating profit

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm

Credits to operating profit include: 

     
Foreign exchange profit  147.4    337.5 
Profit on disposal of tangible and intangible assets  3.6    2.4 

Charges to operating profit include: 

     
Depreciation and amortisation (owned assets):  330.2    571.2 
Buildings  6.5    11.3 
Fixtures, fittings, plant and equipment  202.2    348.8 
Computer hardware  38.4    68.5 
Leasehold improvements  26.7    45.5 
Motor vehicles  15.5    24.7 
Computer software  37.9    68.3 
Right of use  2.8    3.7 
Trademarks  0.2    0.4 
Depreciation and amortisation (leased assets):  12.4    23.6 
Buildings  1.0    1.9 
Fixtures, fittings, plant and equipment  2.4    5.0 
Computer hardware  4.1    7.7 
Motor vehicles  4.9    9.0 
Foreign exchange loss  224.1    410.0 
Share-based payment expense:  39.9    66.1 
Massmart Holdings Limited Employee Share Trust  30.0    44.4 
Massmart Thuthukani Empowerment Trust  1.8    12.8 
Massmart Black Scarce Skills Trust  8.1    8.9 
Operating lease charges:  788.2    1,394.5 
Land and buildings  736.2    1,286.7 
Plant and equipment  31.3    62.9 
Computer hardware  0.7    3.5 
Motor vehicles  20.0    41.4 
Loss on disposal of tangible and intangible assets  9.8    15.0 
Walmart transaction, integration and related costs  205.2    185.4 
Share-based payment charge  28.6    47.7 
Supplier Development Fund  140.0   
Depreciation charge for motor vehicles    0.6 
Integration and related costs  36.6    137.1 
Fees payable:  48.4    136.2 
Administrative and outsourcing services  39.9    75.2 
Consulting  8.5    61.0 
Auditors' remuneration:  12.7    27.9 
Current year fee  12.9    20.6 
Prior year underprovision  (0.2)   0.1 
Tax advice and reviews    5.6 
Consulting and business reviews    1.1 
Contract assignments    0.5 
Professional fees  1.4   

7. Foreign exchange gains and losses

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Foreign exchange loss arising from loans to African operations *  (82.8)   (124.7)
Foreign exchange (loss)/gain arising from hedges  (0.7)   5.9 
Foreign exchange gain arising from an investment in a trading and logistics structure  1.0    48.2 
Foreign exchange gain/(loss) arising from the translation of foreign creditors  5.8    (1.9)
  (76.7)   (72.5)

* Includes foreign exchange gain/(loss) arising from the translation of other small monetary loan balances as described in the explanation below.

The Group was exposed to the following currencies for the period under review and their year-end exchange rates were:

Country   Currency   Spot rate
June 2011
  Spot rate
June 2012
  Spot rate
December 2012
United States   US Dollar   6.9508   8.4049   8.5878
United Kingdom   Pound Sterling   11.0958   13.1009   13.8878
European Union   Euro   9.8651   10.5201   11.2948
Botswana   Botswana Pula   1.0680   1.0854   1.0993
Ghana   Ghanaian New Cedi   4.6419   4.3563   4.5238
Malawi   Malawian Kwacha   0.0469   0.0311   0.0259
Mozambique   Mozambican New Metical   0.2456   0.3037   0.2906
Nigeria   Nigerian Naira   0.0449   0.0517   0.0546
Tanzania   Tanzanian Shilling   0.0044   0.0053   0.0054
Uganda   Uganda Shilling   0.0028   0.0034   0.0032
Zambia   Zambian Kwacha   0.0015   0.0016   0.0017

Source: Oanda Currency converter

The Group also operates in Lesotho, Nambia and Swaziland. As the Lesotho Loti, the Namibian Dollar and Swazi Lilangeni are pegged to the Rand on a 1:1 basis, there is no exposure to those currencies and thus they have not been included in the table above.

Foreign exchange loss arising from loans to African operations

In Massdiscounters and Massbuild, a loan is initially provided to African operations as start up capital and then maintained as a working capital loan. This loan attracts foreign exchange gains/(losses) when it is translated into the functional currency of that entity at year-end. Where the operation holds other monetary balances not in its functional currency, that balance will also attract foreign exchange gains/(losses) when translated at year-end. These balances are not material and have been ignored in the explanation below.

The graph below indicates the appreciation (rise in line) or depreciation (fall in line) of each currency to the Rand in the previous financial year.

In May 2012, the Malawian Kwacha devalued by 50%. This devalutaion along with the devalutaion of the Ghanaian New Cedi offset the gains experienced by the other African currencies which strengthened against the Rand in the previous financial year.

African currencies' spot rate relative to the Rand (based to June 2011)

The graph below indicates the appreciation (rise in line) or depreciation (fall in line) of each currency to the Rand in the past financial year.

The Malawian Kwacha has continued to devalue against the Rand further to the devaluation by 50% in May 2012. This devaluation along with the devaluation in the Mozambican New Metical and the Ugandan Shilling offset the gains experienced by the other African currencies which strengthened against the Rand in the current financial year.

African currencies' spot rate relative to the Rand (based to June 2012)

Where there is a depreciation of the African currency (alternatively, a strengthening in the Rand) the resulting impact is a foreign exchange loss on the loan. From the graph, it is evident that most the African currencies strengthened against the Rand, which would normally explain a foreign exchange gain in the income statement. The devaluation of the Malawian Kwacha, however, exceeded these gains for both periods under review and resulted in the Group reflecting a net loss in these periods.

To minimise the impact of the devaluing Malawian Kwacha on the Group results, management have substantially reduced these loan balances, and thus our exposure to this currency.

The African operations trade in their local currency, which for reporting purposes is also their functional currency. The foreign exchange gain/(loss) that arises when translating the foreign operation into Rands (the Group's presentation currency) is accounted for in the FCTR on the statement of financial position. Further details on these translations can be found in note 22.

Foreign exchange (loss)/gain arising from hedges

The Group uses foreign exchange forward contracts (FEC's) to hedge its exposure to foreign currency fluctuations relating to certain firm trading commitments. The foreign exchange gains that arise from the hedges are recognised in the income statement when they become ineffective or for effective hedges when the firm commitment is terminated resulting in the FEC being cancelled.

Most of the Group FEC's are US Dollar denominated. The graph below shows that the Rand closed relatively weaker on the US Dollar in the current and prior year, which would indicate a foreign exchange gain on the FEC's. In the current year the Group realised a loss on FEC's which is largely attributed to the fact that FEC's terminate throughout the year that attract different exchange rates and the whole FEC movement cannot be linked to the US Dollar closing rate.

US Dollar spot rate relative to the Rand

Foreign exchange gain arising from an investment in a trading and logistics structure

The Group's trading and logistics structure is a US Dollar denominated investment. The graph above shows that the Rand closed relatively weaker on the US Dollar in the current and prior year, which gave rise to a foreign exchange gain on this investment in both periods.

Foreign exchange gain/(loss) arising from the translation of foreign creditors

Foreign creditors resulting from foreign stock purchases and transactions with the ultimate holding company, being Wal-Mart Stores Inc, are translated into functional currency at year-end and the exchange difference is accounted for in the income statement. As the bulk of foreign creditors and transactions with Walmart are recorded in US Dollars, this exchange difference can in most part be explained by the movement of the Rand against the US Dollar as illusatrated in the graph above. As the Rand weakened in both periods, this would explain an exchange loss in both periods. However, as payments are made to creditors throughout the year that attract different rates of exchange, the entire exchange gain/(loss) cannot be linked to the closing Rand/US Dollar movement, which would explain the Group recording a gain in the current year.

8. Net finance costs

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Finance costs       
Interest on bank overdrafts and loans  (101.0)   (174.6)
Interest on obligations under finance leases  (5.0)   (9.3)
  (106.0)   (183.9)
Finance income       
Income from investments, receivables and bank accounts  45.6    68.8 
  45.6    68.8 
Net finance costs  (60.4)   (115.1)

  • Details on the loans and finance leases can be found in note 23.

9. Taxation

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Current year       
South African normal taxation:       
Current taxation  356.6    540.8 
Deferred taxation  (80.8)   (34.1)
Foreign taxation:       
Current taxation  43.5    72.6 
Deferred taxation  (0.4)   (32.8)
Withholding tax  12.1    (2.8)
Secondary taxation on companies    74.1 
Taxation effect of participation in export partnerships  0.5    0.6 
Total  331.5    618.4 
Prior year under/(over) provision:       
South African normal taxation:       
Current taxation  (3.7)   (6.7)
Deferred taxation  18.1    2.6 
Foreign taxation:       
Current taxation  (11.1)   5.9 
Deferred taxation  6.8    (2.0)
Secondary taxation on companies  0.7   
  10.8    (0.2)
Taxation as reflected in the income statement  342.3    618.2 

  • Two companies in the Group participate in Trencor export partnerships. As the companies are liable for the tax effect of the participation, the amount is classified as a taxation charge. Details on the export partnership can be found in note 15.
  December 2012
%
  June 2012
The rate of taxation is reconciled as follows:       
Standard corporate taxation rate  28.0    28.0 
Exempt income    (0.1)
Disallowable expenditure  3.2    3.0 
Foreign income  0.9    0.7 
Prior year over-provision  0.9   
Secondary taxation on companies  0.1    4.3 
Other  (1.0)   (2.2)
Effective rate  32.1    33.7 

10. Dividends paid to shareholders

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Final cash dividend No 25 (June 2012: No 23) 315.6    288.6 
Interim cash dividend (June 2012: No 24)   544.1 
Final Thuthukani preference share dividend No 12 (June 2012: No 10) 1.4    2.5 
Interim Thuthukani preference share dividend (June 2012: No 11)   3.6 
Total dividends paid  317.0    838.8 
Dividend/distribution per share (cents)      
Interim    252.0 
Final  275.0    146.0 
Total  275.0    398.0 

  • No 23 of 134.0 cents declared on 24 August 2011 and paid on 19 September 2011 (R288.6 million).
  • No 24 of 252.0 cents declared on 21 February 2012 and paid on 19 March 2012 (R544.1 million).
  • No 25 of 146.0 cents declared on 21 August 2012 and paid on 17 September 2012 (R315.6 million).
  • No 26 of 275.0 cents declared on 27 February 2013 and paid on 25 March 2013 (R596.5 million).
  • No 10 of 134.0 cents declared on 24 August 2011 and paid on 19 September 2011 to the Massmart Thuthukani Empowerment Trust (R2.5 million).
  • No 11 of 252.0 cents declared on 21 February 2012 and paid on 19 March 2012 to the Massmart Thuthukani Empowerment Trust (R3.6 million).
  • No 12 of 146.0 cents declared on 21 August 2012 and paid on 17 September 2012 to the Massmart Thuthukani Empowerment Trust (R1.4 million).
  • On 1 October 2012, the final conversion of 'A preference shares to ordinary shares through the Thuthukani Trust occured. No dividend was therefore declared for the current period.
  • Withholding tax of 15% was applied to the dividends declared on 21 August 2012 and paid on 17 September 2012 and the dividends declared on 27 February 2013 and paid on 25 March 2013. The Group was acting as an agent with regards to the withholding tax paid on behalf of shareholders on dividends declared. Withholding tax has been included in the total amount of the dividend paid.
  • Due to the Group changing it's year-end from June to December, the December dividend is now classified as a final dividend and not an interim dividend.